ACC 4210 Module 1 Basic Tax Model and Filing Status Written Assignment Example

Marisol Vega's 2024 Return: The Tax Formula, a Qualifying Child Who Is a Brother and the Value of Head of Household Status

Student Name

Bachelor of Science in Business Administration, Thomas Edison State University

ACC-4210: Federal Income Taxation

Mentor Name

Month Day, Year

Marisol Vega's 2024 Return: The Tax Formula, a Qualifying Child Who Is a Brother and the Value of Head of Household Status

Introduction

Every individual return runs the same sequence: start from all income not excluded, take off the adjustments that produce adjusted gross income (AGI), then subtract either the standard deduction or itemized deductions, whichever is larger, and any qualified business income deduction, apply the rate schedule to what remains and finally subtract credits (Young et al., 2024). This assignment answers two discussion questions about that structure and works one return through it.

Part A: Discussion Questions

1. Why does the formula separate deductions for AGI from deductions from AGI? AGI is the dividing line used throughout the tax law to limit other benefits. Medical expenses are deductible only above 7.5% of AGI, many credits phase out as AGI rises and the taxable portion of Social Security depends on income measures built from AGI. Deductions for AGI, such as traditional IRA contributions and business expenses, therefore help twice: they reduce taxable income and they lower the threshold for other limits. Deductions from AGI help only if the taxpayer itemizes and only once.

2. What makes the federal rate structure progressive, and what is the difference between marginal and average rates? Rates rise in steps as taxable income crosses bracket thresholds, so higher incomes pay a larger share. The marginal rate is the rate on the next dollar earned, which matters for decisions such as working extra hours or contributing to an IRA. Dividing the whole tax bill by income gives the average rate, the share of income that actually goes to tax. Because only the income above each threshold is taxed at the higher rate, moving into a higher bracket never reduces after-tax income. Saez (2010) found that taxpayers cluster at certain kink points of the tax schedule, especially self-employed people near the first kink of the earned income credit, evidence that people notice where rates change.

Part B: Marisol Vega's 2024 Return

Marisol Vega, 29, is a dental hygienist in Elizabeth, New Jersey. In 2024 she earned wages of $68,000, received $450 of bank interest and contributed $4,000 to a traditional IRA. She is covered by her employer's retirement plan, but her income is below the 2024 phase-out range of $77,000 to $87,000 for single filers with workplace coverage, so the contribution is fully deductible. The 2024 amounts used here come from the IRS's annual inflation adjustments (Internal Revenue Service [IRS], 2023). Her brother Tomas, 17, has lived with her all year since their mother's death and earns about $1,800 from a part-time job, which he saves. Marisol pays the household's costs.

Step 1: Is Tomas a Qualifying Child?

Tomas is Marisol's qualifying child. Because she is unmarried, pays more than half the cost of keeping up the home and he lived with her for more than half the year, she qualifies for head of household status. Tomas is 17, so he is too old for the $2,000 child tax credit, which requires a child under 17, but he qualifies Marisol for the $500 credit for other dependents.

Step 2: The Formula Under Each Filing Status

Single: 10% of the first $11,600 is $1,160; 12% of the next $35,550, up to $47,150, is $4,266; 22% of the remaining $2,700 is $594; total $6,020. Head of household: 10% of the first $16,550 is $1,655; 12% of the remaining $26,000 is $3,120; total $4,775.

Step 3: What the Difference Shows

Filing correctly as head of household saves Marisol $1,745: a larger standard deduction, wider lower brackets and the $500 credit together. As a single filer, her marginal rate would be 22%; as head of household, it is 12%. Her average rate on taxable income is 10.0% as head of household, compared with 12.1% if she filed as single. If Marisol were considering a larger IRA contribution, the marginal rate tells her the saving: each additional deductible dollar saves 12 cents under the correct status.

Many filers in Marisol's position choose single status because they assume head of household requires a child of their own. The definition of a qualifying child reaches siblings, which is why the dependency tests deserve as much care as the arithmetic.

References

Internal Revenue Service. (2023). Revenue Procedure 2023-34: Inflation adjusted items for 2024.

Saez, E. (2010). Do taxpayers bunch at kink points? American Economic Journal: Economic Policy, 2(3), 180-212. https://doi.org/10.1257/pol.2.3.180

Young, J. C., Nellen, A., Persellin, M. B., Lassar, S. S., Cuccia, A. D., & Cripe, B. M. (2024). South-Western federal taxation: Individual income taxes, 2024 (47th ed.). Cengage Learning.