Question

Discuss the formula for individual income tax, the requirements for determining personal and dependency exemptions, and how to determine filing status.

Answer 1

Subtract the deductions under chapter vl A from your Gross Total income .The result will be your total taxable income ,apply the tax rates relevant for the financial year for which the income has been calculated to compute your tax liability.

To claim dependency exemption ,the dependent must satisfy the requirements for a qualifying child or a qualifying relative .The main requirement is that the taxpayer claiming the dependent must have provided more than 1/2 of the dependends support during the tax year..A dependent must also meet the resident or citizen test at least some time during the year when the dependancy exemption is claimed.The resident must be a :

• citizen of the United States
• United States national
• resident of Canada or Mexico

From 1040 or 1040A ,US Individual INcome Tax Return ,exemptions are totaled and multiplied by the exemption amount ,which in then subtracted from adjusted gross income .However , the personal and dependency exemptions are not available under the Alternative Minimum Tax.

People with children have greater expences than those without ,the tax law reduces their tax liability by allowing them to claim exemption for themselves and any dependends .A taxpayer who cannot be claimed as dependend by another can claim a personal exemption ,which is adjusted annually for inflation ,plus an additional exemption for each dependend.The personal exemption and exemption for each dependend is equal.

A taxpayer may be able to claim more than on efiling status .Usually ,the taxpayer will choose the filing status which results in the lowest tax .Filing status determines the rate at which the income is taxed.The five filing status are:

• single
• married filing jointly
• married filing seperately
• head of household
• qualifying widow(er) with dependend child filing status.