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Accy 171 > Exam 2 > Flashcards

Exam 2 Flashcards

1
Q

When are bad debt allowed to be deducted

A

when debt is not repaid

sale of goods or provisions (on credit) become worthless (this is for Accrual method only

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2
Q

Bad debt deduction timing is different for both business and non-business. How?

A

business bad debt is when it becomes partially or wholly worthless

Specific nonbusiness debt becomes wholly worthless

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3
Q

amount of deduction if the debt was bought and turns into bad debt

A

deduction is the basis

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4
Q

Bad debt deduction if loan was debt by taxpayer, what is the amount?

A

the amount of deduction is the amount of loan not repaid.

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5
Q

Bad debt Deduction equals, if debt was A/R

A

it is the amount previously included in income

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6
Q

what happens when you collect from bad debt after you take the deduction?

A

reverse the write-off in the year you receive the collection (remember tax benefit rule)

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7
Q

what are casualty and theft losses (for deductions)

A

casualty are any event that is identifiable; damaging to property and sudden, unusual and unexpected.

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8
Q

when is the timing for deductions of casualty and theft losses?

A

in the year it occurs (unless reimbursement claim Ex. Disaster area losses)

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9
Q

when are theft deductions allowed?

A

in the year they are discovered.

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10
Q

what is the loss amount deduction for complete destruction of business or invesment/rental property?

A

loss is adjusted basis (purchase cost + improvements)

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11
Q

what is the loss amount of partial destruction of business/investment property or personal-use property?

A

the lesser of

adjusted basis of property
or
difference between FMV before and after

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12
Q

Insurance proceeds reduce the loss amount deduction.

A

TRUE

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13
Q

loss in connection with business or rental royalty activity for individuals is a deduction

A

FOR AGI

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14
Q

Loss from investment activities is a deduction

A

FROM AGI

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15
Q

Loss of personal-use property is a deduction

A

FROM AGI

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16
Q

Individuals must file an insurance claim to deduct loss on personal-use property.

A

TRUE

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17
Q

What is Net Operating Loss?

A

having losses from operating throughout the year

DEDUCTIONS EXCEED GROSS INCOME

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18
Q

What are you allowed to do with NOL?

A

Carry-back: 2 years preceding the loss then 1 year preceding the loss

Carry-forward: the loss 20 years

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19
Q

NOL ONLY APPLY TO

A

losses from operating of trade or business or casualty or theft

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20
Q

what are at risk limitations?

A

limits the losses from a business to the amount the tax payer is at risk

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21
Q

how to calculate at risk amount?

A

Cash + adjusted basis of property contributed + debt the taxpayer is liable for

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22
Q

how does the amount risk increase and decrease?

A

increased for share of income and additional contributions

Decreased for share of deductible losses and withdrawals

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23
Q

what are the at risk limitations?

A

Suspended losses are carried forward to same activity

applied by business by business or activity by activity

Applies to individuals (including partners, S-corps, and shareholders)

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24
Q

what happens when taxpayer is at $0 for at risk amount and withdraws money to reduce it below $0?

A

the withdrawal amount is recognized as income

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25
Q

what are Passive activity loss limits?

A

net losses from passive activities cannot offset active income or portfolio income

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26
Q

rule for passive activity loss if suspended?

A

carried forward until there is passive activity income to or taxpayer disposes it

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27
Q

Rule for disposition of passive activity loss

A

it is netted against the gain of disposition, then other passive activity income.

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28
Q

What is a passive activity?

A

any trade or business the tax payer does not materially participate in

Rental activities

limited partner

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29
Q

Is portfolio income and passive income the same?

A

NO

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30
Q

What happens to passive activity business changes to active?

A

previous suspended passive activity loss can be used to offset active income from that business.

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31
Q

Applying At-Risk limitations and Passive Activity loss limits together

A

apply at-risk rules first

if loss is allowed under at risk rules, the apply passive activity loss limits

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32
Q

what is the tax formula for individuals?

A

Income - Exclusions = Gross Income

Gross Income - Business and investment income Deductions = AGI

AGI - (itemized or standardize) deductions= Taxable Income

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33
Q

What are deductions for AGI?

A

These are deductions above the AGI line

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34
Q

Deductions from AGI are…

A

these are usually itemized or standarize deductions

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35
Q

what are the standardize deductions?

A

standard deduction for yourself, and/or spouse

the additional standard deduction for taxpayer or spouse 65 or blind

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36
Q

examples or itemized deductions

A

allowable personal expenses

ordinary and necessary expenses

casualty loss (personal or investment property)

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37
Q

How to calculate standard deduction for taxpayer that can be claimed as dependent?

A

it is limited to greater of $1050

or

earned income plus $350

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38
Q

examples of deductions for AGI

A

alimony

ordinary and necessary business expense

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39
Q

Married filing separately must either both take standard deductions or both take itemized deductions.

A

TRUE

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40
Q

What personal exemptions?

A

personal exemptions for for taxpayer and spouse ($4050 each)

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41
Q

What are dependency exemptions?

A

they are the qualifying children and qualifying relatives of the tax payer.

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42
Q

What are the qualifications for child exemptions?

A

MUST MEET ALL
1. Relationship test (must be related to you)

  1. Abode test (live with tax payer 6 months)
  2. Age Test (under 19 or 24 if full time student)
  3. Support test (child is not self supporting)
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43
Q

What are the requirements for qualifying dependent exemption?

A

MUST MEET ALL OF THE FOLLOWING
1. relationship test (member of taxpayer’s household)

  1. Gross income test (less than exemption amount)
  2. Support test (provide at least 1/2 of dependent’s support
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44
Q

what is the phaseout for exemptions?

A

Personal and dependency exemptions are phased out at a certain AGI.

the phase out is 2% for every $2500
(make sure you always round up)

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45
Q

What are the five filing statuses?

A
  1. single
  2. Married filing jointly
  3. Married filling separately
  4. Qualifying widow with dependent child
  5. Head of Household
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46
Q

How is marital status determined?

A

on the last day of the year unless spouse died

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47
Q

When are you generally required to file a tax return?

A

if gross income equals or exceeds sum of personal exemptions and standard deductions

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48
Q

When must dependents file tax return?

A

if earned income or unearned income is over the standard deduction

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49
Q

When are self-employed required to file tax returns?

A

$400 or more in net earnings

50
Q

If income falls under $100k use

A

tax table method

51
Q

if income is over $100k use

A

Tax Rate schedule Method

52
Q

marginal tax rate

A

Rate at which the next dollar will be taxed @

53
Q

Average tax rate

A

Tax liability / taxable income

54
Q

What tax credits?

A

they reduce the tax liability (dollar for dollar)

MORE VALUABLE TO TAXPAYER

55
Q

What are tax deductions?

A

they reduce taxable income

56
Q

difference between refundable and non-refundable tax credits?

A

refundable tax credits reduce tax liability below zero (thus pay you money)

Non-refundable tax credits expire at the end of the year (do not payout)

57
Q

What is the additional medicare tax?

A

more medicare tax if you are over a certain income

58
Q

What is the Kiddie Tax?

A

child having over $2100 in net unearned income then the child is taxed at parents tax rate.

59
Q

How to calculate Net earned Income for Kiddie Tax?

A

Unearned Income - $1050 - (greater of $1050 of SD or ID connected w/ unearned income)

60
Q

surviving spouse filing status rules

A

year spouse died- married entire year

following 2 years : if you maintain household with dependent child then qualifying widow

61
Q

What are the Tax effects of alimony?

A

included as gross income for receiving party

Deduction for AGI for whom paid it

62
Q

tax consequences of child support?

A

not included in gross income for receiver

63
Q

How to distinguish alimony and child support?

A

child support is until the child turns a certain age

alimony supports spouse until they do something

64
Q

what happens when transfer of property due to a divorce?

A

this is not a taxable event and basis stays the same

65
Q

When are prizes included in gross income?

A

when the recipient receives and accepts the award

the value is the FMV on date of receipt

66
Q

is unemployment compensation included in gross income?

A

it varies by state but Federal Gov includes it in gross income

67
Q

Are social security benefits included in income?

A

only if taxpayer’s income exceeds a certain base amount

but there is a max

68
Q

When are gifts excluded from income?

A

when it is a voluntary transfer of property without expecting anything in return

69
Q

When are scholarships excluded in income?

A

when it is used for tuition,books, supplies/equipment

and student must be in school

70
Q

damage payments for loss of income are

A

generally taxable

71
Q

damage payments for destroyed property are

A

taxable if the payment causes a gain for taxpayer

72
Q

Punitive damage payments are

A

included in gross income

73
Q

Compensatory damages are excluded in gross income if

A

they are physical damages

74
Q

Business Expenses are generally deductions

A

for AGI

75
Q

HSA contributions are generally deductions

A

for AGI

76
Q

Contributions for your IRA are deductions

A

for AGI

77
Q

Student Loan interest is a deduction

A

for AGI

78
Q

Mortgage interest is deductible as

A

an itemized deduction

79
Q

medical expenses are deductible as

A

an itemized deduction

80
Q

charitable contributions are deductible as

A

an itemized deduciton

81
Q

What medical expenses are deductible?

A

expenses paid for care for you, spouse, and dependents

preventive care
insurance premiums

82
Q

In order for medical expenses to be deducted they must meet 10% of AGI

A

TRUE

83
Q

what taxes are deductible as itemized deductions?

A

taxes on personal use
Ad valorem real estate taxes (% of the value of the home)
State and local income taxes

84
Q

Business interest is a deduction

A

For AGI

85
Q

Interest on a qualified student loan is a deduction

A

FOR AGI

86
Q

Qualified residence interest is a deduction

A

FOR AGI

87
Q

interest on qualified student loan deduction is capped at…

A

$2500 per year

88
Q

qualifications and amounts for qualified residence interest deductible

A

you get principal residence

interest on up to $1M in acquisitions indebtedness

interest up to $100k of home equity loans

89
Q

when are mortgage insurance premiums and points deductible?

A

in the year paid

90
Q

qualification and limits of charitable contribution deductions

A

must be qualified organization

it is fully deductible if less than 20% of AGI
and the max is 50% of AGI
(the disallowed amount can be carried forward 5 years)

91
Q

What is the “Pease Limitation”?

A

some itemized deductions are phased out at a certian AGI

92
Q

The “Pease Limitation” applies to

A

state, local, and property taxes

Mortgage interest and points

charitable contributions

Misc. itemized deductions subject to 2% floor

93
Q

What is the child tax credit?

A

credit up to $1000 per child per child
it is nonrefundable
but additional child tax credit is refundable?

94
Q

What is the child and dependent care expenses credit?

A

it is a credit for a % of the expense

Nonrefundable

95
Q

What is the American opportunity tax credit?

A

credit for 100% of first $2000 and 25% of next $2000

max is $2500

96
Q

limits for American Opportunity Tax credit

A

limited to 4 years per student

97
Q

What is the lifetime learning credit?

A

20% of the first $10,000

up to $2000 per year

98
Q

What are the eligible expenses for AOT and lifetime learning credit?

A

Tuition and fees but books only for AOC

99
Q

What factors does the IRS use to determine an employee and independent contractor?

A

Behavioral Control

Financial Control

Type of relationship

100
Q

What are fringe benefits?

A

the can be excluded from taxpayer’s income

deductible by employer

101
Q

how are Employer-sponsored Accident and Health plans affect taxes?

A

Premiums deductible by employer and excluded in employee’s gross income

insurance benefits to employee are generally excluded from income

102
Q

When are meals and lodging furnished by employer excluded from gross income to the employee?

A

when it is
furnished by the employee

on the employer’s premises

for the convenience of employer

required as a condition of employment

103
Q

how do flexible spending accounts work?

A

Health FSA: estimate how much you will spend in medical expenses and throughout the year you will be reimbursed those expenses from the withholdings from your check (max is $2250)

104
Q

When can an employee deduct travel expenses?

A

itemized deductions subject to 2% floor

when the employee not in travel status and going place to place because of work

105
Q

Travel expenses are deductible. (what and when)

A

when related to employment

travel expenses, meals and entertainment (cut 50%), lodging, laundry

106
Q

When are education expenses deducted as business expense?

A

if it is
to meet requirements of employer to retain employment status

maintain or improve skills at the current job

they are ordinary and necessary

107
Q

Tuition and fees deduction is for

A

everyone but up to o$4000 of qualified tuition and expenses involving higher education

(For AGI)

108
Q

What are the requirements for home office deduction?

A

must be regular and exclusive use

principal place of business or meeting customers

convenience of employer

109
Q

What happens if employer reimburses expenses under accountable plan?

A

this is excluded from income (not a deduction)

110
Q

What are the requirements for accountable plans?

A

(must meet all)

Employee timely and adequate accounts for the expense (receipts within 60 days)

Employee returns any excess reimbursement or allowance

Reimbursed expenses would have been deductible by employee had they not been reimbursed

111
Q

What are the requirments to contribute to an IRA?

A

must be under 70.5 years old
must be from earned income
$5500 contribution limit but $1000 catch up if 50 or older

112
Q

Facts about traditional IRA

A

Contributions are deductions for AGI

Grows tax free

Taxable when you take money out

Early withdrawal penalty before 59.5

113
Q

Facts about ROTH IRA

A

Contributions are not deductible

contribution phaseout from income limits

withdrawals are tax free

Early withdrawal penalty

Conversions and rollovers

114
Q

Schedule C tells you about

A

the profit or loss of a business

115
Q

Self-employment taxes include

A

SS 12.4% (capped at $118500)
Medicare tax - 2.9%

(but there is a deduction for 1/2 of self-employment taxes paid)

116
Q

what are the hobby loss rules?

A

Hobby losses are not deductible

Hobby expenses can be claimed on schedule A

these itemize deductions are subject to 2% floor

117
Q

what goes on schedule A?

A

itemized deductions

118
Q

What goes on schedule B?

A

Dividend and interest income

119
Q

What goes on Schedule D?

A

Capital Gains

120
Q

What goes on schedule E?

A

Supplemental income

Accy 171 (2 decks)

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