Individual Tax Flashcards
Tax Due or Refund Formula
Gross Income -Adjustments (Deductions) \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_ Adjusted Gross Income Standard Deduction or Itemized Deductions (Higher of 2) (Exemptions) \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_ Taxable Income
Gross Income
Wages Interest State Tax Refunds Ailmony Received Business Income Capital Gain/Loss IRA Income
Adjustments
Educator Expenses IRA Contributions Student Loan Interest Expenses Tuition & Fee Deduction Health Savings Account Moving Expenses 1/2 Self Employment FICA Self Employed Health Insurance Self Employed Retirement Interest Withdrawal Penalty Alimony Paid
Itemized Deductions
Medical (in excess of 10% of AGI) Taxes-State/Local Interest Expense (Home & Investment) Charity (Up to 50% of AGI) Casualty/Theft (in excess of 10% of AGI) Miscellaneous (in excess of 2% of AGI) Other Miscellaneous
Exemptions
$3,960 per dependents
Requirement for filing a return
Must file a return if income is equal to or greater than the personal exemption plus
The regular standard deduction plus
the addtional standard deduction amount for taxpayers age 65 or over
Filing Statuses
Single Married Filed Jointly Married FIled Separately Qualified Widower with Child Head of Household
Qualifying Widower
May file a joint return standard deduction and rates for each of two taxable years following death. In event of remarriage the surviving spouse files a return with the new spouse.
Surviving spouse must maintain a hold for the whole taxable year for that dependent.
Head of Household
Following Criteria
1) Indvidual is not married, legally separate or is married an has lived apart from his/her spouse for the last 6 months of the year.
2) Not a qualifying widower
3) Not a nonresident alien
4) Individual maintains a a household for more than 6 months of the year for a dependent son or daughter, father or mother or depedent relatives
Gross Income Defined
In cases of cash received income is determined by amount of cash, FMV of property, or services obtained. In cases of noncash income, the amount of the income is the FMV of the property.
In addition, for income to be taxable in must be realized and recognized.
Payments Pursuant to Divorce
To be considered alimony,
1) Must be legally required by written divorce
2) Must be in cash cash
3) Cannot extend beyond the death of the payee-spouse
4) Property Settlements receive no deduction
Child Support
1) Non taxable
2) If alimony and child support required by decree, applied to child support first.
Business Income
Cash=Amount Received
Property=Fair Market Value
Cancellation of Debt
Business Expenses
COGS Salaries and Commissions paid State and Local business taxes paid Office Expenses Actual automoblie expenses Business meal and entertainment at 50% Depreciation of business assets Interest Expense of Business Loans Employee Benefits Legal and Procfessional fees Bad Debts Written off under accrual basis
Nondeductible expenses
Salaries paid to sole proprietor Federal Income Tax Personal portion of any expenses Bad Debt Expense for cash basis taxpayer Charitable contributions- report as an itemized deduciton
Net Business Income Taxable
Two types of tax:
1) Income Tax
2) Federal Self Employment
Net Taxable Loss
Allowed either the 2-year carryback or 20 year carryforward.
Gain and Losses on Disposition of Property
Amount Realized- Adjusted Basis of Assets Sold
IRA Income
- 10% penalty on a premature distribution
- Roth IRA–> All qualified benefits are non taxable
- Traditional Non-deductible IRA–>
1) Principal- non-taxable
2) Accumulated earnings-taxable (when withdrawn)
Rental Income
If rented less than 15 days- treated as a personal residence, real estate taxes are deductible, and depreciation, utilities, and repairs are not deductible
If rented 15 days or more and is used for personal purposes for the greater of more than 14 days or more than 10% of the rental days, it is treated as a personal/rental residence.
Passive Activity Losses
Any activity in which the taxpayer does not materially participate include rental activities, interests in limited partnerships, S Corps and most tax shelters
Deductibility of PALs
A loss may not be deducted against wages, salaries and other activity income or against portfolio or capital gains income. Expenses related to passive activities can be deducted only to the extent of cinome from all passive activities
Disallowed net losses exceptions
1) Mom and Pop Exception,
a) 25,000 and active–>may deduct up to 25,000 of net passive losses to rental real estate annually are activitely participating or own more than 10% of activity. Allowannce is reduced to 50% when AGI is 100K and phased out at 150K
2) Real Estate Professional
Unemployment Income
100% treated as gross income
Social Security Income
Low Income- Not taxable (25K single, 32K married joint)
Lower Middle Income- less than 50% of benefits are taxable.
Middle Income- 50% of benefits are taxable (25K single, 32K married joint)
Upper Middle Income- between 50% and 85% of benefits are taxable
Upper Income - 85% of benefits are taxable (34K single, 44K married joint)
Non-taxable Miscellaneous Items
Life Insurance Proceeds Gifts and Inheritances Medicare Benefits Workers Compensation Personal Injury Award Accident Insurance Premiums Paid Foreign earned Income Exclusion
Real Property
Land and all items permantley fixed to the land.
Capital Assets
Personal Automobile Furniture and Fixtures of taxpayer home Stocks and Securities of all type Personal Property of a taxpayer not used in trade or business Real Property not used in trade or business Interest in a partnership Goodwill of a corporation Copyrights Other Assets held for investment
Non-capital Assets
Items normally included in inventory or held for sale to customers in the normal course of business.
Depreciable property used in trade or business (section 1231, 1245, and 1250 property)
Accounts and Notes receivable arising from sales or services
Copyrights held by original artisit
Treasury Stock
Determining the gain or loss
Amount Realized- Basis of Asset sold=Gain or Loss
Amount Realized Includes
Cash Received Cancellation of Debt Property and FMV Services received at FMV Reduced by selling expenses
Adjustments to basis
Increase basis for capital improvements
Reduce for accumulated depreciation
Donor’s Rollover Cost basis
Basis is rollovered if property exchanges hands as a gift. Basis is increased by gift tax paid attributable to net appreciation.
Exceptions to Rollover Basis
1) When a taxpayer sells a gift for the greater than the rollover basis, the gain shall be the difference between the sale price and rollover basis.
2) When a taxpayer sells a gift for the less than the rollover basis, the basis for determing the loss is the FMV of the gift at the time the gift was given.
3) When a taxpayer sells a gift for the less than the rollover basis but more than the FMV, neither a gain or loss is recognized.
Depreciable basis of gift
The lesser of the donor’s adjusted basis at date of gift or the fair market value at the date of gift.
Inherited Property Basis
Date of Death Becomes FMV basis
Alternate Valuation Date
Is the earlier of 6 months later or the date of distribution/sale may be used. Can only be used if it lowers the entire gross estate and estate tax.
Homeowner Exclusion
$500K for married from gross income for gain.
$250K for all others from gross income for gain.
To qualify, taxpayer must have owned and used the property as principal residence for two years or more during the five year period ending on the date of sale or exchange. Ownership requirement is for either spouse, both must meet use requirement.
Like Kind Exchange
When boot is received the recognized gain is the lower of the realized gain or boot.
When the basis of property recieved in the exchange is orinarily the same as the basis of the property given up , the basis is given up, the basis is decreased by any money received and increased any gain recognized.
