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Individual Taxation Flashcards

1
Q

Standard Deduction

A

Single $6,300

MFJ $12,600

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2
Q

Personal Exemption

A

$4,050

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3
Q

2016 Personal Exemption Phase-out

A

Single AGI - $259,400

MFJ AGI - $311,300

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4
Q

Two types of tax years

A

Calendar tax year – is 12 consecutive months beginning January 1 and ending December 31.

Fiscal tax year – is 12 consecutive months ending on the last day of any month except December.

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5
Q

Cash Basis recognizes income

A

when cash or property is received (FMV)

whether earned or unearned

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6
Q

Accrual Basis recognizes income

A

when cash or property is received

wheb Earned only

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7
Q

Cash basis reports deductions when

A

cash or check is disbursed

expense charged on CC

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8
Q

Accrual basis reports deductions when

A

incurred

liability exists when amount is determinable

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9
Q

Cash Basis allowed for

A 
Individual TP’s
Individual TP’s owning a business
Individually owned Partnerships
S-Corps
PSC’s (Health, Law, Accounting)
    -exception to corp. rule for accrual

*NOT PUBLICLY TRADED

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10
Q

Accrual Basis allowed for

A

Corporations

Partnerships with a Corp. partner
Inventory
Prepaid Rent and Royalties must include in GI in period received!

*Anyone can choose Accrual…

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11
Q

Cash Basis NOT allowed for

A 
Corporations (gross receipts > $5MM)
P-ships with C-Corp Partner  > $5MM
Tax Shelters
Certain Trusts
Inventory
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12
Q

Section 179 Deduction

A

Max Deduction: $500,000
Max Total Equipment Purchase: $2,000,000

$500,000 deduction is phased out dollar for dollar for the amount of equipment purchases that exceed $2,000,000

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13
Q

CARRYOVERS (GIN PAL CC NOL C)

A 
GL		0	0
Ind. CL	0	infinity ($3,000)(STCGL or LTCGL)
NII    	0	infinity 
PAL		0	infinity
Charity	0	5
NOL	2	20
CCL		3	5 (STCGL only)
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14
Q

Filing Status Determines

A

Tax rates
Deductions
Thresholds
Limitations

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15
Q

MFJ

A
  • Married last day of year
  • Living apart allowed
  • One spouse Itemizes, other is bound
  • Both a Citizen or RA taxed on WWB
  • Can be a NRA if taxed on WWB
  • Different accounting methods OK if each own a small business
  • Deceased spouse qualifies in year of death
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16
Q

MFS

A
  • Married last day of year
  • Living apart allowed
  • One spouse itemizes, other is bound
  • Both a Citizen or RA taxed on WWB
  • Can be a NRA if taxed on WWB
  • Use MFS if in process of divorce, don’t trust each other
  • Less benefits with MFS
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17
Q

QW

A

-Not married last day of year (SS Widow/Widower)

  • Year of death, considered MFJ or MFS not QW
    * Exemption allowed for deceased spouse
  • 2 years after death, MFJ favorable rates continue
    * No exemption for deceased spouse
  • Maintains HH for a QI for 100% of year
  • Provides 50% cost of HH for a QI
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18
Q

HH

A

-Not married or QW last day of year
-Only Custodial Parent is eligible for HH
 Legal
 Physical
-Can’t ever be a non-custodial Parent
-Custodial Parent can claim HH despite a written declaration not to claim child as dependent
-Tie Breaker Rules
 General Rule: Dep. of Custodial Parent
 Joint Custody: Dep. of Parent with most Time
 Joint Custody w/ Equal Time: Dep. of highest AGI
*UNLESS Parent entitled to dependent signs a written waiver annually…
-Maintains HH for a QI for 50% of year
-Provides 50% cost of HH for a QI
-HH QI can’t be unrelated:
 Friend
 Foster Parent
 Cousin

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19
Q

Single

A
  • Default

- Can be married but legally separated under a decree of separate maintenance

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20
Q

Qualified Relative

A

Joint Return - No

Gross Income < Statutory Exemption
(don’t make much $; don’t include scholarships in GI)

Residence - lived with TP 100% of year
OR
Relative - Lineal or Collateral

Support - TP provides more than 50% of support

21
Q

Qualifying Child

A

Joint Return No

Age - 19 or 24 and full time student (5 months)

Residence - lived with TP 50% of year

Relative - Lineal

Support - TP provides more than 50% of support

22
Q

Dependent Factors

A

Joint Return - No
Can’t be claimed by two people
North American Resident

23
Q

Multiple Support Agreement (MSA)

A
  • MSA - Group collectively providing more than 50% of support  must have written agreement of who can claim if more than 1 TP in group provides more than 10%. Mainly applicable to Parents.
  • If only 1 TP provides more than 10% support, automatically can claim
24
Q

Net Exemptions

A
  • Inflation adjusted – not prorated (if die during year)
  • Reduce AGI to get to Taxable Income

-Types of Exemptions:
Personal exemption - self and spouse
Dependent exemption - for each dependent
a. QI – Relative
b. QI – Child
c. QI – Parent

25
Net Exemption Formula
Basic Statutory Amount X # of Exemptions ________________ = “Net Exemptions”
26
If TP is a dependent on another’s return:
- Standard deduction amount is reduced | - Can’t claim exemption for themselves
27
Qualifying Costs for a Dependent MR TUFF
- Mortgage Interest - Rent - Taxes (Real Estate) - Utilities, Repairs, Insurance - Fees for Condo - Food Consumed ON Premises
28
Non-Qualifying Costs for a Dependent
``` Clothing Medical Treatment Transportation Vacation Education Food Consumed OFF Premises ```
29
MUST file a return if: “disjunctive” Individual must file by 4/15; extension must be filed 10/15
GI > Personal Exemption + Standard Deduction + additional age deduction (TP can’t consider dependent exemptions or additional deductions based on blindness since these aren’t automatically available without supporting evidence) “Net” SE Earnings > $400 (15.3%) Dependents claimed on another return; AND have unearned income AND GI > $1000 Received advanced payments of EIC Subject to Kiddie Tax
30
Kiddie Tax Requirements:
- Living parent - 19 or 24 full time student (5 calendar months) - Applies to UNEARNED Income only a. 1st 1000 – limited to child’s standard deduction b. 2nd 1000 – taxed at child’s rate c. Over 2000 - taxed at parents rate
31
Kiddie Tax Rules do not apply if:
Child’s EARNED income is > 50% of their own support (supporting themselves basically) Child is MFJ (files a joint return)
32
Kiddie Tax Formula
Childs Unearned Income - (Early Withdrawal Penalty) - ($1,000) - (2nd $1,000 or Amount greater than $1,000 or child’s itemized deduction related to unearned income) = Amount to be taxed at parent’s rate
33
Installment Sales
- Gross Profit / Contract Price - Gross Profit = Revenues (-) COGS - Contract Price = Sales Price (-) Buyer Liability
34
Business Gifts (Sch. C)
- $25 per person is deductible | - Service Awards up to $400 is deductible
35
Business Losses
Business Losses only offset Business Income (W2 Wages are considered Active Business Income) Passive Losses only offset Passive Income (Limited Partnership Income = Passive Income) Interest / Dividend Income = Portfolio Income (NOT PASSIVE)
36
Conventions
Real Property - Midmonth Personal Property - Midyear or Midquarter (40% Rule) Leasehold Improvements - 15 years S/L
37
Business Startup costs
o Deduct up to $5,000 of Startup costs o Reduced dollar for dollar by amount over $50,000 o Remaining Costs are amortized
38
Affordable Care Act – imposes penalty on those individuals who do not have health insurance 2016 Penalty for not having “minimum essential coverage” is the Greater of:
$695 per person ($347.50 if under 18) 2.5% of Household Income over threshold
39
Increased Medicare tax rate (Hospital Insurance aka “HI”) for high income earners:
1. 45% rate increased by .9% in individual TP’s earnings in excess of the threshold levels a. $250,000 MFJ b. $200,000 all others New rate is 2.35% (1.45 + .9) on amounts in excess of the thresholds a. This affects the SE tax rate from 2.9% to 3.8% on amounts in excess of the thresholds
40
Underpayment Penalties
Estimated tax payments required: a. Due on form 1040ES b. Due on 4th, 6th ; 9th months of tax year and by the 15th of January (for Individuals) TP subject to underpayment penalty only if balance due >$1000 *TP’s that have withholdings on salaries and wages have no estimated tax payments to IRS
41
Late Filing Penalty
Based on net amount of unpaid tax (net amount due)  5% per month  Limited to 25% of unpaid tax
42
Late Payment Penalty
 .05% per month
43
Excess Social Security Withholdings
Multiple employers who don’t know of another employer withholding FICA o Wage Base $107,000 o FICA rate 6.2% (excess FICA tax is refundable) o Doesn’t apply to Medicare 1.45%
44
Estimated Tax Payments
The Lesser of:  90% of current total tax  100% of prior year’s total tax  110% of prior year’s total tax - If AGI is $150,000 or more
45
Farming
Damaged crops (Insurance proceeds included in GI in year received) Weather forces sale of abnormal volume of livestock, the gain on the extra sales may be deferred until next year Prepaid feed costs for livestock can be deducted up to 50% of other farming expenses Farm Personal Tangible Property (i.e. Non Real Estate) use MACRS 150 (picture farmers F-150 truck)
46
Preservation of Resources = | Costs to preserve soil and water
Deduction
47
Use of Resources = | Cost to drain wetlands or for Irrigation
No Deduction
48
Non-business bad debt
Treated as STCL

REG (11 decks)

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