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CFP "Wrong Answer" Cards > Income Tax > Flashcards

Income Tax Flashcards

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1
Q

An individual is required to file an income tax return if her net earnings from self-employment are at least ______.

A

$400

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2
Q

What form do you file to amend your income tax return?

A

1040x

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3
Q

What has to happen in order for a qualified dividend to count towards investment income?

A

The taxpayer must elect to NOT use the reduced tax rate.

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4
Q

Long term capital gains only count towards investment income if __________________?

A

the taxpayer elects out of using long term rates

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5
Q

For 2018-2025, miscellaneous itemized deductions are _______.

A

repealed

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6
Q

Qualified medical expenses are an allowable Schedule A deduction to the extent they exceed ______ of the taxpayer’s current year AGI.

A

7.5%

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7
Q

Under the Tax Cuts and Jobs Act, to claim a casualty loss, the cause of the loss must be from a _________.

A

federally declared disaster

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8
Q

Regarding a personal casualty loss (federally declared disaster):
* Casualty loss is deducted on _______.
* If the taxpayer incurs more than one personal casualty loss in a particular year, he must reduce the aggregate loss by ______.
*The _____ applies separately to the loss from each single casualty loss.

A

Schedule A

10% of AGI

$100 floor

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9
Q

What is on Schedule A of the 1040 that affects AGI?

A

Itemized Deductions

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10
Q

What is on Schedule B of the 1040 that affects Gross Income?

A

Interest & Ordinary Dividends

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11
Q

What is on Schedule C of the 1040 that affects Gross Income?

A

Business Income or Losses

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12
Q

What is on Schedule D of the 1040 that affects Gross Income?

A

Capital Gains/Losses

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13
Q

What is on Schedule E that affects Gross Income on the 1040?

A

Real Estate

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14
Q

What are the main adjustments or deductions for AGI?

A

IRA Contributions
Keogh or SEP
1/2 of self-employment tax (.07065)
Alimony paid (pre-2019 divorce)
Self-employment health insurance

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15
Q

These are examples of __________.
Medical, dental, LTC (above 7.5%)
Casualty losses (federal disaster)
Real estate taxes*
State, local, and sales taxes*
Home Mortgage interest
Charitable expense
Investment interest expense

  • limited to max of $10,000
A

Itemized deductions

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16
Q

Unless the taxpayer opted out of reduced rates, qualifying dividends _________ count towards net investment income.

A

do not

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17
Q

Does FICA tax apply on earned income above $160,200?

A

Yes, at 1.45% for the employee.

FICA covers both Social Security and Medicare.

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18
Q

In figuring the credit, qualifying expenses are limited to $3000 for one dependent or $6000 for two or more dependents. Use 20% of the allowable expense on the exam. Nonrefundable. Age limit 13.

A

Credit for child and dependent care expenses until age 13

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19
Q

Individuals may claim this credit of $2000 (2023) for each qualifying child under age 17 (child, stepchild, foster child). Phases out over $400k MAGI MFJ or $200k single. Up to $1600 per child is refundable (2023).

A

Child tax credit

20
Q

For this credit, qualifying expenses do not include costs of a surrogate parenting arrangement or costs for adopting a spouse’s child. non refundable

A

Adoption credit

21
Q

§ 179 generally _______ be elected for 1250 (real estate) or for intangible property (goodwill/franchise).

A

Cannot

§179 is an election to expense up to $1,160,000 of qualifying property in the year of acquisition. Qualifying property is tangible personal property (1245 property - Computers, Autos, and light duty trucks, Office equipment except computers).

22
Q

§197 can be used to amortize __________ .

A

goodwill and franchise fee.

23
Q

MACRS 1245 Property 5-year depreciation

A

Computers, Autos, Trucks (light duty)

24
Q

MACRS 1245 Property 7-year depreciation

A

Office equipment except computers

25
Q

MACRS 1250 property 27.5-year depreciation

A

Residential rental property

26
Q

MACRS 1250 property 39-year property

A

Nonresidential real property

27
Q

Boot received = ___________

Boot Paid = __________

Basis _________ from last property

A

Recognized gain

Add to Basis

Carries over

28
Q

Realized gain is _______.

A

Sales is greater than cost

29
Q

Recognized gain is ______

A

amount of gain that’s taxable

30
Q

What are the Alternative Minimum Tax Preference Items?

A

IPOD

excess Intangible drilling costs
Private-activity municipal bond
Oil and gas percentage depletion (NOT cost depletion)
Depreciation - but not straight-line.

Oil and gas percentage depletion typically triggers AMT.

31
Q

What are the AMT add back items?

A

Incentive stock option bargain element

Property, state and city /income taxes

Home equity indebtedness isn’t allowed for AMT purposes unless its used for home improvement

32
Q

A person with a Publicly Traded Partnership (PTP) needs to take advantage of non-deductible losses. How can they do that?

A

Sell the PTP.

To take the loss, there must be a complete disposition.
PTP losses cannot escape the “circle”.

33
Q

How do you find the deduction-equivalent tax credit?

A

Calculate tax to determine maximum marginal tax bracket. Multiply deduction by tax bracket percentage to determine equivalent credit.

37% tax bracket
Example: $25,000 deduction x 37% = credit of $9250

34
Q

During a storm, tree fell on house. Insurance co denied claim because the tree was infested with termites. AGI is $50k. How much can be claimed as a casualty loss?

A

$0. Loss not unexpected. Insurance didn’t treat as casualty loss, why should IRS? Also, not federally declared disaster.

35
Q

Personal exemptions (an exemption for each qualifying person supported by the taxpayer) was repealed after _______.

A

2017

36
Q

What is included in self-employment income?

A

NET Schedule C income
General Partnership income (k-1 income)
Board of directors fees
Part-time earnings (1099)

37
Q

True or False:
Court costs, attorneys’ fees, and cost of going abroad to adopt a foreign child can qualify for the adoption credit.

A

True

38
Q

Section 179 of the IRC allows businesses to take an immediate deduction for business expenses related to depreciable assets such as equipment, vehicles, and software.
This allows businesses to lower their current-year tax liability rather than capitalizing an asset and depreciating it over time in future tax years.

However, it cannot be used to create a _______.

A

Loss.

For example, if a corporation has $25k in taxable income, its 179 deduction is limited to $25k.

39
Q

Your basis will _________ by the amount of major improvements you make to the property and will _________ by the amount of depreciation deductions you take on your tax return.

A

increase / decrease

40
Q

Qualifying taxpayers may deduct up to _______ per year of net losses from real estate activity from their active or portfolio income.

This deduction is phase out for taxpayers whose AGIs are between $100,000 and $150,000 on a $2 for $1 basis.

A

$25,000

If AGI is above the phaseout of $150,000, losses are not deductible.

41
Q

Low-income housing programs held as passive activity may generate a deduction equivalent tax credit up to ________. There is no income phaseout.

A

$25,000

Multiply tax bracket percentage by $25k to get credit.

Example: 37% x $25,000 = $9250 credit.

42
Q

When there is no alimony paid in the 3rd year, subtract _______ from the total alimony paid in both years 1 and 2.

A

$37,500

Example: 1st yr $100,000 + 2nd year $85,000 + 3rd year $0 = $185,000

$185,000 - $37,500 = $147,500 subject to recapture

43
Q

Ray and Abby are going thru divorce. Abby is getting custody but her parents will take care of the children in her home. Who gets the tax exemptions for the children?

A

Nobody. Personal exemptions are repealed after 2017.

44
Q

What is the maximum amount of cash a tax payer can give a public charity and deduct in one year for income tax purposes?

A

60 % of AGI

45
Q

A tax payer cannot deduct more than 60% of AGI in the contribution year. Any contribution in excess of such a limit is carried forward as an itemized deduction for up to ___________.

A

five more years or, if sooner, death.

46
Q

The deduction for donation of ordinary income property is limited to _______.

A

Basis

Ordinary income property includes short-term capital gains property and use-unrelated property (watch artwork and collectibles).

47
Q
A

CFP "Wrong Answer" Cards (11 decks)

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