This course is the first course in a five-course US Federal Tax Specialization. It covers and focuses on the U.S. federal tax system as it relates to individuals, employees, and sole proprietors. Key concepts covered include gross income and items that are statutorily included or excluded in it, personal and business expenses that qualify as tax deductions, and the differing tax treatments for employees versus self-employed taxpayers. Unlike many other introductory courses in tax and as part of this course’s comprehensive wrap-up, learners will be provided with practical and tangible experience reporting both income and expenses on the main individual tax return used in the US, Form 1040. If you have enjoyed this course, consider enrolling in our online graduate Accounting program. The University of Illinois at Urbana-Champaign, consistently ranked as one of the nation's top three accounting programs, now offers a master’s in accounting at a very affordable tuition rate and is completely online. The iMSA is a full Master of Accountancy program and students graduate with an MS that is highly recognized. Try an open course or two, then apply for admission into the credit-bearing version as you may be eligible to take credit-bearing courses during the application process. If you are missing any prerequisites for the full degree, you can complete Coursera courses to demonstrate readiness and strengthen your application for the iMSA. For more information on this exciting iMSA online program, refer to this link: https://www.coursera.org/degrees/imsa
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Del curso dictado por University of Illinois at Urbana-Champaign
Federal Taxation I: Individuals, Employees, and Sole Proprietors
60 calificaciones
University of Illinois at Urbana-Champaign
60 calificaciones
Curso 1 de 5 en SpecializationU.S. Federal Taxation
De la lección
MODULE 2: COMPUTING THE TAX
In this module, we will take a deeper dive into each part of the U.S. Federal income tax structure, with a focus on what is included in Gross Income. We will learn how for-AGI deductions reduce gross income to generate Adjusted Gross Income, or AGI, and why AGI is an important number which determines the floors and ceilings of many from-AGI deductions. We will also discuss exemptions, and the rules for claiming Personal and Dependency Exemptions. We will wrap up the module with a discussion of the actual calculation of the tax as well as the filing status and the filing requirements.
Conoce a los instructores
Petro Lisowsky, PhD, CPAAssociate Professor of Accountancy
College of Business: Department of Accountancy
Welcome back. So one of the first things the taxpayer has to determine when
filing their tax return is his or her filing status.
There are actually five filing statuses that an individual can potentially select from.
A taxpayer who can file as a single person;
as married, filing jointly;
as a surviving spouse or qualifying widow or widower with dependent child;
as a head of household;
or married, but filing separately.
So why is filing status important?
It's important because it affects which tax rates the taxpayer will use,
the size of the standard deduction,
and other amounts that have implications for calculating the year's income tax liability.
So let's look at each of these filings statuses in more detail.
First we have a single filer.
The single filing status represents actually
the default case when the other filing statuses don't apply.
To be single, one has to be unmarried but not head of household,
which we'll talk about in a few minutes.
Single can be an unmarried taxpayer or
a taxpayer that's legally separated from his or her spouse
by divorce decree or separate maintenance agreement
and doesn't qualify for another filing status.
Here, marital status is determined as of the last day of the tax year.
So if you were married to someone on December 31 of the tax year, you're not single.
And this is regardless of whether you were married the entire year,
married for one day during the year,
or married for 364 days that year.
If you're married to someone on December 31,
you would be married and so you could not file as a single person.
Speaking of marital status,
next let's talk about married filing jointly or MFJ.
Again, marital status is determined as of the last day of the year.
If two taxpayers are married as of December 31,
they can file as MFJ.
Note that same-sex couples are recognized now as
married for federal income tax reporting purposes.
Also note that if a spouse dies,
a survivor is technically considered married to the decedent at year-end,
and therefore the surviving spouse can in fact still file as married filing jointly.
Overall, when taxpayers file as married filing jointly,
for legal purposes, they have what's known as joint and several liability.
Therefore, both spouses attest that the information
reported on the joint tax return is accurate and complete.
And if it's not, the IRS can sue either one spouse or the
other and go after the entire tax liability owed.
There is a small exception here,
that one of the spouses can claim an innocent spouse defense.
If, for example, one spouse was engaging in
tax fraud and the innocent spouse had no idea,
trusted their spouse, signed the return,
and still attested that the tax return was accurate and complete.
However, this defense is difficult since
the spouse has to essentially prove a negative, that is,
they did not know something and convince the IRS that they were not
liable even though they said they would be by signing and filing a joint return.
The third filing status is known as
surviving spouse or qualifying widow or widower with child.
This status is actually available for two years after the death of a spouse,
but only if the surviving spouse takes care of a dependent child.
So for example, in the year that a spouse dies,
the surviving spouse can file married filing jointly as we saw in the last slide.
But for the two years after the person's death,
if the couple had a dependent child and
the surviving spouse continues to take care of the child,
the surviving spouse can file under this status,
assuming the surviving spouse does not remarry during this two-year period.
The benefit of filing in this status is that the standard deduction is the same as
for MFJ or twice the single filer standard deduction amount,
even though there's only one surviving spouse filing the tax return.
Therefore, if the person qualifies,
it's more advantageous to stick with
the surviving spouse designation for the two years after
a spouse's death if the surviving spouse has
a child than to go over to single status even though,
technically, the surviving spouse is unmarried.
Our fourth filing status is known as head of household.
This taxpayer must be unmarried as of
the year-end or be what's known as an abandoned spouse.
To qualify as a standard head of household filer,
the taxpayer must pay more than 50 percent of
the cost of maintaining a household that serves as
a principal residence for a qualifying child or a qualifying relative,
or pay more than 50 percent of the cost of maintaining a separate household for
the taxpayer's mother or father if the mother or father is a qualifying relative.
So recall that we discussed qualifying children
and qualifying relatives in an earlier video.
So going back to our example,
in the year that the spouse dies,
the surviving spouse can still file married filing jointly,
then for the two years after the person's death,
if the couple had a dependent child and
the surviving spouse continues to take care of the child,
the spouse can file under the surviving spouse filing status.
If after the two-year period expires and
the surviving spouse still supports a qualifying child,
then the surviving spouse can now file as a head of household.
The benefit of the head of household is that
the standard deduction amount is greater than for a single filer,
although it's less than for MFJ or surviving spouse.
So in a way, the head of household status essentially provides for
a middle ground between the standard deduction between the
single and the MFJ filing statuses.
Also under head of household,
a taxpayer can file as an abandoned spouse.
If a spouse does not live in the home for at least six months of
the year and the spouse who stays in the home pays
more than 50 percent of the cost of maintaining the home that
serves as the principal residence for a qualifying child or children,
then the spouse filing the tax return can file as a head of household.
Using head of household here provides some relief to
the taxpayer in that although they're technically married and could
have filed a married filing jointly return before
the abandonment and now can't because the other spouse isn't there to sign the return,
the taxpayer also can't file as a single because
they're still technically married as of the last day of the year.
The head of household status here again provides for
a middle ground between filing as under a single or
MFJ as the standard deduction amount under head of household is
between the standard deduction amounts for single and MFJ.
Our fifth filing status is known as married filing separately.
So here the taxpayers are married as of the last day of the tax year,
but they choose to file separate returns.
The benefit of this filing status varies,
but couples generally that are married with kids will file a joint tax return.
But there may be some beneficial non-tax reasons
to file married filing separately as well.
For example, perhaps a dispute between the couple occurs that may
result in a separation or divorce in the future,
or the couple wants to separate their assets.
For example, maybe they're high-net-worth individuals or if one spouse is a
high-net-worth individual and the other isn't
and they arrange their finances to keep the assets separate.
Because the married couple is filing separately,
for this filing status, there is,
in fact, no joint and several liability.
Here, each taxpayer is only responsible for the tax return he or she signs
and not responsible for what the other spouse may have put on their tax return.
A few notes here worth discussing related to
how filing statuses can interact with exemptions.
For example, recall that the head of household requires
a qualifying child or qualifying relative.
Otherwise, the unmarried person has to file as a single person,
not head of household.
This is important because we know that the standard deduction amount for
single taxpayers is lower than
the standard deduction amount for the head of household taxpayer.
Next, if multiple people live together,
they need to determine what
any marital statuses and/or perhaps dependency statuses exist.
For example, if a family constituting three generations lives together in one house,
the question becomes 'Who's the dependent?'
and then 'Whose tax return?'
and 'Who's not a dependent?'
A grandparent can be a dependent,
or the children can be dependents or not,
so one would have to assess how old the children are and how much support
is provided to them and/or the grandparents.
Note that a taxpayer may qualify, in fact,
for multiple statuses, either at a point in time or over time.
For example, a taxpayer with a qualifying child or
a qualifying relative can either be a head of household or technically single.
But of course, the head of household provides a larger standard deduction amount.
The taxpayer can also be a qualifying widow or widower or a head of household if there's
a qualifying child and it's within two years after a spouse's death.
But of course the qualifying widow or widower
status provides the larger standard deduction amount.
Finally, a taxpayer can either be
single or married filing jointly in a year that a spouse
dies assuming it's a childless couple
or maybe the children are all grown up and not dependents.
But the married filing joint status will still get
the largest tax deduction amount relative to single,
and the rules allow a surviving spouse to claim
married filing joint in the year a spouse dies.
So in all, it's important to see how our five filing statuses – single,
married filing jointly, surviving spouse, head of household,
and married filing separately – are determined and how they can
be linked to dependency status.
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