Chapter 2: Determination Of Tax Flashcards

Question

Standard deduction

Answer 1

Varies by filing status. Adjusted yearly 2021: Married filing jointly or surviving spouse - $25,100 Head of household - $18,800 Single or married filing separately - $12,550

Answer 2

Standard deduction increases if elderly and/or blind by $1350 (in 2021 for each elderly/ blind person Elderly & blind $2700 Max married blind elderly couple $5400 If HOH or single taxpayer elderly/blind $1700 decrease for each

Answer 3

Taxpayer attains age of 65 before end of tax year Considered 65 on the day BEFORE their 65th birthday For deceased taxpayer if reached 65 before death

Answer 4

Determined on last day of tax year or date of death Corrected vision in the better eye of no better than 20/200 or a field of bo greater than 20 degrees

Answer 5

High income taxpayers Taxpayers who own homes (mortgage interest and property taxes)

Answer 6

For 2021 up to $300

Answer 7

- individual filing a return for a period of less than 12 months due to change in accounting period - married taxpayer filing separately whose spouse itemizes - nonresident aliens

Answer 8

For 2021 Standard deduction limited to the greater of: - dependents earned income plus $350 Or - $1100 (Keeps parents from shifting unearned income to children to avoid taxes)

Answer 9

- citizenship test (us citizen or national or residents of US, Canada or Mexico for some part of the year) - joint return (married dependant cannot file a joint return unless filing solely for a refund) - person claiming dependent cannot themselves be a dependent of someone else

Answer 10

Relationship test Age test Abode test Support teat

Answer 11

Eligible children include: Taxpayers children (natural, adopted, foster, step) Taxpayer's siblings (including half sibs and step sibs) Descendents of any of the above Adopted children: if legally adopted or legally placed in a home for adoption

Answer 12

Under 19 Or under 24 if a full time student (full time attendance at least 5/12 months) Or permanently and totally disables

Answer 13

Qualifying child must have same principal abode as taxpayer for more than half the year Non-custodial parent can meet this requirement if custodial parent agrees in writing

Answer 14

Qualifying child may not provide more than 1/2 their own support during the year (rest need not have been supplied by filing taxpayer)

Answer 15

Relationship test Gross income test Support test Not a qualifying child (If meets qualifying child tests that status is predominant)

Answer 16

Must either be related to the taxpayer (including specified in-laws) OR reside in the taxpayer's household for the entire year On a joint return qualifying relative only has to be related to one spouse. Once established, a relationship is not terminated by death or divorce

Answer 17

(2021) qualifying relatives gross income must be less than $4,300 Nontaxable income not considered

Answer 18

Taxpayer normally provides more than 1/2 of a qualifying relative's financial support in a year Includes welfare and social security benefits excluded by gross income Savings not counted in support test Support does not include value of services supplied by taxpayers to dependent Generally measured at cost of items (goods and services) purchased Lodging = fair market value or fair rental value

Answer 19

Allocated among individuals on a pro rata basis unless proof exists to the contrary

Answer 20

When more than one person can claim someone as a dependent - if dependant is someone's qualifying child that takes priority over someone who can claim them as qualifying relative - parents have priority over other individuals (generally goes to parent with whom child spends longer portion of the year) - if neither of the above then taxpayer with highest AGI claims the dependent

Answer 21

Form 2120 Overrides normal dependant rules Enables a taxpayer to claim a dependent for whom they do not provide over half of the support used when a group collectively provides over 1/2 support but no single person over 1/2 alone. Provides written documentation that all other supporting relatives waive their right to claim the person as a dependant so designated person can claim them Group members eligible if paid over 10% of qualifying relatives support (and meets all other criteria) People who would not qualify to claim do not need to waive right Cannot be moved to pass qualification as a dependant FROM a person for whom dependent is a qualifying child TO a person for whom the dependent is a qualifying relative

Answer 22

Form 8332 Can enable a non-custodial parent to claim their child as a dependent Signed form attached to non-custodial spouse's return May be part of separation agreement May be filed every year or just once if relinquishes right for all future years

Answer 23

$2,000 for each qualifying child under 17 $500 for each qualifying dependent Reduced by $50 for each $1,000 (or fraction thereof) by which taxpayers AGI exceeds $200,000 (400,000 if married filing jointly) Partially refundable credit: (2021 numbers) refund limited to lesser of: - 15% of earned income in excess of 2,500 Or - $1,400 per qualifying child under 17 (1 or 2 children. For 3+ children limit increased to excess of taxpayers social security tax paid over the earned income credit for the year) CHECK FOR CHANGES!

Answer 24

Taxable income greater than or equal to maximum amount in the tax table (currently 100,000) Filing a short period return because of a change in accounting period

Answer 25

Married filing jointly Surviving spouse Head of household Single Married filing separately

Answer 26

Allocates community income equally between spouses regardless of which spouse earned the income

Answer 27

- couple must be legally married by the last day of the tax year (includes common law marriages but not annulled marriages) - marriage recognized by any us state, possession or territory - spouses who file joint returns must have same tax year-end (except in cases of death) - both spouses must be US citizens or residents (exception if non-resident alien spouse agrees to report all of their income on the return)

Answer 28

Width of the married filing jointly tax bracket is twice as wide as the single tax bracket (at least for 10% and 12%)

Answer 29

A joint return filed by the surviving spouse the year their spouse dies + two years after the year of death if they qualify - not remarried as of the year end in which surviving spouse status is claimed - US citizen or resident - qualified to file a joint return in year of death - has one dependent child living at home for the entire year for whom the taxpayer paid over half expenses

Answer 30

Year of death: file joint return with the income spouse earned before death Two years following death: surviving spouse status conditions are met, only surviving spouses income reported but can use joint rate schedule and deduction amount

Answer 31

Tax rates increase more rapidly than married filing joint but more slowly than single Conditions: - unmarried the last day of the tax year (exceptions for marriages to nonresident aliens and abandoned spouses) spousal death doesn't count - not be a surviving spouse - be a US citizen or resident - pay over half the costs of maintaining their home in which a dependent lives for more than half of the tax year

Answer 32

- if a taxpayer maintains a household in which a qualifying child lives more than half the year but the child is not their dependent - or taxpayer maintains a separate household for a dependent parent In either case taxpayer can file as head of household

Answer 33

Clothing Education Medical treatment Vacations Life insurance Transportation Value of services provided by taxpayer

Answer 34

Clothing Education Medical treatment Vacations Life insurance Transportation Value of services provided by taxpayer

Answer 35

If can file jointly but choose not to Schedule rates increase more rapidly than other individual rate schedules

Answer 36

A married individual can claim head of household status if: - taxpayer lived apart from their spouse for the last six months of the year - taxpayer pays over half the cost of maintaining the household in which a dependent child lives for over half the year (even if they have an agreement for the noncustodial parent to claim the child as a dependent) - is a US citizen or resident

Answer 37

- under 18 Or - 18 and earned income is less than or equal to 1/2 of their total support Or - 19-24 and a full time student AND child's earned income is less than or equal to one half of their total support - unearned income over $2,200

Answer 38

The greater of: Earned income + $350 Or $1,100 Up to a max of the single standard deduction

Answer 39

Unearned income Less statutory deduction ($1,100) Less greater of standard or itemized deductions directly connected with production of unearned income = Net unearned income (not less than 0)

Answer 40

Net unearned income x marginal tax rate of child's parents (may be multiple rates if child's unearned income would change their tax rate.) Plus: taxable income (calculated as normal for dependent including the unearned income) exceeding net unearned income x child's tax rate = Child's income tax

Answer 41

Net unearned income times marginal tax rate of parents is down for the children's aggregate income and then allocated proportionally to children

Answer 42

Lower tax rates apply

Answer 43

Child's gross income comes solely from interest and dividends Income does not exceed given amount for year ($11,000 in 2021) No withholding or estimated payment made using child's SSN Form 8814

Answer 44

0.9% on earned income over $200,000 ($250,000 for married couples)

Answer 45

3.8% tax on the lesser of investment income or AGI in excess of $200,000 ($250,000 married filing jointly)

Answer 46

Income/loss reported on 1040 schedule C and taxed with individual income

Answer 47

Aka regular corporations Corporation taxed on Corp. taxable income (can deduct business expenses, charitable contributions, but not distributions, no qualified business income deduction) Shareholders taxed ONLY on dividends paid out (lower tax rates apply) Flat tax (21% 2018 forward) No itemized or standard deduction

Answer 48

Income from whatever source derived Minus: exclusions = Gross income Minus: deductions = Taxable income Times: tax rate = Gross tax (income tax before credits) Minus: tax credits = Net tax liability Minus: prepayments = Balance due or refund

Answer 49

Flow through entities: corporation's income not taxed but shareholders are required to report respective share of S corp income on their individual return even if that income is not distributed S corp return Form 1120-S filed as an informational return. Computes ordinary income and special items (special items reported separately so they pass to shareholders with status intact)

Answer 50

All shareholders must consent to S corp election No foreign shareholder Report ordinary income and special items separately and shareholders report respective share in each

Answer 51

Generally can be deducted by shareholders up to their respective bases in the corporation's stock (+ some other rules)

Answer 52

Flow through entities (partners report respective share of income even if income not distributed) File informational returns, form 1065 Ordinary income and special items reported separately and passed in proportion to partners

Answer 53

Pass through to partners and can generally be deducted on the partner's return subject to certain limitations

Answer 54

The deduction allows eligible taxpayers to deduct up to 20 percent of their qualified business income (QBI), plus 20 percent of qualified real estate investment trust (REIT) dividends and qualified publicly traded partnership (PTP) income. Income earned through a C corporation or by providing services as an employee is not eligible for the deduction. (Some limitations)

Answer 55

- self employment and social security taxes (sole proprietorships & partnerships generally pay self employment tax) Distributions expected (c corp: higher distributions = greater double taxation)

Answer 56

Gain or loss from sale or exchange of capital asset

Answer 57

Assets held for a certain time NOT INCLUDING items specified by section 1221 (inventory, trade receivables, certain properties created by taxpayer, business property) Ex: investment property, personal-use property

Answer 58

Distinguishes gains and losses from capital appreciation from ordinary business operations Divided into long term (property held over one year) and short term Long term gains have special rates , short term gain taxes with other income Capital losses can be deducted against capital gains plus up to $3,000 of other income

Answer 59

Capital loss in excess of $3,000 can be carried over and offset against future capital gains (or deducted from other income, subject to $3,000 limitation)

Answer 60

Taxable income not over $40,400; capital gains tax free (0%) Taxable income > $40,400, not over $445,850: 15% Taxable income over $445,850: 20% For single filers (thresholds different for MFJ and HOH)

Answer 61

Ordinarily ownership of the property must be transferred in order to shift income (cannot just assign income to be paid to another, original earner will still owe tax) (Shifting of income to young children often subject to kiddie tax)

Answer 62

Creating additional taxable entities (often corporations) to reduce an individual's effective tax rate

Answer 63

Practice of deferring or accelerating certain payments eligible to be itemized deductions in order to create a sufficient amount to itemize in a given year (only works for certain things like charitable contributions or medical expenses

Answer 64

If one spouse earned more than half their combined income filing separately will increase the total income tax Filing separately may allow for increased deductions (lower AGI threshold for medical expenses)

Answer 65

Couples who file joint returns are jointly liable for taxes owed (concern if separate) Each spouse is liable for the entire tax and any penalties imposed

Answer 66

Innocent spouse relieved of joint tax liability if: - amount is attributable to erroneous items of other spouse - innocent spouse did not know & had no reason to know there was an understatement of tax (or didn't know extent of understatement: relief limited to unknown amounts) - it would be inequitable to hold innocent spouse liable - innocent spouse elects relief within two years of irs beginning collections

Answer 67

Couples who file joint returns and are subsequently divorced, widowed, or separated may make a separate liability selection within two years of irs beginning collections. May be made by both spouses. Electing spouse liable only for portion of understatement attributable to them. Invalid if spouse responsible for errors transfers assets to innocent spouse to avoid payment

Answer 68

Spouses who file separate returns for a given year may elect to change to a joint return by filing an amended joint return Can be done after due date. Must be within three years of due date with extensions (Cannot change from joint to separate after due date)

Answer 69

Individuals whose gross income exceeds their standard deduction (including additional deduction for age)

Answer 70

- dependents with unearned income over $1,100 or total gross income over the standard deduction - who owe the 0.9% additional Medicare tax or 3.8% net investment income tax - who have net self-employment income of $400 or kore

Answer 71

15th day of the 4th month following close of tax year Corps must file even if no gross income

Answer 72

15th day of the 3rd month following the close of the tax year Must file even if no gross income

Answer 73

15th day of the 3rd month following the close of the tax year Must file even if no gross income

Answer 74

Automatically extended to next non-weekend/holiday

Answer 75

Six month extension Individuals : form 4868 Partnerships and s corps; form 7004 C corps: also 7004 but extension is six or seven months depending on year-end

Answer 76

Is an extension to FILE, not an extension to pay taxes owed. Must remit extension with an estimated amount of anything not prepaid. Interest and penalty may apply for payments after deadline

Answer 77

Income not reported on form 1040 + deductions for AGI

Answer 78

Alternative minimum tax and excess of advance premium tax credit repayment Also other taxes and penalties (early withdrawal penalties, self employment tax)

Answer 79

Nonrefundable tax credits (child care credit, Education credit), + tax paid when requesting filing extension

Answer 80

May be filed by individuals over 65. Reflects the larger standard deductions

Answer 81

Employer identification number Used to identify corporations, other taxpayers, and tax-exempt entities

Answer 82

1099-R (pensions and annuities) W-2 (wages and salaries) 1099-DIV (dividends) 1099-INT (interest) 1099-B (sale of a security) 1099-G (unemployment compensation, tax refunds) 1099-MISC (miscellaneous income) Some have reporting thresholds