Individual Taxation Flashcards
Individual Net Capital Loss
Individuals only
$3k max deduction per year
If more than $3k = no carry back, carry forward forever
Individual Cap. Gain / Loss
Long term = holding period > 1 year
Tax rates:
20% Rich / 15% Average / 0% Poor
Short Term = holding period < 1 year
Tax rates:
ordinary income tax rate
ESO
Non-qualified Options
Taxable when granted if readily ascertainable value
No tax at date of exercise
If no ascertainable value, tax when exercised
ESO - Qualified Options
Incentive Stock Options
Employee Taxation:
- not taxable income as compensation
- capital gain/loss when sold
Employer Taxation:
- no tax deduction
ESO - Qualified Options
ESPP (Employee Stock Purchase Plans)
Employee Taxation:
- not taxable income as compensation
- capital gain/loss when sold
Employer Taxation:
- no tax deduction
ESO - Qualified Options
ESPP (Employee Stock Purchase Plans)
Exception to Cap. Gain / Loss
If FMV < stock on grant date, recognize ordinary income for lesser of:
1 - Diff of FMV when sold and when exercised
2 - Diff of exercise price and FMV on grant date
Adjustments
Educator Expenses
Up to $250 of qualified expense paid
K-12 teacher or aide for >= 900 hours
Qualified expenses:
- prof dev
- common and accepted in field
- helpful and appropriate in field
- necessary in field
Deductible IRA’s
Earnings = tax free
Withdrawals considered taxable income
Not deductible when:
1 - excessive AGI
(single/HoH = $62-72k / MFJ = $99-119k)
2 - active in another plan
(phase out at $186k-$196k if spouse is active in another plan)
Nondeductible Moving Expenses
Meals
Pre-move house hunting
Expense of breaking a lease
Temporary living expenses
Adjustments
Self Employed
- health insurance
- SS / Medicare tax
Self employed health insurance = 100% deductible
Self employed SS/Medicare tax = 50% deductible
Additional Standard Deductions (2)
Blind / Over 65
Qualified:
- 65 or blind = $1,550 single / $1,250 married
- 65 and blind = $3,100 single / $2,500 married
Non-qualified:
- each 65 or blind = $2,500 married
- both 65 and blind = $5,000 married
Itemized Deductions
Taxes (RIPS)
Real estate taxes
Income taxes
Personal property taxes
Sales tax
Non-deductible Taxes
FIB
Federal taxes (including SS)
Inheritance taxes for estates
Business and rental property taxes
Charitable Contributions Limitations
Overall Limit = 50% AGI
Cash = may be all 50% Gen. prop. = lesser of basis or FMV Long-term appreciated prop. = lesser of: 1 - 30% AGI 2 - remaining amount to reach 50% after other contributions
Misc. Itemized Deductions
Not taken as part of allowable adjustment
Combined exceed 2% of AGI
Types of Misc Itemized Deductions
Unreimbursed business expenses Education expenses Uniforms Business Gifts Employment agency fees Expenses of investors Subscriptions to professional journals Tax preparation fee Debit card fees incurred to pay income tax Activities no engaged in for profit (hobbies)
Other Misc Deductions
no 2% AGI test
Gambling losses
Federal state tax paid on income from being the beneficiary of an estate
Refundable Tax Credits… WE ACE
Withholding taxes
Earned income credit
American Opportunity Credit
Child tax credit
Excess social security paid
Child and Dependent Care Credit
Computations
Maximum = 35%
- taxpayer AGI must be > $15k
Phase = 20-35%
- decreases 1% for each $2k of AGI over $15k, but not below 20%
Minimum = 20%
Elderly and/or Permanently Disabled Credit
Available for:
65+ / retired due to permanent disability
Base amounts:
- single = $5k
- MFJ (1 eligible) = $5k
- MFJ (both eligible) = $7.5k
- MFS = $3,750
Lifetime Leaning Credit
20% of qualified expenses up to $10,000
Adoption Credit
$13,570
- per child (including special needs)
Phase Out = $203,540 - $243,540
Foreign Tax Credit Formula
taxable income from all foreign operations
/
taxable income + exemptions
x
US taxEarned Income Credit
Refundable
Eligibility:
- live in US half year +
- meet certain low-income threshold
- not have more than specified amount of disqualified income
- between 25 - 65
- file joint return with certain exceptions
AMT Calculation
regular taxable income +/- adjustments + preferences
= amt. min. taxable income
- exemption = AMT min. tax base
x AMT rate = tentative AMT tax
- AMT foreign tax credit = tentative min. tax
- regular income tax = AMT
Individual Income Tax Formula
gross income - adjustments
= AGI
- standard/itemized deductions - exemptions
= Taxable Income
x fed income tax - tax credits and other taxes- payments
= Tax due / refund
AGI
Gross income - adjustments
Gross Income includes… (SWAT IS UP)
Schedules B, C, D, E, F
Wages
Alimony received
Taxable state / local refunds
IRA
Social security
Unemployment
Pensions and annuities
Adjustments include… (SHIT IM ASS DOPE)
Student loan interest
Health savings account
IRA
Tuition / fees
Interest withdrawal penalty
Moving expenses
Alimony paid
Self employed health insurance
Self employed retirement
Domestic production activities deduction
One half self employment FICA
Paid attorney fees–discrimination/whistle blower
Educator expenses
Qualifying Widow(er) w/ Dep. Child
rules…
2 years after spouses death
Principle residence for dependent child
Head of Household
4 conditions…
1 - Not married / legally separated / apart from spouse for last 6 months of year
2 - not a qualifying widow(er)
3 - not a nonresident alien
4 - 1/2+ year principle residence for qualifying person
Head of Household
qualifying child is…
Child
Step child
Adopted child
Foster child
Brother, sister, or descendent of the above
*must live with taxpayer for 1/2+ year
Head of Household
qualifying dependent relative is…
Grandparent Brother / sister Aunt / uncle Nephew / niece Stepparents Parents in law Brothers / sisters in law
no cousins or foster parents or unrelated
Dependency Exemptions (2)
Qualifying Child = CARES
Qualifying Relative = SUPORT
Qualifying Child
CARES test
A - Age limit…
Younger than taxpayer
Under 19
Under 24 if FT student
Full Time Student
requirements…
No night school
Part of 5 months within tax year
Net Taxable Loss
Carry back / forward
Carry-back = 2 years
Carry-forward = 20 years
Non-deductible Expenses
Schedule C
Salaries paid to sole-proprietor
Federal income tax
Personal portion of anything
Bad debt expense
Charitable contributions - Schedule A
Alimony / Spousal Support
payment requirements…
- must be legally required pursuant to written divorce or separation
- must be in cash (or equivalent)
- cannot extend beyond death of payee/spouse
- cannot be made to members of same household
- must not be designated as anything other than alimony
- spouses may not file joint tax return
1040
Schedule B
Reporting of interest and ordinary dividends
Non-taxable Fringe Benefits
- life insurance proceeds
- accident/medical/health insurance (employer paid)
- de minimus fringe benefits
- meals and lodging
- employer payment of employee’s educational expenses
- qualified tuition reimbursement
- qualified employee discounts
- qualified pension / profit sharing / stock bonus plans
- flexible spending arrangements (FSA’s)
Gross Income
Salaries and Wages includes…
- money
- property (FMV)
- cancellation of debt (COD)
- bargain purchases
- guaranteed payments to partners
- taxable fringe benefits
- portion of life insurance premiums
Business Costs not Required to be Capitalized
- selling
- advertising
- marketing
- general and administrative
- research
- officer comp (not attributed to production expenses)
Passive Activity Loss
Real Estate Professional Exemption
Not considered passive and fully deductible if…
1 - 50%+ of taxpayer personal services are performed in real property businesses
2 - taxpayer performs 750+ hours of services in real property business during the year
AMT Adjustments
PANIC TIME
Passive activity losses Accelerate depreciation Net operating loss of taxpayer Installment income of a dealer Contracts - % v. completion
Tax deductions
Interest deductions on some home equity loans
Miscellaneous deductions not allowed
Exemptions (personal) and standard deduction
“Child” Tax Credit
Phase Out
Reduce by $50 for each $1,000 over AGI:
Single = $75k MFJ = $110k MFS = $55k
Itemized Deductions…
Interest Expense (HIPPE)
Home mortgage interest Investment interest expense Personal (consumer) interest (non-deductible) Prepaid interest Educational loan interest
Non-refundable tax credits… CELL GRAF
Child and dependent care credit
Elderly or disabled credit
Lifetime Learning Credit
Long-term unused minimum tax credit
General business credit
Retirement plan contribution credit
Adoption credit
Foreign tax credit
Tax-Exempt Interest Income
reportable but no taxable
State and local gov bonds / obligations
Bonds of US possession
*Series EE (US Savings Bonds)
Veterans administration insurance
phase out applies
Casualty and Theft Losses Formula
smaller loss - insurance recovery
= taxpayers loss
- $100
= eligible loss - 10% AGI
= deductible loss
Types of Itemized Deductions… (COMMITT)
Charitable contributions Other miscellaneous expenses Miscellaneous 2% expenses Medical expenses Interest expense Taxes Paid Theft or casualty loss
Deductible Medical Expenses Formula
qualified medical expenses
- insurance reimbursement
= qualified medical expenses “paid”
- 10% AGI
= deductible medical expenses
Itemized Deduction Phase Out
When AGI crosses the below limits, reduce by smaller of:
- 80% of itemized deductions affected by limit
- 3% of amount over AGI
Single = $261,500 MFJ = $313,800 MFS = $156,900 HoH = $287,650
Standard Deduction (2017)
Single = $6,350 HoH = $9,350 MFJ = $12,700 *MFS = $6,350
only if both don’t itemize
Keogh Net Earnings
from SE
business income - business expenses
= net business income
- 1/2 self employment tax - keogh deduction
= Keogh net earnings
Keogh (Profit-Sharing) Plans
Max annual deductible amount lesser of:
- $54k
- 25% net (keogh/SE) earnings
Max annual contribution lesser of:
- $54k
- 100% net earnings (only if comp < 54k)
Adjustments
Moving Expenses
New workplace = 50m farther from old house
FT for 39 weeks in year after arrival
Only direct moving costs
- $0.17c on the mile
- tolls/parking fees
Adjustments
Health Savings Account
Up to $3,400 in 2017 ($6,750 for families)
+ $1,000 after 55
High-Deductible Plan Defined
- OOP Limit = $6,550 individual / $13,100 family
Adjustments
Tuition and Fees Deduction
2016 Max Deduction for taxpayers with AGI…
<= $65k ($130k MFJ) = $4,000
$65k - $80k ($160k MFJ) = $2,000
over $80k = $0
Adjustments
Student Loan Interest Expense
Limited to $2,500
- Phase-Out*
- single = $65 - $80k
- married = $135 - 165k
Completely phased out 2017:
- single AGI >= $80k
- married AGI >= $165k
1040
Schedule C (or C-EZ)
Business income / loss
1040
Schedule F
Farm income / loss
Net Rental Income / Loss
formula…
gross rental income \+ prepaid rental income \+ rent cancellation payment \+ improvement-in-lieu of rent - rental expenses = rental income/loss
Coverdell Education Savings Account
(Education IRA)
Phase Out
Modified AGI:
Single = $95 - 110k Married = $190 - 220k
Roth IRA Phase Out
Modified AGI:
Single = $118 - 133k MFJ = $186 - 196k MFS = $0 - 10k
Passive Activity Loss
Mom and Pop Exception
Up to $25k per year of net passive losses:
- must be active
- must own 10%+
Excess carried forward indefinitely
Phase Out:
- minus 50% excess of AGI over $100k
- completely phased out at AGI $150k+
Federal Self-Employment (SE) Tax
adjustment…
1/2 of SE tax paid
7.65% up to $127,200
+ 1.45% after that
Exemption to Penalty Tax
HIM DEAD
still subject to ordinary income tax
Home buyer (1st time), $10k max
Insurance (medical)
Medical expenses over 10% AGI
Disability (permanent or indefinite)
Education (college books, tuition, fees)
And…
Death
Series EE
Phase Out
When modified AGI exceeds indexed amount…
for 2017:
- Single/HoH = $78,150
- MFJ = $117,250
CARES
Close relative Age limit Residency and filing requirements Eliminate gross income test Support test changes
SUPORT
Support (>50%) test
Under a specific amount of taxable GI test
Precludes dependent filing jointly return test
Only citizens of US/Canada/Mexico
Relative test or…
Taxpayer lives with individual for whole year
Personal Exemption Phase Out
Reduces 2% for every $2,500 over gross income (2017):
MFJ/Surviving Spouse = $313,800
HoH = $287,650
Single = $261,500
MFS = $156,900
Form 1041
Income tax return for estates and trusts
Schedule E
income or loss from rental real estate, royalties,
partnerships, S corporations, estates, trusts, and residual interests in REMICs
