1. Recommended Tax Filing Status
Tax filing status refers to the way in which a taxpayer is to file his/her returns with the tax authority. Tax returns can be filed in various ways which include: filing singly i.e. for an unmarried person, married couples filing jointly, or married couples filing their returns separately. For a couple, it is always advantageous to file their returns jointly as this will reduce the amount of tax they are to pay. However, there may arise situations when they may be required to file their returns separately e.g. when their sources of income are total different and therefore it might be misleading to combine their incomes together.
Tax is imposed on income by application of the tax rate which may increase as income increases to taxable income as stipulated by federal laws. Partnerships are not taxed though their partners are taxed on their shares of income from partnership. Estates and trusts may be taxable based on income undistributed from them whereas individuals are directly taxable. Credits reduce tax while some may go way above the credits. Individual income deductibles include exemptions, some expenditures, interest on mortgage, taxes, charity contributions though they are limited to some. Gains in capital are taxable in full and losses in capital reduce income to be taxed but only to the extent of the latter.
Taxable income
This includes the gross income adjusted by removing deductions from taxes. Gross income includes any income received by an individual from different sources. That is remunerations, pensions, tips, costs of sold goods, costs of services given, income from commercial activities, gains from sales of owned property, receivables from rents, interests, and dividends, received alimony, sales proceeds among others. However municipal bonds interests are exempted from taxes.
Adjustments normally reduce taxable income are: paid alimony, contributions to retirement plans, health savings plans, half of self employment tax. A cost of goods sold reduces the gross income. Tax deductions on taxable income include rent paid, salaries paid. Expenses paid fro m businesses depreciation allowances. 2011 standard federal deductions are 11600 for married individuals and 8500 for the head of the household if they choose an itemized deduction they get deduction based on several conditions and limitations.
Answers
Taxable income calculations
Details
Amount
Pensions received from mother - 7920
Sales proceeds electronics - 88,000
Costs of refereeing - 2,000
Income from partnership - 142,000
Gains from sold property - 90,000
Rent received - 23,000
TOTAL - 352, 920
Taxable income refers to that part of a taxpayer’s income which is subjected to tax, either wholly or partly. Some specific sources of income are specifically stated in the law governing taxation e.g. employment income, while others are to be inferred from their nature. The profits from partnership are taxed and salary taxed at 11% rate. Earnings from trusts and mutual funds are deductible as well as interest income for tax filled by couples. Gains from rental property owned are taxed at a rate of 11% too for property yielding a capital loss of above 2%. A pension plan is also deductible unless the individual applies for exemptions according to stipulated rules. A capital gain from sale of property that is below 25000 and 500000 dollars for couples is deductible to the old value of property.
Non Taxable Income
Non-taxable income refers to that income which according to the provisions of the tax governing law, are not subject to tax. It may be a whole income or only an allowed maximum.
