Individual taxation 2.0 Flashcards

1
Q

Is child support or alimony deductible?

A

Alimony,
only deductible if met the certain requirement
1) payment made in cash
2) payment must be terminated after death
3) payment cannot be made to someone who lives in the same household
4) made after divorce

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2
Q

When does alimony recapture rule apply?

A

if alimony payments decrease more than 15k from the previous year

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3
Q

What is the alimony recapture formula?

A

R2: (P3+15k)
R1: P1- [(p2-r2+p3)/2 + 15k]
r3: r1+r2
The payee recognizes income, the receiver will have the deduction of that amount

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4
Q

Are transfers between divorcing spouses taxable?

A

Nope, they are nontaxable

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5
Q

Are Annuities taxable?

A

no, they are excludable to help taxpayer recover previously tax investment

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6
Q

What is the annuities exclusion formula?

A

[Taxpayer investment in contract / total expected return on contract] X amount received
I/R * Recieved

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7
Q

What is the annuities retirement formula?

A

Investment in contract/ number of anticipated monthly payments

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8
Q

How is cancelled debt treated

A

1) Individual taxpayer -> taxable
2) When seller cancels debt -> buyer can reduce property basis to avoid income recognition
3) Shareholder cancellation of corp debt is treated as a contribution of capital

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9
Q

Are compensatory damages or punitive damages excluded from income?

A

compensatory damages excluded

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10
Q

How are dividends taxed?

A
  1. 0% for taxpayer 15%
    15% in 10% bracelt
    20% for 39.6%
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11
Q

If property or stock is transferred, what is the basis of the new stock?

A

FMV

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12
Q

What about dividends received as a partial/complete liquidation?

A

treated as ROC, then cap gain

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13
Q

Will employee death benefits be taxed?

A

No

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14
Q

Are gifts taxable?

A

No, unless its income generated by a property

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15
Q

When is group insurance by employer taxable?

A

Any amount over 50k

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16
Q

Are Employer contributions to HSA taxable?

A

No, they are excludable

17
Q

How much of “flexible spending account” can be carryover?

A

500

18
Q

When can benefits for physical injury or sickness be excludable?

A
  1. Under worker’s comp
  2. Compensatory damages from a suit/settlement
  3. self purchased accident
  4. contribution by the employee to accident/health plans
  5. payments received under plan for med care
19
Q

Are improvements made by the tenant ( lessee) considered income?

A

No, unless the improvements are made in replace of rent

20
Q

Are pensions paid to retirees taxable?

A

No, unless they are payments made under the railroad retirement act or social security act

21
Q

What is deductible from illegal drugs trafficking?

A

Cost of Goods Sold

22
Q

When is interest received not taxable?

A

interest on state or municipal bonds

23
Q

Are life insurance payment out through death taxable?

A

No, but the interest is taxable

24
Q

Is the dividends on un-matured policies taxable?

A

No, unless the amount exceeds the premium or collected after the maturity of the policy

25
Q

How do we figure out how to tax social security benefits? Facts of the case
1. 60K of social security benefits - income
2. 8.4k of benefits
3. 1k interest on tax exempt obligations
which amount of social security is excludable from blake’s taxable income

A
lesser of 
1. .85%* of benefits received 
.85* 8400 = 7140
or
1.  Income + interest +.5 of social security -34k +(lesser of 1/2 social security or 3400)

8400-7140 = 1260 is excludable

26
Q

When is a gift/prize not taxable?

A
  1. the taxpayer is selected through action of their own
  2. the prize is transferred to a government/charity first
  3. taxpayer do not need to perform any substantial future services
  4. Award given for service as long as its not over 400