Computation of taxable income: The following information for 2009 relates to Tom, a single taxpayer, age 18.
Salary $1,800
Intrest income $1,600
Itemized deductions $ 600
A. Compute Tom's taxable income assuming he is self-supporting
B. Compute Toms's taxable income assuming he is a dependent of his parents.
To compute Tom's taxable income, we need to understand the relevant tax laws and regulations. The taxable income is calculated by subtracting deductions from the total income. I will explain how to calculate Tom's taxable income in both scenarios - as a self-supporting taxpayer and as a dependent of his parents.
A. Compute Tom's taxable income assuming he is self-supporting:
1. Start with Tom's total income:
- Salary: $1,800
- Interest income: $1,600
Total income: $1,800 + $1,600 = $3,400
2. Subtract Tom's allowable deductions:
- Itemized deductions: $600
Allowed deductions: $600
3. Calculate the taxable income:
Taxable income = Total income - Allowed deductions
Taxable income = $3,400 - $600 = $2,800
Therefore, Tom's taxable income, assuming he is self-supporting, is $2,800.
B. Compute Tom's taxable income assuming he is a dependent of his parents:
When a taxpayer is a dependent, the tax rules are different. The dependent taxpayer must consider the dependency rules and follow specific guidelines outlined by the IRS. Below is an overview of how a dependent taxpayer's taxable income is calculated.
1. Start with Tom's total income:
- Salary: $1,800
- Interest income: $1,600
Total income: $1,800 + $1,600 = $3,400
2. Determine Tom's standard deduction:
As a dependent, Tom's standard deduction is limited. In 2009, a dependents' standard deduction was generally equal to the greater of:
- $950 or
- Tom's earned income up to $5,700
In this case, Tom's earned income is $1,800, so the standard deduction is $1,800.
3. Calculate Tom's taxable income:
Taxable income = Total income - Standard deduction
Taxable income = $3,400 - $1,800 = $1,600
Therefore, Tom's taxable income, assuming he is a dependent of his parents, is $1,600.