Income Hock International Flashcards
hock international
The doctrine of constructive receipt: requires the actual receipt of property (or the right to receive property).
Accounting method the “doctrine of constructive receipt” primarily apply is The cash method
How is bartering income determined for tax purposes?
Study Unit 4: Taxable and Nontaxable Income covers the information for this question.
The fair market value of the goods and services exchanged is included in gross income.
Bartering involves the exchange of goods or services without exchanging money, such as a plumber fixing a leaky toilet in exchange for a dentist filling a cavity.
If a worker receives a Form 1099-NEC but believes they are misclassified, and should have received a Form W-2, what form can the employee file with the IRS to request a determination of worker status?
Form SS-8 Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding, to seek a determination of worker status from the IRS.
How can misclassifying workers adversely affect an employee with regard to their income taxes?
Study Unit 4: Taxable and Nontaxable Income covers the information for this question.
All tips are taxable income and must be reported on the tax return, even if they have not been reported to the employer. Tips totaling less than $20 a month are not taxable for FICA (Social Security and Medicare) tax purposes. Tips under $20 a month do not need to be reported to an employer, but are still subject to regular income tax. Publication 531, Reporting Tip Income, covers the tax rules for employees who receive tips.
Because the employer does not pay their portion of the payroll taxes and also does not withhold the employee’s portion.
Incorrectly classifying workers as independent contractors can have negative consequences for employees.
This is because the employer does not pay their portion of the payroll taxes and also does not withhold the employee’s portion. Typically, employers are required by law to deduct and remit income taxes, Social Security, Medicare, and unemployment taxes for their workers. A worker who believes they have been misclassified as an independent contractor can file Form SS-8, Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding, to seek a determination from the IRS.
Annabelle was offered a consulting position in another state. Her new employer reimbursed her for $5,500 for her moving truck and expenses incurred during the move. How should this reimbursement be treated?
Because this is a reimbursement of a nondeductible expense, it is treated as wages and must be included on Annabelle’s Form W-2.
Rodney is a detective working for a private investigation firm. His employer gives all the detectives who work for them an allowance to purchase business suits to wear while they are on the job. The business suits are not required, but they are strongly encouraged to be worn by the employees while they are on the job. Is any part of the suit allowance taxable to Rodney? Choose the best answer below.
Types of income would be subject to self-employment tax for Franklin = Minister’s housing allowance.
Ministers or other members of a religious order may have net earnings from self-employment. The rental value of a home or a housing allowance provided to a minister as part of the minister’s pay generally is not subject to income tax but is included in net earnings from self-employment.
Yes. The suit allowance is fully taxable as W-2 wages, and must be included on the employee’s wages.
The reimbursement of regular clothing (not uniforms) by an employer is a taxable benefit. All of the allowance is taxable and should be included in the wages reported on Form W-2, Wage and Tax Statement, subject to federal income tax withholding and FICA withholding. In order for the amounts to be nontaxable, work clothes and uniform allowances and reimbursements must meet the accountable plan rules and:
Be specifically required as a condition of employment;
Not be adaptable to general usage as ordinary clothing; and
Not worn for general usage.
This means that regular business suits would not qualify. However, an employer is allowed to give the employees an allowance that is fully taxable as wages. Then the employer would deduct the wages as a regular business expense.
Combat pay is exempt from income taxes, but is subject to:
Payroll taxes.
Combat pay is generally not subject to federal income tax. However, the recipient must still pay Social Security and Medicare taxes (payroll taxes) on the combat pay.
If both an employee and their employer have paid the premiums for a disability insurance plan, and the employee later becomes disabled and starts to receive long-term disability payments, what portion of the disability benefits must be reported as taxable income by the employee?
Only the amount attributable to the employer’s payments is reported as income.
If both the taxpayer and their employer have paid the premiums for a disability insurance plan, only the amount attributable to the employer’s payments is reported as income. Long-term disability payments from an insurance policy can be excluded from income only if the taxpayer (or the employee) pays the full cost of the premiums for the insurance policy.
Alesandro has a loss from worthless securities. How many years does he have to amend his tax returns in order to take this loss?
The filing threshold for MFS filers is only $5. Married filing separately is a tax status for couples who choose to record their incomes, exemptions, and deductions on separate tax returns.
Seven years.
A taxpayer has up to seven years to amend a return in order to take a loss from a worthless security. This is an exception to the normal statute of limitations. In general, if a refund is expected on an amended return (or a delinquent return that is being filed late), taxpayers must file the return within three years from the due date of the original return, or within two years after the date they paid the tax, whichever is later. There are a few other exceptions to this normal limit, such as taxpayers having ten years to amend a return and claim the Foreign Tax Credit.
Nonresident aliens who have income that is not subject to U.S. withholding are required to file an income tax return by:
June 15
Nonresident aliens who have income that is not subject to U.S. withholding are required to file an income tax return by June 15, two months after the regular filing deadline for most individuals.
A Form 1040X based on a loss from a worthless security generally must be filed within _______ after the due date of the return for the tax year in which the security became worthless (in order for the taxpayer to receive a refund).
7 years.
A Form 1040X based on a loss from a bad debt or worthless security generally must be filed within SEVEN years after the due date of the return for the tax year in which the debt or security became worthless. This is an exception to the normal “three-year” rule.
Beulah is self-employed and reports her income on Schedule C. She is required to make quarterly estimated tax payments totaling $8,000 for the tax year in order to avoid an estimated tax penalty. She makes the following payments:
First payment: Credit of $2,000 from her previous year’s tax refund.
Second payment: $1,000 on April 20.
Third payment: $1,000 on May 31.
Fourth payment: $2,000 on August 15.
Fifth payment: $1,000 on October 15.
Sixth payment: $1,000 on December 30.
Which of the following statements is correct?
She has made timely estimated payments.
The year is divided into four payment periods for estimated taxes, each with a specific payment due date. The schedule is as follows:
1- first payment due: April 15;
2- second payment due: June 15;
3- third payment due: September 15; 4- fourth payment due: January 15 of the following year.
In Beulah’s case, she was required to pay $2,000 each quarter by the payment due date, so she has made timely estimated payments. If a taxpayer does not pay enough tax by the due date of each of the payment periods, she may be charged a penalty, even if she is due a refund when she files her income tax.
Bayard e-files his 2023 tax return on February 27, 2024. He has a balance due of $950 on the return. How long can he wait to pay the amount owed and not pay a late payment penalty?
He has until the original due date of the return (not including extensions) to pay the amount owed and not pay a late payment penalty.
Which of the following payments may be subject to backup withholding?
Payments that are excluded from backup withholding include real estate transactions, foreclosures, canceled debts, long-term care benefits, distributions from retirement plans, unemployment compensation, and state or local income tax refunds.
Dividend payments.
Backup withholding occurs when certain payers, such as banks or other businesses, are required to withhold and pay to the IRS a specified percentage of those payments. The current backup withholding tax is 24% for U.S. citizens and U.S residents. Backup withholding can apply to most kinds of payments that are reported on Form 1099. These include:
Interest payments
Dividends
Rents, profits, other gains (Form 1099-MISC)
Commissions, fees, or other payments for work done by independent contractors
Payments by brokers/barter exchanges
Royalty payments
Thomas and Hailey live in Wisconsin, which is a community property state. Both of them work full-time. They want to file separately. They do not have a marital agreement for the provision of separate property. If they file separate returns, how should their income be reported?
Community property laws state that each spouse is entitled to 50% of total community income and expenses, so they must divide their income equally on their separate returns.
Rebekah filed a joint tax return with her new husband, Noah, and the entire refund was applied to Noah’s overdue student loans. What form should Rebekah file, in order to receive her portion of the refund?
Form 8379
Rebekah can request injured spouse relief in order to recover her portion of the refund. If a taxpayer files a joint return and is not responsible for the debt, but is entitled to a portion of the refund, the injured spouse may request their portion of the refund by filing Form 8379, Injured Spouse Allocation.
Equitable relief is a type of relief from joint and several liability. Factors the IRS may consider include: the mental or physical health of the taxpayer, spousal abuse, and potential economic hardship. A taxpayer applying for equitable relief has up to ten years to request relief.
Miranda was married to Reese, but divorced him in 2023. They filed joint returns in prior years and now the IRS is attempting to collect the tax from Miranda. She believes that she might qualify for equitable relief. Which is NOT a factor for the IRS to consider in determining whether to grant equitable relief to Miranda?
Miranda’s prior-year AGI was significantly higher than her current year’s income.
