Aca1 Task 2

2101 Words Oct 30th, 2015 9 Pages
ACA1 Task 2
A: Recommendation for tax filing status
It is my recommendation that this couple file as Married Filing Jointly. The IRS allows for five different filing statuses, which are Single, Married Filing Separately, Married Filing Jointly, Head of Household or Qualifying Widow or Widower with dependent child. Since the couple is married and both are still alive they will have to file as Married Filing Separately or Married Filing Jointly. The couple has 3 children which will allow for 3 dependency exemptions and they qualify for 2 personal exemptions. The children are all under the age of 19 so they are able to claim all 3 children. They do take care of Spouse B’s mother but are not able to claim her as a dependent because
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If the couple is married and filed jointly then it is an exclusion of up to $500,000. The rules that apply to Section 121 are as follows. * The owners of the property would have to use the residence 2 of the last 5 years prior to the date of the sale. * This exclusion also only applies of the couple has not used the section 121 within the last 2 years.
Since the owners are filing jointly they will be able use excluded the full $296,000 of the sales of the residence. They also have lived at the residence for at least 2 of the last 5 years and have not used the Section 121 within the last 2 years.
The sale from rental property are also taxable but the adjusted cost needs to be figured out. The profit $44,000 needs to be adjusted for repairs and improvements, purchasing and selling cost, accumulated depreciation of the property and rent received from the tenant’s prior to the sale. Based on the adjusted cost it is a capital gain or loss deductible from the total income.
A2d. Partnership Income and Losses
The couple will need to report $142,000 of income from the partnership will need to be reported on the Schedule E of Form 1040. The couple did make withdrawals in the amount of $85,000 but this amount cannot be taxed unless it exceeds the partner’s basis in the partnership. Partnerships report the income and losses on the IRS from 1065. This amount is reported to the partners on the Schedule K-1.
A2e. Passive Activity

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