Taxes, Part 2
Question 1: Explain how to qualify for a special allowance and additional withholding allowance.
Answer 1: A taxpayer who is single and has only one job or married to a nonworking spouse may qualify for a special allowance. Additionally, if the taxpayer’s wages from a second job or a spouse’s wages are less than $1,000, they can also qualify. If a taxpayer is the head of household, has a large number of deductions, or has at least $1,500 of claimable child or dependent care expenses, an additional withholding allowance may be granted.
There are lots of good resources about Taxes that you can find available.
Question 2: Explain the three basic categories into which individual income falls.
Answer 2: Individual income can be classified as portfolio, active, or passive. All of these have limitations on the number of deductions or write-offs a taxpayer can use. Portfolio income comes from investment earnings like bonds, stocks, savings accounts, and mutual funds. Active income is income earned through employment, like salaries, wages, bonuses, tips, and commissions. Noninvestment income like pensions and alimony also fall under this category. Passive income is that earned from limited partnerships and real estate as well as other types of tax shelters.
Question 3: Explain what adjustments to gross income are and cite examples.
Answer 3: Adjustments to gross income are deductions allowed from gross income and can include employee, insurance, retirement, and support expenses. Most of these deductions are nonbusinesss and include paid alimony and self-employment taxes (limited to 50 percent of the amount paid) as well as some moving expenses, educator expenses, and IRA contributions. Other deductions include insurance payments for those who are self-employed and early withdrawal of savings penalties. After you have subtracted all of the allowable adjustments to your gross income, you are left with adjusted gross income (AGI). It is important to know the AGI value because it determines the limits for certain itemized deductions.
Previous: Taxes, Part 1 - Next: Technical Editing, Part 1
|
