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Topic Outline 6 Questions/Homework Opening Scenario: Sue was head of household; Jason was single.

Now they are Married filing jointly. If spouse dies during the tax year: If a spouse dies during the tax year, they are still considered married in the year of death. (See Whitt Chapter 1 under Single; before MFJ). Otherwise when not death, look at status on December 31. HOMEWORK: Review questions – See my notes in sheet. Application Questions: Jay Corp had sales of $6 million, CGS of $3,800,000 and deductible business expenses of $1,300,000. What is GROSS INCOME; TAXABLE INCOME; GROSS TAX LIABILITY? $900,000 taxable income $306,000 tax (See pg 11-2 for Corporate tax chart) 2) Calculate gross tax liability, average tax rate and marginal tax rate of the following corporations. a. $1,200 tax b. $20,550 tax c. $272,000 tax d. $4,275,000 tax How to use chart: See c above: $800k – 335k base = 465k excess x .34 = $158,100 tax on excess + $113,900 tax on base = $272,000 total taxes on $800,000 of corporate taxable income 3) Kathleen & John: The official answer (verified by the Code--I placed a xerox of the Code in Topic Outline 6: 3 years ago = married filing joint 2 years ago = MFJ since he actually died in Year 2 and 1 year ago [year after his death] = Head of Household. Per the IRC section the grandson did not qualify under Code Section 2(a)(1)(B) the grandson did not qualify for her to file as surviving spouse. The guidelines to qualify as surviving spouse are VERY specific when you read the Code Section which is why I xeroxed it and placed it in your course package. Grandson DOES qualify as a dependent. He just does not qualify her for Surviving spouse/qualifying widower tax rates (which are the same rates as MFJ). She does though qualifying for the Head of Household rates, which are still better rates than SINGLE.

and Mrs. See attached sheet . Their deductions were $6.000 of wage income which he saved.000 and expenses of $2. Her only income is $5.500. [He’s a full-time student less than 24 so not a problem].000 consisting of wages & interest income. a) net tax liability b) average tax rate c) marginal tax rate d) How would it change if Mr. & Mrs.4) Mr. The Knowlton’s have determined that they provided $6. They have itemized deductions of $23.000 consists of wages & interest.000 consisting of wages and interest income. 2 children 10 and 19 for whom they provided more than 50% of support. The 19 yr old has a job and earned $14. Knowlton AGI $65.000.000 towards her support. Only the 10 year old attends school.000 . The father has a small part-time BUSINESS repairing clocks. They support his father who lives with them and is not married. Barbara and Mitch’s AGI is $84. He had gross receipts from his business of $5.000 [=more than std dedn] and a child care credit of $100. were age 66 and 64 respectively e) What is Gerald’s net tax liability for the current tax year? See attached sheet 6) Barbara and Mitch are married with no kids.400 in social security (=NONtaxable) which she uses towards her support. See Attached Sheet 5) M/M Garcia had AGI of $65.000. Itemized dedns of $25. Mr K’s unmarried mother lives with them.. The 22 year old has a p-t job and earned $7.. 2 children ages 15 and 22 and both are full-time students (=2 dedns for kids].

MARGINAL tax rate? . travel) were $5.What is Lynn’s gross income? b.300. a.000 and her expenses (supplies.Tax Liability based on above? c.Progressive Exercise (OMIT part (e)—gets too confusing) Lynn’s first year of doing business was quite successful. single and has no dependents and provides over half of her own support. Her gross receipts were $25. AVERAGE tax rate? d.400. she had no other income this year. Her itemized deductions are $2. training. Assume that Lynn is 22 years old.