35 - Individual Taxation 3

Question 1

What are the miscellaneous deductions on Schedule A, and how are they deducted?

Answer 1

Deductible in excess of 2% of AGI

Continuing Education - if required to keep your job
Business travel
50% Meals and entertainment
Union Dues
Tax prep fees
Legal fees to collect alimony
Appraisal fees to value casualty loss of charitable contributions

Question 2

Which itemized deductions are not subject to phaseout based on income or other factors?

Answer 2

Medical
Casualty
Gambling
Investment Interest Expense

Question 3

Define qualifying child for most individual tax factors.

Answer 3

Must be resident of North America

Under age 19, or under age 24 if a student

Question 4

Define qualifying relative for most individual tax factors?

Answer 4

Must be citizen of North America

Must live with you, unless mother/father or relative closer than a cousin

You must provide more than 50% support to the individual

Question 5

How is minor income taxed at a parent’s rate calculated (AKA kiddie tax)?

Answer 5

Child’s unearned income
- early withdrawal penalties
- $1,000
- Greater than $1,000 or child’s itemized deduction related to unearned income
= Amount taxed at parents’ rate

Question 6

Can spouses married filing jointly use different accounting methods?

Answer 6

Yes, if they each own a small business. All non-business income is cash basis.

Question 7

At what rate is self-employment tax assessed?

Answer 7

15.3% of net earnings from self-employment

(Note: executor of an estate is NOT self-employment income)

Question 8

What is a refundable tax credit? Which individual tax credits are most commonly refunded?

Answer 8

A tax credit which takes the taxpayer’s tax owed on the return below zero, resulting in a refund to the taxpayer.

Earned Income Credit (EIC), American Opportunity Credit and the Additional Child Tax credit.

Note: the REGULAR child tax credit is NOT refundable.

Question 9

How many education credits may be taken on a tax return?

Answer 9

American Opportunity Credit - per student

Lifetime Learning Credit - per taxpayer

Note: The American Opportunity Credit is refundable.

Question 10

What estimated tax payments must be paid in by an individual taxpayer either via withholding or by quarterly tax payments?

Answer 10

The lesser of:

90% of current year’s total tax

100% of prior year’s total tax

110% of prior year’s total tax (if AGI is $150,000 or more)

Question 11

Which farming costs related to land are deductible? Which aren’t?

Answer 11

Deductible: Costs incurred to PRESERVE soil/water

Non-deductible: Costs incurred to drain wetlands or prep for irrigation (i.e. improve land)

Question 12

Which depreciation table is used for personal tangible property related to farming?

Answer 12

MACRS 150

Question 13

How long does the taxpayer have to petition the court for appeal after an audit?

Answer 13

90 days

Question 14

If no petition to appeal is filed, how long does a taxpayer have to pay tax due after an audit?

Answer 14

10 days

Question 15

What is the statute of limitations for a tax audit?

Answer 15

3 years, generally

6 years if 25% or more of gross income was omitted

The clock starts on the LATER of the due date or the filing date of the return.

There is NO STATUTE OF LIMITATIONS for either fraud or failure to file a required return.

Question 16

How is non-business bad debt deducted on a 1040?

Answer 16

It is treated as a STCL

Question 17

How long does an individual taxpayer have to file a claim for refund?

Answer 17

Refunds must be claimed within 3 years of the return due date or within 2 years of being paid, whichever is later.