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 Becker – 2009 Edition Chapter 1 Page 1 of 14
Individual Taxation – Filing Status
Must file tax return if income is equal to or greater than sum of:Personal exemption + Standard deduction + Additional standard deduction for over 65 or blindExceptions:- Earned from self-employment at least $400- Can be claimed as dependents on another taxpayer’s return, have unearned income, and gross income of $900- Who receive advance payments of earned income creditFiling due date: April 15Automatic six-month extension. Must file extension by April 15. Even with extension, due date for tax payments if April 15.Filing Status:
Single/End of Year Test: Single on December 31 OR Legally separated
Joint Returns/End-of-Year Test: (even if married and living apart, but not legally separated/divorced) Married onDecember 31. If one spouse dies during the year, a joint return may be filed.
Married Filing Separately
Qualifying Widow(er) (surviving spouse)
o
For two years after spouse’s death: uses joint tax return standard deduction and rates (not the exemption fordeceased spouse)
o
Principal residence for dependent child: The surviving spouse must maintain a household that, for the wholeentire taxable year, was the principal place of abode of a son, stepson, daughter, or stepdaughter (blood oradoption).
Head of Household – Following conditions:
o
Not married or legally separated, or married and lived apart from spouse for last six months. Not a “qualifyingwidower”. Not a non-resident alien. Maintains as his or her home a household that, for more than half thetaxable year, is the principal residence of:
Son/Daughter (Working Families Act): example: divorced mom
Father or Mother (not required to live with): example: nursing home
Dependent Relatives (must live with): Cousins, foster parents, and unrelated dependents do NOTqualify.Required time period for different filing statuses:
W
– 
W
idow =
W
hole year
H – H
ead of household =
H
alf a year (more than)
Individual Taxation – Exemptions
Generally, an individual is entitled to a personal exemption that is indexed annually for inflation. For 2008 = $3500.Persons eligible to be claimed as dependents on another’s tax return will not be allowed a personal exemption on theirown returns.Each spouse receives personal exemption.Spouse as personal exemption on a separate return – Married taxpayer, who files separately, may claim the spouse’spersonal exemption if both of the following tests are met:
 
 Becker – 2009 Edition Chapter 1 Page 2 of 14
- Taxpayer’s spouse has no gross income AND- AND taxpayer’s spouse was not claimed as a dependent of another taxpayer.If a person is born or dies during the year, he or she is entitled to a personal exemption for the entire year. Exemptionsare not prorated.Dependency exemptions: a taxpayer is entitled to an exemption for each qualifying child and relative, based on therequirements.
Qualifying Child
C – Close relativeA – Age limitR – Residency requirementsE – Eliminate gross income testS – Support test changes
Qualifying Relative
 S – Support (over 50%) testU – Under a specific amount of (taxable) gross income testP – Precludes dependent filing a joint tax return testO – Only citizens (residents of U.S./Canada or Mexico) testR – Relative TestORT – Taxpayer lives with individual for whole year test – If NOT relatedTaxpayers must obtain SSN for any dependent who has attained the age of one as the close of the tax year
Qualifying ChildC
– Close relative: be the taxpayer’s (step)child, (step)sibling, descendants, legally adopted, foster child
A
– Age limit: under 19 (age 24 if full-time student). No age limit for permanently disabled child.
R
– Residency requirements: same household as taxpayer for more than half of the tax year
E
– Eliminate gross income test: gross income test (S
U
PORT) does not apply
S
– Support test changes: child did not contribute more than half of his support. Requirement that taxpayer (parent)provides over half of support is eliminated.
Qualifying Relative
 
S
– Support (over 50%) test: Taxpayer must supplied more than 50% of support of the person in order to claim him asdependent. Support means the actual expenses incurred by or on behalf of the dependent.
•
If two or more people support more than 50%, only one can claim the dependent (must contribute more than10%).
•
General rule: Custodial parents have the right to claim (instead of non-custodial). If both parents equallycontribute, then the one with higher AGI.
U
– Under exemption amount of (taxable) gross income: person’s gross (taxable) income must be less than the exemptionamount ($3500 for 2008).
•
Taxable income: Social Security (low income levels), tax-exempt interest income (state and municipal interest),tax exempt scholarships – (Tax-free income is OK)
•
No income test if meet age limit - C
A
RES
P
– Precludes dependent filing a joint tax return test: can`t claim dependent if they file joint tax return with someone else,UNLESS the joint return is filed solely for a refund of all taxes paid or withheld for the taxable year (tax is zero).
O
– Only citizens (residents of U.S./Canada or Mexico) test
R
– Relative Test: does NOT include cousins or foster parents. Cousins and foster parents must live with taxpayer theentire year.OR
T
– Taxpayer lives with individual for whole year test – If NOT related**No additional exemption for being old (age 65) or blind. There is an increased standard deduction!
 
 Becker – 2009 Edition Chapter 1 Page 3 of 14
Phase-out of personal and dependency exemptions: by 2% of each $2,500 increment by which AGI exceeds certainthresholds based on filing status – 
R1-15 (threshold amounts and example)
 
Individual Taxation – Gross Income
 Gross Income:Event Income BasisTaxable = FMV FMVNon-taxable = N-0-N-E NBVRealization = Real World. Accrual or receipt of cash, property, or services, or a sale or exchangeRecognition = Record for tax purposes.Accrual method: recognition is when earnedCash method: recognition is when actually or constructively cash or FMV property is received***Whether on cash basis or accrual basis, taxpayers who sell stock and securities in the market must recognize gainsand losses on the trade date.***
Salaries and wages included in Gross Income:
→
Money
→
Property = FMV
→
Cancellation of debt
→
Bargain purchases
o
Ex. if property is sold for less than FMV, the difference is income
→
Taxable fringe benefits (non-statutory)
o
Ex. Employee’s personal use of company car is considered employee’s income. Amount is subject toemployment taxes and withholding.
→
Portion of life insurance premiums. Non-discriminatory plans only.
o
Premiums above the first $50,000 of coverage are taxable income to the recipient and normally included inW-2 wages.
→
Life insurance proceeds paid are excluded from income of beneficiary
→
Interest income from life insurance proceeds on a deferred payout arrangement is fully taxable
→
Accelerated death benefit received my terminally ill (dying within 24 months) is not taxable
→
Accident, medical, and health insurance (employer paid):
o
premium payments are excludable from employee’s income when the employer paid the insurance premiums
→
De Minimis fringe benefits: benefits so minimal may be excluded.
o
Employee’s personal use of company computer
→
Meals and lodging by the employer for the convenience of the employer on the employer’s premises is not taxable tothe employee.
→
Employer payment of employee’s educational expenses of up to $5250 may be excluded from gross income. Couldbe for undergraduate or graduate school
→
Qualified tuition reductions at undergraduate level may be excluded from income. At graduate level, only if studentsare engaged in teaching or research activities and if the reduction is in addition to the pay for the teaching orresearch.
→
Qualified employee discounts are excludable from taxable income for:
o
Merchandise discounts: limited to employer’s gross profit percentage. Excess is income
o
Service discounts: limited to 20% of FMV. Excess is income
o
Employer-provided parking: $220/month for 2008
o
Transit passes: employer provided pass up to $115/month for 2008
→
Qualified pension, profit-sharing, and stock bonus plans
o
Payments made by employer are non-taxable
o
Benefits received are taxable
→
Flexible spending arrangements (FSA): allows employees to receive a pre-tax reimbursement of certain expenses
o
Employees can elect to have up to $5000 per year deposited pre-tax into a FSA.
o
Funds may be forfeited within 2 ½ months after year-end if the employer amended the plan accordingly.
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papi77on

Hello may you please send your REG notes to kapingamct@gmail.com Thank you

reply10 / 20 / 2011
Tosin Hassan

Hi can u please send me your REG note thank you tosin20708@gmail.com

reply09 / 21 / 2011
Mini Kawatra

hi your regulation notes r wonderful...can u pls mail me ???it can help me a lot...hope u will understand..my email id is kawatrayogesh30@gmail.com

reply06 / 21 / 2011
Tara Webley

Could you please send the REG and FAR notes to tkwebley@gmail.com? Thank you!

reply06 / 03 / 2011
Megan Han

could you send regulation and auditing notes to meganyxhan@gmail.com ? Thank you!

reply05 / 16 / 2011
Bhupal Basnet

Could you send Regulation notes to basnetbhupal@yahoo.com?

reply05 / 12 / 2011
Tiffany Dunkley

Tiffany.dunkley@yahoo.com, could you also send me a copy of the REG notes and AUD notes, please

reply04 / 12 / 2011
Tiffany Dunkley

PLEASE SEND A COPY TO ME TOO PLEASE...MAY THE LORD BLESS YOU RICHLY tiffany.dunkley@yahoo.com

reply04 / 11 / 2011
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