ACA 1 Task 2 Answer Essay

1044 WordsJan 24, 20145 Pages
ACA1 Tax Treatments for Individual Returns (Task 302.2.3) Use the following format for your essay. It is based on the grading rubric structure. Identify the item in the appropriate rubric area and then present your reasoning in a paragraph for each tax decision you have made. Use as much space as necessary in each category. (The task instructions give a suggested total length of 2-5 pages. A. Recommended Tax Filing Status The recommended tax filing status for this family is Married Filing Jointly. The reason I would recommend this filing status is that there are three children that are qualifying children, but the college freshman is not under the age of 17 so that child does not qualify for the child tax credit. Spouse B’s…show more content…
A2b. Capital Gains and Losses The $44,000 profit from the sale of the rental house is a taxable gain because it was not the family’s main residence. The $5,000 stock trading loss that Spouse B incurred would be a capital loss. But only $3,000 of the loss will be able to be deducted in the current year, the other $2,000 will be a loss carryover. The rule for Capital Gains & Losses is that when a capital asset is sold, the difference between the amount you paid for the asset and the amount you sold it for is a capital gain or capital loss. A2c. Profit or Losses from Sale of Property The profit from selling the family’s main residence is not considered to be a taxable gain because the family lived there for more than 2 years within the past 5 years and because the gain on the sale was less than $500,000. The amount of the exclusion for the couple is $296,000. A2d. Partnership Income and Losses Spouse A’s $142,000 income from his K-1 is his partnership income. This is included in his taxable income. Spouse A’s cash withdrawals are not taxable because they are accounted for on his K-1 as part of his income from the partnership. Only Spouse A’s share of the net income of the partnership is considered to be his taxable income. A2e. Passive Activity Gains and Losses The family had a passive activity loss of $6,200 from their rental properties because the family
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