Chapter 14 The Individual Tax Model

Taxable Income Computation Taxable Income Computation  Add all income from whatever source derived during the taxable year (line 22 on Form 1040).  Subtract “adjustments” (IRA contributions, alimony, etc.) to arrive at Adjusted Gross Income (AGI) (Line 37 of 1040).  Subtract the greater of:  itemized deductions or  the standard deduction  Subtract total exemptions  Result is Taxable Income

ExemptionsExemptions  Personal exemption for the taxpayer (2 for MFJ).  If you are a dependent on someone else’s return, can you still claim yourself?  Exemption = $4,000 in 2015 for taxpayer, spouse, and each eligible dependent.  Exemptions phase out as taxable income exceeds $309,900 for married taxpayers ($248,250 for singles)  Phase-out computation is complex (see Appendix 14-B)

Exemptions for Dependents  Family member OR live in your home for entire year.  You provide > 1/2 financial support  Dependent’s gross income < exemption amount  waived for child < 19 OR student-child<24  Dependent may not generally file a joint return.  Dependent must be a U.S. citizen OR a resident of US, Mexico, or Canada