Individual Tax outline

Topics: Taxation in the United States, Tax, Taxation Pages: 22 (6640 words) Published: October 28, 2014

►Introduction to Income Taxes
►What are taxes?
Payment required by a government upon income earned by individuals, businesses and other taxable entities that is unrelated to any specific benefit or service received from the government Types of taxes:

Property taxes
Sales taxes
Gas taxes
Payroll taxes
►Progressive/graduated tax
Generally, rates increase as income increases
►Federal income taxes
►FORMULA:
►Income (very broadly inclusive)
►LESS: Exclusions (income not subject to taxation)
►EQUALS Gross income
►LESS: Deductions for adjusted gross income
►EQUALS Adjusted gross income
►LESS: Greater of itemized deductions or standard deduction ►LESS: Personal exemptions
►EQUALS Taxable income
►MULTIPLIED BY: Tax rate
►EQUALS Tax owed
►LESS: Tax credits
►LESS: Tax prepayments/withholdings
►EQUALS Tax owed/refund
►ARQ: In the income tax formula, which of the following items appears before the others? ►ARQ: In the income tax formula, which of the following items appears after the others? REQUIRED to withhold taxes from your paycheck or to make estimated prepayments of tax potentially owed at year-end ►State income taxes

Similar to federal income taxes
►Local income taxes
►Calculation of Income Taxes
►Filing requirements
►Who must file?
►Individuals IF:
►Gross income ≥ personal exemption amount ($3,900) PLUS applicable standard deduction (and any age 65 additional standard deduction only) ►Self-employed with net earnings greater than $400
►What is your filing status?
►Single
Unmarried or separate from spouse by decree, or married TPs who live apart Look at the last day of the tax year, except if spouse dies during the year ►Married filing jointly
Married spouses only
Unique circumstances:
►Married filing separately
Each spouse reports his or her income, exemptions, deductions and credits ►Surviving spouse
If spouse dies, surviving spouse can file as married for two additional years so long as maintain a household for dependent child ►Head of household
►REQUIREMENTS:
Unmarried individual
►Pay more than 50% of the cost of maintaining a household as his/her home ►Household is principal home of a dependent
►Dependent must live at household over 50% of the year (excluding school or hospitalization) ►EXCEPTION:
IF dependent is parent THEN parent can have separate house if parent is claimed as dependent ►Qualifying widow(er)
►REQUIREMENTS:
Year of spouse’s death AND next year ONLY
►Widow(er) remains unmarried
►Household is principal home of a dependent
►Dependent must live at household entire year (excluding school or hospitalization) ►What form should be used?
►Form 1040EZ
►REQUIREMENTS:
No dependents
►Under age 65 and not blind
►Taxable income < $100,000 ►(FORM 1040EZ)
►Form 1040►(FORM)
►When should forms be filed?
April 15, with six-month extension available to October 15 (Form 4868) BUT must still pay all taxes due by April 15
►(FORM 1040) ►(Income Section)►Gross Income
►What is included in income?
All income earned, whether taxable or non-taxable
All world-wide income if you are a U.S. citizen or green card holder ►EXAMPLES:
Wages
Interest and dividend income
Net rental income
Self-employment income (business income)
Retirement account distributions
Pass-through shareholder income
Gambling winnings
Debt forgiven
Alimony received
►Deductions for Adjusted Gross Income ►(FORM 1040) ►(Deductions from adjusted gross income) “Above-the-line” deductions which serve to reduce adjusted gross income ►TYPES:
Alimony payments
One-half (1/2) of self-employment taxes paid
Medical insurance premiums paid by self-employed TP
Contributions to pension, profit-sharing and annuity plans for self-employed Retirement savings contributions
Penalties imposed on early withdrawal of funds
Moving expenses
Student loan interest
Qualified tuition and related expenses
Teaching supplies for elementary and secondary school teachers ►Adjusted Gross Income (AGI)
►Why is AGI important?...
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