Individual Taxation Flashcards
1
Q
1
Cash Basis. Note: This basis is NOT allowed for Corporations, Partnerships with a C-Corp partner, or for inventories.
A
Individual Taxation
2
Q
1
*MSA/HSA contributions
*Investment penalties for early withdrawal
*Self-employed medical insurance premiums
*Self-Employment Tax (approx. 50%)
*IRA Contributions
*Student loan interest (can’t be another taxpayer’s dependent)
*Moving expenses
*Alimony
*Tuition - can’t take AOC/Lifetime Learning Credit for same expense
*Teacher expenses
*Attorney fees in discrimination lawsuit
A
Individual Taxation
3
Q
1
Investment interest expense in excess of investment income
Charitable contributions
Excess Section 179
Capital losses
AMT Paid
Passive Activity Losses
A
Individual Taxation
4
Q
1
No carryback
Can carry forward indefinitely
A
Individual Taxation
5
Q
1
Carry forward to next year.
Use in any year is limited to taxable income.
A
Individual Taxation
6
Q
1
Indefinitely.
A
Individual Taxation
7
Q
1
Can be carried forward 5 years.
A
Individual Taxation
8
Q
1
It can be carried forward indefinitely.
It may be applied against future regular income tax, but not against future AMT tax liability.
A
Individual Taxation
9
Q
1
$3,000 net capital loss can be taken in each year, the rest is carried forward indefinitely.
The loss retains its character (STCL or LTCL).
A
Individual Taxation
10
Q
1
Corporate capital loss carryovers may be carried back 3 years and forward 5 years. Individual capital losses are carried forward indefinitely.
Individual capital loss carryovers retain their character (STCL or LTCL). Corporate loss carryovers are carried forward as STCL only.
A
Individual Taxation
11
Q
1
Gross Profit / Contract Price
A
Individual Taxation
12
Q
1
Contract Price = Sales Price - Liability assumed by buyer
A
Individual Taxation
13
Q
1
$1,000,000
A
Individual Taxation
14
Q
1
$100,000
A
Individual Taxation
15
Q
1
$25 per person for gifts
Service awards up to $400
A
Individual Taxation
16
Q
1
They may only offset active business income.
Note: W2 wages are considered active business income.
A
Individual Taxation
17
Q
1
Only passive income such as rental income or limited partnership income.
Note: Wages are ACTIVE (cannot be offset by passive) and Interest/Dividends are PORTFOLIO (cannot be offset by passive)
A
Individual Taxation
18
Q
1
Neither. They are portfolio income.
A
Individual Taxation
19
Q
1
Mid-year/Mid-quarter
A
Individual Taxation
20
Q
1
For depreciation when 40% or more of all purchases occur in 4th quarter.
A
Individual Taxation
21
Q
1
Mid-month
A
Individual Taxation
22
Q
1
15 year straight line (S/L)
A
Individual Taxation
23
Q
1
Up to $5,000
Amortized over 180 months
Reduced dollar-for-dollar by amount over $50,000
A
Individual Taxation
24
Q
1
On Schedule A:
Amounts in excess of 10% of AGI may be deducted
A
Individual Taxation
25
# 1
Accident or disability insurance premiums are not deductible.
Individual Taxation
26
# 1
Must be a citizen of North America
Must live with you, or if they do not, must be mother/father or a relative closer than a cousin.
Benefactor must provide more than 50% support to the beneficiary.
Individual Taxation
27
# 1
Foreign INCOME and REAL ESTATE taxes are deductible.
Foreign personal property taxes are NOT deductible.
Foreign tax assessments are not deductible- they are added to the basis.
Individual Taxation
28
# 1
Gross investment income - investment expense in excess of 2% of AGI = net investment income
Investment interest expense in excess of net investment income is deductible.
Individual Taxation
29
# 1
Investment interest expense on tax-free securities is not deductible.
Individual Taxation
30
# 1
They are deductible if they represent prepaid interest on purchase of a new home or improving a home.
Refinance points are amortized over the life of the mortgage.
Individual Taxation
31
# 1
Deducted at fair market value (FMV), up to 30% of AGI
Individual Taxation
32
# 1
Deduction is taken for adjusted basis in the property, up to 50% of AGI.
Individual Taxation
33
# 1
No. It decreases the fair market value (FMV) of the property.
Individual Taxation
34
# 1
Take the lower of either A) Decrease in FMV or B) Basis in property (call this number GROSS LOSS)
GROSS LOSS - insurance proceeds received - $100 - 10% of AGI = Deductible casualty loss
Individual Taxation
35
# 1
Deductible in excess of 2% of AGI
Continuing Education - if required to keep your job
Business travel
50% Meals and entertainment
Union Dues
Tax prep fees
Legal fees to collect alimony
Appraisal fees to value casualty loss of charitable contributions
Individual Taxation
36
# 1
Medical
Casualty
Gambling
Investment Interest Expense
Individual Taxation
37
# 1
Must be resident of North America
Under age 19, or under age 24 if a student
Individual Taxation
38
# 1
Must be citizen of North America
Must live with you, unless mother/father or relative closer than a cousin
You must provide more than 50% support to the individual
Individual Taxation
39
# 1
Child's unearned income
- early withdrawal penalties
- $1,000
- Greater than $1,000 or child's itemized deduction related to unearned income
= Amount taxed at parents' rate
Individual Taxation
40
# 1
Yes, if they each own a small business. All non-business income is cash basis.
Individual Taxation
41
# 1
15.3% of net earnings from self-employment
(Note: executor of an estate is NOT self-employment income)
Individual Taxation
42
# 1
A tax credit which takes the taxpayer's tax owed on the return below zero, resulting in a refund to the taxpayer.
Earned Income Credit (EIC), American Opportunity Credit and the Additional Child Tax credit.
Note: the REGULAR child tax credit is NOT refundable.
Individual Taxation
43
# 1
American Opportunity Credit - per student
Lifetime Learning Credit - per taxpayer
Note: The American Opportunity Credit is refundable.
Individual Taxation
44
# 1
The lesser of:
90% of current year's total tax
100% of prior year's total tax
110% of prior year's total tax (if AGI is $150,000 or more)
Individual Taxation
45
# 1
Deductible: Costs incurred to PRESERVE soil/water
Non-deductible: Costs incurred to drain wetlands or prep for irrigation (i.e. improve land)
Individual Taxation
46
# 1
MACRS 150
Individual Taxation
47
# 1
90 days
Individual Taxation
48
# 1
10 days
Individual Taxation
49
# 1
3 years, generally
6 years if 25% or more of gross income was omitted
The clock starts on the LATER of the due date or the filing date of the return.
There is NO STATUTE OF LIMITATIONS for either fraud or failure to file a required return.
Individual Taxation
50
# 1
It is treated as a STCL
Individual Taxation
51
# 1
Refunds must be claimed within 3 years of the return due date or within 2 years of being paid, whichever is later.
Individual Taxation
52
# 1
Premiums paid by an employer for coverage in excess of $50,000 per employee are includable in income.
Individual Taxation
53
# 1
When they are not in return for services rendered,
AND
The money is used *only* for tuition and books
Note: Scholarships for room and board are includable in income.
Individual Taxation
54
# 1
State & municipal bond interest
US EE Savings Bond interest (note: HH bond interest is taxable)
Individual Taxation
55
# 1
S-corporation (actually distributions)
Life insurance
Individual Taxation
56
# 1
Up to 85%
Individual Taxation
57
# 1
Yes.
Individual Taxation
58
# 1
Payments made to make you whole are NOT taxable (i.e. to pay for losses of property, body parts or earning ability)
Any payments for punitive damages ARE taxable.
Individual Taxation
59
# 1
No - similar to an award for damage to make a person whole.
Individual Taxation
60
# 1
Alimony IS taxable.
Child support and divorce property settlements are NOT taxable.
Individual Taxation
61
# 1
NO, they are not deductible. However tax benefits are available through the adoption CREDIT.
Individual Taxation
62
# 1
2nd Year: (3rd year - 2nd year - $15,000)
1st Year:
1st Year Alimony Paid
- Avg alimony paid in 2nd & 3rd years
- $15,000
- Recapture from 2nd year
=1st Year Alimony Recapture
Total Recapture = 1st Year Recapture + 2nd Year
Recapture
Individual Taxation
63
# 1
Can be carried back 2 years
If any left, can be carried forward 20 years.
Individual Taxation
64
# 1
Traditional IRA = deductible
Roth IRA = not deductible
Individual Taxation
65
# 1
They must be married at the end of the year.
If one spouse dies, they must be married at the end of the year.
Individual Taxation
66
# 1
Must have a dependent child
Must provide more than 50% of the child's support
Must live with them more than 50% of the year
Individual Taxation
67
# 1
Must have a dependent child.
Essentially gets MFJ status for the year of death + 2 tax years
Individual Taxation
68
What is the primary objective of accounting?
To measure income
69
What is the most authoritative set of accounting pronouncements?
The FASB Codification
All pronouncements fall under the Codification umbrella
70
What are the 2 Levels of Authority within the FASB codification?
Authoritative and Non-Authoritative
71
How does managerial accounting differ from financial accounting?
Managerial Accounting has a timeliness focus
Managerial Accounting is not required to follow GAAP
72
Which financial reports are required to be filed with the SEC?
Form 10K - Annual and Audited
| Form 10Q - Quarterly and Reviewed
73
What is the focus of financial reports for individual companies?
Focus is on the needs of users to help them make decisions and assessments about the company
Does not make assessments of the economy
74
What are the Primary Constraints of Financial Reporting?
Cost vs. Benefit
Materiality
75
What are the Secondary Constraints of Financial Reporting?
Consistency - Year vs. Year
Comparability - Company vs. Company
76
What are the Qualitative Characteristics of Financial Reporting?
Relevance & Faithful Representation
Relevance - Makes a difference to the user
Includes:
Predictive Value - Future Trends
Confirming Value - Past Predictions
Materiality - Could affect User Decisions
Faithful Representation
Includes:
Completeness - Nothing omitted that would impact the decision-making of a user
Neutrality - Information is presented is without bias
Free from Error - No material errors or omissions
77
What are the Enhancing Qualitative Characteristics of Financial Reporting?
Comparability Verifiability Timeliness and Understandability
Comparability - Allows users to compare different items among various periods
Verifiability - Different people would reach a similar conclusion on the information presented
Timeliness - Information is made available early enough to impact the decision making of users
Understandability - Information is easy to understand
78
How does Conservatism affect the recording of accounting transactions?
When an estimate is necessary due to uncertainty conservatism chooses the best option that won't overstate the financial position of the company
79
What is an accrual?
Earned (Revenue) or Incurred (Expense) but no Cash Receipt/Outlay yet
80
What is a deferral?
Cash Receipt/Outlay but not Earned (Revenue) or Incurred (Expense)
81
What is recognition in accounting?
When an item is recorded and included in the financial statements
82
Describe fair value with respect to an asset
The price you would receive if you sold the asset
Assumes asset is at its highest and best value
Assumes asset is sold at its most advantageous market to get the best price possible
83
What market assumptions are made in a fair value assessment?
Buyer and Seller are not Related
Buyer and Seller are Knowledgeable
Buyer and Seller are able to transact - i.e. This isn't a hypothetical transaction for Fair Value measurement purposes. The buyer actually does have the $10M to purchase the asset you're trying to value at $10M
Buyer and Seller are both motivated to buy/sell
84
What items are included in a Level 1 input in the fair value hierarchy?
Price quotes or market prices
For example NYSE or NASDAQ
85
What items are included in a Level 2 valuation input?
Interest rates
Prime rate
86
What items are included in Level 3 inputs of the fair value hierarchy?
Unobservable inputs such as assumptions or forecasts
Lowest priority for valuation
87
What are acceptable valuation techniques for fair value?
Market approach - uses market transactions and prices to value the asset
Income approach - uses present value discounts earnings
Cost approach - uses replacement cost to value the asset
88
What are current assets?
Cash
Inventory or Assets expected to be converted or consumed during a business' operating cycle
Deferred Gross Profit on Installment Sales (Contra Asset)
Receivables expected to be collected in 12 months or less
89
What are current liabilities?
Liabilities that will use current assets during the present operating cycle
90
What is an accrued liability?
Expense that has been incurred but not paid
Example: rents payable
91
What is a deferred revenue?
A type of current liability
Payments that have been received but cannot be recorded as revenue yet
Example: Tenant pre-pays rent - Landlord still must perform to earn it and is a liability until this happens
92
When are revenues recognized?
When they have been earned; i.e. company has performed
93
What is a gain?
Increase in equity from an activity or event that is not central to the main activities of the business
Can be operating or non-operating
94
What is a loss?
Decrease in equity from an activity or event that is not central to the main activities of the business
Can be operating or non-operating
95
What is an operating cycle?
Average time it takes to turn materials or services into Cash
96
What is the present value of future cash flows?
Valuation method - the current value of a future amount of money using a specific interest rate
97
What is historical cost?
How much an asset cost - (net of depreciation and amortization)
98
What is replacement cost?
How much it would cost to reacquire an asset today (Entrance Cost)
99
What is a market cost?
The sale price of an asset (Exit Cost)
100
What is Net Realizable Value?
Sale Price of an Asset - Selling/Disposal Fee
101
When is royalty income recognized? How is it recognized?
Recognized when earned
If the royalty % is applied against net sales then subtract the estimated return amount from the gross sales first and then apply the royalty rate
102
When is revenue recognized in an installment sale?
Revenue recognized upon receipt of cash
Only used when cash collection is uncertain
103
What is deferred gross profit?
Gross Profit that can't be recognized until cash is received
D.GP : Gross Profit % x Accounts Receivable
Pay attention to the year if GP% varies
104
What is the cost recovery method?
No revenue recognized until all costs are recovered from purchase of the asset
Most conservative method of revenue recognition when collection of sale price is uncertain
105
What is subscription revenue? How is it recorded?
Payment has been received but performance is not complete.
As company performs revenue is recognized.
Recorded as a Deferred Revenue (Liability) on Balance Sheet
106
How are franchise revenues recorded?
Franchisor - Startup franchise fee revenue deferred until substantial performance
Franchisee - Costs are deferred until corresponding revenue is recognized
107
How do you calculate sales revenue starting from cash basis income?
Mnemonic: SPEAR-BAR
Sales (i.e. Customer Payments)
+ Ending Accounts Receivable
- Beginning Accounts Receivable
: Sales Revenue on an Accrual Basis
108
How do you calculate COGS starting from Cash Basis?
Mnemonic: CRAP-I
Cash Remitted (i.e. paid)
+Increase in Accounts Payable
-Increase in Inventory
:COGS on an Accrual Basis
109
How are discontinued operations reported? When are they used?
Reported Net of Tax after Continuing Operations but before Extraordinary Items
Company decides to cease operating a segment of its business
Includes Income (or loss) from the period plus the gain (or loss) from disposal
110
What qualifies as an extraordinary item? How is it recorded?
Both unusual AND infrequent
Reported Net of Tax after Discontinued Operations
Note: Usual *or* Infrequent Items are reported as part of Continuing Operations
111
What is constant dollar accounting?
Adjusts assets to reflect a consistent level of purchasing power due to inflation
Uses the Consumer Price Index (CPI)
112
When are expenses recognized?
When they are incurred. Accrue if not yet paid.
113
What are accrued expenses?
Those incurred but not paid.
Product costs - Expenses should be matched with associated revenues as they are recognized (sales commission on a used car sale)
Period costs - Expenses amortized and recognized with the passage of time
114
When should impaired assets be written down to fair value and expensed?
Immediately.
115
What major items should be classified under General & Administrative (G&A) expenses?
Office staff salaries
Office/building rent
Office supplies
Note: Sales staff salaries and portions of the building assigned to Sales should be allocated to Selling Expense not G&A
116
What are business start-up costs?
One-time costs for opening a new business
Expensed as they are incurred
117
When is interest *not* expensed?
Interest on projects (software) for internal use is not expensed but is instead capitalized
118
What are the major components of Comprehensive Income?
Net Income + Other Comprehensive Income (OCI):
Revenues/Expenses
Gains/Losses
Cumulative accounting adjustments
Reclassifications adjustments
Non-owner changes in equity
119
What items are considered cumulative accounting adjustments?
Foreign Currency Translation Adjustments
Unrealized gains on AFS Securities
Minimum Pension Liability adjustment for defined benefit plans
120
What is the purpose of a reclassification adjustment?
Avoids double counting items that were included in both Net Income and OCI
Example: AFS Securities previously included in OCI are now sold at a loss and reported on the Income Statement
121
Where is Comprehensive Income reported?
Reported in a Single or Combined Income Statement
122
What disclosures on accounting policies are required in financial statements?
Accounting Principles used
Basis of Consolidation
Inventory Pricing Methods
Depreciation Method
Amortization of Intangibles
123
What are some major risks and uncertainties that must be disclosed?
Nature of Operations
Use of Estimates and listing of Significant Estimates
Concentration vulnerability
