REG 1

 Individual Taxation: Filing Status

o When to File
 Due Date – April 15
 Automatic 6 month extension (must file Form 4868 by April 15) for paperwork (NOT
payment of taxes)
 Taxpayers who are out of the country have an automatic 2 month extension (no
Form to file) for paperwork (NOT payment of taxes)
o Filing Status: End of Year Test – December 31 decides status
 Single – Single or Legally Separated
 MFJ – may file if one spouse dies during the year
 MFS
 Separate Property State – separately report own income, deductions, etc
 Community Property State – income, deductions, etc split 50/50
 Qualifying Widow (WW)
 Can file for each of the two tax years following death of spouse
 Must maintain a household that, for the whole taxable year , was the
principle residence for dependent child
 Head of Household (HH)
 Must maintain a household, that, for more than half of the taxable year, is
the principal residence of qualifying child or qualifying relative (Parents are
not required to live with the taxpayer provided the taxpayer maintains the
home that was the principal residence/contributes over half the cost of
upkeep)
 Individual Taxation: Exemptions - $3650 in 2010 ($3750 in 2011)
o Person Exemptions
 Persons claimed as dependents on another’s tax return will not be allowed a
personal exemption on their own return
 MFJ – each spouse claims personal exemption
 MFS – claim separate exemptions (can claim other spouse’s exemption if (1) spouse
has no gross income and (2) spouse was not claimed as a dependent by another tax
payer)
 Persons born or died during the year claims personal exemption (not prorated)
o Dependency Exemptions
 Qualifying Child (CARES)
 Close Relative – son/daughter/stepson/stepdaughter/brother/sister/step
brother/stepsister/descendent of any of these/legally adopted/foster child
 Age Limit – 19 (or 24 if full-time student); no age limit if totally and
permanently disabled
  Residency and Filing Requirements – same principal residence as taxpayer
for more than half of the year; cannot file a MFJ return unless it was filed
only for a refund claim)
 Eliminate Gross Income Test – Taxpayer must claim an exemption for child
 Support Test Requirement eliminated
 Qualifying Relative (SUPORT)
 Support Test – taxpayer must half supplied more than 50% of support
(actual expenses incurred)
o If multiple people contribute more than 50% support, but none
individuals contributes more than 50%, contributors must agree
who may claim exemption – person must have contributed more
than 10% of support and meet other requirements
 Under a specific amount of (taxable) gross income test –dependent’s
taxable gross income must be less than exemption amount (tax free income
is ok)
 Precludes dependent filing a joint tax return test – unless MFJ return is filed
solely for a refund of all taxes paid/withheld
 Only citizens (residents of US/Canada or Mexico) test
 Relative Test – does not include foster parents or cousins
OR  Taxpayer lives with individual for whole year test (fails relative test)
 Children of Divorced Parents – parent who has custody of the child for the greater
part of the year takes the exemption (determined by “time” test)
 If parents have equal custody, parent with higher AGI claims exemption
 Noncustodial parent may claim exemption if custodial parents waives the
right to the exemption
 Increased standard deduction (not additional exemption) for being old (age 65+) or
blind
 Individual Taxation: Gross Income
o Gross Income in General

EVENT INCOME BASIS

Taxable FMV FMV
Non-taxable N -0- NE NBV

o Characterization of Income
 Ordinary –anything not falling into other 3 categories
 Portfolio – interest and dividends
 Passive – rental activity and limited partnership interest
 only passive losses may offset passive gains
 net passive loss is not deductible on tax return (carryforward)
 Capital – sales of capital assets
o Specific Items of Income and Exclusions

 Salaries and Wages
 Money
 Property – FMV
 Cancellation of Debt
 Bargain Purchases – if employer sells property to employee for less than its
FMV, the difference is income to the employee
 Guaranteed Payments to Partner – also subject to SE tax
 Taxable Fringe Benefits – FMV
 Partially Taxable Fringe Benefits – Premiums above the first $50,000 of
coverage are taxable income to the recipient and normally included in W-2
wages
 Non-taxable Fringe Benefits
o Life Insurance proceeds – proceeds are generally excluded from
gross income of beneficiary, but interest income element on
deferred payout arrangements in fully taxable
o Accident, Medical, and Health Insurance – premiums paid by
employer excluded, but amounts paid to employee under the policy
are included unless amounts are (1) reimbursement for medical
expenses actually incurred by employee OR (2) compensation for
the permanent loss or loss of use of a member or function of body
o De minimis fringe benefits are so minimal it is impractical to account
for and are excluded
o Up to $5250 may be excluded from gross income of payments made
by employer on behalf of an employee’s educational expenses
o Employees at the undergrad level who receive tuition reductions
may exclude them from income; Grad students may exclude only if
they are engaged in teaching or research activities and only if it is in
additional to the pay
o Value of employer provided parking or employer provided transit
pass may be excluded up to $230 per month
o Qualified Pension, profit sharing, and stock bonus plans – payments
made by employer are not income to employee at time of
contribution; taxable to employee when distributed
o Flexible Spring Arrangements Stems (FSAS)
 Part of salary (up to $5,000) deposited pre-tax into a flexible
spending account
 Funds not used within 2 ½ months after year-end or not
claimed within a period of time (usually 6 months) will be
forfeited
o Economic Recovery Payments – nontaxable up to $250
  Interest Income
o All interest is taxable unless specifically excluded
o Tax Exempt Interest Income
 State and local government bonds
 Bonds of U.S. Possession
 Series EE Savings Bond
 Interest exempt when used to pay educational
expenses (EE) of taxpayer, spouse or dependents
 Phase out begins at $70,100 for single/HOH and
$105,100 MFJ; no exclusion for MFS
 Veterans Administration Insurance
o Kiddie Tax – net unearned income of a dependent child under 18 (or
full time student under 24) is taxed at the parent’s higher rate

Child’s Unearned Income Tax Rate

0-$950 0%
$951-$1900 Child’s
$1901 + Parent’s

o Forfeited Interest is deductible as an adjustment in the year the

penalty is incurred; reported separately and not netted with interest
income on return)
 Dividend Income
o
 Individual Taxation: Capital Gains and Losses