Acctg 435 Test 1 Review

John and Janet Baker are husband and wife and maintain a household of 7, including Janet and John. Calvin and Florence Carter are Janet’s parents, who are retired. During the year, they received $19,000 in nontaxable funds (disability income, interest on municipal bonds and Social Security benefits) from which $8,000 was equally spent between them on clothing, transportation, and recreation. The remaining $11,000 was invested in tax-exempt securities. Janet Baker paid $1,000 for her mother’s dental work and $1,200 premium on her father’s own life insurance policy. Janet’s father,

Arlen is required by his divorce agreement to pay alimony of $2,000 a month and child support of $2,000 a month to his ex-wife Jane. What is the tax treatment of these two payments for Arlen and Jane?

Decedent made a transfer within 3 years of death. Under Section 2035(a), nothing is included in Decedent’s gross estate, because it’s a cash gift. However, under Section 2035(b), the amount of the gross estate shall be increased by the amount of any tax paid on any gift made by the decedent during the 3-year period ending on the date of the decedent’s death. So the amount of gift tax of this gift the decedent paid is included in his gross estate.

The other option afforded to the Ouray’s is to file separately as a married couple. Filing separately can be advantages under special circumstances. However, if the couple was to file separately, there are several restrictions. First being, that if one spouse cannot demonstrate more than one-half of a child’s support is provided by them, a multiple-support agreement must be filed. Next, if one taxpayer itemizes their deductions they must both take itemized deduction and same goes if one person takes a standard deduction, the other must as well. If filing status was to be separate, neither spouse can claim the earned income credit and the credit for child and dependent care expenses. Next, no deduction is allowed for the interest paid on educations loans, and only $1,500 of excess capital losses can be claimed by each person.

If your parents claim you as a dependent, then you have to fill out the attached worksheet that helps to figure out exactly what your deduction will be for line 5.

A. Filing Status:  There are two choices of filing status available to this taxpayer couple, married filing separately and married filing jointly. For this taxpayer couple the recommended filing status is married filing jointly. The tax rates would be higher if they filed separately. Additionally, some deductions (e.g. tuition and student loan interest), credits (e.g. Earned Income Credit) and exclusions would not be allowed if they filed separately. Since they sold a personal residence during this tax year, they will be able to exclude up to $500,000 profit from the sales as joint filers rather than only up to $250,000 if filing separately. There will be 2 qualified personal exemptions and 3 exemptions for the 3

New York Law grants the family of a decedent the right to exempt certain property from the decedent 's estate.

Discuss filing requirement? - Filing requirements are specified by law for each type of taxpayer. In addition, all corporation must file a tax return annually regardless of their taxable income. Therefore, estates and trusts are required to file annual income tax returns if their gross income exceeds $600. In the filing requirements for individual taxpayers are a little more complex as they depend on the taxpayer’s filing status, age and gross income. The gross income thresholds are calculated as the sum of the standard deduction, additional deduction for taxpayers age 65 or older and personal exemptions that should be applied to each respective filing status. In addition, the amounts are indexed each year for inflation. Thus, when a taxpayer is due a refund which happened to occur only when

Tax shelter. Congress extends it each year. A $2,500 college tuition tax credit for 2009 and 2010.

12. What adjustment, if any, must be made to the basis of property acquired by gift if gift was made prior to 1977? After 1976? For gifts made after 1976, basis is increased by the portion of gift that attributable to the net appreciation value of the gift. For gifts made before 1977, the full amount of gift tax is added to donor’s adjusted

The American Taxpayer Relief Act of 2012 created a combined estate and gift tax rate of 40% while raising the estate tax exemption to $5.43 million in 2015. The gift exclusion stays at $14,000 in 2015. These changes generate some estate-planning benefits that most people haven’t yet realize. For example, many wealthy people didn 't bother trying to minimize capital gains in the past because the lower tax rate of 15% was better than paying 50% in estate taxes. Now people can benefit by choosing which assets they keep until death more carefully. Appreciated assets can be held until death and might fall within the $5.43 million exemption. This could be especially important when realizing capital gains could be subject to a higher, nearly 24%

Therefore, IRS provides taxpayers with the set of rules and tax court cases which help to identify the possible tax consequences. Through the above case study, $5,000 in legal fees spent by Bill in the divorce process are nondeductible personal expenses. On the other hand, Hillary is able to claim a deduction of $2,000 for legal fees related to collecting alimony taking into account that her adjusted gross income is $100,000 or

I.R.C. § 2056(d)(1). Congress has provided an exception to this general rule in the form of a qualified domestic trust (QDOT), which allows the property to qualify for the marital deduction if the trust meets certain requirements. I.R.C. § 2056(d)(2)(A). For a trust to qualify for QDOT status and the marital deduction, it must meet the seven requirements contained in the tax code and accompanying treasury regulations. I will separately discuss each requirement below and whether the currently language of Form M effectively fulfills that requirement.

However, this time the estate tax did not go away after the war ended. Despite sizable budget surpluses, Congress increased rates and introduced a gift tax in 1924. Like the estate tax, the gift tax is a levy on the transfer of property from one person to another. During the 1920s through the 1940s, estate taxes were used as another way to attempt to redistribute income. Tax rates of up to 77 percent on the largest estates were supposed to prevent wealth becoming increasingly concentrated in the hands of a few.

Estate planning is an important task that many individual’s put-off or completely ignore. Planning an estate allows an individual to organize and prepare to dispose of their estate upon death. While there are many benefits to estate planning, gifting, in particular, is an important benefit to understand. Gifting portions of one’s estate to family or other individuals is a great way to continue the estate of the decedent. While gifting may seem like a simple task to conduct, the Internal Revenue Service (IRS) has laid out certain rules and restrictions that make gifting more convoluted. Large gifts transferred during the lifetime of the estate owner, may be subject to gift tax. Also, it important to note that the IRS is concerned when one gifts