5.

September 26

1
• Review in-class assignment Pg. 2-34, questions 9 and 11
• Review homework questions:
• Ch. 2 Research Problem 3; Research Problem 5.

• Materials
• Tax formula for individuals (pg. 3-2) and Concept Summary 3.1 (pg. 3-3)
• Income (broadly defined)  any increase in wealth, but not ROC or receipt of borrowed funds
• Exclusions (Exhibit 3.1)
• Deductions for AGI and deductions from AGI (itemized or standard) (pg. 3-5 and 3-6)
• Basic and additional standard deduction amounts (Exhibit 3.4)
• Individuals not eligible for the standard deduction – they must itemize (pg. 3-8)
• Limitations on the standard deduction for individuals who can be claimed as dependents (pg. 3-8)
• Nondeductible items (pg. 3-6)
• Dependents (pg. 3-9)
• Look at: https://www.forbes.com/sites/peterjreilly/2014/04/25/football-dad-beats-irs-in-tax-court/#42710a2071f6
• Look at Rodney Harris v. Commissioner (U.S. Tax Court dependency case)

2
 ent
ts
TAX FORMULA FOR INDIVIDUALS

ym
ou n
s:

ns

plo
on

Acc
ed s of

loa

ons

pai -em
ucti

ing
ent
AT mple

uti

tax l self
Sav

trib
tud

d
Ld

ra
Exa

alth
ns

con

ede
to

He

IRA
[Pg. 3-3]

yF
s
ere

s to

f an
tain
[Pg. 3-4]

Int

on

to
Cer
uti
Above the “LINE” deductions [Pg. 3-5]

Par
trib
The “LINE”

Con
[Pg. 3-6] ATL deductions generally represent costs incurred to
Below the “LINE”, deductions from AGI earn income, and may directly affect the amount of
[Pg. 3-7]
itemized deductions)

AGI is an important subtotal that is the basis for

computing percentage limitation on certain itemized
deductions
• E.g., medical expenses are deductible only to the
extent they exceed 7.5% of AGI (“7.5% floor”)
• E.g., deductions for gifts to public charities may
not exceed 60% of AGI (“60% ceiling”)
0
$10 ax

CHECK IN BOOK FOR 2020 INFO

,00
.5%

M
s:
on

of 7
cti

- 65 y/o
)

1. Married filing separately,

GI cess

ons
du

es
zed s of

- Blind
tax

where either spouse itemizes

de

itati
of A ex
ite mple

2. NRA
age s
rop axe les
n

ent tion
lim
e
ns)
i

al p te t r sa

lim gag

fA s
es,

xes

% o sse
atio

erc ibu
mi
Exa

GI

Limitations on standard
er t s
ens

son esta e o

ain ort

f 10 ft lo
y ta

d p ontr
t

deduction for persons who can

Per Real incom

i
er t e m
xp

ss o the
al e

be claimed as dependents
c
m

pec itable

xce nd
ct t on ho
dic

•
l

Limited to greater of $1,100

a

in e alty a
loc
Me

ifie

or [sum of “earned income” +

oc

r
thi Cha
nd

(su erest

$350]
u
te a

Cas

•
ns

Cannot exceed Standard ded.

bje
Int
Sta

• 65 y/o and/or blind dep. ASD

(wi

Feb. 2019
 DEPENDENTS
A dependent taxpayer must be either: misleading; persons other
than relatives can qualify
Used in several Code provisions, including:
• anyone who was spouse during any part of year
•
•
Head-of-household filing status
Earned income tax credit (1) qualifying child or (2) qualifying relative
• Child and dependent tax credit • more expansive; also included are:
relationship o lineal ascendants (e.g., parents/grandparents)
• Credit for child & dependent care expenses
o collateral ascendants (e.g., uncles/aunts)
test o certain in-laws (e.g., son-, daughter-, father-,
• child (natural/adopted/step/foster) mother-, brother-, and sister-in-law)
relationship • sibling (natural/half/step) • ancestors (uncle/aunt/in-laws)
gross o members of same household for entire year
test • descendants (grandchild/nephew) • cousins
income • must be less than $4,300 for 2020

• more than half the year

test
residence • the taxpayer must furnish more than one-half of the qualifying
• temp absences (e.g., school, vacation, medical care, etc.) ignored
test support relative’s support (food, shelter, clothing, toys, medical and
test dental care, education, and capital expenditures like furniture,
appliances, and cars)
• At end of tax year, must be under age 19 (age 24 if full-time student) • Exceptions: -- multiple support agreement
age • An individual cannot be older than the taxpayer claiming him or her -- children of divorced/separated parents
test • Age test does not apply to disabled child - general rule custodial parent or waiver
joint return
• married dependent cannot file jointly
support • cannot be self-supporting (i.e., provide more than half of own support) test
• support = food, shelter, clothing, toys, medical and dental care, education, etc.
test scholarships are not considered support citizenship • must be: U.S. citizen, U.S. resident,
or a resident of Canada or Mexico
test for some part of the tax year
joint return • married dependent cannot file jointly Tiebreaker rules for claiming a qualifying child:
test Observations:

citizenship • must be: U.S. citizen, U.S. resident,

test or a resident of Canada or Mexico
for some part of the tax year
 In-class team assignment
1

2 Read and summarize Rodney Harris case.