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Federal Inc. Taxation > Ch 2: tax formula, deductions > Flashcards

Ch 2: tax formula, deductions Flashcards

0
Q

Tax formula for individuals

A

Income from whatever source derived
Minus: exclusions

Gross income
Minus: deductions for adjusted gross income

Adjusted gross income
Minus: deductions from adjusted gross income:
Greater of itemized deductions or standard deduction
Personal and dependency exemptions
Taxable income
Times: tax rates

Gross tax
Minus: credits and prepayments

Net tax payable or refund due

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1
Q

AGI

A

Adjusted gross income

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2
Q

Income

A

Includes bot taxable and non taxable income

Includes income from any source

Does not include return of capital

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3
Q

Exclusion

A

Any item of income that tax law says is not taxable

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4
Q

Gross income

A

Income reduced by exclusions

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5
Q

Allowable deductions

A

Business and investment expenses

Personal expenses that are specifically provided for in the
IRC

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6
Q

2 categories of deductions

A

1 Deductions for adjusted gross income

2 deductions from adjusted gross income

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7
Q

Deductions for adjusted gross income

A

Expenses connected with trade or business

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8
Q

Deductions from adjusted gross income

A

Personal expenses that congress has chosen to allow

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9
Q

Adjusted Gross Income (AGI)

A

Measure of income that falls btw gross income and taxable
Income

Used for many tax computations, especially to impose
Limitations

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10
Q

2 categories of deductions from adjusted gross income are?

A

1 itemized deductions or the standard deduction

2 personal and dependency exemptions

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11
Q

Congress Specified personal expenses that can be deducted 2 examples

A

Charitable contributions and medical expenses

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12
Q

Taxpayers are allowed to itemize expenses related to… 3 things

A

1 the production or collection of income

2 management of property held for production of income

3 determination, collection or refund of any tax

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13
Q

Taxpayers have a choice of claiming either…

A

Itemized deductions or the standard deduction

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14
Q

Standard deduction varies depending on… 3 things

A

1 taxpayers filing status

2 age

3 vision

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15
Q

Personal exemption

A

Generally allowed for each tax payer, their spouse and

For each dependent

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16
Q

Both personal and dependency exemptions are equal to what amount in 2013?

How is this amount adjusted in future years?

A

$3,900

Adjusted annually for increases in cost of living

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17
Q

Taxable income

A

Adjusted gross income reduced by deductions from AGI

Amount of income that is tax

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18
Q

Refundable tax credits, 8 items

A 
1 withholding from wages and back-up withholding
2 estimated tax payments
3 excess social security taxes paid
4 earned income credit
5 regulated investment company credit
6 payments made with extension request
7 overpayment of prior year's tax
8 child credit
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19
Q

Non refundable tax credits, 8 items

A 
1 adoption expense credit
2 credit for elderly and disabled
3 foreign tax credit
4 child and dependent care credit
5 business energy credit
6 research and experimentation credit
7building rehabilitation credit
8 American opportunity lifetime learning credits
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20
Q

Define tax credits, what do they include?

A

Amounts that can be subtracted from gross tax to arrive at
Next tax due or refund date

Include prepayments

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21
Q

Refundable tax credits

A

Allowed to reduce taxpayer’s tax liability to zero and if

Credit remains are refunded by government to taxpayer

22
Q

Non refundable tax credits

A

Allowances that have been created by Congress for
Various social, economic and political reasons

Ex. Child and dependent care credits

23
Q

Itemized deductions, when are they claimed?

A

Claimed only if total of such expenses exceeds standard

Deduction

24
Q

Itemized deductions: 9 special itemized personal expenses

A 
1 medical expenses
2 taxes
3 investment and residual interest
4 charitable contributions
5 casualty and theft losses
6 employee expenses
7 production or collection of nonbusiness
8 management property held for income production
9 determination of tax or refund
25
Q

4 itemized deduction floors?

A

1 medical expenses
2 causality losses
3 miscellaneous itemized deductions
4 overall floor

26
Q

Itemized deduction floor: medical expenses

A

Only medical expenses in excess of 10% AGI are deductible
In 2013 for taxpayers under age 65,

7.5% for over 65 through 2016

27
Q

Itemized deduction floors: Casualty losses

A

Only casualty losses in excess of 10% of AGI are deductible

28
Q

Itemized deduction floors: miscellaneous itemized deductions

A

Only miscellaneous itemized deductions in excess of 2%

Of AGI are deductible

29
Q

Itemized deduction floors: overall floor

A

Reduces total itemized deductions, only applies to high

Income tax payers

30
Q

Standard deduction

A

Amount set by congress varies year to year

Depends on taxpayers filing status, age and vision

31
Q

IRC

A

Internal Revenue Code

32
Q

The standard deduction is unavailable to 3 categories of tax payers?

A

1 individual filing return in period of less than 12 months
B/c change in accounting period

2 married tax payer filing separate return in instance where
Other spouse itemizes

3 nonresident aliens

33
Q

Personal exemption, who is not allowed to use their personal exemption

A

Every taxpayer is allowed a personal exemption of $3,900
In 2013

Those claimed as dependents are not entitled to a personal
Exemption

34
Q

To qualify as a dependent an individual must meet the definition of…

A

A qualifying child or qualifying relative

35
Q

4 requirements common to all dependents?

A

1 have qualifying identification #
2 meet citizenship test
3 meet separate return test
4 not themselves claim another person as a dependent

36
Q

Dependents that file tax returns may…

A

Not claim personal or dependency exemptions on their returns

37
Q

4 requirements for claiming w dependency exemption for a qualifying child?

A

1 relationship test
2 age test
3 abode test
4 support test

38
Q

Qualifying child dependency exemption: relationship test

A

Eligible children include biological, adopted, foster,

stepchildren, siblings and half siblings

39
Q

Qualifying children dependency exemption: age test

A

Under age 19,

full time student under age 24, in school at least 5 months/yr.

40
Q

Qualifying child dependency exemption: abode test

A

Qualifying children must live in household of tax payer for
1/2 a year

Dorms for students count

41
Q

Support test

A

Qualifying child may not provide more than half of his support

42
Q

Dependency exemption for qualifying relative 3 requirements

A

1 Relationship test

2 gross income test

3 support test

43
Q

Dependency exemption other relatives: relationship test

Who does not meet the relationship test?

A

Related to tax payer (parents, in laws, step parents, siblings,
Aunts/uncles, older children, niece/nephew)

Or reside in taxpayer’s household for entire year

Cousins don’t meet relationship test

44
Q

Other relatives dependency exemption: gross income test

What sources of gross income are considered in this test?

A

Dependents gross income must be less than exemption
amount for the year ($3,900 in 2013)

Gross income considered: salary, taxable interest, rent

45
Q

What items are not considered in the gross income test?

A

Non taxable scholarships, tax exempt bond interest,

No taxable social security benefits

46
Q

Dependency exemption qualifying relative: support test

What counts and doesn’t count as support?

A

Taxpayer provides more than half the support

Welfare and social security benefits count as support
Scholarships don’t count as support

47
Q

What counts as providing support? 8 common items

A

Amounts spent for food, clothing, shelter, medical care,

dental care, television, automobile and education

48
Q

3 tie breaker rules for tax payers to claim someone as a dependent?

A

1 qualifying child rules have priority over other relative rules

2 parents have priority over other individuals

3 if first 2 tiebreakers don’t apply, exemption is rewarded to
Taxpayer with highest AGI

49
Q

Multiple support declaration (Form 2120), eligibility?

A

enable taxpayer to claim dependency exemption in Situations where taxpayer doesn’t provide over 1/2 support of dependent

Eligible if contribute more than 10% of the support and
Meet all requirements claiming dependency exemption

Other eligible supporters must agree in writing who can
Claim the exemptiom

50
Q

Release of Claim to Exemption for Child of Divorced or Separated Parents (Form 8332)

A

Enable noncustodial parent to claim an exemption

51
Q

Who gets a dependency exemption in a divorce?

A

The tax payer that has custody for greater part of the year
Of child, unless specified by written agreement

Ig share child equally, the parent with the higher AGI gets the exemption

52
Q

Child credit, threshold for joint, single, married filing separately

A

Individual taxpayers may claim a child credit of $1000 for
(each parent gets $1000 per child)
Each qualifying child (under age 17)

Credit is reduced by $50 for every $1,000 the taxpayer’s
Adjusted gross income exceeds the threshold

Thresholds: joint: $110,000, single: :$75,000, married
Filing separate $55,000

53
Q

The child credit is refundable…

A

To 15% of taxpayers income in excess of $3,000 til 2017

Federal Inc. Taxation (11 decks)

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