Taxchapter4文档格式.docx

1、1. LO 1 How are realized income, gross income, and taxable income similar, and how are they different? Realized income is more broadly defined than gross income which is more broadly defined than taxable income. Gross income is realized income minus exclusions and deferrals. That is, gross income is

2、 the income that taxpayers actually report on their tax returns and pay taxes on. Taxable income is gross income minus allowable deductions for and from AGI. Taxable income is the base used to compute the tax due before applicable credits.2. LO 1 Are taxpayers required to include all realized income

3、 in gross income? Explain. No. Realized income is the starting point for computing gross income. However, the tax laws allow certain types of income to be permanently excluded from taxation or deferred from taxation until a subsequent tax year. Consequently, taxpayers are not required to include all

4、 realized income in gross income. 3. LO 1 All else equal, should taxpayers prefer to exclude income or defer it? Why? Taxpayers should prefer to exclude income rather than defer income. When they exclude income they are never taxed on the income. When they defer income, they are still taxed on the i

5、ncome, but they are taxed in a subsequent tax year. 4. LO 1 Compare and contrast for and from AGI deductions. Why are for AGI deductions likely more valuable to taxpayers than from AGI deductions? All deductions from gross income allowed by Congress are either “for AGI” or “from AGI” deductions. For

6、 AGI deductions are often referred to as deductions above the line, while deductions from AGI are referred to as deductions below the line. The line is AGI （the last line on the front page of the individual tax return）.Though both types of deductions may reduce a taxpayers taxable income, for AGI de

7、ductions are more valuable to taxpayers because（1） For AGI deductions always reduce taxable income dollar for dollar while from AGI deductions may be limited or may not provide any incremental tax benefit （for example, taxpayers that dont itemize dont receive any tax benefit of from AGI deductions）.

8、（2） For AGI deductions reduce AGI which may allow taxpayers to deduct more of their from AGI deductions （and other tax benefits） that are subject to AGI limitations. From AGI deductions dont affect AGI. 5. LO 1 What is the difference between gross income and adjusted gross income, and what is the di

9、fference between adjusted gross income and taxable income? Gross income is more inclusive than is adjusted gross income （AGI）. Gross income is all income from whatever source derived that is not excluded or deferred from income. AGI is gross income minus for AGI deductions. So the primary difference

10、 between gross income and AGI is the amount of for AGI deductions. Adjusted gross income is more inclusive than taxable income. AGI is gross income minus for AGI deductions. Taxable income is gross income minus for AGI deductions minus from AGI deductions. Consequently, the difference between AGI an

11、d taxable income is the amount of from AGI deductions. 6. LO 1 How do taxpayers determine whether they should deduct their itemized deductions or utilize the standard deduction? Taxpayers generally deduct the greater of （1） the applicable standard deduction or （2） their total itemized deductions, af

12、ter limitations. However, taxpayers that do not want bother with tracking itemized deductions may choose to deduct the standard deduction even when itemized deductions may exceed the standard deduction.7. LO 1. Why are some deductions called “above-the-line” deductions and others are called “below-t

13、he-line” deductions? What is the “line”? The line is adjusted gross income （AGI）. AGI is considered the line because of the significance it plays in the amount of deductions allowed from AGI. For AGI deductions are called above-the-line deductions because they are deducted in determining AGI. From A

14、GI deductions are called below-the-line deductions because they are deducted after AGI has been determined. They are deducted from AGI to arrive at taxable income. Below-the-line deductions may be subject to limitations based on the taxpayers AGI. 8. LO 1 What is the difference between a tax deducti

15、on and a tax credit? Is one more beneficial than the other?A deduction generally reduces taxable income dollar for dollar （although from AGI deductions may not reduce taxable income dollar for dollar）. This translates into a tax savings in the amount of the deduction times the marginal tax rate. In

16、contrast, credits reduce a taxpayers taxes payable dollar for dollar. Thus, generally speaking, credits are more valuable than deductions.9. LO 1 What types of income are taxed at rates different than the rates provided in tax rate schedules and tax tables? Qualifying dividends and net long-term cap

17、ital gains （technically called net capital gains） are taxed at rates different than the rates embedded in the tables or published in the tax rate schedules. Qualifying dividends are generally taxed at 15% but can be taxed as low as 0%. Long-term capital gains are generally taxed at 15% but can be ta

18、xed as low as 0% and as high as 28%. 10. LO 1 What types of federal income-based taxes, other than the regular income tax, might taxpayers be required to pay? In general terms, what is the tax base for each of these other taxes on income? In addition to the individual income tax, individuals may als

19、o be required to pay other income based taxes such as the alternative minimum tax （AMT） or self-employment taxes. These taxes are imposed on a tax base other than the individuals taxable income. The AMT tax base is alternative minimum taxable income, which is the taxpayers taxable income adjusted fo

20、r certain items to more closely reflect the taxpayers economic income than does taxable income The tax base for self-employment taxes is the net earnings derived from self-employment activities.11. LO 1 Identify three ways taxpayers can pay their income taxes to the government. Taxpayers can pay tax

21、es through （1） income taxes withheld from the taxpayers salary or wages by her employer, （2） estimated tax payments directly to the government, and （3） taxes the taxpayer overpaid in the previous year that the taxpayer elects to apply as an estimated payment for the current year.12. LO 2 Emily and T

22、ony are recently married college students. Can Emily qualify as her parents dependent?Depending on the circumstances, Emily may qualify as a dependent of her parents. A taxpayer who files a joint return with his or her spouse may not qualify as a dependent of another, unless there is no tax liabilit

23、y on the couples joint return and there would not have been any tax liability on either spouses tax return if they had filed separately. As long as Emily and Tony meet these criteria, then Emily will qualify as a dependent of her parents assuming she also meets the test to be her parents qualifying

24、child or qualifying relative.13. LO 2 In general terms, what are the differences in the rules for determining who is a qualifying child and who qualifies as a dependent as a qualifying relative? Is it possible for someone to be a qualifying child and a qualifying relative of the same taxpayer? Why o

25、r why not?The rules for determining who qualifies as a dependent as a qualifying child and who qualifies as a dependent as a qualifying relative overlap to some extent. The primary differences between the two are （1） the relationship requirement is more inclusive for qualifying relatives than qualif

26、ying children, （2） qualifying children are subject to age restrictions while qualifying relatives are not, （3） qualifying relatives are subject to a gross income restriction while qualifying children are not, and （4） taxpayers need not provide more than half a qualifying childs support, though the c

27、hild cannot provide more than half of his/her own support, but, absent a multiple support agreement, taxpayers must provide more than half the support of a qualifying relative.An individual may not be a qualifying child and a qualifying relative of the same taxpayer. By definition, a qualifying rela

28、tive must be someone who is not a qualifying child. Consequently, the qualifying relative tests apply only when the individual does not pass the qualifying child tests.14. LO 2 How do two taxpayers determine who has priority to claim the dependency exemption for a qualifying child of both taxpayers

29、when neither taxpayer is a parent of the child （assume the child does not qualify as a qualifying child for any parent）? How do parents determine who gets to deduct the dependency exemption for a qualifying child of both parents when the parents are divorced or file separate returns? The priority in

30、 claiming a qualifying child is as follows: （1） The parent of the child.（2） If both parents qualify, then the parent with whom the child has resided with the longest during the year.（3） If the child resides with the parents equally or the child resides with taxpayers who are not parents （the child i

31、s not a qualifying child of a parent）, then the taxpayer with the highest AGI.In the case of divorced parents or parents filing separately, the parent with whom the child has resided with the longest during the year has priority for the exemption （the custodial parent）. However, the custodial parent

32、 can release the exemption to the noncustodial parent as part of the divorce decree or separation instrument. If the child resides an equal time with each parent （as would likely be the case if the married couple was filing separately）, the parent with the higher AGI has priority. 15. LO 2 Isabella provides 30% of the support for her father Hastings who lives in an apartment by himself and has no gross income. Is it possible for Isabe