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Complete 2 pages APA formatted article: Individual for Taxation. Joint tax return Introduction The report articulates in depth the taxation on mortgage which is a debt instrument that is secured by co
Complete 2 pages APA formatted article: Individual for Taxation. Joint tax return Introduction The report articulates in depth the taxation on mortgage which is a debt instrument that is secured by collateral of particular real estate property where the borrower has an obligation and not a right to pay a fixed mortgage interest and the principal amount of the mortgage at the end and other deductions (Compton 2012). In the payment of tax, the individuals who take the mortgage have an option of either filing separately federal income tax or jointly. In this case, we have a married couple of Michael and Frances filed a joint tax return to benefit from sharing deductions and combining incomes. In joint tax return, there are deductions for itemized and standard deductions from adjusted gross income.
Summarize and explain the legal taxation issues here
Standard deduction vs itemized deduction
Standard deductions are income amounts that non-itemizers subtract from their contributed income basing on the filing status. The examples of such deductions are medical expenses, charitable contributions, home mortgage interest and property taxes.
Itemized deductions are deductions from the taxpayer’s gross income for money spent on goods and services throughout the year. The deductions convert taxable income into non-taxable income that one spends on various taxes privileged items. The examples of such itemized deductions are interest paid on investments, casualty and theft losses, hobby expenses and cash contributions to charity and churches.
Detailed examination of the items they believe they will be able to claim
A thorough examination of the items in the joint tax return reveals that the following items will be claimed: firstly, the real estate tax for example registration fees for motor will be claimed to convert the taxable amount to non taxable income. Moreover, interest margin paid on investments of the couple either jointly or separately is claimed (Genders 2013). Additionally, medical expenses for the betterment of couples’ life shall be accounted for in joint tax return to relieve them. Nevertheless, expenses and charitable contributions that are contributed by the couple will be claimed for deduction in the process of taxation.
Situation in December 2013 and January 2014
The situation in 2013 and 2014
2013
2014
The adjusted income $145000
Less:
Interest on mortgage $12000
Charitable contribution $12400
Unreimbursed business $11400
Personal exemptions $3900
Property taxes $2500
The adjusted income $145000
Less:
Standard deduction $12400
Property taxes $2500
Interest on mortgage $12000
Unreimbursed business $11400
Personal exemption $3950
Property taxes $2500
Taxable income $102800
Taxable income $ 102750
From the above calculation, 2013 has a better taxable income to the revenue authority because of the less personal exemptions deductions that are deducted from the adjusted gross income. For instance in the scenario in, we have taxable income of $102800 as compared to year 2014 where we have a taxable income of $ 102750. The effect is brought in by a decrease in the personal exemptions by $50.
Other issues that you may identify
Other issues to be identified are: the age of the couple whether they are above 65 years or less. This helps in determination of the standard deductions. The aspect of blindness is another key issue of concern to determine whether the couple is blind for additional deductions (Finney 2010). Additionally, the social security amount will be identified for the investment scheme.
Recommendation on whether the couple should repurchase in December 2013 or January 2014
From the computation of the taxable income in 2013 and 2014 respectively, it can be observed that there is a reduction in the taxable income by $50 due to increase in personal exemptions from $3900 to $3950. Therefore, it is better for the couple to close the property purchase in December2013 because from the taxation point of view, the increase in the personal exemptions reduces the amount of income that is subjected to Federal Income Tax. Therefore, repurchase in December personal exemption of $3900 consequently increase in the taxable income for the couple by $50 as compared to January 2014 which is an advantage to the couple’s income.
References
Bank, .S. .A. (2011). .Anglo-American Corporate Taxation: Tracing the Common Roots of Divergent Approaches .(3rd .ed.). Cambridge: Cambridge University Press.
Compton, .T. (2012). .Rental Property and Taxation: An Australian Investors Guide(4th .ed.). Hoboken: John Wiley & Sons.
Finney, .M. (2010). .Wealth Management Planning: The UK Tax Principles .(5th .ed.). John Wiley & Sons.
Freeman, .L. .S., & Practising Law Institute. (2010). .The corporate tax practice series: Strategies for acquisitions, dispositions, spin-offs, joint ventures, financings, reorganizations & restructurings, 2010 .(3rd .ed.). New York, NY: Practising Law Institute.
Genders, .D. .B. (2013). .The Daily Telegraph tax guide 2013: Understanding the tax system, completing your tax return and planning how to become more tax efficient(4th .ed.). London: KoganPage.
