Individual Tax 2

Question 1

Child Support

Answer 1

Nontaxable to the person receiving money

To child support first then alimony

Question 2

IRA Income

Answer 2

Taxable when withdrawn (70 1/2 yrs old)

Penlaty Tax = 10%

Question 3

Roth IRA

Answer 3

All qualified benefits received are nontaxable

Question 4

Traditional Nondeductible IRA

Answer 4

Partially taxable.
Principal - nontaxable
Accumulated earnings - taxable (when withdrawn)

Question 5

Exception to Penalty Tax of IRA

Answer 5

H ome-buyer (1st time): $10k max
I nsurance (medical)
M edical expense in excess of 10% of AGI

D isability (permanent or indefinite disability)
E ducation: College, tuition, books, fees etc.
A nd
D eath

Question 6

Annuities

Answer 6

Treat like Depreciation.

Partially taxable and partially nontaxable, except when annuitant outlives life expectancy, then all taxable.

Question 7

Schedule E

Answer 7

used to supplement income and/or loss from:

• Rental Real estate
• Royalties
• Partnerships & LLC (Sch K-1)
• S Corp (Sch K-1)
• Estate (Sch K-1)
• Trusts (Sch K-1)

Question 8

Rental income

Answer 8

Always passive; prepaid rent or nonrefundable deposit is taxable when received.

Rent income = rent more than 15 days
No rental loss allowed

Question 9

PALs

Answer 9

Passive Activity Loss
MAY NOT be deducted against wages, salaries

Mom & Pop exception:

a. $25k & Active (may deduct up to $25k)
b. Carryforward
c. Phase-out - $25,000 allowance is reduced by 50% of axcess of AGI over $100k. Allowance is eliminated if AGI is over $150k

Question 10

Unemployment compensation

Answer 10

Taxable; do not confuse with workers’ compensation (nontaxable).

Question 11

Social Security income

Answer 11

Low Income = No SS benefits are taxable (income: single $25,000/MFJ $32,000)
Lower Middle Income = less than 50% of SS is taxable
Middle Income = 50% (income: single $25,000/MFJ $32,000)
Upper Middle Income = btw 50 - 85% of SS is taxable
Upper Income = 85% (income: single $34,000/MFJ $44,000)

Question 12

Gambling winnings and losses

Answer 12

No net losses allowed

Question 13

Scholarships and fellowships

Answer 13

Grants are excluded only up to amounts spent on tuition, fees, books & supplies.

Taxable: Room & Board, Services Required

Question 14

Gifts and inheritances are

Answer 14

not taxable to the beneficiary.

BUT income received from property (int & rental income) is taxable.

Question 15

Rental Income or loss

Answer 15

Gross Rental Income
\+Prepaid Rental Income (IE. Nonrefundable deposits)
\+Rent Canellation Pmt (IE. at FMW)
\+Improvement in-lieu-of rent
-(rental exp)
= Net Rental Income

or Net Rental Loss

Question 16

Life Insurance Proceeds

Answer 16

Are excluded.

Interest income element on deferred payout are fully taxable.

Question 17

EMPLOYEE STOCK OPTIONS

Answer 17

Nonqualified options are generally taxed when granted if the option has a readily ascertainable value when granted. Otherwise, the option is taxed when exercised.

Question 18

Incentive stock options (ISO)

Answer 18

are a type of qualified option. If certain conditions are met, there is no taxation when granted or exercised. A gain or loss is recognized on the subsequent sale of the stock.

Question 19

Employee stock purchase plans (ESPP

Answer 19

are a type of qualified option. If certain conditions are met, there is no taxation when granted or exercised. A gain or loss is recognized on the subsequent sale of the stock.