Individual Tax Outline

Individual Tax Problem

How to calculate taxable income:

§61 Gross Income (inclusions §71-§90, exclusions §101-§140)
– §62 Above the line Deductions (most business, may be subject to limits under §261-§280H)
§63 Adjusted Gross Income
– Personal Exemptions ($3,650) for self, spouse, dependents (includes qualifying child/relative)
-greater of:
-Total Schedule A Itemized Deductions
(§213 Med, §164 Tax, §163 Interest, §170 Charitable, §165 Casualty Loss, §67 Misc…)
OR -Standard Deduction (MFJ $11,400 or S $5,700)
Taxable Income

1) §105(a), (b), §104(a)(3), Rev. Rul. 2004-55 Long/Short Term Disability Benefits
a) How much of the disability that I collect is taxable?
i) §105(a), (b) – ER paid pre-tax disability ins.
(1) All payments are taxable – included in GI
R.R. Under the Amended Plan, long-term disability benefits received by an employee whose coverage is paid by the Employer on a pre-tax basis for the plan year in which the employee becomes disabled are attributable solely to pre-tax Employer contributions and are includible in the employee’s gross income under § 105(a).
(2) Except if they are paid for medical expenses
ii) §104(a)(3) – Duck Insurance—EE paid after tax
(1) None of the payments are taxable
R.R. Under the Amended Plan, long-term disability benefits received by an employee who has irrevocably elected, prior to the beginning of the plan year, to have the coverage paid by the Employer on an after-tax basis for the plan year in which the employee becomes disabled are attributable solely to after-tax employee contributions and are excludable from the employee’s gross income under § 104(a)(3).
iii) If special reimbursement made directly by the company to cover the gap in actual costs and insurance payments, the reimbursement is included in income (special plan not available to all employees)

2) §111 – State Income Tax Refund
a) On 2009 tax return, if I had the following, how much of the state tax refund is taxable in 2010?
i) No Itemized Deductions/ID less than the standard deduction
(1) None of the refund is taxable, no tax benefit
AGI 100,000
PE (7,300) [3650×2] ID
State 5,000
Other 6,000
Total 11,000 [less than the std of 11,400, so take std ded] 11,400
TI 813,00
No tax benefit from the deduction, so none is taxable
ii) Lots I.D. (greater than standard deduction)
AGI 100000
PE 7300
ID
std 5000
other 40000
total 45000
TI 47700
what is TI w/o 3000 refund?
TI 50,700 so entire amount taxable
(1) All is taxable – add to GI – line 10 of 1040
(2) What is TI without the 3,000 refund?
iii) Some I.D.
AGI 100000
PE 7300
ID
std 5000
other 8000
total 13000
TI 79700
what is tax benefit?
TI 81,300 so difference is taxable, 1600
(1) Some is taxable
(2) Standard deduction = $11,400 vs. the I.D. that I took of $13,000 the difference is $1,600 so $1,600 of the state tax refund is taxable
(3) Difference btwn actual deduction taken and std ded!
iv) Neg. T.I.
(1) The first $ deducted is the first $ recovered.
(a) State income tax deduction $5,000
(b) Then T.I. would be 2009 w/state ded. 2009 w/out state ded.
(i) AGI $35,000 $35,000
(ii) PE $7,300 $7,300
(iii)ID
State tax $5,000 $0
Other I.D. $25,000 $25,000
(iv)Total $30,000 $25,000
(v) Taxable Income (2,300) =0 $2,700=tax benefit
(vi) The $2,700 is taxable amount because that’s the benefit received from the state deduction. Take out the entire state tax deduction of 5,000, not just the 3,000!!

3) Calculate T.I. for Qualified Child/Qualified Relative
a) §6012(a)(1)(C)
dependent being claimed on another’s return must file their own return if:
1)has unearned income in excess of $950
2)has total gross income in excess of the std ded (5,700) OR
3)has unearned income of $300 or more and the total of the income plus earned income is more than $950
§1(g)(7)
child not