...Itemized Tax Deductions for Individuals: Data Analysis Sean Lowry Analyst in Public Finance February 12, 2014 Congressional Research Service 7-5700 www.crs.gov R43012 CRS Report for Congress Prepared for Members and Committees of Congress Itemized Tax Deductions for Individuals: Data Analysis Summary Reforming or limiting itemized tax deductions for individuals has gained the interest of policymakers as one way to increase federal tax revenue, increase the share of taxes paid by higher-income tax filers, simplify the tax code, or reduce incentives that might lead to inefficient economic behavior. However, limits on deductions could cause adverse economic effects or changes in the distributional burden of the federal income tax code. This report is intended to identify who claims itemized deductions, for how much, and for which provisions? This report analyzes data to inform the policy debate about reforming itemized tax deductions for individuals. In 2011, 32% of all tax filers chose to itemize their deductions rather than claim the standard deduction. In addition, the data indicate that both the share of tax filers who itemize their deductions and the amount claimed by each tax filer as adjusted gross income (AGI) increases. AGI is the basic measure of income under the federal income tax and is the income measurement before itemized deductions and personal exemptions are taken into account. Although higherincome tax filers are more likely to itemize their deductions...
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...ACC206 Personal Income Tax I Mr. Fran Bania Eli Magalhaes 07/09/2012 Chapter 1 - 7 - pg 1-37 -Proportional - Is if the rate of tax remains constante for any given income. Ex.: Exicise taxes, general sales taxes, and employment taxes(FUTA, FICA) -Progressive - Is if a higher rate of taxes apply as the tax base increases. Ex.: The Federal Income Tax, Federal Gift and state taxes, and most state income tax rate structure. Chapter 2 - 28 - pg 2-42 It depends where the litigation originated. - 40 - pg 2-43 Using the Commerce Clearing house’s federal Taxes Articles, which is a muitivolume service includes a subjecte index, a Code Section number index, and an author index. Another is the Index to Federal Tax Articles. Both if this indexes are updated periodicaly, but are available only in print form. As far far as determining the validity and reliability: • IRS agents must give the code and the regulations issues thereunder equal weight when dealing with taxpayers and their representatives. • Proposed regulations provide a preview of future final regulations, but they are not biding on the IRS or the taxpayers. • In a challenge, the burden of proof is on the tax payer to show that regulation varies from the leanguage of the statute and has no suport in the Committee Reports. • If the taxpayer loses the challenge, a 20% negligent penalty may be imposed. A citador provides the history of a case, including the authoroty relied on other judicial decisions...
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...Ch06. Itemized Deductions LO 1 Identify the common deductions necessary for calculating adjusted gross income (AGI). LO 2 Describe the different types of itemized deductions available to individuals and compute itemized deductions. LO 3 Explain the operation of the standard deduction, determine the deduction for personal and dependency exemptions, and compute taxable income. 1. [§213]Patricia paid the following medical expenses in the current tax year: Surgeon's fees $1,200 Medical insurance premiums 600 Hospital fees 800 Prescription drugs 310 Vitamins, not prescribed by doctor 200 Her adjusted gross income for the year is $20,000. She receives a $500 reimbursement from his health insurance company. Determine the amount of her medical expense deduction for the current year. a. $ - 0 - b. $ 610 c. $410 d. $910 e. $1,110 D 2. [§165] Jim's home was totally destroyed by fire in 2011. The structure had an adjusted basis of $150,000 and a FMV of $160,000 before the fire. Jim received insurance reimbursement of $120,000 for the destruction of the home. Jim's adjusted gross income was $100,000, before considering this loss. Jim had no casualty gains during the year. What amount of the fire loss was Jim entitled to claim on his tax return? (Ignore furniture etc. inside.) a. $ 30,000 b. $ 19,900 c. $ 4,500 d. $24,900 e. Other B 3. [§111] Juan (who is single, age 30, no dependent) had $1,000 of state income taxes withheld from his salary during 2011. Juan...
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...Federal Income Taxes Name ACC 401 – Federal Income Taxes Teacher Date Federal Income Taxes In order to complete the Federal Income Taxes necessary for this couple, there are multiple specific items that needed to be taken care of and specific forms that needed to be used. In the case of many Federal Income Taxes, these specific things occur taxpayer by taxpayer and will need to be taken on a case by case basis in order to best determine the route necessary to be taken to ensure the correct information is given and the correct tax return is received. Following the proper procedure in each case will ensure the correct return and proper information to be given to the IRS. For this specific return, the form for a married return, filing jointly was used. This means a Form 1040 was necessary in this case, as it allows for a married filing jointly return with itemized deductions and credits. The stumbling points in this return fall to the IRA contributions and the healthcare costs. In the case of the IRA contributions, Box 12 from the W-2 is necessary to be used to account for the payroll deductions that take place. For the Healthcare payroll deduction contributions, Box 14 must be used on the 1040 Form. Now, a tricky point was the addition of SDI, or mandatory disability insurance, that needed to be added to box 14 as well, since the deduction is something that is required in California. Once the specifics for the standard income are set...
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...The Final Paper on Tax Return Paper Assignment Linda Goethe ACC 401: Federal Income Taxes I Instructor: Arlene Rivero July 30, 2012 I used Form 1040 because Appendix A called for a Married filing jointly return, with credits and Itemized Deductions. This return was a tad tricky until I realized that the W2 information required me to utilized Box 12 for the IRA (k) contribution (payroll deductions) and Box 14 for the Healthcare costs (payroll deductions). Also; tricky situation occurred that I am not accustomed to. I needed to add to Box 14 for the SDI (mandatory disability insurance). It appears that California requires this deduction. Living and filing out my own income taxes forms in Utah, I never had to work with a mandatory SDI deduction before. Once I figured out the income from the W-2’s ($90,916.00 from line 7, on form 1040), I then needed to figure out the income from the sales of their home. I should have received a Form 1099-S from the sale of the primary residence. I then proceeded to figure out the gain on the sale of the home and ascertain if it should be taxed. According to the IRS: Gain: 1. If you have a gain from the sale of your main home, you may be able to exclude up to $250,000 of the gain from your income ($500,000 on a joint return in most cases). 2. If you can exclude all of the gain, you do not need to report the sale on your tax return. 3. If you have gain that cannot be excluded, it is taxable. Report it on Schedule D (Form 1040)...
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...PERSONAL INCOME TAX IN THE UNITED STATE Group’s member:Nguyễn Như Nam (C)Phan Thu AnNguyễn Thùy DungHoàng Bá SơnNgô Thị Ánh TuyếtDate: 15/12/2014 | Table of Contents PART 1. The review on the tax system in the United States 2 1. The tax administration system in United States 2 2. The tax policy system in United States 3 PART 2. The review of the main content of the tax laws 5 I. The scope of application 5 1. Taxable incomes 5 2. Non-taxable 7 3. Payers. 7 II. The taxation bases 9 III. The tax calculation method 10 1. Gross Income 10 2. Adjusted gross income 17 3. Tax Credits 17 4. Tax Rates 20 5. Deductions and exemptions 22 IV. Tax declaration, submission and refund 32 1. Declaration 32 2. Submission 33 3. Refund 34 REFERENCES 36 PART 1. The review on the tax system in the United States Taxation is an important for each country. Taxation provides a material to distribute economic resources towards those with low incomes or special needs. Taxes provide the revenue needed for critical public services such as social security, health care, national defense, and education. 1. The tax administration system in United States The U.S. system of tax administration is based on the principle of self-assessment. In a self-assessment system, taxpayers calculate and pay their own taxes without the intervention of a tax official. If this is not done appropriately and within the prescribed timeframes, the tax administration...
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...bonds $500 Moving expenses $2,500 Marc Alimony paid $1,500 Dependent 10 yr- Matthew Child tax credit -$1,000 Marc and Michelle paid $6,000 expenditures for itemized deductions Federal income taxes withheld from their paycheck for $5,500 Standard deductions (married filing jointly) 11,400 Personal & dependency exemption 3,650 (3x3650) = 10,950 Salary (Marc) $64,000 Salary (Michelle) $12,000 Salaries 76,000 Int. on corporate bonds 500 Int. on municipal bonds 350 Realized income 76,850 Int. on municipal bonds (350) Gross Income 76,500 Moving expenses (2,500) Alimony paid (1,500) (4,000) AGI 72,500 Standard deduction (11,400) Personal& Dependency (10,950) Deductions from AGI (22,350) Taxable Income (72,500-22,350) 50,150.00 Computation of taxes with the use of schedule rates :( used schedule on pg. 1-5) 1,670 + [15% x (50,150-16,700)] =1,670+5,017.50=6,687.50 * Income tax liability 6,687.50 * Tax credit (1,000) Federal taxes withheld (5,500) Taxes Payable 187.50 a. Marc and Michelle gross income is $76,500 b. Marc and Michele AGI is $72,500 c. Marc and Michelle total deductions from AGI is $22,350 d. Marc and Michelle taxable income is $50,150 e. Marc and Michelle taxes...
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...CHAPTER 7 DEDUCTIONS AND LOSSES: CERTAIN BUSINESS EXPENSES AND LOSSES SOLUTIONS TO PROBLEM MATERIALS | | | | Status: | Q/P | Question/ | Learning | | | Present | in Prior | Problem | Objective | Topic | | Edition | Edition | | | | | | | | | | 1 | LO 1 | Bad debts: accounts receivable | | New | | 2 | LO 1 | Bad debts: basis | | Unchanged | 2 | 3 | LO 1 | Bad debts: worthlessness | | Unchanged | 3 | 4 | LO 1 | Bad debts: recovery | | Modified | 4 | 5 | LO 1 | Bad debts: business | | Unchanged | 5 | 6 | LO 1 | Bad debts: business | | Unchanged | 6 | 7 | LO 1 | Worthless securities versus theft loss | | Unchanged | 7 | 8 | LO 2 | Worthless securities versus bad debts | | Unchanged | 8 | 9 | LO 2 | Section 1244 stock | | Modified | 9 | 10 | LO 3, 4 | Casualty loss versus business loss | | Modified | 10 | 11 | LO 3, 4 | Casualty loss | | Unchanged | 11 | 12 | LO 4 | Casualty loss: timing | | Unchanged | 12 | 13 | LO 4 | Casualty loss: reimbursement | | Unchanged | 13 | 14 | LO 4 | Casualty loss: measurement rule for theft | | New | | 15 | LO 4 | Casualty loss: insurance claim | | Unchanged | 15 | 16 | LO 4 | Casualty loss: cost of repairs method | | Unchanged | ...
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...Schedule A Itemizing Deductions Takisha Locke Tlocke020@students.ecsu.edu Federal Taxation Dr. Xiaoli Yuan November 21, 2014 Table of Contents Abstract…………………………………………………………………………………………….. Who files the schedule A with their return………………………………………………………… Itemizing deductions……………………………………………………………………………….. Schedule A Detail………………………………………………………………………………….. Allowable Deductions……………………………………………………………………………… Non allowable deductions………………………………………………………………………….. Conclusion…………………………………………………………………………………………. Takisha Locke Dr. Xiaoli Yuan Federal Taxation October 25, 2014 An Understanding of Itemizing Deductions Some taxpayers can become misunderstood on the meaning of itemizing deductions. Itemizing deductions are for those that can exceed their standard deduction, which is done by a couple of different ways. One way is by having certain deductions, such as, home mortgage interest, real estate taxes, and other tax deductions. Another way may be through force, because one spouse that may file married filling separate from the other spouse; may itemize deductions which will default the other spouse to itemize deductions rather if there are deductions to itemize or not. Nevertheless, taxpayers are miss informed on exactly what can be itemized or what cannot. Having a clear understanding of these, deductions will not only maximize the taxpayer’s taxable deductions, but will also minimize the notion of being audited. Understanding the tax return, as the taxpayer...
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...1. Filing Status: Married filing jointly 2. Self-Employment Income Income from consulting practice 12,000 Expenses: Travel 850 Postage 600 Office supplies 500 Client lunches (780 x 50%) 390 Depreciation – old computer using half-year convention: (1,800 x 11.52% x ½ ) 104 Depreciation – new laptop using mid-quarter convention: (1,200 x 5%) 60 2,504 Self-employment income 9,496 3. Self-Employment Tax and Deductible Portion of Self-Employment Tax Net earnings from self-employment = 9,496 x .9235 = 8,770 Earning subject to social security portion: 110,100 - 97,350 = 12,750 > 8,770 therefore all of the net earnings from self-employment income is subject to the social security portion of the self-employment tax Social security portion: 8,770 x 10.4% = 912 Medicare portion: 8,770 x 2.9% = 254 Total self-employment tax: 1,166 OR 8,770 x 13.3% = 1,166 Deductible portion: Social security portion: 8,770 x 6.2% = 544 Medicare portion: 8,770 x 1.45% = 127 Deductible portion: 671 OR 8770 x 7.65% = 671 4. Gain on Sale of Business Use Computer Note: the computer is a section 1231 asset (used in a trade or business for > 1year) Accumulated depreciation: 2009: 1,800 x 20% = 360 2010: 1,800 x 32% = 576 2011: 1,800 x 19.2% = 346 2012: 1,800 x 11.52% x ½ = 104 1,386 Gain: Amount realized 600 Adjusted basis...
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...investment opportunities available today. For most Americans, their homes are their greatest source of net worth and a substantial source of tax savings. This article presents an overview of the tax savings opportunities available to homeowners and analyzes the investment value of home ownership in the current real estate environment using different levels of mortgage financing and costs of renting compared to owning a home over different time horizons. Introduction or many Americans, the purchase of a home is a major step toward the fulfillment of the American dream. It is a very personal and emotional transaction involving a tremendous feeling of pride of ownership and family security. In addition to being a very emotional experience, buying a home is an important financial transaction. For most Americans, the purchase of a home is the largest purchase that they will ever make, their homes are their greatest source of net worth, and the ownership of a home offers tax savings opportunities that are difficult to match. In the year 2004, the percentage of Americans owning homes reached an all-time high. Approximately 70% of the adult population or roughly 120 miilion people in the United States are currently homeowners.' The recent upward trend in home ownership has been aided by record low mortgage interest rates, an improving economy, and the many tax savings benefits of home ownership. This article analyzes the investment valtie of home ownership in the current real estate environment...
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...LG1, 2,3 3.2 Cheryl Stern: Waitress or Tax Expert? Cheryl Stern, who is single, goes to graduate school part-time and works as a waitress at the Sunset Grill in Seattle. During the past year (2011), her gross income was $18,700 in wages and tips. She has decided to prepare her own tax return because she cannot afford the services of a tax expert. After preparing her return, she comes to you for advice. Here’s a summary of the figures that she has prepared thus far: Gross income: | | Wages | $10,500 | Tips | ------------------------------------------------- +8,200 | Adjusted gross income (AGI) | $18,700 | Less: Itemized deductions | ------------------------------------------------- –2,300 | $16,400 | | Less: Standard deduction | ------------------------------------------------- –5,800 | Taxable income | ------------------------------------------------- $10,600 | Cheryl believes that if an individual’s income falls below $20,350, the federal government considers him or her “poor” and allows both itemized deductions and a standard deduction. Critical Thinking Questions 1. Calculate Cheryl Stern’s taxable income, being sure to consider her exemption. Assume that the standard deduction for a single taxpayer is $5,800, and that each exemption claimed is worth $3,700. 2. Discuss Cheryl’s errors in interpreting the tax laws, and explain the difference between itemized deductions and the standard deduction. 3. Cheryl has been dating John Brooks for nearly...
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...The profit motive distinguishes "business" activities from "personal" activities. True False 2. All business expense deductions are claimed above the line. True False 3. All investment expenses are itemized deductions. True False 4. Rental or royalty expenses are deductible "for" AGI. True False 5. To be deductible, business expenses must be directly related to a business activity. True False 6. The phrase "ordinary and necessary" means that an expense must be appropriate and helpful for generating a profit. True False 7. All reasonable moving expenses are deductible if the move is a minimum of 35 miles in distance. True False 8. To deduct a moving expense, the taxpayer must be employed or self employed for a specific amount of time after the move. True False 9. Self employed taxpayers can deduct the cost of health insurance as long as they do not actually participate in their spouses' employer-provided health plan. True False 10. Self employed taxpayers can choose between claiming a deduction or a credit for the employer portion of self employment taxes paid. True False 11. An individual who forfeits a penalty for prematurely withdrawing a certificate of deposit (CD) is allowed to net the penalty against the interest income from the CD. True False 12. Qualified education expenses for purposes of the deduction of interest on educational loans are expenses paid for the education of the taxpayer, the taxpayer's spouse, or a taxpayer's...
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...Individual Deductions SOLUTIONS MANUAL Discussion Questions 1. [LO 1] It has been suggested that tax policy favors deductions for AGI compared to itemized deductions. Describe two ways in which deductions for AGI are treated more favorably than itemized deductions. Itemized deductions must exceed the standard deduction before taxpayers receive any tax benefit from the deductions (this is equivalent to an overall floor limit). In contrast, business deductions that are deductible for AGI (above the line) reduce taxable income without being subject to an overall floor limit. Also, itemized deductions are subject to many mechanical limitations including ceilings, floors, and phase-outs whereas business deductions are generally not subject to these limits (there are limits on certain specific deductions, but this will be described in greater detail in chapter 8). 2. [LO 1] How is a business activity distinguished from an investment activity? Why is this distinction important for the purpose of calculating federal income taxes? Both business and investment activities are motivated primarily by profit intent, but they can be distinguished by the level of profit-seeking activity. A business activity is commonly described as a sustained, continuous, high level of profit-seeking activity, whereas investment activities don’t require a high level of involvement. The distinction can be important for the location of deductions, because business deductions are claimed...
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...persons pay equal taxes. Where income tax wins. Vertical Equity- Persons with different amounts of income pay different amounts of tax. 16th amendment-the congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration. Statute of Limitations- federal 3 years regular, 6 years-omit>25% of gross income, none-fraud. State may be different, Michigan regular is 4. FICA(federal insurance contributions act)-social security tax -social security 6.2% 2010 4.2% 2011. Base amount is 106,800 -medicare 1.45% FUTA(federal unemployment tax act) 6.2% on first $7,000 of wages Chapter 3 Basic Tax Structure -Economic income (+)only place where u add stuff when determining GI -Gross Income -Adjusted Gross Income (-) -Taxable Income (-) -Tax (-) -Tax Due (-) Tax Formula for Individuals Income Less:exclusions GI Less:deductions for AGI Adjusted Gross Income Less: the greater of Total itemized deductions Or standard deduction Less: personal and dependency exemptions Taxable income Tax on taxable income Less:tax credits Tax due (or refund) *economic income---- exclusions *gross income—deductions for AGI AGI -itemized deductions or standard deduction *itemized deductions are related to production or collection of income and management of property held for the production of income. *Standard deduction: 2010 2011 single 5700 5800 ...
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