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Spouse A Case Study

Decent Essays
1) Recommended Tax Filing Status
Spouse A has varying sources of income and given the characteristics of his personal and professional life, he can claim a number of deductions. Owing to the fact that Spouse A and Spouse B have varying sources of income, Spouse A would most ideally file the IRS 1040 form jointly with his wife’s tax returns. This is because a joint tax return would give them access to a host of deductions for which they are eligible. These include earned income tax credits, American Opportunity and Lifetime Learning Education Tax Credits, and Child and Dependent Care Tax Credit. Under joint filing, the couple could exclude the income of $500,000 from the sale of their personal residence, while separate filing would only allow a $250,000 deduction.
2) Rules on Income
a) Taxable and Nontaxable Income
Child support that Spouse B receives is not taxable since it is not considered income. Any form of child support is not taxable. Alimony that is paid out by spouse A is deductible since it is going to be taxed on the recipient of the alimony as income (John Wiley & Sons, 2013).
b) Short-term and long-term capital gains or losses
A capital gain or loss is considered on the sale or the returns from an asset. There are short-term capital gains or losses that amount from the sales of an asset which are owned for less
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The amount that is eligible for taxation is the difference between the buying price of the stock and the selling price (Zelenak, 2013). Given there is a capital gain, the resulting gain is taxed while a loss makes the applicant viable for a tax deduction. The capital gains or losses usually arise when an individual has sold off an asset at a profit. A salient example is the sale of the rental house that was sold for a profit of $44,000. There are limits to a capital loss that can be reported ($3,000) given the capital losses surpass the capital
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