Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

Tax Accounting > Chapter 3 - The Tax Formula > Flashcards

Chapter 3 - The Tax Formula Flashcards

1
Q

Who needs to file (6)?

A

If you meet any of these requirements:

  1. Gross income >= standard deduction + old age addition. (Note, blindness deduction doesn’t apply to this calculation except with dependents).
  2. Anyone who wants a refund.
  3. Self-employed individuals who made $400 or more.
  4. Married filing separately if Gross income >= $4150.
  5. Dependents w/ unearned income >= $1050.
  6. Received distribution from Health Savings Account (HSA).
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

What are the types of filing status (5)?

A
  1. Single
  2. Head of household
  3. Married filing jointly
  4. Married filing separately
  5. Surviving spouse (Qualifying widow, widower)
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

Is filing status a choice?

A

No

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

Filing status: Head of household rules?

A

Single person or abandoned spouse. Pays >= 1/2 the cost of maintaining the principal residence (lives there >= 1/2 the year) of qualifying dependent.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

Filing status: Surviving spouse rules?

A

Use married filing jointly rates. Must be married on date of death, not remarried by end of year. Can use for two more years if >= one child or stepchild.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

The Tax Formula for Individuals (12).

  1. +
  2. -
  3. =
  4. -
  5. =
  6. -
  7. (-)
  8. (-)
  9. =
  10. +, x
  11. -
  12. =
A
  1. Income –Courts have defined income as any increase in wealth.
  2. Less Exclusions:Items congress has specifically excluded from income.
  3. Equals: Gross Income.
  4. Less: For AGIDeductions.
  5. Equals: Adjusted Gross Income “AGI”
  6. Less: the greater of standard deduction or itemized deductions (From AGIDeductions)
  7. Less: Personal and Dependency Exemptions(Suspended from 2018 to 2025 –TCJA)
  8. Less: Deduction for qualified business income (Applies from 2018 to 2025 –TCJA)
  9. Equals: Taxable Income
  10. Tax on taxable income –Tax Liability
  11. Less: credits, and pre-payments (withholdings or estimated tax payments)
  12. Tax or Refund Due
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

Define Income (step 1/12). List three exclusions (step 2/12). Income minus exclusions is (step 3/12)?

A

All income from whatever source derived. Any increase in wealth.

Exclusions

  1. Unrealized gains/losses
  2. Return of capital (Return of Capital Doctrine)
  3. Receipt of borrowed funds

There’s more than just listed here.

Income minus exclusions is Gross Income

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

List of Deductions FOR AGI (10), (step 4/12)

A
  1. Trade of business expenses
  2. Rent and royalty expenses
  3. Capital loss deduction
  4. Alimony paid
  5. Retirement contributions
  6. Qualified moving expenses
  7. Unreimbursed employee business expenses
  8. 50% of self-employment taxes
  9. Self-employed medical insurance premiums
  10. Interest on qualified student loans
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

What is AGI (step 5/12)?

A

Total income subject to tax, minus specific things that shouldn’t be taxed.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

What are deductions FROM AGI (step 6/12)? When can standard deduction not be used (3)?

A

Greater of standard or itemized deduction.

Can’t use standard deduction when…

  1. Married filing separately if a spouse itemizes.
  2. Nonresident aliens.
  3. Tax year less than 12 months because of change in account period for individual (idk).
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

Things included in itemized deductions (4)?

A
  1. Medical expenses.
  2. Taxes up to $10,000.
  3. Interest paid.
  4. Charitable contributions.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

What is itemized deduction phase-out?

A

When income goes above a certain amount, itemized deductions start becoming worth less.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

Standard deduction rules for dependents (greater of what)?

A

$1050 or Earned income + $350 up to standard deduction for single individual.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

What are dependents important for in 2018 (now that step 7/12 has been suspended) (3)?

A
  1. Child tax credit.
  2. Dependent credit
  3. Child and dependent care credit.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

Qualifying Child Tests - Age Test? (3 rules)

A
  1. Under 19.
  2. Full-time student under 24.
  3. Permanently and totally disabled.

Note: Can’t be older than taxpayer

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

Qualifying Child Tests - Support Test? (1 rule)

A
  1. Must provide more than 50% of the child’s support.

Note: Doesn’t include scholarships.

17
Q

Qualifying Child Tests - Relationship Test? (3 rules)

A
  1. All your children, including adopted, pending adoption, and foster children.
  2. All siblings, including step and half-siblings.
  3. Descendents of any of those.
18
Q

Qualifying Child Tests - Principal Residence Test? (1 rule)

A
  1. Must live with taxpayer more than half the year.

Note: Includes temp absences, also look at divorce/separation agreement. Needs to be filed with IRS.

19
Q

Qualifying Child Tests - Citizenship/Residency Test? (2 rules)

A
  1. Must be U.S. citizen or resident of U.S., Canada, or Mexico for part of the year.
  2. Lives with the taxpayer in another country.
20
Q

Qualifying Child - Marriage rule?

A

Dependent can’t file a joint return with his or her spouse unless no tax owed or filing just for a refund of withholdings.

21
Q

Qualifying Child - Tiebreaker rules (3)?

A
  1. Natural Parent
  2. Who did child live with most number of days?
  3. Person with highest AGI.

Note: More info in book.

22
Q

Qualifying Relative Tests - Relationship Test? (4)?

A
  1. parents + grandparents and beyond (lineal ascendants)
  2. Uncles and Aunts (collateral ascendants).
  3. Certain in-laws (son, daughter, father, mother, brother, sister)
  4. Someone that has lived with taxpayer all year.
23
Q

Qualifying Relative Tests - Gross Income Limit?

A

Can’t exceed the phased out exemption amount ($4050).

24
Q

Qualifying Relative Tests - Support Test?

A

Must have provided over 50% of actual support

25
Q

Qualifying Relative Tests - Citizenship/Residency Test?

A

Same as qualifying child.

26
Q

Tax Credits Lists (step 11/12) - Non-Refundable? (6)

A
  1. Foreign Tax Credit
  2. Child/Dependent care expenses.
  3. Child tax credit
  4. Retirement savings credit
  5. Residential energy credit
  6. Other credits from business activities
27
Q

Tax Credits Lists (step 11/12) - Refundable? (6)

A
  1. Earned income credit
  2. Additional child tax credit
  3. American opportunity credit
  4. Net premium tax credit
  5. Fuel tax credit
  6. Other refundable credits
28
Q

What counts as capital for capital gains?

A

Basically use your intuition on this one. Not property in businesses, copyrights, inventory items, receivables, etc.

One-year rule: Less than a year - ordinary rates.
More than a year - Capital gains rate - 20%, 15%, 0%.

29
Q

When does the Kiddie Tax Apply (4)?

A
  1. One or both of child’s parents alive
  2. One or both in a higher tax bracket
  3. Child doesn’t file joint return with spouse
  4. Child’s net unearned income above a threshold ($2100 for 2018). Above amount is taxed.
30
Q

Kiddie Tax Age tests (3)?

A

Meet one.

  1. Not >= 18
  2. Not >=19 and has earned income <50% of support
  3. Not >= 25 and is full-time student and has earned income <50% of support.
31
Q

Notes on Tax payments (step 12/12)?

A
  1. Prior year overpayment credited
  2. Federal income tax withheld on two forms, W-2 and 1099
  3. Estimated tax payments made during the year (??).

Tax Accounting (3 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions