Individual CRFF MCQ Flashcards
Childcare Tax Credit
For one child, up to $3000 and for two or more children, up to $6,000 in payments (as long as necessitated by employment).
Depends on AGI:
$15,000 or less, 35 percent.
reduced gradually to 20 percent > $43,000
EXAMPLE: $6,000 times 20 percent) = 1200 CREDIT
Childcare Tax Credit
For two or more children, up to $6,000 of payments (as long as necessitated by employment.
depends on AGI:
$15,000 or less, 35 percent.
reduced gradually to 20 percent > $43,000
EXAMPLE: $6,000 times 20 percent) = 1200 CREDIT
Under normal circumstances, income tax credits
are nonrefundable.
can reduce income taxes to zero but cannot use them to create credits
Exceptions:
Earned income credit (regardless of amount owed)
First-time home buyer credit
American opportunity credit (40% refundable)
Earned income credit.
designed to provide benefit to low-income workers who have wages or salaries (and, in most cases, a qualifying child) fully refundable regardless of amount owed
Lifetime learning credit and the American opportunity credit
money paid for education costs of taxpayers/dependents
both credits cannot be taken for any one student
American opportunity credit (formerly the Hope Scholarship credit) is available for the first four years of post-secondary education.
The payment of a foreign income tax
can be itemized deduction or credit
Normally, the benefit is larger if a credit is taken but allows option of itemized deduction.
excess w/h of ss
credit for the excess social security withholding
limits to maximum amount for that year
employers are not at fault as long as neither withheld more than the maximum
Casualty losses over a specified amount
Gambling losses
Casualty losses and gambling losses are both included with ITEMIZED DEDUCTIONS.
Moving expenses if job related and over a specified distance
Moving expenses that relate to employment are deductible FOR AGI if the taxpayer is forced to move at least fifty miles.
The cost of child care that is job related
The cost of child care is a tax CREDIT that reduces the amount of income taxes.
Alimony
is taxable income for the recipient
is a deduction to arrive at adjusted gross income for payor
is cash paid to a spouse (or for the benefit of the spouse) after a legal decree of separate maintenance or after the couple is divorced.
NOT alimony and NOT deductible:
Money paid as a property settlement
Payment made before the decree
Child support
early withdrawal penalty
To show interest earned but not received, reduce income by a deduction FOR AGI
With approved individual retirement accounts, there is usually a tax advantage
when the money is put into the account or
when the money is removed from the account
but not at both times
For a Roth IRA, the advantage occurs when
the money is removed.
There is no deduction when the money is placed in the account.
As long as the person is 59 1/2, is disabled, or uses the money for a first-time home purchase (capped at $10,000), all money received from the Roth IRA is tax free.
For a traditional IRA, the advantage occurs when
the money is placed into the account.
Up to a maximum limit, there is a deduction FOR AGI when the money is placed in the account.
When the money is removed, the entire amount must then be included in the taxpayers taxable income.
There is a penalty if the money is removed before the taxpayer is 59 1/2 (except for specific cases such as qualified costs paid for higher education and a first-time home purchase).
Allowable deductions FOR AGI.
allowed regardless of whether the taxpayer uses the standard deduction or takes itemized deductions
They include (within various monetary limits):
Educator expenses (qualified),
Student loan interest,
Moving expenses that are job related (qualified),
Alimony paid,
Traditional IRA plan contributions
Early withdrawal penalty on a savings account
ESMATE
Allowable deductions FOR AGI.
allowed regardless of whether the taxpayer uses the standard deduction or takes itemized deductions
They include (within various monetary limits):
Educator expenses (qualified),
Student loan interest,
Moving expenses that are job related (qualified),
Alimony paid,
Traditional IRA plan contributions
Early withdrawal penalty on a savings account
Self-employment tax (one-half of the amount paid)
ESMATES
Deductible moving expenses
Deductible FOR AGI
Move must be related to employment and at least 50 miles.
Cost of physically moving possessions and people can be deducted.
Other costs such as the cost of breaking a lease are not deductible.
Educator expense deduction
Educators in grades from k-12
allowed to deduct out-of-pocket costs up to a maximum amount ($250 in recent years)
Qualified expenses include ordinary and necessary expenses paid in connection with books, supplies, equipment, software, etc.
Educator expense deduction
Educators in grades from k-12
allowed to deduct out-of-pocket costs up to a maximum amount ($250 in recent years)
Qualified expenses include ordinary and necessary expenses paid in connection with books, supplies, equipment, software, etc.
Expenses for home schooling are not allowable
Deductible moving expenses
Deductible FOR AGI
Move must be related to employment and at least 50 miles.
Cost of physically moving possessions and people can be deducted.
Other costs such as the cost of breaking a lease are not deductible.
Tests that must be met before moving expenses can be deducted.
must move within a year of taking the new job unless circumstances arose that prevent it (son finishing high school)
must work at least 39 weeks in the general area of the new location
must be a change in the taxpayer’s main home (house, apartment, condominium, houseboat)
new job must be a commute of 50 or more miles farther than the previous commute
For an education IRA,
no benefit when the money is put into the fund
tax-free when the money is pulled out and properly used
beneficiary does not have to be related to the taxpayer
beneficiary does have to be under 18
Taxpayers with high levels of income lose the right to create such plans.
Union dues are deductible
on Schedule A as an itemized deduction
reported on line 21 as “job expenses and certain miscellaneous deductions.”
deduct only the amount in excess of 2 percent of adjusted gross income.
If you and your spouse are filing jointly and both of you were eligible educators,
Maximum deduction is $500
Neither spouse can deduct more than $250 of his or her qualified expenses on Line 23.
You may be able to deduct expenses that are more than the $250 (or $500) limit on Schedule A, Line 21.
An eligible educator is a kindergarten through grade 12 teacher, instructor, counselor, principal, or aide who worked in a school for at least 900 hours during a school year.
Qualified expenses include ordinary and necessary expenses.
two categories of capital assets for individual taxpayers
personal property, such as household furniture and tools,
investment property, such as real estate and securities (stocks and bonds)
G/L and capital assets for individuals
report gains and losses on investment property,
only reports gains on personal property.
Wash sale
occurs when substantially identical securities are bought within 30 days either before or after the date of the sale or disposal
cannot sell capital assets to create losses to offset capital gains if replace the capital asset
cannot deduct the loss because the taxpayer still holds the same shares
gains on stocks sold under the same scenario are fully taxable
net capital loss
IND
up to $3,000 is deductible against ordinary income FOR AGI
remaining loss is carried forward indefinitely to impact future capital gain and loss computations.
related party transactions
Gains taxed
losses not deductible
in sale to his spouse or former spouse neither a gain nor loss typically recognized
net capital loss
IND
up to $3,000 is deductible against ordinary income FOR AGI for all filing status except married filing separately (only one-half the amount granted on joint return–$1500)
remaining loss is carried forward indefinitely to impact future capital gain and loss computations.
Non-business bad debts
written-off in the year the loan is deemed worthless
categorized as short-term irrespective of the time period involved
foregone interest is not deductible
Non-business bad debts
written-off on Schedule D of the Form 1040
in the year the loan is deemed worthless
categorized as short-term irrespective of the time period involved
foregone interest is not deductible
The basis of a gift received
CARRY OVER BASIS - remains the basis it had in the hands of the gift giver
EXCEPTION:
gift received is sold for less than the basis in the hands of the previous owner, seller uses the lower of basis or FV at the date of the gift which limits loss
If sales price is > FV at the date of the gift and
The value of assets received through inheritance
not reportable on an income tax return
inheriting assets is not the same as earning income
tax basis = FV on date of death*
*executor may choose alternate valuation date (6 months from the date of death or conveyance, if earlier).
taxation of STCG and LTCG
Net short-term capital gains are taxed at ordinary income rates.
Net long-term capital gains are taxed at lower rates.
The specific rate depends on the income level of the taxpayer.
Net long-term capital gains receive this tax advantage to encourage investors to buy capital assets and hold them for longer than one year.
Qualified dividends
from a U.S. domestic corporation or
a qualified foreign corporation
To encourage investments in these companies, the dividends are taxed at the same reduced rate that applies to long-term capital gains.
like-kind exchange and no boot (cash) received
no taxable gain or loss recognized
for the new property, taxpayer retains the tax basis given up plus any cash given
trade of not of like-kind property
basis of the property given up plus cash given is removed
asset received basis is recorded at FV
Gain (loss) is the difference
Like-kind exchanges (boot received, usually cash to even up the exchange)
gain is recognized at the lower of boot rec’d or gain on exchange
gain determined by taking the tax basis surrendered and comparing it to FV received
The value of assets received through inheritance
not reportable on an income tax return
inheriting assets is not the same as earning income
tax basis = FV on date of death*
*executor may choose alternate valuation date (date of conveyance or six months after death, whichever comes first)
involuntary conversion
G/L
property is condemned, destroyed, or stolen
If owner receives amount below tax basis, a loss must be recognized
If owner receives more than tax basis, gain is reported for tax purposes for the amount of the proceeds left over after similar replacement property is acquired.
The excess must be reported for tax purposes.
involuntary conversion
G/L
property is condemned, destroyed, or stolen
If owner receives amount below tax basis, a loss must be recognized
If owner receives more than tax basis, gain is reported for tax purposes for the amount of the proceeds left over after similar replacement property is acquired.
involuntary conversion
G/L
property is condemned, destroyed, or stolen
If owner receives amount below tax basis, a loss must be recognized
If owner receives more than tax basis, gain is reported for tax purposes for the lower of the gain or the amount of the proceeds left over after similar replacement property is acquired.
impact of selling personal residence on taxable income
MFJ - maximum exclusion of $500,000 of gain ($250,000 Single)
has to be principal residence for at least two of the most recent five years
cannot be taken in two consecutive years
Deduction and carry overs for individual S/T and L/T capital losses.
For individual taxpayers filing a joint return, $3,000 in capital losses can be deducted each year.
Short-term losses are deducted first.
The remaining amounts can be carried forward indefinitely.
In the carryover process, short-term losses remain short-term and long-term losses remain long-term.
Corporate rules are quite different for capital gains and losses.
Hobby loss rules
apply to individuals, S corporations, partnerships, estates, and trusts
attributable to an activity not engaged in for profit
Taxpayers are presumed to be engaged in a hobby if the operation fails to earn a profit in any three of the most recent five years including the tax year in question.
Losses from a business can be used to reduce other income but expenses related to a hobby are deductible only to the extent of revenues earned.
Partnership income,
TI
interest earned on savings,
TI
alimony
TI
Child support
NOT TI
life insurance proceeds
NOT TI
Cafeteria plans
provide options from which employees choose their coverage.
Benefits received under a cafeteria plan are not taxable unless received in cash.
Child care reimbursements that are received the cash.
The cost of the group-term life insurance
is not taxable if coverage is not above $50,000 of benefit.
Only the cost of group-term life insurance above $50,000 is taxable.
Unemployment compensation benefits
TI
Employer-provided health insurance http://www.cpareviewforfree.com/exams.cfm?name=question&test_id=3389263#sthash.nL3Jh4uh.dpuf
NOT TI
tax-free fringe benefit
