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CHFC HS 321 > Chapter 3 - Fundamentals of Income Taxation > Flashcards

Chapter 3 - Fundamentals of Income Taxation Flashcards

1
Q

Individuals report their income, deductions and other information required for the calculation of the federal tax liability on

A

Form 1040

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2
Q

Includes taxpayer and dependent information and basic tax formula calculation through the calculation of taxable income.

A

Form 1040 page 1

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3
Q

A basic tax formula calculation, from taxable income through credits and payments with refund or payment information, and signature lines

A

Form 1040 page 2

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4
Q

Additional income - alimony, unemployment, business income and rental income - and adjustment information - student loan interest, self employment tax and educator expenses

A

Form 1040 schedule 1

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5
Q

Calculation of additional taxes including Alternative Minimum Tax, Affordable Care Act Advance Premium Tax Credit repayment, self employment tax and penalties on early distributions from pension plans and IRA

A

Form 1040 schedule 2

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6
Q

Non-refundable tax credits other than the child tax credit and the other dependent credit and other payments and refundable credits other than the earned income credit, American Opportunity credit or additional child tax credit

A

Form 1040 schedule 3

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7
Q

Deductions for (before) adjusted gross income

A

Above the line deductions

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8
Q

Deductions from (after) adjusted gross income

A

Below the line deductions

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9
Q

The greater of the standard deduction or certain allowable itemized deductions and the qualified business income

A

Below the line deductions

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10
Q

A standard amount used to offset AGI that is specified by Congress

A

Standard deduction

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11
Q

Allowed for a taxpayer or spouse - not a dependent - who is 65 years of age or older or blind

A

Additional standard deduction
NOT for dependents

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12
Q

Three situations where a taxpayer is not allowed to use the standard deduction and must itemize

A
  1. Married individual who files a separate return cannot use a standard deduction if the spouse itemizes
  2. Non-resident alien and a dual status alien is not allowed to use a standard deduction
  3. An individual who files a tax return for less than 12 months because of a change in annual account period
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13
Q

Determined by reducing the taxpayer’s AGI by the greater of the standard deduction or the taxpayer’s itemized deductions

A

Taxable income

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14
Q

Highest tax bracket a taxpayer falls in

A

Marginal tax rate

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15
Q

The average rate of tax paid factoring in the payments at various brackets

A

Effective tax rate

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16
Q

Three accounting methods for reporting income and deductions

A
  1. Cash receipts and disbursements - Cash method
  2. Accrual Method
  3. Hybrid Method
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17
Q

Under this method of accounting, income items are reported on a tax return for the year in which they are received in cash and expenses are deducted in the year in which they are paid in cash.

A

Cash receipts and disbursements (Cash Method)

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18
Q

3 common exceptions to the cash method of accounting

A
  1. Doctrine of constructive receipt
  2. Original issue discount bonds
  3. Cash received with an obligation to repay
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19
Q

Occurs when income is credited to a taxpayer’s account or when it is made available to the taxpayer without restrictions (ex - interest income credited to a client’s account after the bank closes on the last day of the tax year)

A

Doctrine of constructive receipt

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20
Q

Interest accrued on a zero coupon bond accrues each year is deemed to be constructively received by the taxpayer

A

Original issue discount

21
Q

If a taxpayer receives cash but has an obligation to repay the payor the cash is not included in gross income

A

cash received with an obligation to repay

22
Q

Method used by many businesses. Income (revenue) is normally reported when it is earned and expenses are normally deducted when they are incurred.

A

Accrual method

23
Q

4 exceptions to accrual method

A
  1. Prepaid income
  2. Advance payment for goods
  3. Advance payment for services
  4. Claim of right doctrine
24
Q

Taxpayer must report the entire payment in gross income in the year of the payment even though part or all of the payment may have to be repaid to the customer. If the customer is repaid in a later year the taxpayer is allowed a tax deduction in the year of repayment

A

The claim of right doctrine

25
Q

Includes any other method of reporting that is permitted by the IRC and regulations as long as it is deemed to clearly reflect income

A

Hybrid method

26
Q

Surviving spouse filing status eligibility

A
  1. Spouse died during either of the 2 preceding tax years
  2. Taxpayer must maintain a household as their home which is also the principal residence of a dependent child
  3. Has not remarried
  4. Taxpayer and spouse were eligible to file a joint return for the spouse’s year of death
27
Q

Afford the same basic standard deduction and tax rates as the married filing jointly status to surviving spouses

A

Surviving spouse/Qualifying widower filing status

28
Q

Provides a basic standard deduction and tax bracket sizes that are less favorable to the taxpayer then those for surviving spouse but more favorable than those for the single filing status

A

Head of household

29
Q

Head of household filing status requirements

A
  1. Must maintain a household as their home which is also the principal residence for more than 1/2 the year for child who may be claimed as a qualifying dependent, or unmarried qualifying child that lives with taxpayer but is not a dependent, or qualifying relative who is claimed as a dependent
30
Q

4 tests for qualifying child

A
  1. Relationship test
  2. Abode test
  3. Age test
  4. Support test
31
Q

4 tests for qualifying relative

A
  1. Relationship test
  2. Gross income test
  3. Support test
  4. Not a qualifying child test
32
Q

The taxpayer must provide more than one half support of the dependent

A

Support test

33
Q

Dependent’s gross income must be less than the exemption amount which is indexed for inflation annually

A

Gross income test

34
Q

Qualifying child does not provide more than one half of his own support during the year

A

Support test

35
Q

Qualifying child must be under the age of 19 and younger than the taxpayer or a student under 24 and younger than the tax payer (full time at least 5 months of year)

A

Age test

36
Q

Qualifying child must live with the taxpayer for more than half the year - includes temporary absences due to special circumstances like illness, education, vacation or military service

A

Abode Test

37
Q

A qualifying child is the taxpayer’s sibling, descendant of the taxpayer or the descendant’s sibling

A

Relationship test

38
Q

Taxpayer with higher AGI claims the child as a qualifying dependent

A

Tie breaker rules

39
Q

In order to be claimed as a qualifying relative a dependent cannot be a qualifying child of any taxpayer for the tax year

A

Not a qualifying child test

40
Q

A married dependent must not file a joint return with a spouse unless a tax return is filed only to claim a refund for tax withheld

A

Joint return test

41
Q

A dependent must be a citizen or a national of the US or a resident of the US, Canada or Mexico during some part of the year

A

Citizenship or residency test

42
Q

Tax formula for individual taxpayers

A

Income - Deductions = Taxable Income
Taxable Income x Tax Rate = Tax Liability

43
Q

Expanded tax formula

A

Income - Exclusions = Gross Income
Gross Income - Deductions for AGI = Adjusted Gross Income
AGI - Greater of itemized or standard deduction - Personal and dependency exemptions - 20% qualified business income deductions = Taxable Income
Taxable Income x applicable tax rates - Tax credits = Tax liability

44
Q

Standard deduction

A

MFJ $25,900
MFS $12,950
Surviving Spouse $25,900
HOH $19,400
Single $12,950
Child claimed as dependent $1,150 or earned income plus $400 limited to $12,950

45
Q

Additional standard deduction for over 65 or blind - per taxpayer

A

MFJ $1,400
MFS $1,400
Surviving spouse $1,400
HOH $1,750
Single $1,750

46
Q

Kiddie tax

A

Unearned income taxed at parents marginal tax rate above $2,300

47
Q

Above the line deductions
(MEALBRIC)

A

Alimony paid
Contributions to IRA
Interest on student loans up to $2,500
Business expenses
Rental income expenses
Losses from sales of business property
Moving expenses
Educator expenses up to $300

48
Q

Below the line deductions
(CMIIPCM)

A

Charitable contributions
Mortgage interest
Investment interest
State & local income taxes
Real property taxes
Property taxes based on the value of a car
Medical expenses in excess of 7.5% AGI

CHFC HS 321 (14 decks)

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