Basic Income Tax (L2) Flashcards
Basic Tax Formula
Cash Basis Taxpayer
Accrual Basis Taxpayer
Doctrine of Constructive Receipt
Filing Status
- Single
- Married Filing Jointly (MFJ)
- Married Filing Separately (MFS)
- Head of Household
- Qualifying Widow with Qualifying Child
Head of Household
- Unmarried (as of last day of the taxable year)
○ Filed separate return
○ Paid more than half of the cost of keeping up his home
○ Abandoned Spouse (Taxpayers Spouse did not live in the
home during the last 6 months)
○ Taxpayers home is the main home of the taxpayer’s child for
more than half of the year
○ Taxpayer is eligible to claim a credit for that child - “Qualifying Person” generally must have lived with the taxpayer for more than half of the year
Qualifying Widow with qualifying child
- ONLY for 2 years following the year of the spouse’s death
- ALL of the following must apply:
○ Widow was eligible for a JOINT return with spouse in the year
the spouse died
○ NOT remarried
○ Has a QUALIFIED child/stepchild
○ Child lived in taxpayers home ALL year
○ Taxpayer paid more than half the cost of keeping up the
home
Personal and Dependency Exemption
- Repealed with TCJA 2017
$4,400 (2022)
Limited Standard Deduction
- For Claimed Dependents of another taxpayer
○ The GREATER of:
$1,150 (2022) OR $400 plus earned income (CANNOT exceed normal standard deduction)
Qualifying Child
Qualifying Relative
Sources of Income
Exclusion Ratio
Modified Adjusted Gross Income (MAGI)
Social Security Taxation (Hurdles)
Below the Market Loans (IMPUTED INTEREST)
Exclusions (from Gross Income)
- Gifts and Inheritances (Property, NOT income later generated from the property)
- Life Insurance Proceeds
- Scholarships (NOT Room and Board)
- Gain on Sale of Personal Residence
- Distributions from Roth IRAs and Roth 401k/403b Plans
- Compensation for Injuries or Sickness (PHYSICAL)
- Employer-Sponsored Accident and Health Plans
- Meals and Lodging
- Other EE Fringe Benefits
- Foreign Earned Income
- Interest on Certain State and Local Government Obligations
- Discharge for Indebtedness
Elements of a Gift
Viatical Settlement
Modified Endowment Contract (MEC)
Scholarships
Qualified Roth IRA and 401k Distributions
Other Fringe Benefits
Foreign Earned Income
Deductions FOR AGI
Deductions FROM AGI
ITEMIZED DEDUCTIONS and Standard Deduction
Medical Expenses
- ITEMIZED DEDUCTION
- Medical Expenses in EXCESS of 7.5% of AGI)
Certain State and Local Taxes
- ITEMIZED DEDUCTION
- Taxes CAPPED at $10,000
○ Property Tax (ONLY US PROPERTY)
○ State income tax paid, OR state and local taxes (actual or
standardized table amount)
Contributions to Qualified Charitable Organizations
Public Charities
Red Cross, Salvation Army, ASCPA, etc.
* Churches * Schools * Hospitals *Governmental entities
Private Charities
- Veteran organization
- Fraternal order
- Certain private foundation that support comes from a small group as opposed to public
Deduction Clustering
- Grouping or “clustering” intemzied deductions together in one year
- 4 categories of itemized deductions that can bunched:
○ Early PMT of state income or property taxes
○ Early PMT of mortgage interest
○ Medical Expenses
○ Charitable Donation
Charitable Contributions of IRAs
- ITEMZIED DEDUCTION
- Must be made to a Qualified Charity
- Owner must be 70.5
- $100,000 annual limit
○ Will be reduced by any IRA contributions made after 70.5 - Tax Result:
○ Contribution is NOT treated as income to IRA owner
○ Contribution is NOT treated as a Charitable Contribution
○ Contribution can count as the owners RMD
Casualty Losses
Certain Personal Interest Expense (e.g. Mortgage Interest on Personal Residence)
- Investment Interest Expenses is limited to investment interest income. EXCESS investment interest expense may be carried over INDEFINITELY
○ Special Election ==> LTCG to be treated as ordinary
income to offset investment interest income - Limited to $750k of mortgage indebtedness (loan)
○ Limited to 2 houses (primary and secondary residences) - NO home equity interest
Qualified Business Income (QBI)
Tax Credits
Kiddie Tax
