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Liberty Tax Service Online Basic Income Tax Course. Lesson 3.

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Presentation on theme: "Liberty Tax Service Online Basic Income Tax Course. Lesson 3."— Presentation transcript:

1 Liberty Tax Service Online Basic Income Tax Course. Lesson 3

2 2 HOMEWORK CHAPTER 2 Robert R. (SSN ) and Shirley M. Peters (SSN ) have three children that live with them, Keith, Martha, and Jude. Robert’s mother, Lucy Peters (SSN ), also lives with them at 45 Deer Park Run, Allen Park, MI Robert and Shirley are filing jointly. Keith (born 4/2/2001, SSN ) is their youngest. He was adopted in 2007 from a legal agency in Columbia. Martha (SSN ) is 18 years old and worked at a department store where she earned $3,400. Jude (SSN ) is 22 years old and a full-time college student. He works part-time during school and full- time 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 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 $600Clothing850 Beauty Salon 780 Cosmetics140 Medical Expenses 900 Entertainment300 Gifts300 Transportation350 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.

3 3 HOMEWORK CHAPTER 2 Robert R. (SSN ) and Shirley M. Peters (SSN ) have three children that live with them, Keith, Martha, and Jude. Robert’s mother, Lucy Peters (SSN ), also lives with them at 45 Deer Park Run, Allen Park, MI Robert and Shirley are filing jointly. Keith (born 4/2/2001, SSN ) is their youngest. He was adopted in 2007 from a legal agency in Columbia. Martha (SSN ) is 18 years old and worked at a department store where she earned $3,400. Jude (SSN ) is 22 years old and a full-time college student. He works part-time during school and full- time 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 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 $600Clothing850 Beauty Salon 780 Cosmetics140 Medical Expenses 900 Entertainment300 Gifts300 Transportation350 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.

4 4 HOMEWORK CHAPTER 2

5 5

6 6 Chapter 3: FILING STATUS Chapter Content Purpose of Filing Status Purpose of Filing Status Filing Status (1): Single Filing Status (1): Single Filing Status (2): Married Filing Joint Filing Status (2): Married Filing Joint Filing Status (3): Married Filing Separate Filing Status (3): Married Filing Separate Filing Status (4): Head of Household Filing Status (4): Head of Household Filing Status (5): Qualifying Widow(er) with Dependent Child Filing Status (5): Qualifying Widow(er) with Dependent Child Key Ideas Key Ideas Objectives Understand the Five Filing Statuses Understand the Five Filing Statuses Determine the Filing Status of an Individual Determine the Filing Status of an Individual

7 7 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 decree

8 8 FILING STATUS There are five filing statuses: 1.Single (S) 2.Married Filing Jointly (MFJ) 3.Married Filing Separately (MFS) 4.Head of Household (H/H) 5.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.

9 9 FILING STATUS

10 10 FILING STATUS Form 1040 page 1

11 11 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 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).

12 12 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. 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. 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. 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.

13 13 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 income (domestic and foreign) on the return.

14 14 MARRIED FILING JOINTLY (2) Fred Williams died on September 1, 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?

15 15 MARRIED FILING JOINTLY (2) Fred Williams died on September 1, 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.

16 16 MARRIED FILING SEPARATELY (3) 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 want to be responsible for only your own tax. You and your spouse do not agree to file a joint return. 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.

17 17 MARRIED FILING SEPARATELY (3) 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 itemizes deductions. 4. You cannot claim the credit for child and dependent care expenses in most instances. 5. You cannot deduct interest paid on a qualified student loan. 6. You cannot claim education credits. 7. 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 security benefits.

18 18 MARRIED FILING SEPARATELY (3) MARRIED FILING SEPARATELY (3) Jack and Joan were married on December 12, They both have major investments and they want to be responsible only for their own tax. How should they file? MFJ or MFS?

19 19 MARRIED FILING SEPARATELY (3) MARRIED FILING SEPARATELY (3) Jack and Joan were married on December 12, 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.

20 20 MARRIED FILING SEPARATELY (3) MARRIED FILING SEPARATELY (3) Tim P. (SSN ) and Tina A. Halloway are filing as MFS. Tina’s social security number is How would they fill out their 1040?

21 21 MARRIED FILING SEPARATELY (3) MARRIED FILING SEPARATELY (3) Tim P. (SSN ) and Tina A. Halloway are filing as MFS. Tina’s social security number is 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.

22 22 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, 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 A qualifying person generally must have lived with you in the home for more than half the tax year

23 23 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

24 24 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.)

25 25 HEAD OF HOUSEHOLD: (4)

26 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 or No?

27 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. May Alise file as H/H? Yes Alise may file H/H with Megan as the qualifying child.

28 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?

29 29 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.

30 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. Yes or No?

31 31 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.

32 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 or No?

33 33 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.

34 34 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 allowed to claim the exemption for the child.

35 35 HEAD OF HOUSEHOLD: (4) Jason and Joan Jutt have been separated since January 31, 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?

36 36 HEAD OF HOUSEHOLD: (4) Jason and Joan Jutt have been separated since January 31, 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.

37 37 HEAD OF HOUSEHOLD: (4)

38 38 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 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.

39 39 QUALIFYING WIDOW(ER) WITH DEPENDENT CHILD (5) Jeff Termack died in 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?

40 40 QUALIFYING WIDOW(ER) WITH DEPENDENT CHILD (5) Jeff Termack died in 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.

41 41 QUALIFYING WIDOW(ER) WITH DEPENDENT CHILD (5) Jeff Termack died in 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 be filled out?

42 42 QUALIFYING WIDOW(ER) WITH DEPENDENT CHILD (5) Jeff Termack died in 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 be filled out?

43 43 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

44 44 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

45 45 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 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 In November 2008, he married her sister, Jezebel.

46 46 FILING STATUS CLASSWORK 1: Determine the only filing status available or the most advantageous filing status for each of the following: 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 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 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 Ken Demmer is a stockbroker. He divorced his wife, Phyllis, on December 30, Their two children live with Phyllis and she pays over half the cost of keeping up their home. What is Ken’s filing status? Karen Karner is divorced and was providing the cost of raising her daughter until her daughter died suddenly in January of Karen maintained the home during the period her daughter was alive 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 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 than half of the cost of keeping up the home. Shilo meets the test to claim Johnny as a qualifying relative.

47 47 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 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 In November 2008, he married her sister, Jezebel. MFJ (new Spouse)

48 48 FILING STATUS CLASSWORK 1: Determine the only filing status available or the most advantageous filing status for each of the following: 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 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 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 Ken Demmer is a stockbroker. He divorced his wife, Phyllis, on December 30, 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 Karen Karner is divorced and was providing the cost of raising her daughter until her daughter died suddenly in January of Karen maintained the home during the period her daughter was alive. H/H 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 S 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 than half of the cost of keeping up the home. Shilo meets the test to claim Johnny as a qualifying relative. S

49 49 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 year.

50 50 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 year. T

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