1. Chapter 3 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 3: intro to components z Rest of chaps (course): components in depth

3. Tax Formula- Components Overview zexclusions (exh 3-1) zgross income (exh 3-2) (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 3-3) (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) 850 or (2) earned income (max=standard deduction for filing status) +300

5. Exemptions prior to 2005 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 (<18) and net unearned income=unearned income minus 800 statutory amount minus standard deduction (800 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 z1000 per child thru 2010, then 500 (04 law) zQualifying child under 17 (dependent) zPhaseout - Single 75000 - 95000, MFJ 110000 - 130000 MFS or hoh 55000- 75000, using modified AGI, 50/1000

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

15. Exemptions-after 2004 (04 Law) zQualifying child meets relationship, support, and income tests (except for self supporting) zQualifying relatives yAs previously under code yInclude any member of household

16. Qualifying Child (cont’d) zSon/daughter, stepson/daughter zBrother or sister, step brother/sister zHalf brother/sister zDescendent of above (grandchildren, nephews, nieces) zAdopted & foster ok

17. Qualifying child (cont’d) z> ½ yr prin place of abode with t/p zUnder 19 or under 24 f/t student