Chapter 3Tax FormulaStandard Deduction (slide 1 of 2)Standard Deduction (slide 2 of 2)Determining Standard DeductionTaxpayers Ineligible For Standard DeductionSD Limit For Person Claimed as DependentExamples of SD Limit (slide 1 of 2)Examples of SD Limit (slide 2 of 2)Personal and Dependency Exemption AmountsPersonal and Dependency Exemptions In Year Of DeathPersonal and Dependency Exemption TestsSupport TestMultiple Support AgreementsChildren of Divorced ParentsRelationship TestGross Income TestExample of Gross Income Test (slide 1 of 2)Example of Gross Income Test(slide 2 of 2)Joint Return TestCitizen or Residency TestPhase-out of Exemptions (slide 1 of 2)Phase-out of Exemptions (slide 2 of 2)Child Tax CreditTaxes Rates (slide 1 of 3)Taxes Rates (slide 2 of 3)Taxes Rates (slide 3 of 3)Kiddie Tax (slide 1 of 4)Kiddie Tax (slide 2 of 4)Kiddie Tax (slide 3 of 4)Kiddie Tax (slide 4 of 4)Filing Requirements (slide 1 of 2)Filing Requirements (slide 2 of 2)Filing StatusSingle Filing StatusMarried Filing Jointly (MFJ) Filing StatusSurviving Spouse Filing StatusMarried Filing Separately Filing StatusHead of Household (HH) Filing Status2 Exceptions to the HH RequirementsAbandoned SpouseGains and Losses from Property Transactions (slide 1 of 3)Gains and Losses from Property Transactions (slide 2 of 3)Gains and Losses from Property Transactions (slide 3 of 3)Gains and Losses from Capital Asset Transactions (slide 1 of 2)Gains and Losses from Capital Asset Transactions (slide 2 of 2)Max Tax Rates for Net Capital Gains of IndividualsTreatment of Capital LossesPowerPoint PresentationChapter 3Chapter 3Tax Determination; Personal and Dependency Exemptions; An Overview of Property TransactionsTax Determination; Personal and Dependency Exemptions; An Overview of Property TransactionsCopyright ©2004 South-Western/Thomson LearningCopyright ©2004 South-Western/Thomson LearningEugene Willis, William H. Hoffman, Jr.,Eugene Willis, William H. Hoffman, Jr.,David M. Maloney and William A. RaabeDavid M. Maloney and William A. RaabeEugene Willis, William H. Hoffman, Jr.,Eugene Willis, William H. Hoffman, Jr.,David M. Maloney and William A. RaabeDavid M. Maloney and William A. RaabeC2 - 2Tax FormulaTax FormulaIncome(broadly conceived) $x,xxxLess:Exclusions (x,xxx)Gross Income $x,xxxLess:Deductions for AGI (x,xxx)AGI $x,xxxLess:The greater of-Total itemized deductionsor the standard deduction (x,xxx)Personal & dependency exemptions (x,xxx)Taxable Income $x,xxxIncome(broadly conceived) $x,xxxLess:Exclusions (x,xxx)Gross Income $x,xxxLess:Deductions for AGI (x,xxx)AGI $x,xxxLess:The greater of-Total itemized deductionsor the standard deduction (x,xxx)Personal & dependency exemptions (x,xxx)Taxable Income $x,xxxC2 - 3Standard Deduction (slide 1 of 2)Standard Deduction (slide 1 of 2)•The basic standard deduction (BSD) amount depends on filing status of taxpayer•The basic standard deduction (BSD) amount depends on filing status of taxpayerFiling status 2002 2003Single $4,700 $4,750MFJ, SS 7,850 7,950HH 6,900 7,000MFS 3,925 3,975C2 - 4Standard Deduction(slide 2 of 2)Standard Deduction(slide 2 of 2)•Additional standard deduction (ASD)–For taxpayers age 65 or older and/or legally blind•Additional standard deduction (ASD)–For taxpayers age 65 or older and/or legally blindFiling Status 2002 2003Single $1,150 $1,150MFJ, SS 900 950HH 1,150 1,150MFS 900 950C2 - 5Determining Standard DeductionDetermining Standard Deduction•Examples (2003 tax year):–Taxpayer is single, blind, and age 65 or older•SD = $4,750 (BSD) + $1,150 (ASD) + $1,150 (ASD) = $7,050–Taxpayers are married, filing jointly, one blind, and both age 65 or older•SD = $7,950 (BSD) + $950 (ASD) + $950 (ASD) + $950 (ASD) = $10,800 •Examples (2003 tax year):–Taxpayer is single, blind, and age 65 or older•SD = $4,750 (BSD) + $1,150 (ASD) + $1,150 (ASD) = $7,050–Taxpayers are married, filing jointly, one blind, and both age 65 or older•SD = $7,950 (BSD) + $950 (ASD) + $950 (ASD) + $950 (ASD) = $10,800C2 - 6Taxpayers Ineligible For Standard Deduction Taxpayers Ineligible For Standard Deduction •Certain taxpayers cannot use the SD:–Married, filing separately, when either spouse itemizes deductions–Nonresident aliens–Individual filing return for tax year of less than 12 months because of change in annual accounting period•Certain taxpayers cannot use the SD:–Married, filing separately, when either spouse itemizes deductions–Nonresident aliens–Individual filing return for tax year of less than 12 months because of change in annual accounting periodC2 - 7SD Limit For Person Claimed as DependentSD Limit For Person Claimed as Dependent•Individual claimed as dependent has a BSD limited to the greater of:– $800 or – $250 plus earned income (but not exceeding normal BSD)•ASD amount(s) still available•Individual claimed as dependent has a BSD limited to the greater of:– $800 or – $250 plus earned income (but not exceeding normal BSD)•ASD amount(s) still availableC2 - 8Examples of SD Limit (slide 1 of 2)Examples of SD Limit (slide 1 of 2)•Dependent’s SD (2003 tax year):–A blind child who earns $200 and is claimed by parents as a dependency exemption•SD = $750 (BSD) + $1,150 (ASD) = $1,900–A child who earns $1,500 and is claimed by parents as a dependency exemption•SD = $1,750 [BSD equal to greater of $750 or ($250 + $1,500 earned income)]•Dependent’s SD (2003 tax year):–A blind child who earns $200 and is claimed by parents as a dependency exemption•SD = $750 (BSD) + $1,150 (ASD) = $1,900–A child who earns $1,500 and is claimed by parents as a dependency exemption•SD = $1,750 [BSD equal to greater of $750 or ($250 + $1,500 earned income)]C2 - 9Examples of SD Limit (slide 2 of 2)Examples of SD Limit (slide 2 of 2)•Examples of dependent’s SD (2003 tax year)–A child who earns $4,800 and is claimed by parents as a dependency exemption•SD = $4,750 [BSD limited to normal amount] •Examples of dependent’s SD (2003 tax year)–A child who earns $4,800 and is claimed by parents as a dependency exemption•SD = $4,750 [BSD limited to normal amount]C2 - 10Personal and Dependency Exemption AmountsPersonal and Dependency Exemption Amounts•Amounts–2002: $3,000 per exemption–2003: $3,050 per exemption•Personal exemption–One per taxpayer