Individual Tax Flashcards
Who must file a tax return?
Income > personal exemption + standard deduction
Net self employment income >= $400
Claimed as dependent on another taxpayer’s return and have any unearned income and gross income >= $1,050
Receiving EIC
Subject to Kiddie Tax
Who does the Kiddie Tax apply to?
Children meeting three conditions:
1) Either parent is alive as of end of taxable year
2) Does not file joint return
3) Either under 18 or student between 18-24 with earned income <50% of support
How is the amount of the Kiddie Tax determined?
Larger of the two amounts:
1) Tax owed based on filing return including child’s earned and unearned income
2) Tax owed based on filing return including only child’s earned income plus allocable parental tax
How is allocable parental tax calculated?
1) Calculate parent’s tax based only on their earned and unearned income
2) Calculate parent’s tax based on their earned and unearned income, plus net unearned income of children who qualify
3) Difference = allocable parental tax
Who can use cash basis of accounting?
Service type businesses whose gross receipts <=$10M Individuals S Corps Individually owned partnerships Personal service corporations
Who cannot use cash basis of accounting?
C Corps with gross receipts >$5M
Partnerships with C Corp partner with gross receipts >$5M
Tax shelters
Certain trusts
Farming corporations
Companies that use inventory to determine income
What is included in gross income?
Wages and tips Jury duty fees Bonuses and commissions Unemployment Bargain purchases of employer merchandise Most fringe benefits Prizes and awards Gambling winnings Illegal drug income Scholarships Interest and dividends Rent and royalties Bargain discount from exercising stock option IRA proceeds if contributions deducted from income Injury awards - punitive, lost business profits, non physical 85% of SS if earn >$60K State tax refunds if deducted payment Interest part of annuity Alimony
When are tips are included in wages?
In the monthly schedule is submitted by employer due on 10th of following month
If do not report tips to employer include in current month
When are scholarships not taxable?
1) Not compensation for services AND
2) Money spent for tuition and books for degree seeking student
When are prizes and awards not taxable?
1) If received for years of service or safety achievement AND
2) <=$400
When is interest on Series EE bonds not taxable?
1) If used for higher education for self, spouse, or dependent
2) Bought by taxpayer or spouse
3) Buyer is at least 24 years old
Only tuition and fees, not room and board
How is the Medicare surtax calculated?
- 8% of the lessor of:
1) Net investment income OR
2) Excess of MAGI over $250K joint / $200K other
How is annuity portion excluded from tax calculated?
Cost of annuity / Expected total annuity payments
% of each payment that is excluded from tax
What amount of state refund is taxable?
If itemized on Schedule A, use smaller of:
1) Amount of itemized deduction > standard deduction OR
2) Amount of taxes deducted
What are the different tax schedules?
A - Itemized deductions B - Interest and dividend income C - Profit/Loss from business D - Capital gains and losses E - Supplementary income or loss (RRF-COP) Rental income Royalties Flow through entities Copyrights Oil/Gas leases Patents F - Profit/Loss from farming
What are the adjustments For AGI?
I-EMBRACED Education, Health, and Farm Interest - student loan up to $2,500 Employment (self) tax - 50% deductible Moving expenses Business expenses Rental, royalty, and flow through entities Alimony paid Contributions to retirement plan Early withdrawal penalty Duty (jury) fee - if remitted to employer Education - qualified higher education up to $4,000 Health Savings Account contributions Farm income
What are rules for deducting moving expenses?
New work must be >=50 miles away from old home
Only includes cost of moving you and your stuff, including lodging during move
Must work >=39 weeks
What business expenses are deductible?
All costs of running business All taxes paid except income taxes Bad debts Gifts to customers <=$25 per recipient per year 50% meals and entertainment 100% travel $4 per promotional item
What are hobby loss rules?
If no profit in 3 of 5 years, loss not deductible
Report net income on Other Income, line 21
Report expenses on Schedule A, Misc 2%
Losses deductible to extent of hobby income
What are passive activity rules?
Includes limited partnership interests and rental activity
Losses only offset against passive income
Unused loss carried forward indefinitely or until activity is disposed of
If active participation in rental then can deduct up to $25K of losses against OI
Reduced by 50% of excess of MAGI > $100K
ex: MAGI of $110K = 25K - 50% x (110K - 100K)
What are vacation home rules?
If used as home and rented for <15 days, no income or expenses included
If rent for >14 days and personal use MORE than greater of 14 days or 10% of number days rented, income is included and expenses limited to gross rental income
If rent for >14 days and personal use NOT MORE greater of 14 days or 10% of number days rented, income is included and all rental expenses included
When is a payment considered alimony?
Must meet all conditions (CANNOT): Cash only, not property Apart when payments made Not child support Not designated as property of settlement Own return for payer and payee Terminates on death of recipient
If pay for college as part of divorce = Alimony
Child support must be fully paid first
When are contributions to traditional IRA NOT deductible?
1) Individual actively participate in another plan AND
2) AGI exceeds $71K single / $118 MFJ
When are early IRA withdrawals included in income?
Withdraw prior to age 59.5, 10% penalty and include in income
No penalty but include in income:
Payment of medical expenses exceeding 10% AGI (<65), 7.5% AGI (>=65)
Payment of qualified higher education
When are early IRA withdrawals NOT included in income?
Death of disability of participant
First time home purchase, up to $10K
What is the limitation for contributions to a Keogh plan?
20% of self-employment income before the Keogh deduction
What farm income is subject to SE tax (Schedule F)?
Raised livestock, produce, and grains held for sale
Livestock and other items bought for resale
What farm income is not subject to SE tax (Form 4797)?
Animals not held primarily for sale
Livestock held for draft, breeding, dairy, or sporting purposes
Gains from sales of farmland or depreciable farm equipment
What are the itemized deductions (From AGI)?
COMMITT
Charitable contributions
Other miscellaneous expenses - gambling losses to extent of winnings
Miscellaneous expenses that exceed 2% of AGI
Interest paid
Taxes paid
Theft and casualty losses
What are rules for charitable contribution deductions?
Must be to qualified organization
Generally limited to 50% of AGI
Excess contributions CF 5 years
Ordinary income property - limited to lower of tax basis of property or FMV on date of contribution
LT Capital Gain Property - use FMV on date of contribution, limited to 30% of AGI
What are the miscellaneous expenses subject to 2% threshold?
BIT
Business expense of employee
Investment expenses
Tax preparation and attorney fees
What are deductible employee business expenses?
Business mileage
Job travel
Dues
Uniforms - can only be worn for job
Job eduction - to maintain current profession
Business use of home
Appraisal fees for charitable donations or casualty losses
What are deductible investment expenses?
Investment advisory fees
IRA custodial fees not paid through IRA
Safety deposit box
What are medical expenses are NOT deductible?
Non prescription drugs Costs for general health improvement Premiums on life and disability insurance Plastic surgery except to cure defects Medicare portion of SS and SE taxes
What are rules for deducting medical expenses?
> 10% AGI under 65, >7.5% over 65
Can be for services in prior year if paid in current year
Increase in value of medically prescribed costs are deductible
Must be paid by taxpayer or spouse
Payments can be made on behalf of people taxpayer provides over 50% support
Payments made for deceased spouse are deductible if qualified as spouse or dependent at time of payment or expense incurred
What interest is deductible?
Investment interest to extent of net investment income
Mortgage loan interest
Acquisition <=$1M
Home equity <=$100K, up to 100% net equity in home, regardless of how funds are used
What are rules for deducting theft and casualty losses?
Must be >10% AGI
Loss measured by drop in FMV, but limited to tax basis of asset
Loss must be reduced by insurance reimbursements, $100 per event, and 10% AGI
What are rules for phase out of itemized deductions?
All itemized deductions reduced by smaller of:
1) 3% of amount AGI > annual limit OR
2) 80% of itemized deductions affected
GIMC (Gambling losses, Investment interest, Medical expenses, and Casualty losses) NOT INCLUDED
What are requirements to be a Qualifying Child?
JARRS
Joint return - no
Age - <19 OR full time student <24
Residency - US citizen or resident of US, Mexico, or Canada
Relationship - must live with taxpayer > half the year
Support - must not provide > 50% own support
What are requirements to be a Qualifying Relative?
C-IRS-Jack you
Citizenship or resident of US, Mexico, or Canada
Income - limited to personal exemption ($4,050)
Relationship - lineal descendant (not cousin) or must live with entire year
Support - > 50% total annual support
Joint return - no
What are the filing statuses?
MFJ - same accounting period, different accounting method, no nonresident alien unless elect under 6013
MFS - no EIC, CTC, CDCC
QW - death prior 2 years, provide >50% of cost for dependent child, not remarried
HH - not married, maintain household for >50% of year and >50% of costs for dependent QR or QC
What are refundable tax credits?
CTC - $1K < 17
AOTC - partially
EIC
What are adjustments items for AMT?
SIMPLE
Standard deduction - no
Interest on home equity loans - not allowed unless used to buy, build, or improve home
Medical expenses <10% AGI for people >65
Personal and dependent exemptions - no
Local and state, property, and sales taxes - no
Employee business expenses, tax prep, and investment expenses - no
What are tax preferences for AMT?
PIE
Private activity bond interest - taxable
Incentive stock options - taxed when exercised
Excess depreciation on personal property - over 150% DB when DDB used for regular tax
