Liberty Tax Service
Online Basic Income Tax
Course.
Lesson 6
1
HOMEWORK CHAPTER 5
HOMEWORK 1:
Henry H. (SSN 288-40-1920, born 3/18/1967) and Helen N.
Howards (SSN 201-21-2121, born 2/10/1969) are married
and live at 137 Grover Lane, Denver, CO 80202. They are
filing a joint return.
Henry is an industrial worker and Helen is a candy maker.
They have one child, Herbert (SSN 249-36-4987, born
5/19/1997) whom they claim as their dependent and who
is a qualifying child for the child tax credit. They received
$90 interest on a CD at Oakwood Bank. Their itemized
deductions on their 2007 joint return were $10,850.
Using the following documents, complete the front page of
Form 1040 and on the second page, line 62. Complete
Schedule B, if needed.
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HOMEWORK CHAPTER 5
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HOMEWORK CHAPTER 5
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HOMEWORK CHAPTER 5
Homework 1 - Answer
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HOMEWORK CHAPTER 5
Homework 1 - Answer
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HOMEWORK CHAPTER 5
Homework 1 - Answer
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HOMEWORK CHAPTER 5
HOMEWORK 2:
Frank S. (SSN 061-38-2625, born 11/9/1972) and Karen C.
Walt (SSN 078-41-4662, born 4/28/1977) are married
filing a joint return and live at 6 Red Fox Parkway, Hialeah,
FL 33002. Last year they filed a joint return and did not
itemize their deductions.
Frank is a greenhouse engineer and Karen is an executive
assistant. They have two children, Kara (SSN 031-42-3800,
born 8/3/1997) and Abigail (SSN 092-46-5921, born
2/1/2002) Walt, and both are qualifying children for the
child tax credit.
Complete the front page of Form 1040, line 62 and Schedule
B, if needed, for the Walts.
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HOMEWORK CHAPTER 5
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HOMEWORK CHAPTER 5
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HOMEWORK CHAPTER 5
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HOMEWORK CHAPTER 5
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HOMEWORK CHAPTER 5
Homework 2 - Answer
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HOMEWORK CHAPTER 5
Homework 2 - Answer
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HOMEWORK CHAPTER 5
Homework 2 - Answer
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HOMEWORK CHAPTER 5
Homework 2 - Answer
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Chapter 6: Standard Deduction and
Your Income tax
Chapter Content
Standard Deduction
Figuring Your Income Tax
Key Ideas
Objectives
Learn About Standard Deduction
Determine Who Can Use The Standard Deduction
Know How to Figure Your Income Tax
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Deductions
Deductions

Amounts that can be subtracted from AGI to
figure taxable income.

You may be able to subtract either the standard
deduction or itemized deductions.

When allowed to make the choice, use the
method that gives you the lower tax.
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Standard Deduction
Standard Deduction

Amount that reduces the amount of income on
which you are taxed.

Benefits in that it eliminates need to itemize
actual deductions.

Entered on line 40 of Form 1040.
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Standard Deduction
The standard deduction depends on:
 Filing status
 Whether you are 65 or older and/or are blind.
 Whether you can be claimed as a dependent
on another taxpayer’s return. Higher if you
are 65 or older and/or are blind.
 Refer to Tables 6-1, 6-2, and 6-3 to
figure standard deductions.
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Standard Deduction
Form 1040, Page 2
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Standard Deduction
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Standard Deduction
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Standard Deduction
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Standard Deduction – Problem 1
George is 54 years old and is married to Jenni,
age 51. They are filing a joint return
(neither is blind or claimed as a dependent
on another return). What is their standard
deduction?
a. $13,000
b. $10,900
c. $ 5,450
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Standard Deduction – Problem 1
George is 54 years old and is married to Jenni,
age 51. They are filing a joint return
(neither is blind or claimed as a dependent
on another return). What is their standard
deduction?
b. $10,900
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Standard Deduction – Problem 1
Form 1040, Page 2
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Standard Deduction – Problem 2
Bob and Betty are both over 65 years old (born
before January 2, 1944) and are filing a joint
return. Neither is blind nor claimed as a
dependent on another return. They check the
appropriate boxes on line 39a and enter 2 in the
box. According to Table 6-2, what is their
standard deduction?
a. $13,000
b. $11,950
c. $10,900
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Standard Deduction – Problem 2
Bob and Betty are both over 65 years old (born before
January 2, 1944) and are filing a joint return. Neither
is blind nor claimed as a dependent on another
return. They check the appropriate boxes on line 39a
and enter 2 in the box. According to Table 6-2, what
is their standard deduction?
a. $13,000
Form 1040, Page 2
2
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Standard Deduction – Problem 3
Michael is single and claimed as an exemption on his
parents' 2008 tax return. He has interest income of
$780 and wages of $150. He has no itemized
deductions. Using Table 6-3, what is Michael’s
standard deduction?
a. $5,450
b. $ 900
c. None of the above
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Standard Deduction – Problem 3
Michael is single and claimed as an exemption on his
parents' 2007 tax return. He has interest income of
$780 and wages of $150. He has no itemized
deductions. Using Table 6-3, what is Michael’s
standard deduction?
b. $
900
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Standard Deduction – Problem 3
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Standard Deduction – Problem 4
Daniel, a 22-year-old full-time college student, is
claimed on his parents’ 2008 tax return. Daniel is
married and files a separate return. His wife does not
itemize deductions on her separate return. Daniel
has $200 in interest income and wages of $3,800. He
has no itemized deductions. Using Table 6-3, what is
Daniel’s standard deduction?
a. $ 900
b. $5,450
c. $4,100
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Standard Deduction – Problem 4
Daniel, a 22-year-old full-time college student, is
claimed on his parents’ 2008 tax return. Daniel is
married and files a separate return. His wife does not
itemize deductions on her separate return. Daniel
has $200 in interest income and wages of $3,800. He
has no itemized deductions. Using Table 6-3, what is
Daniel’s standard deduction?
c. $4,100
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Standard Deduction – Problem 4
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Standard Deduction
Most taxpayers have a choice of either taking
the standard deduction or itemizing their
deductions. You are NOT eligible to take the
standard deduction if:
 You are married and filing a separate
return, and your spouse itemizes
deductions, or
 You are a nonresident or dual-status
alien during the year.
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Standard Deduction
Higher Standard Deduction for Real Estate Taxes
For 2008, your standard deduction is increased by the state
and local real estate taxes you paid, up to $500 ($1,000 if
married filing jointly). The real estate taxes must be taxes
that would have been deductible on Schedule A if you had
itemized your deductions (covered in Chapter 8).
Higher Standard Deduction for Net Disaster Loss
For 2008, your standard deduction is increased by your net
disaster loss. Your net disaster loss is your personal casualty
losses from a federally declared disaster minus any personal
gains. Casualty losses are covered in Chapter 13.
Standard Deduction Amount
Check the box on line 39c if you are claiming the standard
deduction and the amount includes real estate taxes or a net
disaster loss.
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Exemptions
 For most taxpayers, the exemption amount is
determined by multiplying $3,500 (for 2008) by the
number of exemptions (personal exemptions plus
dependent exemptions) entered on line 6d. Enter
your taxable income on line 43 of Form 1040.
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Your Income Tax & Withheld Taxes
Figuring Income Tax
Taxable income = AGI minus standard or
itemized deductions and exemptions.
1. If no adjustments, AGI, line 37 is the same
as total income on line 22.
2. Exemption amount is determined by
multiplying the number of exemptions on line 6d
of Form 1040 by $3,500 (line 42).
3. Enter your taxable income on line 43 of
Form 1040.
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Your Income Tax & Withheld Taxes
There are various methods for computing your
tax.
Depends on:
 amount of your taxable income
 whether required to use Schedule D, Capital
Gains and Losses, to report a capital gain.
If not reporting capital gain income or
qualified dividends, use either the Tax Table
or the Tax Rate Schedules to determine your
income tax.
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FIGURING YOUR INCOME TAX
After your taxable income reaches a
certain level, each additional dollar is
taxed at a progressively higher rate.
 Your tax is based on filing status and
taxable income.
 Capital gains (income from the sale of
property such as stocks, etc.) and
qualified dividends are taxed at different
rates.
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FIGURING YOUR INCOME TAX
The tax computation methods used by most
taxpayers depend on the amount of taxable
income reported on line 43 of Form 1040.
 Do not use AGI to determine the tax
computation method.
 Figure your tax on line 44.
Form 1040, Page 2
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TAX TABLE
Use if taxable income is less than $100,000.
 Taxable income is arranged in rows of
taxable income groups. Each group is called
a bracket.
 Filing status is arranged in columns.
 Use MFJ column for QW.
 Tax on the taxable income is found where
income bracket row and filing status
column meet.
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TAX TABLE – Problem 1
Cliff and Kate are married filing a joint return. Their
taxable income on Form 1040, line 43 is $32,704.
They will use the Tax Table.
How much tax are Cliff and Kate liable for on their
income of $32,704?
a. $4,009
b. $4,106
c. $4,525
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TAX TABLE – Problem 1
Cliff and Kate are married filing a joint return. Their
taxable income on Form 1040, line 43 is $32,704.
They will use the Tax Table.
How much tax are Cliff and Kate liable for on their
income of $32,704?
b. $4,106
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TAX TABLE – Problem 1
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TAX TABLE – Problem 1
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TAX TABLE
Your correct bracket is the one in which your taxable
income is at least the lower number and less than
the higher number of the bracket.
If taxable income is the same as the higher number,
you must use the next higher bracket.
After income reaches a certain level, filing status makes
a difference in the tax.
MFJ is generally taxed at the lowest rate; MFS at the
highest rate.
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TAX TABLE – Problem 2
Adam’s filing status is single. His taxable
income on line 43 of Form 1040 is $26,150.
What is Adam’s tax liability?
a. $3,533
b. $3,518
c. $3,525
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TAX TABLE – Problem 2
Adam’s filing status is single. His taxable
income on line 43 of Form 1040 is $26,150.
What is Adam’s tax liability?
c. $3,525
He must use the income tax bracket of between
$26,150 and $26,200 because his taxable income is
at least $26,150. His tax is $3,525 not $3,518.
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TAX COMPUTATION
Tax Computation worksheet
Use if taxable income is $100,000 or
more.
Choose the correct section for your filing
status.
Single uses Section A.
MFJ or QW uses Section B.
MFS uses Section C.
H/H uses Section D.
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TAX COMPUTATION
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TAX COMPUTATION
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TAX COMPUTATION
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TAX COMPUTATION
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TAX COMPUTATION – Problem 1
Mona’s 2008 adjusted gross income on Form
1040 is $123,592. Her taxable income on
line 43 is $88,589. Will Mona use the Tax
Table or the Tax Computation Worksheet to
figure her tax liability?
a. Tax Table
b. Tax Computation Worksheet
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TAX COMPUTATION – Problem 1
Mona’s 2008 adjusted gross income on Form
1040 is $123,592. Her taxable income on
line 43 is $88,589. Will Mona use the Tax
Table or the Tax Computation Worksheet to
figure her tax liability?
a. Tax Table
Her taxable income is less than $100,000
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TAX COMPUTATION – Problem 2
In 2008, Camille must use the Tax Computation
Worksheet because her taxable income on line
43 is $123,592. She finds the Tax Rate Section
for her filing status, which is Section D for head
of household. How much will Camille’s income
tax be?
a. $24,380
b. $26,256
c. $26,289
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TAX COMPUTATION – Problem 2
In 2008, Camille must use the Tax Computation
Worksheet because her taxable income on line
43 is $123,592. She finds the Tax Rate Section
for her filing status, which is Section D for head
of household. How much will Camille’s income
tax be?
c. $26,289
Her taxable income is not over $182,400 so she looks at
the bracket for taxable income over $112,650 but not
over $182,400. Camille’s income tax will be $26,289.
She enters $26,289 on line 44.
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TAX COMPUTATION – Problem 2
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Determining the Refund or Balance Due
 If the withheld tax exceeds your tax
liability, you are due a refund of the
overpayment.
 If you did not have enough tax withheld to
pay your tax liability, you pay the difference
with your tax return.
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Determining the Refund or Balance Due
On their 2008 Form 1040, Gus and Glenda Glenn file
MFJ and have an AGI of $37,503. They are both under
65, have no children and do not itemize their
deductions. Their taxable income is $19,603 and their
income tax on Form 1040, line 46 is $2,141. They do
not claim any credits or owe any other taxes, so their
total tax on line 61 is $2,141. The combined withheld
taxes shown in box 2 of their W-2 forms is $4,242.
They have no other payments so they enter $4,242 on
lines 62 and 71. What is the amount of refund due to
the Glenn’s?
a. $4,242
b. $2,101
c. $2,121
d. None of the above
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Determining the Refund or Balance Due
On their 2008 Form 1040, Gus and Glenda Glenn file MFJ
and have an AGI of $37,503. They are both under 65, have
no children and do not itemize their deductions. Their
taxable income is $19,603 and their income tax on Form
1040, line 46 is $2,141. They do not claim any credits or
owe any other taxes, so their total tax on line 61 is $2,141.
The combined withheld taxes shown in box 2 of their W-2
forms is $4,242. They have no other payments so they
enter $4,242 on lines 62 and 71. What is the amount of
refund due to the Glenn’s?
b. $2,101
The $4,242 is more than their tax liability of $2,141. They overpaid
and are due a refund of $2,101.
Page 2 of their Form 1040 is shown next.
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Determining the Refund or Balance Due
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Determining the Refund or Balance Due
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Standard Deduction and Your Income Tax
KEY IDEAS
♦ The standard deduction depends upon:



Filing status,
Age, and/or blindness,
If can be claimed as a dependent on another taxpayer’s return.

If not itemizing, you can add up to $500 ($1,000 if MFJ) for real
estate taxes paid as an addition to the standard deduction.

If not itemizing, you take the net disaster loss from a federally
declared disaster area as an addition to the standard deduction.
♦ The amount of your tax usually depends on the amount of your taxable
income and your filing status.
♦ If your taxable income is less than $100,000, use the Tax Table to figure your
tax. If your taxable income is $100,000 or more, use the Tax Computation
Worksheet for your filing status.
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Standard Deduction and Your Income Tax
CLASSWORK 1: Determine the standard deduction for the following
taxpayers. Unless indicated, none of the taxpayers are blind or can
be claimed as a dependent on another return:
1.
Single, age 45
2.
Married filing jointly, ages 30 and 39
3.
Head of household, blind, age 52.
4.
Married filing separately, age 56, spouse itemized
5.
Qualifying widow with dependent child, age 39
6.
Single, age 69
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Standard Deduction and Your Income Tax
CLASSWORK 1: Determine the standard deduction for the following taxpayers.
Unless indicated, none of the taxpayers are blind or can be claimed as a
dependent on another return:
7.
Married filing jointly, ages 65 and 60
8.
Married filing jointly, ages 65 and 49, one is blind
9.
Single, age 19, earned income $6,250, dependent
on parent’s return
10. Single, age 22, interest income $3,200, dependent
on parent’s return
11. Married filing separately, age 35, spouse is not
itemizing
12. Married filing separately, age 69, spouse is not
itemizing
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Standard Deduction and Your Income Tax
CLASSWORK 1: Determine the standard deduction for the following
taxpayers. Unless indicated, none of the taxpayers are blind or can
be claimed as a dependent on another return:
1.
Single, age 45
2.
Married filing jointly, ages 30 and 39
3.
Head of household, blind, age 52. $9,350
4.
Married filing separately, age 56, spouse itemized 0
5.
Qualifying widow with dependent child, age 39
$10,900
6.
Single, age 69
$5,450
$10,900
$6,800
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Standard Deduction and Your Income Tax
CLASSWORK 1: Determine the standard deduction for the following
taxpayers. Unless indicated, none of the taxpayers are blind or
can be claimed as a dependent on another return:
7.
Married filing jointly, ages 65 and 60 $11,950
8.
Married filing jointly, ages 65 and 49, one is blind
$12,950
9.
Single, age 19, earned income $6,250, dependent
on parent’s return $5,450
10. Single, age 22, interest income $3,200, dependent
on parent’s return $900
11. Married filing separately, age 35, spouse is not
itemizing $5,450
12. Married filing separately, age 69, spouse is not
itemizing $6,500
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Standard Deduction and Your Income Tax
CLASSWORK 2: Using the Tax Tables or the Tax Computation
Worksheet, determine the tax for the following
taxpayers.
1.
Single, taxable income, $7,723
2.
Married filing separately, taxable income, $45,630
3.
Head of household, taxable income, $65,500
4.
Married filing jointly, taxable income, $120,000
5.
Qualifying widower, taxable income, $82,320
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Standard Deduction and Your Income Tax
CLASSWORK 2: Using the Tax Tables or the Tax Computation
Worksheet, determine the tax for the following taxpayers.
1. Single, taxable income, $7,723 $773
2. Married filing separately, taxable income, $45,630
$7,750
3. Head of household, taxable income, $65,500
$11,444
4. Married filing jointly, taxable income, $120,000
$22,668
5. Qualifying widower, taxable income, $82,320
$13,269
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Standard Deduction and Your Income Tax
CLASSWORK 3:
Brody K. (SSN 034-22-8196, born 10/10/ 1942) and Lori M.
(SSN 222-73-9338, born 2/10/1958) Knowles are married
and are filing a joint return. Brody is an accountant and
Lori is a music director. They have one dependent, Lori’s
mother, Callie M. Rivera, (SSN 234-25-5345, born
12/12/1938). Callie lived with them all year and they
provided over half of her support. Callie had interest
income of $3,300 and received social security benefits of $
5,300.
The Knowles’ live at 4343 Lucera Rd, Panama City, FL,
32401.They will take the standard deduction and they did
not itemize their deductions in 2007.
Complete their tax return using the following additional
information.
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Standard Deduction and Your Income Tax
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Standard Deduction and Your Income Tax
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Standard Deduction and Your Income Tax
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Standard Deduction and Your Income Tax
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Standard Deduction and Your Income Tax
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Standard Deduction and Your Income Tax
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Questions and Answers
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