ACA1 Task 2
Write an essay in which you recommend the most advantageous tax filing status for Spouse A and Spouse B on their federal tax return.
The filing statuses available to the taxpayer couple are married filing jointly, and married filing separately. The best filing status for Spouse A and B is married; filing jointly. Both spouse A and B have separate income for the year and so could file separate returns but they would also have to file at a higher tax rate schedule because their income is not combined. They would be required to claim any exemptions, deductions, and credits available separately. The couple is also precluded from filing a dependent twice so if A were to file for one of their 3 dependents then B could not claim the same dependent. The couple will qualify for 5 exemptions if filing together: 1 for spouse A, 1 for spouse B, 2 for the minor children, and 1 for the student adult child. Spouse B’s mother (whom lives with the couple) receives social security benefits in the amount of $750 per month she contributes all but $90 a month to the household. Since this amounts to $7920 and the couple contributed $7000 to the mother, they provided less than half of her support and so cannot claim her as an exemption. (Hoffman, et al, 2011).
When addressing taxable and non-taxable income, it is mandatory that all income be reported on the return but only the portions subject to tax will be tax assessed. Spouse A has a K-1 from the partnership which shows $142,000 of self-employment business income, which is earned income and is taxable. Spouse A did withdraw $83,500 from the business during the year but because this withdrawal amount was non-liquidating it is seen as a distribution of profits that have already been taxed so it considered non-taxable. Spouse A also had a W2 showing $2,000 in gross earnings from a part-time referee job. This income is seen