1. Chapter 2 zFederal Income Tax Calculation zIntroduction - Overview: computations (Tax formula and Tax Return) and concepts of course zStandard deduction amounts, exemptions amounts, filing status, tax rates, tax tables

2. Federal income tax formula z Chap 1: intro to formula z Chap 2: intro to components z Rest of chaps (course): components in depth

3. Tax Formula- Components Overview zexclusions (exh 2-1) zgross income (exh 2-2) (1040 p.1) - section 61, not unrealized zdeductions for AGI (above the line) (1040 p.1) zFrom AGI (below the line): either itemized deduction (exh 2-3) (1040 schedule A), personal and production of income, various limits

4. zOr standard deduction (=S.D.)(and additional standard deductions) zS.D. - Claimed as exemption - Individual claimed as a dependent on another’s return; e.g., student, elderly parent - standard deduction limit: greater of (1) 750 or (2) earned income (max=standard deduction for filing status) +250

5. Exemptions zExemption: dependent cannot claim self zExemptions - personal - t/p and spouse zdependent - 5 tests z1) support: >1/2, not scholarship, not unexpended; can be capital expenditures, multiple support, divorced - Form 8332 by custodial z2) relationship: list or member of household

6. z3) GI test: <dependency exemption amount – Exceptions: children of T/P z4) joint return: no joint return unless neither required to file and for refund z5) citizen or resident zphase out=[(AGI - threshold)/2500] x 2% x #exemptions x exemption amount

7. Tax determination zTax table v. tax rate schedule zterms: statutory, marginal, progressive, effective zw/h and estimated payments zLTCG rate - see separate info

8. Tax determination ( continued) zkiddie tax (<14) and net unearned income=unearned income minus 750 statutory amount minus standard deduction (750 or itemized directly connected)

9. z Form 8615 - child’s z Form 8814 - parent’s

10. Filing Requirements (chart) zThresholds, dependents (special), S/E, refund, EIC forms zwhen and where - 4/15, service center, 4 mo & 6 mo extensions

11. Filing status z single z MFJ z h of h z MFS

12. Gains and Losses zRealization v. recognition zAR - AB = G or L zCapital asset - section 1221: not a capital asset zLT, ST, netting, MT zcapital loss limit - individuals, corps zPlanning

13. Child Tax Credit z500 (600 in 01-04) per child (and increasing) zQualifying child under 17 (dependent) zPhaseout - Single 75000 - 85000 (82000 in 98), MFJ 110000 - 120000 (118000 in 98), MFS or hoh 55000-65000, using modified AGI, 50/1000

14. Child Tax Credit – EGTRRA ’01; JGTRRA ‘03 zCredit Increase z2001 - 2002$600 z2003 – 2004$1000 z2005 – 2008$700 z2009$800 z2010 and after$1,000 yEffective ’01, ‘03

15. Regular Income Tax Rate Reductions– EGTRRA-01, JGTRRA-03 Calendar Year 28% Rate Reduced to 31% Rate Reduced To 200127.5%30.5% 2002 – 200227%30% 2003 – 201025%28% 201128%31%

16. Regular Income Tax Rate Reductions EGTRRA–01, JGTRRA-03 (continued) Calendar Year 36% Rate Reduced To 39.6% Rate Reduced To 200135.5%39.1% 2002 – 200235%38.6% 2003 – 201033%35% 201136%39.6%

17. Phase-In of Increased S.D. – MFJ – EGTTRA ’01, JGTRRA ‘01 Calendar Year Standard Deduction for Joint Returns as a Percentage of Standard Deduction for Single Returns 2003 - 2004 200% 2005 174% 2006 184% 2007 187% 2008 190% 2009 and Later 200%

18. Phase-In of Increased 15% MFJ Bracket for EGTTRA ’01, JGTRRA ‘03 Calendar Year End Point of 15% Tax Bracket for Married Couples Filing Jointly as a Percentage of End Point of 15% Bracket for Single Taxpayers 2003 - 2004 200% 2005 180% 2006 187% 2007 193% 2008 and Later 200%

19. Elimination of Exemptions Phase-out - EGTTRA ‘01 zCurrent Phase Out Reduced y2006 – 20071/3 y2008 – 200092/3 y2010 & after100%