Brainscape's Knowledge GenomeTM

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


See full index

REG - Federal Taxation > Income > Flashcards

Income Flashcards

1
Q

Gross Income

A

Any income considered to be taxable unless specifically excluded by the tax law
*Taxable differs from accounting income

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

Tax Rates

A

Individuals: 10, 15, 25, 28, 33, 35, 39.6%
Corporations: 15, 25, 34, 35%

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

Constructive Receipt Rule

A
  • IF amount is readily available
  • NO substantial restrictions
  • RECORD as income
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

Assignment of Income

A

Income is taxed to the individual who earned the income

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

Claim of Right Doctrine

A
  • Contested income
  • Period claim materializes, must include in income
  • Later repayment = deduction BUT no influence on income recognition
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

Tax Benefit Rule

A
  • Include an expense reimbursement in income IF the expense was deducted in a prior period that reduced taxable income
  • IF 1040EZ, no benefit, so not included in income
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

Income - INCLUSIONS (interest)

A

Interest Income
- municipal interst - NOT taxable (bonds state/local gov’ts, “state obligations”) IF sold at a gain, then TAXABLE… only the interest is excluded

  • Prepaid interest - taxed when recieved, even for accrual
  • US Treasury notes,/bonds
  • Fed/State tax refunds
  • Mortgages (oyu’ve extended)
  • Series EE Bonds - interest is paid at MATURITY, taxed at maturity (excludes higher education costs for 24yrs or older, spouse, dependent)
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

Income - INCLUSIONS (Qualified dividends)

A

Not taxed if you are in the 10-15% tax bracket
*Either at 15 or 20% + 3.8% IF in higher bracket

Qualified - Received from a domestic corp or a foreign corp that is traded on a US stock exchange

  1. Only to the extent of E&P
  2. Disribution reduces basis in stock
  3. Capital gain (after basis = 0)

E.g. distribution 10,000
E/P 4,000
Basis 5,000

10,000 dist.
(4,000) e/p
6,000 
(5,000) basis
Basis = 0 
Cap Gain = 1,000
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

Income - INCLUSIONS (STOCK dividends)

A

Common - NOT taxable
Preferred - TAXABLE

  • Overall basis will stay the same, BUT basis per share will be altered
  • MUST be proportionate for ALL shareholders

E.g. (100 shares)
yr 1: $10,000
yr 3: 2 for 1 split (fmv 120)
yr 3: sells 100 ($65/share)

Pre-Split: 10,000/100 = $100/share
Post-Split: 10,000/200 = $50/share
Basis in sold: 100 * $50 = $5,000.00

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

Inclusions - ALIMONY

A 
Receiver - pays tax
Person paying - gets deduciton 
HAS TO BE: 
- in cash or via expense payment 
- contingent on life of recipient**** 
- required by a writted agreement/decree
- CANNOT be specified as something else
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

Inclusions - CHILD SUPPORT

A

Receiver - No tax

Person paying - Not deductible

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

Inclusions - DAMAGES/INSURANCE BENEFITS

A

Excluded:
*physical injuries, *physical sickness, *worker’s comp, *benefits form accident/health policies, *benefits from disability/ *long term care plans - UNLESS premiums paid by employer; employee did NOT pick up as income, *Medical insurance prem. paid by employer

TAXABLE:
*unemployment, *emotional distress, *discrimination, *injury to reputation, *punitive damages

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

Inclusions - ANNUITIES

A

Each payment = part income/ part return of capital

Retirement payout:
expected return? (life expectancy)
- Compute exclusion ratio *stays same
- Once basis = 0, payment is ENTIRELY taxable
- unrecovered cost IS deductible on financial return

EXCLUDED PORTION = [COST OF ANNUITY/EXPECTED RETURN (# of yrs*$/yr)] * PAYMENT/yr

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

Inclusions - Jury Duty

A

Includible in Income
**IF paid by the employer during duty, BUT pay from the state is given to the employer
THEN there is a deduction for AGI to offset this income

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

Exclsuions - Prizes/Awards

A 
FMV - in income
EXCLUSION exception: 
1. for an achievement 
2. No action, no services performed for
3. Paid directly to tax exempt or gov't organization
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

Exclusions - Gifts/inheritances

A

Excluded from the income of the recipient

- determined by the intent of the donor

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

Exclusions - Scholarships

A
  • for tuition, fees, books, supplies
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

Exclusions - Life Insurance

A

Due to death, Excluded

Also excluded for some accelerated death benefits

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

Exclusions - Social Security Benefits

A
  • Generally excluded
  • IF provisional income exceeds specific amounts, then it can be taxed up to 85%

Provisional Inc = AGI + Tax Exempt Int + 50% SSB

Joint 32,000 (< NO), 44,000 (= or > ) YES
Single 25,000 (< NO), 34,000 (= or >) YES
In between 50%ish taxable

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

Exclusions - Forgiveness of Debt

A

Generally included in income unless a gift
EXCEPTIONS:
- bankruptcy - excluded only to the extent of insolvency
- NO income but you lose other tax benefits such as NOL, credit carryovers, basis (all reduced)
- Insolvency- only to extent of debt are you able to exclude

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

Bond Premium Amortization

A

IF a taxpayer buys a taxabke bond at a premium

  • Election can be made to amortize the prem.
  • Amortization REDUCES the basis of the bond
  • Amortization OFFSETS the interest income from the bond
  • The amortized bond prem is computed using the constant yield to maturity method
22
Q

Bond Discount Amortization

A

Amortized using the effective interest rate method

Amortization INCREASES interest income

For short-term bonds, the discount is taxed at MATURITY as ordinary income (cash basis) and reported as earned (accrual)

23
Q

Gifts/Inheritances

A

Excluded from the income of the recipient; INTENT of donor detrmines if the transaction is a gift

50$ to student who cut grass; just doing it for goodwill vs paying for services; WHY there is no such thing as a gift from employer to employee

24
Q

Cash Basis

A

No A/R

25
Q

Accrual Basis

A

Unearned Income - usually recognized in the year recieved rather than the year earned

BECAUSE uncle sam wants your money as soon as you have it

MAY Elect to defer recognition of service income into next year IF the service is to be provided within the following year (needs to be same for financial reporting)

Rental Income - Prepaid rent, taxed when received

  • Deposits - not income to company if supposed to be returned to you, if keep tho, then the company will recognize
  • Leasehold improvements - tenant wants to add deck, INCLUDE in income IF in LIEU of rent
26
Q

Method of Accounting

A

C Corp, partnerships w/ c corp partners, and tax shelters CANNOT be cash basis

  • IF gross receipts do NOT exceed million (3 yr period) you can use cash, BUT if fail can never go back. NOT FOR TAX SHELTERS
27
Q

Inventory Accounting

A

Account for purchases (cogs) and sales - MUST use ACCRUAL method

Can use a hybrid methodoes not need to worry abou

LIFO can be used for tax if used for Financial Reporting
WHen prices are rising, higher cogs, lower taxable income

Lower or Cost of Market - market is replacement cost

28
Q

Uniform Capitalization Method

A

Manufacturers and certain retailers and wholesalers are required to use this
to capitalize all the direct and indirect costs

IF a SMALL personal prop dealer (10 mill or less in gross preceeding 3 years) does not need to worry about this

Storage costs (offsite) included, quality control, taxes, utitlities, repairs, rent, depreciation all included

Marketing, selling, research, ad, distribution, admin NOT included

29
Q

Changes in accounting methods

A

Voluntary change - spread income effect over four years (less than 25,000 can elect to include all in first year)

Involuntary - IRS will make you include in earliest year

30
Q

Short Year Returns

A

Period less than 12 months

  • Income is first multiplied by 12mo/5mo - to annualize the income for 12 months
  • Corporate tax liability is then computed on this amount for the FULL 12 months
  • That amount is then multiplied by 5/12 to prorate for the short tax year
31
Q

Reimbursements of Employee Expenses

A

INCLUDED in the income of the employee

UNLESS an ACCOUNTABLE plan.. then it is NOT included in income

32
Q

Discrimination Rules (fringe benefits)

A

Generally, employee benefits are excluded from income, as long as the plans DO NOT discriminate in favor of highly compensated employees

IF They do, the highly compensated employeesmust include these benefits in income

33
Q

Life Insurance

A

The limit on this exclusion is the amount of premiums necessary for a group-term policy of $50,000 face value

For amounts over 50,000 the insurance benefits are taxable based on the rates in the IRS table. The rates are based on the age of the taxpayer

IF employer pays premiums on a whole-life insurance policy for an employee the value of those premiums are included in income

34
Q

Health Insurance Premiums

A

Paid by an employer are EXCLUDED from income

  • Same for long term care policies
  • Wage continuation - HOWEVER, will be included
35
Q

Disability Insurance Summary

A
  • Premiums paid by Taxpayer - NOT deductible
  • Prem. paid by employer, EXCLUDED from income, DEDUCTIBLE by employer
  • Benefits received by taxpayer from a policy paid for by the taxpayer - EXCLUDED from income
  • Benefits received by taxpayer from policy paid by emploYER - INCLUDED in income
36
Q

Meals & Lodging

A

EXCLUDED IF:

  • Furnished for the convenience of the employer
  • On employer’s premises (nurse/doctor)
  • Melas must be in-kind (food not $)
  • Lodging must be a condition of employment (forest ranger cabin)
37
Q

Child and Dependent Care

A

up to 5,000, 2,500 IF married filing separately can be EXCLUDED from gross income

IF the employer provides the services so that the employee can work

38
Q

Education Costs

A

Tuition and fees up to 5,250 if employer is providing reimbursements
for grad or undergrad

39
Q

Tuition Waivers

A

Employees of NONPROFIT and educational insitutions may exclude UNDERGRAD tuition waivers for themselves, spouses, dependent children from gross income

IF institution has a qualified tuition reduction plan

Grad teaching assistant - to extent of tuition waiver is excluded also

40
Q

Cafeteria Plans

A

Employer can present an array of benefits and employee can pick and choose what they want.

Employee HAS to have the option of taking CASH to be “cafeteria plan”under the tax law. CASH will be taxable as wages. Benefits will be excluded

41
Q

Stock Options

A

Incentive Stock Option -
Grant date - None
Exercise date - None (except alt. min tax)
Sale date - Ordinary Income/Cap Gain (amt. adj. reverses)

Non-Qualified Stock Option -
Grant date - None
Exercise date - Ordinary Income
Sale date - Capital Gain

*Corporation receives deduction for Ordinary Income portion ONLY

42
Q

Non-Qualified Stock Option -

A

On the exercise date, the employee recognizes Ordinary Income = to

(FMV of stock - Exercise Price)* # of shares exercised

43
Q

Incentive Stock Options -

A

Gain on sale is LTCG if the acquired stock is

  1. held for more than one year
  2. NOT sold until after two years from the GRANT date

*IF NOT MET, then very similar to non-qualified

**CANNOT be grnated “in the money” ….exercise $ must be at least FMV

44
Q

Quilified Plans (retirement plans)

A

The income from contributions of salary to these are deferred until distributions are made from the pension

Earnings are not taxed until distributed

Early withdrawals (before age 59 1/2) triggers a penalty in addition to the taxation of the withdrawal

45
Q

Traditional IRAs

A

Contribution is limited to the lower of:
1. Annual ceiling (5,500; over 50 6,500) married filing joint at least 11,000 of earnings a contribution can be made for both spouses

  1. Compensation - Earned Income
    * IF NOT a participant in a qualified plan the IRA contributions can be DEDUCTED FOR agi

Contributions MUST be made by due date of the tax return (Apr 15th)

Nondeductible contributions - form 8606 - get basis for these contributions

WITHDRAWALS must start at age 70 1/2

46
Q

Roth IRSs

usually a better investment

A

Contributions are NOT deductible but can only be made if modified AGI does not exceed certain levels

WITHDRAWALS of income accumulated are NOT TAXED as income if the distribution IF:

  • Occured 5years or more from the date of initial contribution
  • Is made on or after an individual attains age 59 1/2
  • NOT required to start at age 70 1/2
  • *penalty of 10% and taxed if withdraw early
47
Q

Traditional IRA ——> Roth IRA

A

Taxpayer MUST recognize gain at the time of the conversion to the extent that the conversion amount exceeds the tax basis in the IRA

Reported on Form 8606
Same for converting 401(k) to Roth IRA

48
Q

Distributions

A

Payments from retirement plans are included in income, ecept to the extent employee has basis

BASIS to the extent employee has made NONdeductible contributions to the plan

*deductible employee cont, employer cont, and earnings all DO NOT create BASIS

49
Q

Keough Plans

A

For self employed tax payers

Contributions limited to the lesser of the annual limitation or 100% of earned income

Earned income = net earning from self emp. less 50% of self employment tax less allowable contribution

Amount you can deduct is limited to 25% of earned income

50
Q

401(k) Plans

A

Allows voluntary employee contributions to reduce taxable salary up to an anual limit + catch-up amount for those over the age of 50 (17,500 limit; catch up 5,500)

Employers often times match a certain percentage of employee contributions made to these plans

51
Q

SEP - Simplified Employee Pension Plan

A

Individual retirement plan established by an employer

  • employer contributions MUST be made to EACH SEP of EACH employee who:
  1. Reached age 21
  2. Performed service for the employer during at least 3 of last 5 years
  3. Has received a certain level of compensation

*MAX amount employer can contribute
25% compensation
50,000 max limit
Can be made UP to EXTENDED due date of RETURN

52
Q

Section 529 Plans

A

Contributions are NOT deductible, AND a beneficiary MUST be specified

States typically allow lifetime contributions to the plan of as much as 250,000

Earnings in the plan are tax deferred

Distributions are EXCLUDED from income to the extent they are being used to pay for tuition, books, fees, etc and reasonable room and board costs (or income taxation and a 10% penalty)

REG - Federal Taxation (16 decks)

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