Question

In details, discuss the inclusiveness of including all income on a tax return in the US.

In details discuss the implied limits on deductions when no deductions are allowed unless specifically allowed in the code in the US.

Answer 1

IN US Tax Laws two types of tax payers are eligible to file return. One is resident and other one is non-resident.

Residents: Under US domestic law, a resident is defined as an individual who either is a lawful permanent resident (the “greencard” test), or meets the “substantial presence” test.

An individual who meets the substantial presence test is an individual who has been present in the United States for at least 31 days in the current calendar year and an aggregate of 183 days during the current and two preceding years, counting all the days of physical presence in the current year, one-third of the days in the first preceding year, and one-sixth of the days in the second preceding year.

NON- Resident

Person other than Resident is Non- Resident as per US Tax Laws.

Residents

There are four types of tax status that may apply to a resident:

• married filing jointly
• married filing separately
• head of household
• single.

Each filing status is subject to a different graduated tax rate scale. The tax rates for 2018 are shown in the tables on the next page. A couple will be considered to be married for U.S. federal tax purposes if they were legally married in a jurisdiction that recognizes their union and that marriage is recognized by at least one U.S. state, territory or possession, regardless of the couple’s domicile.

Income tax tables for 2018

Income Tax Tables for 2018
Taxable Income Bracket		Filing Status	Tax Rate
From USD	To USD		Percent
Married filing jointly
0	19,050		10
19,051	77,400		12
77,401	165,000		22
165,001	315,000		24
315,001	400,000		32
400,001	600,000		35
600,001	No limit		37
Married filing separately
0	9,525		10
9,526	38,700		12
38,701	82,500		22
82,501	157,500		24
157,501	200,000		32
200,001	300,000		35
300,001	No limit		37
Head of household
0	13,600		10
13,601	51,800		12
51,801	82,500		22
82,501	157,500		24
157,501	200,000		32
200,001	500,000		35
500,001	No limit		37
Single
0	9,325		10
9,526	37,950		12
38,701	91,900		22
82,501	191,650		24
157,501	416,700		32
200,001	418,400		35
500,001	No limit		37

Filing Status	Single	Married Filing Jointly	Married Filing Separately	Head of Household
0% if taxable income is less than	$38,600	$77,200	$38,600	$51,700
15% if taxable income is less than	$425,800	$479,000	$239,500	$452,400
20%if taxable income is over the above amount

It is generally more beneficial for married taxpayers to file using the status ”married filing jointly” versus ”married filing separately.” However, married individuals wishing to file a joint tax return generally may not do so if either spouse is a nonresident at any time during the tax year. Certain elections may be available to allow a married couple to use the married filing jointly status when one or both of the individuals is a nonresident during part of the year.

A taxpayer may also be subject to an alternative minimum tax. The alternative minimum tax is payable to the extent it exceeds an individual’s regular tax liability. The alternative minimum tax is figured using lower rates, but allows fewer deductions.

Taxable Income includes

• Salary
• Wages
• Commissions
• Professional Fees
• Rental Income
• Tuitions Fees
• Self-Employed Income
• Capital Gain
• Interest Income
• Dividends
• State & Local Refunds
• Alimony
• Gains from Stock Options Exercises
• profits from stocks or real estate sales,
• winnings from the lottery, betting on horse races, or any casino (domestic or abroad).
• Even the cash value of bartered items is considered taxable income.
• Nonbusiness credit card debt cancellation

Other Income

• Health Savings Account distributions
• Qualified Medicaid Waiver Payments
• Distributions from ABLE accounts

Expenses deductible

General Deductions

• certain away-from-home business expenses such as travel, meals, and lodging may be deductible, if with respect to a temporary assignment of less than one year
• qualified student loan interest
• medical expenses in excess of 7.5 percent of adjusted gross income.
• state and local income and property taxes, up to USD 10,000
• charitable contributions
• interest on home mortgage (limited to interest on acquisition debt of no more than USD 750,000 or USD 1.1 million if acquisition debt was incurred before December 15, 2017)
• certain away-from-home business expenses such as travel, meals, and lodging may be deductible, if with respect to a temporary assignment of less than one year
• qualified student loan interest
• medical expenses in excess of 7.5 percent of adjusted gross income.
• state and local income and property taxes, up to USD 10,000
• charitable contributions
• interest on home mortgage (limited to interest on acquisition debt of no more than USD 750,000 or USD 1.1 million if acquisition debt was incurred before December 15, 2017)
• casualty and theft losses incurred in a federally-declared disaster (in excess of 10 percent of adjusted gross income)
• Nonresidents are allowed to deduct those expenses that relate to income effectively connected to a U.S. trade or business. Qualifying charitable contributions, state and local income tax, and certain casualty losses are also allowed as itemized deductions to nonresidents.
• In lieu of 'itemized deductions', such as those listed above, an individual who has been a resident for the entire taxable year may claim the standard deduction. The amount of the standard deduction is determined according to the filing status of the taxpayer

Filing status	2018 USD
Married filing jointly and surviving spouse	24,000
Married filing separately	12,000
Head of household	18,000
Single	12,000

Taxes You Paid

• State and local income taxes or general sales tax
• Foreign income tax
• Estimated tax payments
• Prior year's state and local income tax you paid during the tax year (do not include penalties).
• Occupational taxes
• Real estate tax (state, local or foreign).
• Personal property taxes based on value. This includes auto registration or licensing fees, but only the portion based on value, and only if charged on a yearly basis. Varies by state.

Interest You Paid

• Mortgage interest
• Late payment charge on mortgage payment
• Mortgage prepayment penalties
• Points on principal residence financing
• Mortgage insurance premiums.