Brainscape's Knowledge GenomeTM

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


See full index

Fed Tax > Exam 1 > Flashcards

Exam 1 Flashcards

1
Q

Marginal Tax Rate?

A

The tax rate that applies to the next increment of a taxpayer’s taxable income. OR the amount of additional tax paid for every additional dollar earned.

(new total tax - old total tax) / (new taxable inc - old taxable inc)

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

Average Tax Rate?

A

Taxpayer’s average level of taxation on each dollar of taxable income.
Total Tax amount / Total Income

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

Effective Tax Rate

A

taxpayer’s average rate of taxation on each dollar of total income (both taxable & nontaxable)

Total tax / Total Income

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

Federal Taxes Types

A
  • income taxes
  • employment & unemployment taxes
  • excise taxes
  • transfer taxes
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

State & Local Taxes Types

A
  • Sales & Use Tax
  • Property Taxes
  • Income taxes
  • Excise taxes (drugs, alcohol)
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

Types of Taxes

A
  1. Federal Taxes
  2. State & Local Taxes
  3. Implicit taxes (taxes implied on the price)
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

Gross Income

A

defined as all realized income from whatever source derived, less (minus) specified exclusions or deferrals

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

FOR AGI deductions

A

“Deductions above the line”

because they determine AGI. They tend to be associated with business activities and certain investing activities

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

ADI (adjusted gross income)

A

important because itemized deductions are partially phased out for taxpayers with AGI over a certain threshold

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

FROM AGI deductions

A

“deductions below the line”

because they are deducted AFTER AGI has been determined. Tends to be personal in nature

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

Tax Liability

A

calculated using either tax table (taxable income under $100k) or a tax rate schedule

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

Tax Credits

A

directly reduce taxes owed, dollar for dollar

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

Examples of Income

A
  1. Ordinary
  2. Capital
  3. Tax Exempt (exclusions)
  4. Tax Deferrals
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

Examples of Deductions FOR AGI

A
  1. ded for adjusted gross income (AGI)
    - alimony (pre 2019)/rental & royalty expenses/contributions to qualified retirement accounts/health insurance deductions for SELF EMPLOYED taxpayers/1/2 of SE taxes paid/business expenses/losses on dispositions of assets used in a trade or business/capital losses (up to $3k)
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

Examples of Deductions FROM AGI

A
  1. Greater of itemized or standard deduction

Itemized deductions:
- medical & dental expenses
- charitable contributions
- state & local property taxes
- mortgage interest paid
- misc deductions

  1. 20% of taxpayer’s QBI (qualified business income)
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

Qualifying Child (must have):

A
  1. age test
  2. relationship test
  3. residence test
  4. support test
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

Dependency Requirements (qualifying child):

A
  1. must be a US citizen or resident of US, Canada, or Mexico
  2. must not file joint return with spouse
  3. must be considered either a QUALIFYING CHILD or QUALIFYING RELATIVE of taxpayer
  4. dependent not claimed as dependent by someone else
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

Dependency Requirements (qualifying relative):

A
  1. relationship test
  2. support test (taxpayer pays more than half of their exp)
  3. gross income test (dependents GI is less than $5,050
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

Filing Status’

A
  1. single
  2. Married filing jointly
  3. Married filing separately
  4. head of household
  5. qualifying widow(er)
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

section 61 (a)

A

Gross income means all income from whatever source derived.
Why is it so broad? to maximize revenue and drive economy

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

Reg. section 1.61 (a)

A

Gross income includes income realized in ANY form, whether in money, property, or services

22
Q

Tax Basis

A

Cost of an asset or investment

23
Q

Return of capital principle

A

means tax basis is EXCLUDED when calculating realized income; Because return of capital does not represent an economic benefit

24
Q

when to recognize income

A
  1. individual taxpayers file tax returns for a calendar year period
    a. corporations often use the FISCAL year-end
    b. the method of accounting generally determines the calendar year in which realized income is recognized and included in gross income
  2. accounting methods
    a. corporations: accrual method of accounting
    b. individuals: cash method
  3. receipt of income
    a. actual receipt
    b. constructive receipt
25
Q

constructive receipt

A
  1. income is unconditionally available to taxpayer
  2. taxpayer is aware of the incomes availability
  3. no restriction on the taxpayers control over the income
26
Q

Types of income

A
  1. income from services (earned income)
    - wages/salaries/tips - W-2
    - business (self-employed) income - schedule C
  2. income from property (unearned income)
    - interest
    - dividends
    -gains or losses from sale of property
    -rents, Royalties
    - annuities
  3. income from other sources (eg., alimony)
    - alimony (if divorce is before 2019)
    - income from flow-through entities
    - prizes, awards, and gambling winnings
    - social security benefits
    - discharge of indebtness
27
Q

What is a tax exempt interest?

A

interest received from state & local government bonds (eg., municipal bonds)

28
Q

Dividends

A

distributions made to shareholders from a corporate’s AFTER tax earnings
reported on 1099-DIV
amount recognized in GI = full amount of dividend received

29
Q

Qualified dividends

A
  1. they are received from domestic, taxable entity, or qualified foreign entity
  2. taxpayer’s holds stock for more than 60 days during the 121-day period beginning 60 days before ex-dividend date
30
Q

Gain/Loss realized (not necessarily recognized) = ?

A

= sales proceeds - selling expenses - tax basis in property

31
Q

rental amount recognized in AGI = ?

A

= rental income received - operating expenses - depreciation

32
Q

annuity

A

an investment that pays a stream of equal payments over time

33
Q

annuity exclusion ratio =

A

original investment / expected value of annuity = return of capital percentage

34
Q

fixed term annuity (EVA) expected value annuity

A

= annual payment * number of payments

35
Q

annuity recognized in GI =

A

(1 - annuity exclusion ratio) * annuity payments during the year

36
Q

alimony

A

defined as transfer of cash made under a written separation agreement or divorce decree
- property divisions and child payments DO NOT QUALIFY as alimony

37
Q

the spouse paying the alimony deduct payments as deductions ___

A

For AGI

38
Q

Amount recognized in GI for prize, awards, and gambling winnings =

A

fair market value of prize or award

39
Q

when to exclude prize, awards or gambling winnings in GI

A
  1. if its for scientific, literary, charitable achievement (eg., Nobel Prize)
  2. for employee length of service or safety management ($400 limit/emp/yr)
40
Q

discharge of indebtedness

A

taxpayer’s debt is forgiven by a lender

41
Q

amount recognized in GI for discharge of indebtedness =

A

amount of debt relief

42
Q

Exclusion Provisions (to encourage particular activities):

A
  1. Municipal bonds
  2. education related exclusions (eg., scholarships, tuition fees, grants for books)
  3. sale of personal residence ($250k for single / $500k for MFJ)
  4. certain fringe benefits (eg., health insurance, life insurance premium, meals on site)
43
Q

Exclusion Provisions (to mitigate double taxation):

A
  1. gifts and inheritances
  2. life insurance proceeds
  3. foreign income
44
Q

Exclusion provision (to support social policy):

A
  1. compensation for personal injury
  2. workers compensation
  3. health care reimbursement for medical expenses
  4. disability insurance
45
Q

Ownership & use test for personal residence

A
  1. taxpayer must OWN the residence and use the property for 2 years during the 5 year period on the date of sale
  2. for MFJ, either spouse can meet the ownership test and both spouses must meet the use test
46
Q

Fringe Benefits:

A
  1. Medical and dental health insurance
  2. De minimis (small) benefits
  3. life insurance coverage
  4. meals provided to employees
  5. employee educational assistance programs (up to $5,250 of employer-provided edu assistance benefits covering tuition fees, books
  6. qualified employee discounts
47
Q

Directly related deductions for AGI:

A
  1. rental and royalty expenses
  2. trade or business expenses
  3. losses from sales of business assets
  4. expenses and losses from flow through entities
48
Q

Indirectly related deductions for AGI:

A
  1. alimony paid
  2. health insurance deductions for self-employed taxpayer’s (UNLESS taxpayer is eligible for an employer-sponsored health insurance through spouse’s job)
  3. self-employment tax deduction
  4. deductions for IRA & HSA
  5. penalty for early withdrawal of savings
49
Q

A net capital loss is deducted ___ AGI but limited to $___

A
  1. FOR AGI
  2. $3,000
50
Q

tax credits 3 categories:

A
  1. nonrefundable personal (use it or lose it)
  2. refundable personal
  3. business
51
Q
A

Fed Tax (2 decks)

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