Chapter 4 Flashcards
what is the individual income tax formula:
Income (all-inclusive)
- exclusions:
Gross Income
- “For AGI”:
AGI
- “From AGI”:
- QBI Deduction:
Taxable Income
formula for income tax liability
Income Tax Liability
+ Other Taxes:
Total Tax Liability
- Tax Credits
- Tax Prepayments:
Tax Due OR Tax Refund
what number do we use to calculate average and effective tax rate
total tax liability
realized income
income generated in a transaction with a second party
exclusion
realized income that Congress has permanently excluded from taxation
deferral
realized income that is not taxed in the current year, but is subject to tax in future years
5 main types of character income/losses
- tax-exempt
- tax-deferred
- ordinary
- capital income
- qualified dividends
ordinary income is taxed at:
the normal tax table rates
capital income and qualified dividends are taxed at:
not taxed or taxed at a preferred rate
capital income
gains and losses on the sale of capital assets
capital assets are all assets except:
- A/R from sale of goods and services
- inventory and other assets held for sale in the ordinary course of business
- assets used in trade or business
generally, personal use assets are classified as:
capital assets
3 categories for income, property, and expenses
- Trade or Business (ToB)
- Production of Income (POI)
- Personal use
“from AGI deductions” equals:
the greater of standard deductions or itemized deductions
who qualifies for an additional standard deduction?
taxpayers 65 years or over or blind
5 broad categories of from AGI deductions
- medical and dental expenses (the extent to which they exceed 7.5% of AGI)
- taxes
- interest expense
- gifts to charity
- gambling losses
QC tiebreaking rules:
- QC to a parent and nonparent:
- QC to more than one parent:
- QC to more than one nonparent:
- the parent claims QC
- the parent with whom the child has resided for the longest period of time during the year
- the nonparent with the highest AGI
Qualifying Widow(er) requirements:
- spouse died in either of the 2 years prior to tax return
- in their death year, you could file MFJ
- you paid more than half the cost of keeping up the home this year
- a dependent child or stepchild lived with you all year
Head of Household requirements:
- not married
- paid more than half the cost of keeping up the home for the year
- have a “qualifying person”
OR - lived apart from spouse for the last 6 months
- file a separate return
- paid more than half the costs of keeping up the home
- home is main residence for child, stepchild, foster child for more than half the year
- claim the child as a dependent
when can a taxpayer’s parent be a “qualifying person” for HoH?
when the taxpayer pays more than half the cost of maintaining their parent’s principal place of residence
5 examples of “For AGI” deductions
- health insurance deduction for self-employed
- one-half of self-employment taxes
- business expenses
- rent and royalty expenses
- contributions to retirement accounts
