MEMO #:3
GROUP #:4 / Writer: Micah Bang / Reviewers: Yizhou Chen & Drew Rasmussen
FACTS: Jackie Johnson (age 79) receives Social Security benefits from the Federal government. Due to her husband’s recent death, she inherited many municipal bonds he had purchased, and subsequently receives a large amount of interest income each quarter.
ISSUE: Whether or not Jackie’s Social Security benefits must be reported as taxable income to the IRS, if so, to what extent, and how the municipal bond interest income affects the tax treatment of the Social Security benefits.
AUTHORITIES: Standard Federal Tax Reporter (2015), Section 86. SOCIAL SECURITY AND TIER 1 RAILROAD RETIREMENT BENEFITS
CONCLUSION: Jackie’s Social Security benefits must be reported as taxable income to the IRS, and the treatment heavily depends on her filing status. If Jackie files a joint return to
…show more content…
Assuming Jackie’s husband passed away within the calendar year, Jackie can elect to file a single/surviving spouse or joint return. According to Section 86 of the Standard Federal Tax Reporter, if Jackie elects to file an individual return, her base amount and adjusted base amount are $25,000 and $34,000, respectively. If she instead elects to file a joint return, her base amount and adjusted base amount are $32,000 and $44,000, respectively.
If Jackie’s provisional income exceeds her base amount, then the lower of half of the excess above the base amount or half of her benefits are included in taxable income. Provisional income is equal to Jackie’s Modified Adjusted Gross Income (Adjusted Gross Income plus any tax-exempt interest income) plus half of her Social Security benefits. If her provisional income is greater than the former figures in the above paragraph, then the lesser of: half of her benefits, or, half of the excess above the base amount are included in her taxable
Regulation §1.704-1(b)(2) states that in determining whether a special allocation has a principal purpose of avoidance or evasion of Federal income tax, a facts and circumstances test must be considered. Such a test involves asking a series of questions
She can use Schedule C that is part of the Form 1040 in joint filing. Separate can also mean LLC which does report separately. Tax on the income will be part of their joint return, whether using a Schedule C or LLC.
Spouse A’s $142,000 income from his K-1 is his partnership income. This is included in his taxable income.
The most advantageous filing status for spouse A and spouse B to use is married filing jointly.
* Estate Tax: combine with taxable gifts; to derive taxable estate, you are entitled to subtract contributions to spouse & charity. Only eligible for exemption if not used for gift tax purposes.
Discuss filing requirement? - Filing requirements are specified by law for each type of taxpayer. In addition, all corporation must file a tax return annually regardless of their taxable income. Therefore, estates and trusts are required to file annual income tax returns if their gross income exceeds $600. In the filing requirements for individual taxpayers are a little more complex as they depend on the taxpayer’s filing status, age and gross income. The gross income thresholds are calculated as the sum of the standard deduction, additional deduction for taxpayers age 65 or older and personal exemptions that should be applied to each respective filing status. In addition, the amounts are indexed each year for inflation. Thus, when a taxpayer is due a refund which happened to occur only when
Ken reported the following financial information this year. Assume Ken’s modified adjusted gross income for purposes of the bond interest exclusion and for determining the taxability of his Social Security benefits is $70,000 and that Ken files as a single taxpayer. Determine Ken’s 2009 gross income.
Issue e) What tax benefits would John realize if he invested $15,000 in Jane 's jewelry making?
3) Residents are taxed at a different tax rate to non-residents. Discuss the main difference between residents and non-residents and tests that are being applied to distinguish between those two categories.
Hoffman, W., Maloney, D., Raabe, W., & Young, J. (2013). Federal Taxation Comprehensive Volume. (36 ed.). Ohio: South-W
How Social Security functioned was a part of the workers check would be deducted and given to the elderly as "Social Security" at that present time. Then in turn when that person came of age to retire (generally 65) America's working force at the time would support them with a monthly check. Sometimes that check would coincide with how much they made when they were working but not always.
Some Social Security disability beneficiaries may have to pay federal income taxes, while some do not. Here are ways to determine whether or not you have to pay taxes on social security disability benefits.
First and foremost, despite slight recent increases in the amount of income obtained by members of the older population, their economic status is still quite perilous (Federal Interagency Forum, 2012).1 Men in this category have a median income of $27,707, while women continue to lag behind with a median income of $15,362 (AOA & AOCL, 2012). A vast majority of these individuals cite Social Security as their primary source for this income, amounting to 86-percent of the total older population (AOA & AOCL,
A. Social Security is a Federal program where they take a percentage from all of the wages earned by workers in this country.
A Social Security tax is paid on the first $106,800 of income that is earned but anything thereafter is not exposed to this tax. Taxes that are paid in for Social Security are most commonly known as going towards old-age benefits that are received when retirement age is met. It also goes towards survivors, such as the spouse or young children of someone who has passed, and disability insurance. The taxes paid in for Medicare go towards the medical insurance of those who are over the age of 65 or those who meet other decisive factor. The Medicare portion of the self-employment taxes is not subject to any restriction on earnings and as a result all earning will be accountable for this tax. (Internal Revenue Service, 2011)