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REG > Individual Taxation > Flashcards

Individual Taxation Flashcards

1
Q

Form 1040 calculation

A 
Gross income
\+- Adjustments (I EMBRACED)
= AGI
(Deductions) [Sch A or Standard]
= Taxable income
x Rate
= Tax liability
(Credits)
\+ SE tax
\+ AMT
(Withholdings)
(Prepayments)
= Tax due
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2
Q

“For AGI” adjustments

A 
I-EMBRACED-HF:
Interest on student loans
Employment tax
Moving expenses
Business expense
Rent/Royalty & floe through
Alimony
Contributions to retirement
Early withdrawal penalty
jury Duty pay
HSA's
Farm Income
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3
Q

Schedule A adjustments

A 
Itemized Deductions (COMMITT):
Charitable contributions
Other misc
Misc expenses
Medical expenses
Interest
Taxes
Theft or Casualty
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4
Q

What are the filing requirements for individuals?

A
  1. Income > than sum of personal exemption and standard deduction
  2. Net SE earnings of 400 or more
  3. Claimed as a dependent on a return 7 have gross income > SD
  4. Receiving EITC or PTC
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5
Q

What conditions must be met for payment to be considered alimony?

A 
CANNOT:
Cash or equivalents only
Apart when payments are made
Not child support (payments first apply to support)
Not designated as property settlement
Own return for payer and payee
Terminates on death of recipient
* If pay for college as part of divorce agreement, considered alimony
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6
Q

How are group term life insurance premiums treated on your tax return?

A

Premiums over $50,000 are taxable (% over 50,000 times premium = amount added to gross taxable income)
* Is a fringe benefit for the EE

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7
Q

Specific exclusions from gross income…

A
  1. Life Insurance (if install, interest portion taxable; if dividends, not included)
  2. Annuities (once total return of capital, taxable)
  3. Gifts/Bequests/Inheritances (income or gain from is taxable)
  4. Certain prizes & awards (must be for achievement and a)selected without any action taken, b)not required to render any services in future, c)prize is transferred to gov/charitable org
  5. Scholarships
  6. Gain on sale of principal residence
  7. Social Security benefits (high earners, 85%)
  8. Personal Injury Awards (workers comp, damages rec’v [not punitive], disability benefits
  9. Interest on muni bonds
  10. Property settlements
  11. Child support
  12. Employee Benefits (fringe; group term life ins up to 50,000; accident/health plans; FSA; meals/lodging; workers comp; retirement plans (SIMPLE, deferred arrang, catch ups, rollovers); educational assistance
  13. Savings bonds
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8
Q

How are LT Capital gains taxed in gross income..

A

Special 0% (in 10-15% bracket), 15% (25-35% bracket), 20% (39.6% bracket)
Under 1 year = ordinary income tax rate

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9
Q

How are Net Capital losses treated for personal taxes..

A

Net capital loss up to $3,000 against ordinary income

  • Unused carried forward indefinitely
    • Net cap losses go 3,000 against ordinary income and the remaining is cap loss which is carried forward and retains LT, ST character
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10
Q

What is the treatment of NOL for personal tax

A

Carryback 2, carryforward 20.
* Do not include in calc: personal exemption, interest, dividends, or capital losses > cap gains, nonbusiness deductions (standard deduction) > nonbusiness income

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11
Q

Rules for using the moving expense adjustment to AGI

A
  • New work must be at least 50 miles from old job
  • Direct costs of moving stuff
  • Must work at least at least 39 weeks
  • If reimbursed by ER, income shouldn’t be included as long as no moving exp deduction was taken.
  • Includes lodging in travel to new destination, but NOT meals or temp living expenses (Storage costs waiting to move in, yes)
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12
Q

Rules for passive activity losses adjustment to AGI

A

All rental activity (unless real estate prof)
Losses only to extent of passive gains
Unused loss is carried forward until disposal
* Active rental losses partially deductible up to 25,000 (reduced by 50% of AGI over 100,000 - no deduction if AGI over 150,000)
* Can offset against other passive income first before you calculate the phase out

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13
Q

Treatment of rental income/expenses for dwelling unit also as personal use

A
  • If used as home (personal use exceeds the greater of 14 days or 10% # days rented)
  • If dwelling unit used as home AND rented for less than 15 days, rental income excluded and expense not deductible (can deduct on Sch A)
  • Used as home and rented for more than 14 days, rent income included and deductions limited to gross rental income (allocate expenses between personal and rental)
  • If not a home (real rental), rental income included, expenses allocated to income allowed. Passive activity loss limits.
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14
Q

Deductibility of contributions to IRA

A

Traditional IRA, deductible to AGI unless BOTH participating in another plan and AGI exceeds threshold (72,000 S, 119,000 MFJ).
Contributions to Roth IRA are not deductible (withdrawals after 59 1/2 are tax free)
**See phase outs in word doc

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15
Q

IRA withdrawal penalty

A

Prior to 59 1/2, 10% penalty of the amount withdrawn and is included in gross income (penalty taxed at marginal rates)

  • Penalty doesn’t apply, but included in gross income when withdrawal applies to:
    1. Medical expenses exceeding 10% AGI
    2. Qualified higher education costs
    3. Death or disability
    4. 1st time home purchase (10,000 limit and no other principal residence within 2-year period ending on the date current principal residence is acquired)
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16
Q

Tax treatment for unemployment and workers comp?

A

Unemployment included in gross income

Workers comp not taxable

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17
Q

How are stock options taxed?

A

Non-qualified , taxed when exercised (FV > exercise= comp)
Qualified, ISO taxed when sold (Price > exercise = cap G/L) * For AMT, ISO’s taxed when exercised (ISO must be held 2 years from grant and 1 year from exercise)

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18
Q

General rule about reimbursed expenses

A

If expenses are reimbursed by your ER, the income is not included in gross income as long as no deduction was taken

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19
Q

Treatment for jury duty fees received

A

Always include in gross income, but if remitted to ER deduct to arrive at AGI

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20
Q

Charitable contributions deduction

A

Contributions deductible to the extent cash provided exceeds value received

  1. Ordinary income rule- Property contributed is ordinary or ST cap gain (lesser of basis or FV)
  2. LT Cap Gain Rule- Would have resulted in LT cap gain. Deduct higher FV (limited to 30% of AGI)
    * * Overall contributions limited to 50% of AGI w/out NOL carryback, those exceeding this can carry forward up to 5 years
    * Qualified donee= Gov or domestic org (NFP)
    * * Donations to individuals are not deductible!
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21
Q

What are Misc deductions on Sch A?

A

[BIT]
Deductible to extent total exceeds 2% of AGI
- Business expense of EE (mileage, union dues, uniforms, laptop for work, CPE, Buss use of home, meals/entertainment if reimb included in EE comp)
- Investment expenses (advisory, newsletter, custodial)
- Tax prep fees and advice

22
Q

What are the carry over rules?

A

Charitable cont: Back NO; forward 5 years
NOL: Back 2 years; forward 20 years
Net Capital loss (corp): back 3, forward 5
Net Capital loss (ind): 3,000 per year no carryback, forward indefintely
Investment interest (net to income): back NO, forward indefintely
Net passive losses: back NO, forward indefiently or claimed when sold
Net gambling losses: NO and NO

23
Q

Calculate net investment income from Sch A

A

Gross investment income [interest, dividends, rents, royalties+portfolio income from passive activity+gain from disposition of investment property but doesn’t include cap gains unless elected]
Minus: (Investment expense in excess 2% AGI)
= Net investment income
** Investment expense doesn’t include Interest
Expense. Investment interest expense on tax-free
securities is not deductible
* Investment interest paid is deductible to the extent of net investment income on Sch A

24
Q

Rules for casualty/theft losses itemized deductions

A
  • Not connected with trade/business
  • Deduction to extent total excess losses exceed 10% AGI
  • Loss the lesser of [basis (repairs increase basis) or decrease in FV] minus 100 floor per event
  • Loss reduced by amount recovered through insurance
25
Q

Rules for interest expense itemized deduction

A
  1. Investment interest deductible to extent of net investment income on sch B (Unused portion carried forward indefinitely)
  2. Acquisition indebtedness- interest on 1 million of debt for 1st or 2nd home
  3. Home Equity- Interest up to 100,000 (only up to 100% of the equity; anything over is personal and not deductible)
    * As long as the total debt does not exceed the fair value of the residence
26
Q

Phase out of itemized deductions

A

Total itemized deductions reduced by the smaller of:

  1. 3% of amount by which AGI exceeds the annual limit (261,500 S/313,800 MFJ)
  2. 80% of itemized deductions not counting GIMC (Gambling, Investment interest, Medical, Casualty loss)
27
Q

Rules for dependency exemption of Qualifying child

A

Qualifying child- JARRS-C

  • no Joint return
  • Age (under 19 or full time student under 24)
  • Relationship (no cousins)
  • Residency (live with more than 1/2 year)
  • Support (child cannot have provided more than 50%)
  • Citizen/resident
28
Q

Conditions for MFJ

A

Must meet ALL:

  1. Married and not legally separated on last day (if spouse died, surviving can file jointly for the year unless they remarried before end of year)
  2. Neither spouse was nonresident (if so, can elect to be taxed on worldwide income)
  3. Both tax years begin on same day (they may have separate accounting methods)
  4. Both sign return
29
Q

Conditions for MFS

A

Separate property state- each reports own income, deductions, exemptions, credits
Community property state- split everything 50-50

30
Q

Conditions for Surviving spouse

A

Remains unmarried and pays more than 50% to maintain principal residence for dependent, can use joint return rates for the next 2 years

31
Q

Conditions for HOH

A

Must meet BOTH:
1. Not married or surviving spouse at year end
2. Maintained residence for over 1/2 year and provided over 1/2 the costs of household for:
Qualifying Relative>live w/ taxpayer (could qualify as dependent and NOT qualify as HOH)
Qualifying Child>step-child, grandchild (must be dependent)
Parent>must be dependent but need not live w/ taxpayer

32
Q

AMT calculation for individuals

A 
Regular taxable income
\+- Adj & Preferences [SIMPLE-PIE]
= AMTI before exemption
- Exemption
= AMTI
x Tax rate
= Tentative minimum tax
- Regular tax
= AMT
33
Q

Adjustments and Preferences for AMT

A

Adjustment (SIMPLE):
Standard deduction add back
Interest on home equity (unless to buy, build, improve home) add back
Personal and dependency exemption- add back
Local taxes (property, sales, income)- add back
Employee business exp (BIT) subject to 2% threshold- add back
Preferences can only increase AMTI (PIE):
Private activity bond interest (finance nongovernmental activities)
Incentive stock options- taxed when exercised (exercise>market)
Excess depreciation on personal property (use 150% and add back)

34
Q

Rules for dependency exemption for Qualifying relative

A

C-IRS-J:
Citizenship
Income limited to personal exemption
Relationship- either descendant (no cousins) or unrelated and lives in home for entire year
Support- taxpayer provides over half total annual support
no Joint return (except if only for refund)

35
Q

Beginning on January 1, 2017, the standard mileage rates for the use of a car (also vans, pickups or panel trucks) is…

A

53.5 cents per mile for business miles driven,
17 cents per mile driven for medical or moving purposes, and
14 cents per mile driven in service of charitable organizations.

36
Q

AMT exemptions and phase outs

A

MFJ 84,500 [-25%(AMTI b4 exemption-160,900)]
MFS 42,250 [-25%(AMTI b4 exemption-80,450)]
S/HOH 54,300 [-25%(AMTI b4 exemption-120,700)]

37
Q

AMT carryforward

A

When AMT is paid, portion of tax associated with timing preferences (mainly ISO’s) may be carried forward indefinitely and credited against regular income taxes (income reversals- think deferred taxes)

38
Q

The accrual method of tax reporting is mandatory for a sole proprietor with average annual gross receipts of over $1 million when there are…

A

year-end retail trade merchandise inventories

39
Q

Medical expense itemized deduction rule

A

10% of AGI (mileage to doctor, doctor, contact lens, eyeglasses, dental)
NOT deductibe» non-perscription meds, general health improve, premiums on life ins and loss of earnings from injury, plastic surgery, medicare portion of FICA

40
Q

How are distributions from qualified profit-sharing plans treated?

A

Excluded from income to the extent that it is transferred to an eligible retirement plan, such as an IRA, within 60 days

41
Q

How to treat expenses associated with a home used for both personal and rental (rent for more than 14 days)

A

Apportion the expenses between personal and rental usage

42
Q

What are exclusion items for AMT?

A

Exclusion items are those preferences and adjustments which will not reverse in future years. The deductions are permanently denied for AMT purposes

43
Q

How are tax refunds treated for individuals?

A

Federal refund- not taxable (return of your money) but the interest earned is taxable
State refund- If itemized in PY, got deduction on Sch A then taxable in CY (amount itemized in excess of the standard deduction if smaller (i think);
interest is taxable

44
Q

Are stock dividends included in gross income?

A

They are nontaxable, unless given the choice between cash and stock dividend, then treated as a cash dividend and taxable as other income (Line 21) on 1040

45
Q

What are the general guidelines for whether social security will be taxed?

A

In general, less than 25,000 of provisional income (AGI before SS+tax exempt income+one half SS benefits) exclude all SS benefits.
Exceeding 60,000 of provisional income, subject to max 85% tax

46
Q

How are assessments for improvements (streets, sewers) to property treated?

A

Added to the basis

47
Q

How is investment interest expense deducted?

A

Fully deductible to the extent it doesn’t exceed net investment income
* Not the same as investment expense which goes on Sch A 2% AGI floor

48
Q

How are home alterations for the handicapped treated for medical expense deduction?

A

Only costs in excess of the increase in FV of residence are deductible
* If doesn’t increase value, then all deductible

49
Q

Rules for child tax credit

A

$1,000 if under 17 years old at year end
Reduced by 50 for each 1,000 of AGI (or fraction thereof) over threshold of:
MFJ 110,000; S/HOH 75,000; MFS 55,000
[80,000 AGI - 75,000 divided by 1,000 times 50]

50
Q

American Opportunity Tax Credit and the Lifetime Learning Tax Credit

A

AOTC- to first 4 years of post-secondary school (max of 2,500, can use for dependent)
LLTC- all other years of education, max at 2,000 per family

51
Q

Qualifying child and qualifying relative tests

A

Both a qualifying child and a qualifying relative must pass three general tests:

Dependent taxpayer test—Taxpayers who can be claimed as a dependent by another person cannot claim anyone else as a dependent.
Joint return test—Taxpayers who file a joint return cannot be a dependent of anyone else unless neither the dependent nor spouse has a filing requirement, they file jointly only to get a refund of taxes withheld, and neither would have a tax liability if they filed separate returns.
Citizen or resident test—A dependent must be a U.S. citizen, U.S. national, U.S. resident, or resident of Canada or Mexico.
A qualifying child must pass the three general tests and pass five additional tests:

Relationship test—The child must be a child of the taxpayer or a descendant of such child or a brother, sister, stepbrother, stepsister, or descendant of any such relative.
Age test—The child must be under age 19 at year-end or a full-time student under age 24 at year-end, or permanently and totally disabled at any time during the year regardless of age.
Residency test—The child must live with the taxpayer for more than half the year. There are exceptions for temporary absences, children who were born or died during the year, kidnapped children, and children of divorced or separated parents.
Support test—The child cannot provide more than half of their own support for the year.
Special test for qualifying child of more than one person—A child can only be claimed as a dependent by one taxpayer. If a child is a qualifying child for more than one taxpayer, they can agree who takes the exemption. If they do not agree and more than one taxpayer takes the exemption, the IRS will apply a tie-breaker test to determine which taxpayer will prevail.

A qualifying relative must pass the three general tests and pass four additional tests:
Qualifying child test—A child is not a qualifying relative if the child is a qualifying child for any taxpayer.
Member of household or relationship test—A qualifying relative must be related to the taxpayer or a member of the taxpayer’s household.
Gross income test—A qualifying relative cannot have gross income equal to or greater than the personal exemption amount.
Support test—In order to take an exemption for a qualifying relative, a taxpayer must provide over half of the qualifying relative’s support.

52
Q

How is the Unearned medicare tax computed?

A

The surtax is imposed on the lesser of the taxpayer’s net investment income or the excess of modified adjusted gross income (MAGI) over a threshold amount, which is $250,000 for married couples filing jointly (don’t include foreign income exclusion MAGI)

REG (20 decks)

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