Individual Taxation

Question 1

Qualifying Child

CARES Test

Answer 1

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)

Question 2

Qualifying Relative

SUPORT

Answer 2

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

Question 3

increased standard deduction

Answer 3

age 65 or older or blind

Question 4

gross income

Answer 4

cash, property (FMV), or services (FMV), cancellation of debt

Question 5

ordinary income

Answer 5

salaries/wages, state/local tax refunds, alimony, IRA/pension income, self-employment income, unemployment, SS, prizes, taxable scholarship, etc.

Question 6

portfolio income

Answer 6

income earned from portfolio of assets such as interest/dividends

Question 7

passive income

Answer 7

no active participation (rental activity)
only passive losses may offset passive income
net passive loss NOT deductible on tax return

Question 8

capital income

Answer 8

earned from sale of capital assets

Question 9

life insurance

Answer 9

premiums paid by employer - not income to employee
premiums above $50k - taxable income

proceeds from policy - not income

Question 10

accident, medical, health insurance

Answer 10

premiums paid by employer is excludable from employee income

proceeds from policy are includable in income UNLESS reimbursement or compensation of permanent loss

Question 11

educational expenses

Answer 11

up to $5,250 excluded from gross income

Question 12

qualified pension, profit-sharing, stock bonus plans

Answer 12

payments made by employer - nontaxable

proceeds/distributions are taxable

Question 13

taxable interest income

included in gross income

Answer 13

• federal/corporate/industrial development bonds
• premiums received from savings account
• interest paid by federal or state government for late payment of tax refund

Question 14

tax-EXEMPT interest income

Answer 14

• state/local government bonds/obligations

- series EE

Question 15

kiddie tax

Answer 15

unearned income of child taxed at parent’s higher tax rate

Question 16

taxable dividend income

Answer 16

• distributions of E&P (current/accumulated) for cash and property (FMV)
• capital gain distributions (no E&P/no basis)

Question 17

tax-EXEMPT dividend income

Answer 17

return of capital (no E&P)
stock split
stock dividend
life insurance dividend

Question 18

nontaxable income

Answer 18

• 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)

Question 19

taxable income

Answer 19

• 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

Question 20

non-deductible business expenses (on Schedule C)

Answer 20

salaries paid to sole proprietor
federal income tax
personal expenses (interest expense, state/local tax expense, health insurance)

Question 21

cost-to-cost method (%age of completion)

Answer 21

total costs YTD / total expected costs

Question 22

gross income recognition (%age of completion)

Answer 22

% complete * total price - income previously recognized

Question 23

farming income (Schedule F)

Answer 23

gross income received from sale of produce/livestock that has been raised by farmer

Question 24

IRA penalty tax exemptions (HIMDED)

Answer 24

distributions used to pay:
home buyer (1st time)
insurance (medical)
medical expenses (excess of 10% of AGI)
disability
education (tuition/books)
death

Question 25

rental income

Answer 25

excluded if rented for less than 15 days

taxable if rented for 15 days or more (deduct expenses)

Question 26

passive activity losses (PAL)

Answer 26

non-deductible against income

losses only offset passive income in future years

Question 27

mom and pop exception

Answer 27

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

Question 28

NQ employee stock option

Answer 28

taxable when granted:
-readily ascertainable value

taxable when exercised:
-no readily ascertainable value

Question 29

ISO requirements

Answer 29

• 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)

Question 30

ESPP requirements

Answer 30

• 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

Question 31

amortization of bond premium

Answer 31

bond’s basis reduced by amortization

Question 32

Series EE interest

Answer 32

tax exempt when purchaser of bond is sole owner of bond