Income Tax 1 Flashcards
What is the basic tax formula?
Income - exclusions from income = Gross income.
Gross income - deductions for AGI = AGI.
AGI - deductions (itemized or standard) - QBI x 20% deduction = Taxable Income
Tax on taxable income - any credits (including withholding) = Tax due.
What are the two accounting methods for income?
Who uses each?
Cash based - record income when it is rec’d.
Accrual based - record income at the earliest of when it is received, due or earned.
Individuals use cash-based, businesses typically use accrual based.
What is the doctrine of constructive receipt?
When income is credited to you, and available without limitation to you it is considered earned. Even if you have assigned it to someone else, you can’t assign them your tax liability.
What are the five filing statuses?
- Single
- MFJ
- MFS
- Head of Household
- Qualifying widower with child
What are the two ways you can file MFJ?
Be married on the last day of the year.
If your spouse died during that year.
How do you qualify for Head of Household filing status?
- Be married or “considered unmarried” on the last day of the tax year.
- Pay > 1/2 the cost of keeping a home during the tax year.
- Live with a qualified dependent for more than 1/2 the year.
What is “considered unmarried” for H of H filing status?
A taxpayer is considered unmarried if they:
- Filed a separate return from their spouse.
- Paid > 1/2 the cost of keeping a home during the year.
- Taxpayer’s spouse did not live in taxpayer’s home during the 2nd 1/2 of the year.
- Taxpayer’s home was the main home of a child for more than 1/2 the year.
- Taxpayer can claim a credit for child.
Who are the three types of qualifying people for HoH status?
- A qualifying child.
- A qualifying relative who is your mother or father.
- A qualifying relative other than your mother or father.
Who is considered a qualifying child for HOH status?
- your child or grandchild, step child, foster child, sibling, niece/nephew, adopted child.
- Under 19 or a full-time student under 24
- Lives with you for more than half the year (illness, college, military service count as living w/you).
- You provide more than 1/2 their support
- You’re the only person claiming them
- your married, child or grandchild but you can still claim them as a dependent (they didn’t earn more than $4,300, the 2021 exemption amount.
What do you need to claim your mother or father as a qualifying relative for HOH status?
You financially support them
You’re the only person claiming them
They didn’t earn more than $4,300 in 2021 (the exemption amount)
They should live with you, but there’s exceptions to that.
What 5 things do you need to claim a qualifying relative?
They are related to you or part of your household
They earn less than the exemption amount ($4,300 in 2021)
You financially support them
You’re the only person claiming them
They pass the joint return and citizenship/residency tests
What do you need to file as qualifying widower with qualifying child?
You can use this status for 2 years after the year your spouse died if:
- You could’ve filed MFJ with them in the year they died.
- You haven’t remarried
- You have a child or stepchild who you can claim as qualified, who lived with you all year.
- You paid more than 1/2 the cost of keeping a home during the year.
What happened to personal and dependency exemptions?
Why are they still relevant?
They were repealed under the TCJA, 2017. However, they still use this as an earnings limit for qualifying relatives.
Who gets additional standard deductions?
Age 65 + or blind.
If you’re both, you get both deductions
Who are not eligible for standard deductions (3)?
MFS if spouse itemizes; if one itemizes, both must itemize.
Non-resident alien
Individuals filing for a tax year of less than 12 months.
What standard deduction do dependents get?
$1,100 or $350 + earned income
Dependents who are 65+ or blind may get more.
