Individual Taxation Flashcards
Qualifying Child
CARES Test
Close relative
Age limit (under 19 or 24 if college for 5 mos)
Residency & filing requirements (more than 6 mos, no joint unless for refund claim)
Eliminate gross income test
Support test changes (no contribution of more than half of own support)
Qualifying Relative
SUPORT
Support test (over 50%, more than 10% for multiple)
Under a specific amount of TAXABLE gross income test
Precludes dependent filing a joint tax return test
Only US citizens or residents of US, MX, CAN
Relative test
Taxpayer (nonrelative) lives with individual for whole year
increased standard deduction
age 65 or older or blind
gross income
cash, property (FMV), or services (FMV), cancellation of debt
ordinary income
salaries/wages, state/local tax refunds, alimony, IRA/pension income, self-employment income, unemployment, SS, prizes, taxable scholarship, etc.
portfolio income
income earned from portfolio of assets such as interest/dividends
passive income
no active participation (rental activity)
only passive losses may offset passive income
net passive loss NOT deductible on tax return
capital income
earned from sale of capital assets
life insurance
premiums paid by employer - not income to employee
premiums above $50k - taxable income
proceeds from policy - not income
accident, medical, health insurance
premiums paid by employer is excludable from employee income
proceeds from policy are includable in income UNLESS reimbursement or compensation of permanent loss
educational expenses
up to $5,250 excluded from gross income
qualified pension, profit-sharing, stock bonus plans
payments made by employer - nontaxable
proceeds/distributions are taxable
taxable interest income
included in gross income
- federal/corporate/industrial development bonds
- premiums received from savings account
- interest paid by federal or state government for late payment of tax refund
tax-EXEMPT interest income
- state/local government bonds/obligations
- series EE
kiddie tax
unearned income of child taxed at parent’s higher tax rate
taxable dividend income
- distributions of E&P (current/accumulated) for cash and property (FMV)
- capital gain distributions (no E&P/no basis)
tax-EXEMPT dividend income
return of capital (no E&P)
stock split
stock dividend
life insurance dividend
nontaxable income
- social security
- tax-exempt interest income (state/municipal)
- tax-exempt scholarships
- state/local tax refunds (standard deductions)
- child support
- property settlements (divorce)
- Roth IRA distributions
- life insurance proceeds
- gifts/inheritances
- worker’s compensation
- personal injury award
- accident insurance premiums (taxpayer)
taxable income
- state/local tax refunds (itemized deductions)
- alimony
- self employment income (Schedule C)
- farming income
- traditional IRA distributions (except for principal)
- annuity payments excess of payout period
- punitive damages unless wrongful death
- unemployment compensation
- NQ employee stock options
non-deductible business expenses (on Schedule C)
salaries paid to sole proprietor
federal income tax
personal expenses (interest expense, state/local tax expense, health insurance)
cost-to-cost method (%age of completion)
total costs YTD / total expected costs
gross income recognition (%age of completion)
% complete * total price - income previously recognized
farming income (Schedule F)
gross income received from sale of produce/livestock that has been raised by farmer
IRA penalty tax exemptions (HIMDED)
distributions used to pay: home buyer (1st time) insurance (medical) medical expenses (excess of 10% of AGI) disability education (tuition/books) death
rental income
excluded if rented for less than 15 days
taxable if rented for 15 days or more (deduct expenses)
passive activity losses (PAL)
non-deductible against income
losses only offset passive income in future years
mom and pop exception
rental activity losses deductible:
- up to $25k of net passive losses if active participation and own 10% or more
- phase out: $25k allowance is reduced by (50% of excess of AGI over $100k)
- i.e. excess of $10k, reduce $25k by $5k so only $20k is deductible
NQ employee stock option
taxable when granted:
-readily ascertainable value
taxable when exercised:
-no readily ascertainable value
ISO requirements
- granted within 10 years
- exercise price > FMV of stock at grant date
- 10% or less combined voting power
- held at least 2 years AFTER grant and 1 year AFTER exercise
nontaxable as compensation
taxable when sold (capital gain/loss)
ESPP requirements
- 5% or less combined voting power
- exercise price > lesser of 85% of FMV of stock when granted/exercised
- option price < FMV of stock on grant date
- ordinary income lesser of
1) diff of FMV of stock sold and exercise price
2) diff b/w exercise price and FMV of stock on grant date
amortization of bond premium
bond’s basis reduced by amortization
Series EE interest
tax exempt when purchaser of bond is sole owner of bond
