Flashcards 2
How are foreign investments taxed?
Taxed in the same manner as domestic investments. $1500 and more needs a Schedule B.
What does the Bank Secrecy Act require tax preparers to ask?
It requires tax preparers to ask about foreign accounts and foreign trusts.
What is the first question from the Bank Secrecy Act?
At any time during the year, did you have financial interest/signature authority over a financial account in a foreign country?
What is the second question from the Bank Secrecy Act?
During the year did you receive a distribution from, or were you the grantor of, or transferor to, a foreign trust?
What is the third question from the Bank Secrecy Act?
During the year, did you have ownership or authority over foreign financial assets worth more than $50k?
What is Method 1 of computing taxpayer’s tax?
Use the Tax Table if income is less than $100k.
What is Method 2 of computing taxpayer’s tax?
Use the Tax Computation Worksheet if income is $100k or more.
What are nonrefundable credits?
Includes CHILD TAX CREDIT and OTHER DEPENDENT CREDIT; both are calculated on Schedule 8812.
Where are other nonrefundable credits reported?
Reported on Schedule 3, lines 1-7, which are carried to Form 1040 line 20.
What are marginal tax rates?
The percentage of tax applied to your income for each tax bracket in which you qualify.
How does the marginal tax rate work?
Every taxpayer begins with zero income and is in the lowest tax bracket, which is 10%.
What is an example of marginal tax rate for a single taxpayer with $100,000 income?
A single taxpayer would owe $17,400 in taxes based on the brackets: $1 to $11,000 at 10%, $11,001 to $44,725 at 12%, $44,726 to $95,375 at 22%, and $95,376 to $100,000 at 24%.
What is the Alternative Minimum Tax?
It ensures that individuals benefiting from tax advantages pay at least a minimum amount of tax.
What is employment tax?
Employers have responsibilities to collect taxes for the federal government, including withholding and reporting.
What is the estate tax?
A Schedule K-1 (Form 1041) is provided to each beneficiary, listing their share of income and deductions.
What is the gift tax?
Nontaxable to the recipient, but the giver may need to report it on Form 709 if above the annual exclusion.
What is an excise tax?
Generally imposed on the manufacture, sale, or use of certain goods and products.
What is community income?
Income of a married couple in a community property state, considered to belong equally to each spouse.
What is community property?
Property considered to belong in equal shares to each spouse, applicable in certain states.
What is a dependent?
An individual who may be claimed on another person’s income tax return.
What is gross income?
Total worldwide income received in the form of money, property, or services subject to tax.
What is Married Filing Jointly (MFJ)?
The filing status used by a taxpayer who is married at the end of the tax year.
What is the standard deduction for 2024 for Single and MFS?
The standard deduction is $14,600.
What is the standard deduction for 2024 for MFJ?
The standard deduction is $29,900.
What is the standard deduction for 2024 for HOH?
The standard deduction is $21,900.
What is the increased standard deduction for those 65 or older and/or blind (single and HOH)?
An additional $1,850 per condition.
What is the increased standard deduction for those 65 or older and/or blind (MFJ, MFS, QSS)?
An additional $1,500 per condition.
What is the Kiddie Tax?
Applies to children under 19 or under 24 if a full-time student, with specific income conditions.
What tests must a child meet to be a qualifying child?
Five tests: relationship, age, residency, support, and joint return.
What is the relationship test for a qualifying child?
The child must be a son, daughter, stepchild, or a descendant, or a sibling or descendant.
What is the age test for a qualifying child?
The child must be under 19, under 24 if a student, or permanently disabled.
What is the residency test for a qualifying child?
The child must have lived with you for more than half the year.
What happens if the custodial parent won’t claim the child as a dependent for 2024?
The noncustodial parent cannot claim the child as a qualifying child for the earned income credit. The custodial parent or another eligible taxpayer can claim the child for the earned income credit.
Who is considered the custodial parent?
The custodial parent is the one with whom the child lived for the greater number of nights during the year.
What if the parents divorced or separated during the year?
The custodial parent is the one with whom the child lived for the greater number of nights after the separation.
How is a child treated for residency if they sleep at a parent’s home?
A child is treated as living with a parent for a night if the child sleeps at that parent’s home or is in the company of the parent elsewhere.
What if the child lived with each parent for an equal number of nights?
The custodial parent is the one with the higher AGI.
How is the night of December 31 treated for residency?
The night of December 31 is treated as part of the year in which the night begins.
What happens if a child is emancipated under state law?
The child is treated as not living with either parent.
How is a child’s absence from a parent’s home treated?
The child is treated as living with the parent they normally would have lived with, unless it can’t be determined.
What if a parent works at night?
If a child lives more days than nights with the parent who works at night, that parent is treated as the custodial parent.
What is an example of a custodial parent based on nights lived?
If a child lived with you 210 nights and with the other parent 156 nights, you are the custodial parent.
How is a child’s residency calculated during summer camp?
If a child spends 6 weeks at summer camp, they are treated as living with each parent for 3 weeks.
What if a child lived the same number of nights with each parent?
The parent with the higher AGI is treated as the custodial parent.
What happens if a child lives with one parent during a hospitalization?
The child is treated as living with the parent whose home they are in, even if the other parent is present.
What happens if a child is emancipated in May?
The child isn’t considered in the custody of either parent for more than half of the year.
What happens if a child is emancipated in August?
The child is treated as living with the parent they lived with for the greater number of nights before emancipation.
What is required for a custodial parent to release a claim to an exemption?
The custodial parent must use Form 8332 or a similar statement to release the claim to the noncustodial parent.
What if the divorce decree went into effect after 1984 and before 2009?
The noncustodial parent may attach certain pages from the decree instead of Form 8332.
What if the divorce decree went into effect after 2008?
The custodial parent must sign Form 8332 to release the claim to the noncustodial parent.
Can a custodial parent revoke a release of claim to an exemption?
Yes, but they must give written notice of the revocation to the noncustodial parent.
How is support determined for a qualifying child?
The child cannot have provided more than half of their own support for the year.
What happens if a foster child receives support from a state or county?
Payments from the state or county are considered support provided by the agency, not by the foster parent.
How are scholarships treated in determining support?
Scholarships received by a child who is a student aren’t considered in determining whether the child provided more than half of their own support.
What is the joint return test for a qualifying child?
The child cannot file a joint return for the year, except to claim a refund of withheld taxes.
What is an exception to the joint return test?
If the child and spouse file a joint return only to claim a refund, the child may still be a qualifying child.
What happens if a child files a joint return to claim an American opportunity credit?
The child is not considered a qualifying child because they are not filing only for a refund.
What if a qualifying child is a qualifying child of more than one person?
Generally, only one person can treat the child as a qualifying child for tax benefits.
What are the tiebreaker rules for determining who can claim a qualifying child?
If only one is a parent, that parent claims the child. If both are parents and file jointly, they both claim the child.
What if parents don’t file jointly but both claim the child?
The child is treated as the qualifying child of the parent with whom the child lived longer.
What happens if no parent can claim the child?
The child is treated as the qualifying child of the person with the highest AGI for the year.
What happens if a qualifying child is not claimed by any parent?
The child is treated as the qualifying child of the person with the highest AGI for the year, provided that person’s AGI is higher than any of the child’s parents.
Can you choose who claims a qualifying child?
Yes, you and the other person may be able to choose which of you claims the child as a qualifying child.
Can you qualify for the earned income credit without a qualifying child?
Yes, if you have a qualifying child claimed by another taxpayer, you may qualify under the rules for taxpayers without a qualifying child.
Example 1: Who can claim Jordan as a qualifying child?
Your parent can claim Jordan because their AGI is higher than yours, and you agreed to let them claim Jordan.
Example 2: Who can claim Jordan when the parent’s AGI is lower?
Only you can claim Jordan because your AGI is higher than your parent’s AGI.
Example 3: What happens if both you and your parent claim Jordan?
You will be the only one allowed to claim Jordan as a qualifying child.
Example 4: Can a parent allow their parent to claim qualifying children?
Yes, if the parent’s AGI is higher, they can allow their parent to claim one or more of the children.
Example 5: What if the taxpayer is a qualifying child?
You can’t claim your child as a dependent if your parent can claim you as a dependent.
Example 6: How does living arrangement affect claims for separated parents?
Both parents can claim the child if they meet the relationship, age, residency, support, and joint return tests.
Example 7: Who claims the child when both separated parents claim the same child?
Only the parent with whom the child lived longer will be allowed to treat the child as a qualifying child.
Example 8: What happens when unmarried parents agree on claiming a child?
The parent with the lower AGI can claim the child if the other parent agrees.
Example 9: What if both unmarried parents claim the same child?
Only the parent with the higher AGI will be allowed to treat the child as a qualifying child.
Example 10: Who claims Reid when living with a sibling?
Only your parent can treat Reid as a qualifying child because their AGI is higher.
What are the tiebreaker rules for divorced or separated parents?
Only the noncustodial parent can claim the child as a dependent and for certain tax credits.
Example 1: How does Kody’s living arrangement affect claims?
Kody is treated as the qualifying child of Kody’s other parent, who can claim the child tax credit.
Example 2: What if the AGIs are reversed in Kody’s case?
Your parent cannot claim Kody because their AGI isn’t higher than yours.
Example 3: What happens if both you and your parent claim Kody?
You will be the only one allowed to claim Kody for the earned income credit.
