ACA1 Tax Treatments for Individual Returns (Task 302.2.3)
A. Recommended Tax Filing Status
The tax filing status that I would recommend is Married Filing Joint. The reason for this is that the IRS has various tax breaks for married persons that file together that are unavailable if you file married filing separate. It also affect the tax rate, they will pay a lower rate of taxes if they file together than they would if they filed separately.
A2a. Taxable and Non-Taxable Income
Taxable Income for the couple would include the following items: Spouse A’s income from the partnership, Spouse A’s income from the part time job, Spouse B’s income from the electronics firm, and the dividends that were received by Spouse A from Company E.
Their Non-Taxable Income items would be: The child support that spouse B receives (child support is nontaxable because it was taxed as income on the parent that is paying it), the interest received on Municipal Bonds (municipal bonds are tax exempt), and the income on the sale of their personal residence is tax exempt because it was their primary residence and they lived there for the required amount of time for the exemption of 500,000 (since they are joint filers).
A2b. Capital Gains and Losses
The couple has 5,000 in short term capital losses from the day trading while spouse B was unemployed. These losses can be netted against any capital gains that may exist. For example if the sale of the rental property resulted in a long term capital gain, however the rental property is a passive activity so the short term loss can only be claimed for 3,000 and the remaining amount would be carried forward.
A2c. Profit or Losses from Sale of Property
The profit from sale of the couple’s personal residence would not be taxed. Their personal residence was lived in for at least 2 of the last 5 years and was under the cut off of the exemption of 500,000 after their adjusted basis calculation was deducted from...
References: Partner 's Instructions for Schedule K-1 (Form 1065) (2013 ). (n.d.). Partner 's Instructions for Schedule K-1 (Form 1065) (2013 ). Retrieved March 10, 2014, from http://www.irs.gov/instructions/i1065sk1/ch02.html
Publication 523 (2013), Selling Your Home. (n.d.). Publication 523 (2013), Selling Your Home. Retrieved March 10, 2014, from http://www.irs.gov/publications/p523/ar02.html
Publication 544 (2013), Sales and Other Dispositions of Assets. (n.d.). Publication 544 (2013), Sales and Other Dispositions of Assets. Retrieved March 10, 2014, from http://www.irs.gov/publications/p544/index.html
Ten Facts about Capital Gains and Losses. (n.d.). Ten Facts about Capital Gains and Losses. Retrieved March 10, 2014, from http://www.irs.gov/uac/Newsroom/Ten-Facts-about-Capital-Gains-and-Losses1
1040 Central. (n.d.). 1040 Central. Retrieved March 13, 2014, from http://www.irs.gov/Individuals/1040-Central
Retirement Plans for Self-Employed People. (n.d.). Retirement Plans for Self-Employed People. Retrieved March 13, 2014, from http://www.irs.gov/Retirement-Plans/Retirement-Plans-for-Self-Employed-People
Please join StudyMode to read the full document