Transcript Liberty Tax Service Online Basic Income Tax Course. Lesson

Liberty Tax Service Online
Basic Income Tax Course.
Lesson 3
HOMEWORK CHAPTER 2
Robert R. (SSN 211-22-3344) and Shirley M. Peters (SSN 210-21-2121)
have three children that live with them, Keith, Martha, and Jude.
Robert’s mother, Lucy Peters (SSN 045-66-5465), also lives with
them at 45 Deer Park Run, Allen Park, MI 48101. Robert and Shirley
are filing jointly.
Keith (born 4/2/2001, SSN 377-41-6857) is their youngest. He was
adopted in 2007 from a legal agency in Columbia. Martha (SSN 31822-9857) is 18 years old and worked at a department store where
she earned $3,400. Jude (SSN 379-37-5964) is 22 years old and a
full-time college student. He works part-time during school and fulltime during the summer. He earned $4,350 in 2008 and lives at
home.
Lucy Peters is a widow. She received $4,100 in social security payments in
2008. Her savings account of $5,500 earned $220 of interest, which
she left in the account. The rest she spent on herself.
The fair rental value of their house is $650 per month. The Peters paid
$850 per month for food and $300 per month for utilities and phone.
Lucy’s other expenses for the year are as follows:
Spending Money
$600
Clothing
850
Beauty Salon
780
Cosmetics
140
Medical Expenses
900
Entertainment
300
Gifts
300
Transportation
350
Which, if any, of the Peters’ children can be
claimed as dependents?
Fill out the dependency support sheet for Lucy
Peters. Does she qualify as a dependant?
Fill in the heading, filing status, and exemption
sections of Form 1040 for Robert and Shirley.
2
HOMEWORK CHAPTER 2
Robert R. (SSN 211-22-3344) and Shirley M. Peters (SSN 210-21-2121)
have three children that live with them, Keith, Martha, and Jude.
Robert’s mother, Lucy Peters (SSN 045-66-5465), also lives with
them at 45 Deer Park Run, Allen Park, MI 48101. Robert and Shirley
are filing jointly.
Keith (born 4/2/2001, SSN 377-41-6857) is their youngest. He was
adopted in 2007 from a legal agency in Columbia. Martha (SSN 31822-9857) is 18 years old and worked at a department store where
she earned $3,400. Jude (SSN 379-37-5964) is 22 years old and a
full-time college student. He works part-time during school and fulltime during the summer. He earned $4,350 in 2008 and lives at
home.
Lucy Peters is a widow. She received $4,100 in social security payments in
2008. Her savings account of $5,500 earned $220 of interest, which
she left in the account. The rest she spent on herself.
The fair rental value of their house is $650 per month. The Peters paid
$850 per month for food and $300 per month for utilities and phone.
Lucy’s other expenses for the year are as follows:
Spending Money
$600
Clothing
850
Beauty Salon
780
Cosmetics
140
Medical Expenses
900
Entertainment
300
Gifts
300
Transportation
350
Which, if any, of the Peters’ children can be
claimed as dependents? Keith, Martha and
Jude.
Fill out the dependency support sheet for Lucy
Peters. Does she qualify as a dependant? No.
Fill in the heading, filing status, and exemption
sections of Form 1040 for Robert and Shirley.
3
HOMEWORK CHAPTER 2
4
HOMEWORK CHAPTER 2
5
Chapter 3: FILING STATUS
Chapter Content
 Purpose of Filing Status
 Filing Status (1): Single
 Filing Status (2): Married Filing Joint
 Filing Status (3): Married Filing Separate
 Filing Status (4): Head of Household
 Filing Status (5): Qualifying Widow(er) with Dependent
Child
 Key Ideas
Objectives
 Understand the Five Filing Statuses
 Determine the Filing Status of an Individual
6
FILING STATUS
Used in determining
 Filing requirements.
 Tax rate
 Standard deduction.
Also plays a role in determining which tax form to use
when preparing the return.
Depends on your marital status and family situation.
For tax purposes, you are considered married or
unmarried.
You are considered unmarried for the whole year if, on
the last day of your tax year, you are unmarried or
legally separated from your spouse under a divorce
or separate maintenance agreement. State law
governs whether you are married or legally
separated under a divorce or separate maintenance 7
decree
FILING STATUS
There are five filing statuses:
1.
2.
3.
4.
5.
Single (S)
Married Filing Jointly (MFJ)
Married Filing Separately (MFS)
Head of Household (H/H)
Qualifying Widow(er) with Dependent Child
(Q/W).
Married filing jointly and qualifying widow(er)
with dependent child have the same tax
rate and it is generally the lowest tax rate.
Married filing separately usually has the
highest tax rate.
8
FILING STATUS
9
FILING STATUS
Form 1040 page 1
10
SINGLE (1)
To use SINGLE (S) as your filing status, one of the
following must be TRUE on the last day of the tax
year:
 You were never married.
 You were legally separated from your spouse under a
divorce or separate maintenance decree.
 You were widowed before January 1, 2008 and did not
remarry in 2008.
Your filing status is SINGLE if you do not qualify for
another filing status. If you are unmarried, or are
married but lived apart from your spouse, check the
requirements for head of household or qualifying
widow(er).
11
MARRIED FILING JOINTLY (2)
To use MARRIED FILING JOINTLY (MFJ) as your filing
status, one of the following must be TRUE:
 You were married on the last day of the tax year
even if you did not live with your spouse.
 Your spouse died during the tax year and you did
not remarry during the year.
 You are living together in a common law marriage
that is recognized in the state where you now live
or in the state where the common law marriage
began.
12
MARRIED FILING JOINTLY (2)
To use the MFJ filing status both individuals do not need to have
income. However you must include all income of both spouses.
You must also deduct your combined allowable expenses. You
are both responsible for the return and you must both sign the
return. Filing a joint return may give you a lower tax rate than any
other filing status.
If you are divorced under a final decree by the last day of the year,
and have not remarried, you are considered unmarried for the
whole year and cannot choose MFJ as your filing status.
If at any time during the tax year your spouse was a nonresident
alien, you may file a joint return only if your spouse reports all
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income (domestic and foreign) on the return.
MARRIED FILING JOINTLY (2)
Fred Williams died on September 1, 2008. His
wife, Marlene, did not work. They had filed MFJ
in previous years. They had no dependents and
Marlene has not remarried. May Marlene file a
joint return for 2008?
Yes or No?
14
MARRIED FILING JOINTLY (2)
Fred Williams died on September 1, 2008. His wife,
Marlene, did not work. They had filed MFJ in
previous years. They had no dependents and
Marlene has not remarried. May Marlene file a joint
return for 2008?
Yes
Even though Marlene was not married on December
31, 2008, she may file a joint return for 2008.
15
MARRIED FILING SEPARATELY (3)
To use MARRIED FILING SEPARATELY (MFS) as your filing
status, any of the following may be TRUE:
 You want to be responsible for only your own tax.
 You and your spouse do not agree to file a joint return.
When filing as MFS, you generally report only your own
income, exemptions, credits, and deductions. Married filing
separate usually means paying more tax than if you file a
joint return. You should figure your tax both ways and chose
the method that produces the least tax.
When using MFS, you must write your spouse’s full name on
line 3 of Form 1040 and enter the spouse’s social security
number in the heading section.
16
MARRIED FILING SEPARATELY (3)
Married filing separate status disqualifies you from certain
tax benefits. Some examples are the following:
1. You cannot claim the earned income credit.
2. You cannot take the credit for adoption expenses.
3. You cannot claim the standard deduction if your spouse
4.
5.
6.
7.
itemizes deductions.
You cannot claim the credit for child and dependent care
expenses in most instances.
You cannot deduct interest paid on a qualified student loan.
You cannot claim education credits.
If you lived with your spouse at any time during the tax
year:
a. You cannot take the credit for the elderly or the
disabled.
b. You cannot roll over amounts from a traditional IRA into
a Roth IRA.
c. You may have to include in income more of your social
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security benefits.
MARRIED FILING SEPARATELY (3)
Jack and Joan were married on December 12, 2008.
They both have major investments and they want
to be responsible only for their own tax. How
should they file?
MFJ or MFS?
18
MARRIED FILING SEPARATELY (3)
Jack and Joan were married on December 12, 2008.
They both have major investments and they want
to be responsible only for their own tax. How
should they file?
MFS
When filing as MFS, you generally report only your own
income, exemptions, credits, and deductions.
19
MARRIED FILING SEPARATELY (3)
Tim P. (SSN 321-66-8181) and Tina A. Halloway are
filing as MFS. Tina’s social security number is 05133-9839. How would they fill out their 1040?
20
MARRIED FILING SEPARATELY (3)
Tim P. (SSN 321-66-8181) and Tina A. Halloway are filing
as MFS. Tina’s social security number is 051-33-9839.
When using MFS, you must write your spouse’s full name
on line 3 of Form 1040 and enter the spouse’s social
security number in the heading section.
21
HEAD OF HOUSEHOLD: (4)
To use HEAD OF HOUSEHOLD (H/H) as your
filing status, you must be unmarried or
considered unmarried as of the last day of
the tax year AND:
 Have paid more than half the cost of keeping up a
home for the tax year; and, in most cases,
 A qualifying person generally must have lived with
you in the home for more than half the tax year
22
HEAD OF HOUSEHOLD: (4)
In determining the cost of keeping up a home:
1.
Include amounts you paid for rent, mortgage interest,
real estate taxes, home insurance, repairs, utilities,
and food eaten in the home
2.
Do not include amounts you paid for clothing,
education, medical treatment, vacations, life
insurance, and transportation or the rental value of
home you own
3.
Exclude payments from public assistance programs as
amounts you paid. Include these amounts in the total
cost of keeping up a home in determining whether you
paid over half the cost
23
HEAD OF HOUSEHOLD: (4)
A qualifying person can be:




An unmarried child including child, grandchild,
stepchild, or foster child (The child does not have to
be your dependent.)
A married child including child, grandchild, stepchild,
or foster child (In most cases the child must be your
dependent)
A qualifying relative who is your dependent; a
qualifying relative includes your child who is not a
qualifying child, parent, grandparent, brother, sister,
stepbrother, stepsister, half brother, or half sister (or
descendant of these such as a niece or nephew)
A parent not living with you if you paid more than half
the cost of keeping up a home that was the parent’s
main home for the entire year. (The parent must be
your dependent.)
24
HEAD OF HOUSEHOLD: (4)
25
HEAD OF HOUSEHOLD: (4)
Megan A. Taft lived all year with her mother, Alise.
Alise pays all of the cost of the household
expenses. Megan’s father claims her as his
dependent. May Alise file as H/H?
Yes or No?
26
HEAD OF HOUSEHOLD: (4)
Megan A. Taft lived all year with her mother, Alise.
Alise pays all of the cost of the household
expenses. Megan’s father claims her as his
dependent. May Alise file as H/H?
Yes
Alise may file H/H with Megan as the qualifying
child.
27
HEAD OF HOUSEHOLD: (4)
Megan A. Taft lived all year with her mother, Alise.
Alise pays all of the cost of the household
expenses. Megan’s father claims her as his
dependent. How would the 1040 be filled out?
28
HEAD OF HOUSEHOLD: (4)
Megan A. Taft lived all year with her mother, Alise.
Alise pays all of the cost of the household
expenses. Megan’s father claims her as his
dependent. How would the 1040 be filled out?
Alise would check box 4 under Filing Status on
Form 1040 and enter Megan’s name on the line
provided.
29
HEAD OF HOUSEHOLD: (4)
John’s girlfriend, Jane, lives with him all year. He
maintains the home and totally supports her.
She does not work. He can claim H/H.
Yes or No?
30
HEAD OF HOUSEHOLD: (4)
John’s girlfriend, Jane, lives with him all year. He
maintains the home and totally supports her.
She does not work. He can claim H/H.
No
He cannot claim H/H because she even if she can
be claimed as a qualifying relative she is not a
qualifying person for H/H.
31
HEAD OF HOUSEHOLD: (4)
Peggy Purcell maintains a home and is unmarried. Her
daughter, Kelly, is a 20-year-old full-time student at
Erie College. Kelly stayed in the dormitory for all of
last year. She did come home to visit during term
breaks. Can Peggy may file as H/H.
Yes or No?
32
HEAD OF HOUSEHOLD: (4)
Peggy Purcell maintains a home and is unmarried. Her
daughter, Kelly, is a 20-year-old full-time student at
Erie College. Kelly stayed in the dormitory for all of
last year. She did come home to visit during term
breaks. Can Peggy may file as H/H.
Yes
Kelly’s absence from the home for education purposes
is considered temporary and Peggy may file as H/H.
33
HEAD OF HOUSEHOLD: (4)
If you are married but living apart from your spouse,
you may be considered unmarried for tax purposes
and qualify for H/H if ALL the following tests are
met:
1. You file a separate return.
2. You paid more than half the cost of keeping up your
home for the tax year.
3. Your spouse did not live in your home at any time
during the Last 6 Months of the tax year. Your spouse is
considered to live in your home even if they were
temporarily absent due to special circumstances.
4. Your home was the main home of your child, stepchild,
or eligible foster child for more than half the year.
5. You must be able to claim an exemption for the child.
However, you can still meet the test if you cannot claim
the exemption only because the non-custodial parent is
34
allowed to claim the exemption for the child.
HEAD OF HOUSEHOLD: (4)
Jason and Joan Jutt have been separated since January
31, 2008. Josie, their daughter, lives with Joan and
Joan supplies over half the cost of keeping up the
home. Joan is legally still married to Jason but may
be treated as considered unmarried and may be
eligible to file as head of household.
If Jason did not move out of the house until August 8,
2008, Can she file as H/H?
Yes or No?
35
HEAD OF HOUSEHOLD: (4)
Jason and Joan Jutt have been separated since January 31,
2008. Josie, their daughter, lives with Joan and Joan
supplies over half the cost of keeping up the home. Joan is
legally still married to Jason but may be treated as
considered unmarried and may be eligible to file as head of
household. If Jason did not move out of the house until
August 8, 2008, Can she file as H/H?
No
Joan would still be considered married for tax purposes and
must file as MFJ or MFS. She cannot claim head of
household because she does not meet the considered
unmarried requirement since Jason and Joan lived together
during the last 6 months of the tax year.
36
HEAD OF HOUSEHOLD: (4)
37
QUALIFYING WIDOW(ER)
WITH DEPENDENT CHILD (5)
To use QUALIFYING WIDOW(ER) WITH DEPENDENT
CHILD (Q/W) as your filing status for 2007, ALL of the
following requirements must be met:
1. You could have filed a joint return for the tax year
your spouse died.
2. Your spouse died in 2006 or 2007 and you did not
remarry before the end of 2008.
3. You have a child or stepchild who is your
dependent.
4. You paid over half the cost of keeping up a home
that is the main home for you and the dependent
child for the entire year.
38
QUALIFYING WIDOW(ER)
WITH DEPENDENT CHILD (5)
Jeff Termack died in 2006. He is survived by his wife,
Sue, and a daughter, Tracy. Sue has not remarried
and keeps up a home for Tracy. For 2006, Sue filed
as MFJ. Is her filing status for 2008 H/H?
Yes or No?
39
QUALIFYING WIDOW(ER)
WITH DEPENDENT CHILD (5)
Jeff Termack died in 2006. He is survived by his wife,
Sue, and a daughter, Tracy. Sue has not remarried
and keeps up a home for Tracy. For 2006, Sue filed
as MFJ. Is her filing status for 2008 H/H?
No
In 2007 and 2008, she may use Qualifying Widow as
her filing status.
40
QUALIFYING WIDOW(ER)
WITH DEPENDENT CHILD (5)
Jeff Termack died in 2006. He is survived by his wife,
Sue, and a daughter, Tracy. Sue has not remarried
and keeps up a home for Tracy. For 2006, Sue filed
as MFJ. How will her 2008 1040 be filled out?
41
QUALIFYING WIDOW(ER)
WITH DEPENDENT CHILD (5)
Jeff Termack died in 2006. He is survived by his wife,
Sue, and a daughter, Tracy. Sue has not remarried
and keeps up a home for Tracy. For 2006, Sue filed
as MFJ. How will her 2008 1040 be filled out?
42
FILING STATUS
KEY IDEAS
Single
 Unmarried as of December 31
 Legally separated under a separate maintenance decree
 Do not qualify for another filing status
Married Filing Jointly
 Married as of December 31
 Include both incomes
 Both must sign
 Both responsible for payment of tax
Married Filing Separately
 Married as of December 31
 Report only own income
 Provide name and SSN of spouse
 If one itemizes, other spouse must also
43
FILING STATUS
KEY IDEAS
Qualifying Widow(er) with dependent child
 Must have a dependent
 Paid over half of household expenses
 Did not remarry
 May use this status for 2 years after year of death of spouse
Head of Household/Single
 Paid more than half of household expenses
 Maintained a home for more than 6 months for:
 Unmarried child need not be a dependent
 *Married child must be a dependent
 **Qualifying relative must be your dependent
 Parent must be a dependent, but does not have to live with
taxpayer
Head of Household/Considered Unmarried
 Lived apart from spouse last 6 months of the year
 Paid more than half household costs for dependent child that
lives with you more than 6 months (exception for divorced or
separated parents with court decree or other documentation).
*Includes grand, step, adopted, and eligible foster child
**See exception for married child earlier
44
FILING STATUS
CLASSWORK 1: Determine the only filing status available or the most
advantageous filing status for each of the following:
1. Joe and Mary Smith are married. Joe works as a computer technician. Mary
stays home with their baby and has no income.
2. Mike Jones is a truck driver. Cathy, his wife, is also a truck driver. They only
lived together for three months of 2008. They have no dependents.
3. Ted MacNamara is unmarried and a part-time student. He rents an
apartment and works at Wal-Mart.
4. Judy Vasquez lost her husband two years ago. She lives alone in a
retirement home.
5. Mark and Katie Sanders were married and they lived together with their
daughter, Abigail, age ten, until 2007 when Mark was killed in an auto
accident. Abigail attends a boarding school and comes home for the
summer.
6. Debra Johnson is legally separated from her husband. She pays over half the
cost of maintaining her home. Her ten-year-old son lives with her and is
claimed by her estranged husband as his dependent.
7. Patrick Bartley’s wife died in April 2008. In November 2008, he married her
sister, Jezebel.
45
FILING STATUS
CLASSWORK 1: Determine the only filing status available or the most
advantageous filing status for each of the following:
8.
John and Stella Zuty are married and live together. Both are employed.
John is very independent and does not want to file a joint return with
Stella.
9.
Matthew Moore is unmarried and lives alone. He works in a factory. He
pays over half the cost of keeping his father, whom he claims as a
dependent, in a home for the elderly.
10.
Rita is 20 years old and unmarried. She lives with her boyfriend, Ali, who
is a full-time student and does not work. She works at the campus
bookstore and provides all of the cost of maintaining the home.
11.
Ken Demmer is a stockbroker. He divorced his wife, Phyllis, on December
30, 2008. Their two children live with Phyllis and she pays over half the
cost of keeping up their home. What is Ken’s filing status?
12.
Karen Karner is divorced and was providing the cost of raising her
daughter until her daughter died suddenly in January of 2008. Karen
maintained the home during the period her daughter was alive.
13.
David Astelle pays the full cost of the home in which he and his 23 year
old daughter live. She is not a full time student or disabled. His daughter
earns $3,600 and does not qualify as his dependent. His wife died in
2006.
14.
Shilo Cruise is unmarried and lived all year with her boyfriend, Sweeny
Todd, and Sweeny’s 10-year-old son, Johnny. Sweeny does not know how
to locate Johnny’s mother. Sweeny was a bouncer and earned $5,000. He
will file a return only to get his withholding back. Shilo is a lawyer and
provides over half of the support of both Sweeny and Johnny and more 46
than half of the cost of keeping up the home. Shilo meets the test to claim
Johnny as a qualifying relative.
FILING STATUS
CLASSWORK 1: Determine the only filing status available or the most
advantageous filing status for each of the following:
1. Joe and Mary Smith are married. Joe works as a computer technician. Mary
stays home with their baby and has no income. MFJ
2. Mike Jones is a truck driver. Cathy, his wife, is also a truck driver. They only
lived together for three months of 2008. They have no dependents. MFJ
3. Ted MacNamara is unmarried and a part-time student. He rents an
apartment and works at Wal-Mart. S
4. Judy Vasquez lost her husband two years ago. She lives alone in a
retirement home.
S
5. Mark and Katie Sanders were married and they lived together with their
daughter, Abigail, age ten, until 2007 when Mark was killed in an auto
accident. Abigail attends a boarding school and comes home for the
summer. Q/W
6. Debra Johnson is legally separated from her husband. She pays over half the
cost of maintaining her home. Her ten-year-old son lives with her and is
claimed by her estranged husband as his dependent. H/H
7. Patrick Bartley’s wife died in April 2008. In November 2008, he married her
sister, Jezebel. MFJ (new Spouse)
47
FILING STATUS
CLASSWORK 1: Determine the only filing status available or the most
advantageous filing status for each of the following:
8.
John and Stella Zuty are married and live together. Both are employed.
John is very independent and does not want to file a joint return with
Stella. MFS
9.
Matthew Moore is unmarried and lives alone. He works in a factory. He
pays over half the cost of keeping his father, whom he claims as a
dependent, in a home for the elderly. H/H
10.
Rita is 20 years old and unmarried. She lives with her boyfriend, Ali, who
is a full-time student and does not work. She works at the campus
bookstore and provides all of the cost of maintaining the home. S
11.
Ken Demmer is a stockbroker. He divorced his wife, Phyllis, on December
30, 2008. Their two children live with Phyllis and she pays over half the
cost of keeping up their home. What is Ken’s filing status? S
12.
Karen Karner is divorced and was providing the cost of raising her
daughter until her daughter died suddenly in January of 2008. Karen
maintained the home during the period her daughter was alive. H/H
13.
David Astelle pays the full cost of the home in which he and his 23 year
old daughter live. She is not a full time student or disabled. His daughter
earns $3,600 and does not qualify as his dependent. His wife died in
2006. S
14.
Shilo Cruise is unmarried and lived all year with her boyfriend, Sweeny
Todd, and Sweeny’s 10-year-old son, Johnny. Sweeny does not know how
to locate Johnny’s mother. Sweeny was a bouncer and earned $5,000. He
will file a return only to get his withholding back. Shilo is a lawyer and
provides over half of the support of both Sweeny and Johnny and more 48
than half of the cost of keeping up the home. Shilo meets the test to claim
Johnny as a qualifying relative. S
FILING STATUS
CLASSWORK 2: True or False.
1. On a joint return, both individuals must have income.
2. Under the Head of Household filing status, a qualifying person must be a child.
3. In general, filing status depends on whether you are married or unmarried.
4. If you were widowed during the tax year and did not remarry during the tax year
and you have no children, your filing status is Single.
5. A married couple living together must file Married Filing Jointly.
6. If you are married, you can never file as Head of Household.
7. The Single filing status generally has a higher tax rate than Head of Household.
8. If more than one filing status applies to you, you must choose the one with the
higher tax rate.
9. You are considered unmarried for the whole year if, on the last day of the tax year,
you are unmarried or legally separated.
10. If your spouse died during the year, you are considered married for the whole
year for filing status purposes.
11. Once you file a joint return, you cannot choose to file separate returns for that
year after the due date of the return.
12. A dependent can qualify only one taxpayer to use Head of Household for any tax
49
year.
FILING STATUS
CLASSWORK 2: True or False.
1. On a joint return, both individuals must have income. F
2. Under the Head of Household filing status, a qualifying person must be a child. F
3. In general, filing status depends on whether you are married or unmarried. T
4. If you were widowed during the tax year and did not remarry during the tax year
and you have no children, your filing status is Single. F
5. A married couple living together must file Married Filing Jointly. F
6. If you are married, you can never file as Head of Household. F
7. The Single filing status generally has a higher tax rate than Head of Household. T
8. If more than one filing status applies to you, you must choose the one with the
higher tax rate. F
9. You are considered unmarried for the whole year if, on the last day of the tax year,
you are unmarried or legally separated. T
10. If your spouse died during the year, you are considered married for the whole
year for filing status purposes. T
11. Once you file a joint return, you cannot choose to file separate returns for that
year after the due date of the return. T
12. A dependent can qualify only one taxpayer to use Head of Household for any tax
50
year. T
Questions & Answers