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Regulation > chapter 1 - individual taxation > Flashcards

chapter 1 - individual taxation Flashcards

1
Q

Form 1040 ind. income tax return (equation)

A
  • gross income
  • +/- adjustments (I-embraced)
  • = AGI
  • (deductions)
    • itemized (commit) or
    • standard deduction
      • 12600
      • 6300
  • (net exemptions) ($4000-15)
  • = taxable income
  • x tax rate
  • = tax liab.
  • (credits)
    • SE tax
  • +AMT
  • (withholdings)
  • (prepayments)
  • = tax due
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2
Q

Adjustments (iembraced)

A
  • Interest on student loans - $2500
  • Employment Tax - 50%, Med. Premiums - 100%
  • Moving expenses
  • Business Expense (sch. c.)
  • Rent/royalty & flow through entities (sch. E)
  • Alimony (CANNOT)
  • Contributions to retirement (KEOGH/IRA)
  • Early Withdrawal Penalty
  • jury Duty pay
  • Education - $4000
  • Health Savings accounts (HSA)
  • Farm Income (sch F)
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3
Q

itemized (sch A) COMMITT

A
  • Charitable cont.
  • Other misc.
  • Misc. expenses (2%)
  • Medical Expenses
  • Interest
  • Taxes
  • Theft or casualty
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4
Q

Tips

A

reported on a monthly basis to employer on the 10th of the next month. The employer is responsible for reporting. But the month of december employee will have to report in gross income bc it will be due 1/10/xx, after end of the year.

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5
Q

Premiums on group life insurance

A

Taxable on amount over 50k but not for death benefits

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6
Q

Scholarships

A

Scholarships - taxable unless both are true:

  • not compensation for services and
  • money spent for tuition, books, or class supplies for degree seeking student.
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7
Q

Subpart F income of a foreign base company

A
  • Subpart F income occurs when
    • a) the controlled foreign corporation (CFC) performs the services or makes sales on behalf of a related party such as its corporate parent and
    • b) the CFC performs the services or makes the sales outside of its country of organization.
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8
Q

surtax on unearned income (unearned income Medicare contribution)

A
  • part of gross income
  • for individuals 3.8% of the lesser of:
    • net investment income
      • income from interest, dividends, annuities, royalties, rents (other than those derived from a trade or business), passive activity, income with respect to the trading of financial instruments or commodities, or
      • excess of MAGI over
        • 250K - MFJ
        • 125K - MFS
        • 200K -all others
        • MAGI - AGI before foreign earned income exlclusion
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9
Q

Stock Options

A
  • Non-qualified
    • taxed when exercised
    • compensation = FMV (option price) - exercise price
  • Qualified (incentive stock option ISO)
    • taxed when sell
    • capital gain = sales price - exercise price
      • for AMT - taxed when exercised
      • ISO must be held 2 yrs from grant date and 1 yr from exercise date.
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10
Q

Social Security Benefits

A
  • uses provisional income method (AGI before SS + tax -exempt income + 1/2 of SS benefits)
    • < $25000 of provisional income = exclude all SS benefits
    • > $60000 of provisional income = include 85% of ss benefits
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11
Q

Pensions and Annuities

A

Pensions and Annuities - including distributions from IRAs (other than Roth IRA ), may be taxable. the amount considered a return of capital will NOT be taxable. If the taxpayer did not pay any cost, such as company paid, all benefits are taxable.

  • cost of annuity/expected total annuities = % of each payment that is excluded from taxes
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12
Q

Capital Assets

A
  • capital losses
    • Short-term capital losses may be used to offset long-term capital gains, and would offset the gain taxed at the highest rate first.
    • net capital loss up to $3000 against ordinary income
    • unused carried forward indefinitely
    • corporations get 0 net capital loss. can carry back 3 years and forward 5 years. no special tax rate.
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13
Q

Student loan Interest for higher education

A
  • up to $2500, phase out applies
  • Applies to entire repayment period.
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14
Q

Self-Employment tax

A
  • Self-Employment tax - pays both employer and employee’s share (15.350
    • 50% of fica/medicare is deducted (income x 1/2 of tax %)
  • 100% of medical insurance premiums paid by a self employed taxpayer for self and family are deductible (no member of the family may have coverage through an employer)
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15
Q

Business Expenses (schedule c)

A
  • all costs of running a business
  • all taxes paid by business
  • bad debt by direct write off
  • uniform cap rules
    • certain indirect costs go to inventory
  • gifts to customers up to $25 per customer
  • 50% meals and entertainment
  • 100% travel
  • $4 per promotional item
  • similar to small corp
  • if no profit 3 of 5 years, loss not deductibe - hobby loss
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16
Q

Moving Expenses

A
  • > 50 miles away
  • direct costs of moving stuff
  • no meals, house hunting costs or temp living exp.
  • must work at least 39 weeks (9 months)
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17
Q

Rental, royalty, & flow through entities (sch. e)

A
  • Passive activity
    • doesn’t materially participate
      • all LLP interests
      • all rental activity (unless professional real estate)
    • losses only to extent of passive gains
      • unused carried forward until activity disposal
    • allocation when various passive activities involve both gains and losses
    • any unused loss carried forward indefinitely until deposed of.
  • Materially participates
    • real estate person
    • active participation
      • at least 10% interest
      • $25000 of losses against ordinary income reduced by 50% excess of AGI over 100K.
  • Vacation home
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18
Q

Alimony Paid

A
  • only alimony paid and received are deducted and added to AGI
  • child support and property settlements are not added
    • payments first applied to child support, then alimony
  • payments for college is alimony also.
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19
Q

Charitable Contributions

A
  • Property contributions
    • Ordinary income
      • held less than one year
      • ded.= lower of tax basis or FMV on date on contribution
    • Long term capital gain rule
      • held more than one year
      • deduct higher of FMV at either date acquired or contributed
      • limited to 30% of AGI
  • overall contributions are limited to 50% of AGI and carried forward 5 years
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20
Q

Misc. expenses (BIT)

A
  • deductible to extent total expenses exceed 2% of AGI.
    • Business expense of an employee
    • business mileage
    • job travel
    • aicpa and union fees
    • uniforms (pizza boy)
    • not tux
    • CPE/job education
    • business use of home
  • Investment expenses (safety deposit box)
  • Tax preparation and attorney fees
    • costs incurred to collect money owed by others
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21
Q

Medical Expenses

A
  • deductible for amounts that exceed 10% of AGI. 7.5% for over 65
  • can be behalf of taxpayer, spouse, a dependent, or other people for whom the taxpayer provides more than 50% of support.
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22
Q

Interest Paid

A
  • Investment interest (personal only)
    • to extent of net investment income (sch. b)
    • unused carried forward indefinitely
    • business related interest on schedule c
  • Mortgage loan interest
    • Acquisition indebtedness to $1M
  • Home equity loans to $100K
    • only up to 100% of net equity in home
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23
Q

Taxes Paid

A
  • Personal property taxes and real estate taxes
  • State and local sales taxes (if there are not state taxes in that state)
  • State, local, or foreign taxes
    • foreign may be claimed as credit instead
    • credit limited to portion of US tax on foreign income.
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24
Q

Theft and Causualty Losses

A
  • loss is determined by lower of:
    • decline in the fair value of the property
    • adjusted basis of the property.
      • repairs increase basis
  • Casualty losses that exceed 10% of AGI
    • sudden loss not exceeding 30 days
      • not including termite, moth, drought
  • Once loss is determined must be reduced by:
    • insurance and gov. reimbursements (entitles to receive)
    • $100 per event
    • 10% of AGI.
25
Q

Phase out of itemized deductions

A
  • total of all itemized deductions are reduced by the smaller of:
    • 3% of the amount by which AGI exceeds annual limit, or
    • 80% of the itemized deductions that are affected by the limit
      • not counting Gambling losses, Investment interest, Medical expenses, and Casualty losses - GIMC
26
Q

Qualifying Widow (surviving spouse)

A
  • death in prior 2 years and qualified to file a joint return in year of death
  • provide over 50% of cost of maintaining principal residence of dependent child (or stepchild) for the whole year.
  • not remarried as of end of current year
  • same rate as MFJ.
27
Q

Alternative Min. Tax (AMT)

A

Regular taxable income

+/- Adjustments and preferences (SIMPLE-PIE)

= AMTI before exemption

exemption

= AMTI

x tax rate (26%/28%)

= tentative min. tax

(regular tax)

= AMT

28
Q

Adjustments for AMT

A
  • Adjustments (SIMPLE)
    • Standard deduction cannot be claimed
    • Interest on home equity and loans is not deducted unless:
      • to buy, build or improve main home
      • interest on acquisition indebtedness and investments may still be claimed.
    • Medical expenses under 10% of AGI
      • for people over 65 or older bc < 65 already using 10% threshold
    • Personal and dependent exemptions are not allowed
    • Local and state income taxes, all property taxes and sales taxes are not deductible
    • BIT - Employee business expenses, tax preparation and investment expenses subject to the 2% (BIT) threshold are not deductible
29
Q

Tax Preferences for AMT (only additions)

A

PIE:

  • Private activity bond interest
  • Incentive stock options are taxed when exercised for the difference between the exercise price and market price of the stock.
  • Excess depreciation on personal property over 150% declining balance when double-declining balance was used for regular tax purposes
30
Q

2015 exemptions

A
  • married filing joint - $83400
  • married filing separate - $41700
  • Singe and HoH - $53600
31
Q

Ind. Tax rates

A

26% of first $185400 and 28% above $185400

32
Q

Child tax credit

A
  • $1000 < 17 years old
  • refundable credit
33
Q

Child or dependent tax credit

A
  • credit is based on smallest of three:
    • actual dependent care expenses
    • earned income
      • based on income of lower earning spouse
        • if student, then use other spouse income
      • credit percentage between 20% to 35%
      • AGI over 45K - 20%
    • $3000 (for one dependent) or $6000 (for multiple dependents)
34
Q

Adoption credits

A
  • child under 18
  • up to 13400 of costs
  • carry forward 5 years
35
Q

Education Credits (phases out)

A
  • American Opportunity tax credit
    • first 4 years of post secondary school (hs)
    • 2500 per student
    • 100% of first 2000 and 25% of next 2000
    • tuition, textbooks, fees of the taxpayer, spouse, or dependent, and may be claimed for payments on behalf of each student in the family.
    • 40% can be refundable ($1000)
  • Lifetime learning credit
    • all other years of schooling, to improve job skills
    • max is $2000 per family.
  • cannot claim both american and lifetime credits for the same student in the same year.
36
Q

Savers credit

A
  • up to $1000 for singe ind.
  • may be claimed by:
    • MFJ with income 61,000 (2015)
    • HOH with income up to 45,750 (2015)
    • single and MFS with income up to 30,500 (2015)
  • amount of credit can range from 10% to 50% of the amount of IRA contribution
37
Q

Credit for the elderly and disabled

A
  • over 65 or permanently disabled
  • nontaxable ss (or equivalent) of less than 7500 for FMJ
38
Q

section 1244

A

Section 1244 of the tax code allows losses from the sale of shares of small, domestic corporations to be deducted as ordinary losses instead of as capital losses up to a maximum of $50,000 for individual tax returns or $100,000 for joint returns.

Must be sold by original purchaser

39
Q

Stock options

A
  • non qualified
    • taxed when exercised
    • FMV - exercise price
  • qualified (incentive stock option)
    • taxed when sold
    • sales price - exercise price (capital gain/loss)
    • for AMT - taxed when exercised
    • ISO must be held 2 years from grant date and 1 year from exercise date.
40
Q

Tax Schedules

A
  • A - itemized deductions
  • B - interest and div. income
  • C - profit and loss from a business (employer expenses/1099 income)
  • D - cap. gains/loss (ST, LT)
  • E - supplementary income or loss
    • Rental income
    • Royalties
      • copyrights
      • oil/gas leases
      • patents
    • Flow through entities
      • s corps, partnerships, estates, and trusts
  • F - profit and loss from farming
  • 1040X - amended return (3 years)
  • 1116 - Foreign tax credit
  • 4562 - depreciation and amortization
  • 4797 - sale of LT business property (not inventory or receivables - sch. C)
41
Q

Lump-sum Distributions

A
  • from a qualified pension, profit-sharing, stock bonus, and Keogh plans (but not IRAs) may be eligible for special tax treatment. Certain distributions may be rolled over tax free (within 60 days) to a traditional IRA account.
42
Q

Injury awards

A
  • Non-physical - Taxable
    • age, race discrimination
    • punitive damages
    • lost business profits
  • Bodily injury - tax free (blood)
    • pain and suffering for physical injury
    • worker’s compensation
    • reimbursement of medical expenses paid and not itemized on schedule A
43
Q

Contributions to Heatlh Savings Account (HSA)

A
  • part of adjustments to arrive at AGI
  • high deductible plan:
    • $1350 for ind. and 2600 for family
  • contribution is limited to lesser of deductible or limit of:
    • 3350 for ind. and 6650 for fam.
  • 55 or older can increase limit by 1000
  • schedule A deduction cannot be made for expenses paid from HSA
  • distr. not made for medical expenses are subject to tax and 20% penalty.
    • no penalty made after death, becomes disabled, or turns 65.
44
Q

Qualified higher education expense

A
  • part of adjustments to arrive at AGI.
  • $4000 may be deducted
  • required by employer
  • by law or goverment regulation
  • maintain or improve skills (CPE)
45
Q

Life insurance proceeds

A
  • are generally tax free unless purchased from a person other than insurance company (as an investment) or if paid out in installments, then a pro rata part of the receipts are taxable as interest.
  • part of gross income
46
Q

Keogh Plan

A
  • 25% of net self employment income after keogh deduction and 50% of self employment tax is claimed.
    • (20% of self employment income before keogh deduction)
47
Q

prizes and awards

A
  • unless received for years of service or safety achievement and is no more than $400 (report at FMV)
48
Q

Health and medical insurance paid by employer

A

not taxable

49
Q

Vacation home

A
  • used as home (the greater of 14 days or 10% of number of days rented)
  • used as home:
    • rented less than 15 days
      • rental income is excluded from gross income
      • expenses not deductible
    • rented more than 14 days
      • rental income is included
      • deductions are limited to gross rental income
      • unused deductions may be carried forward to future years
  • not used as home:
    • rented more than 14 days
      • rental income is included
      • all expenses are allowed
      • expenses in excess of income are subject to passive activity loss limits.
50
Q

Tax refunds

A
  • Federal
    • refund - not taxable
    • interest - yes taxable
  • state
    • interest - yes taxable
    • refund, if itemized in the P/Y, got deduction on schedule A, so taxable in current year. if didnt itemize in P/Y, not taxable in current year.
51
Q

Sole proprietor expenses - interest on business loans

A
  • interest paid in advance by a cash basis taxpayer cannot be deducted until the tax year/period to which the interest relates.
52
Q

traditional IRA contributions

A
  • limited to $5500 (11000 MFJ)
  • deductible
    *
53
Q

Early withdrawal penalties (traditional and roth)

A
  • penalty for withdrawal prior to 59.5 year old - 10% of withdrawal
  • no penalty but still included in gross incomeif: (HIMDEAD)
    • home buyer (first time) (10K max)
    • Insurance (medical)
    • Medical expense in excess of 10% (7.5% for 65 or older)
    • Disability
    • Education
    • And
    • Death
54
Q

Roth IRA

A
  • not deductible
  • all withdrawal after 59.5 are tax exempt, including both contributions and earnings.
55
Q

additional deduction for elderly or blind (standard deduction)

A
  • 1 qualified:
    • 65 OR blind
      • single: 1500
      • married: 1250
    • both 65 AND blind:
      • single: 3100
      • married: 2500
  • 2 qualified:
    • each 65 or blind:
      • married: 2500
    • both 65 AND blind
      • married: 5000
56
Q

Head of household

A
  • not married, legally separated or married but lived 6 apart for at least 6 months
  • not qualifying widower
  • maintains household for dependant for more than half year
    • child (lives w)
    • parents (doesnt have to live with)
    • relative (lives with)
57
Q

Qualifying child

A
  • CARES
    • Close relative
    • age limit (18/24) full time student
    • Residency and FIling requirement
      • live with taxpayer for more than half year
      • no joint return
    • Eliminate gross income test (but exemption is required)
    • Support test changes
      • taxpayer doesnt have to support more than 50% of support
        • child just cannot provide more than 50% of support
58
Q

Qualifying relative

A
  • SUPORT
    • Support test - more than 50% of support
    • Under exemption amount
    • Precludes dependent filing joint return
    • Only citizens of US or residents mexico, or canda
    • Relative
    • Taxpayer lives with ind. whole year (in non relative)
59
Q
A

Regulation (13 decks)

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