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Roger REG - Individual Taxation > Individual Taxation > Flashcards

Individual Taxation Flashcards

Roger CPA

1
Q

Formula for Tax Due

A 
Gross Income
\+/- Adjustments (I EMBRACED)
= AGI
(Deduction)
(Net Exemptions)
= Taxable Income
x Tax Rate
= Tax Liability
(Credits)
\+ SE Tax
\+ AMT
(Withholdings)
(Prepayments)
= TAX DUE
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2
Q

“For” AGI Adjustments

I EMBRACED Education, Health, and Farm

A

Interest on student loans

Employment tax
Moving expenses
Business expenses 
Rent/royalty & flow through entities
Alimony
Contributions to retirement
Early withdrawal penalty
jury Duty pay
Education
Health
Farm

*All appear on Face of Form 1040

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3
Q

What’ included on Schedule A?

“You should COMMITT these to memory”

A

Itemized Deductions

Charitable contributions
Other miscellaneous
Miscellaneous
Medical expenses
Interest
Taxes
Theft/casualty
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4
Q

Formula for calculating AGI

A

Gross Income
+/- Adjustments (I EMBRACED)
= AGI

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5
Q

Formula for calculating Taxable Income

A

AGI
(Deductions - Std/Itemized (Schedule A))
(Net Exemptions
= TAXABLE INCOME

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6
Q

Formula for calculating Tax Liability

A

Taxable income
x Tax Rate
= TAX LIABILITY

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7
Q

Formula for calculating Tax Due

A 
Tax Liability
(Credits)
\+ SE Tax
\+ AMT
(Withholdings)
(Prepayments)
= TAX DUE
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8
Q

What’s on the FACE of the 1040?

A

Adjustments FOR AGI (I EMBRACED)

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9
Q

Whats on BACK of 1040?

A

Tax Income
Tax Liability
Credits
Tax Due

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10
Q

In what situations is an individual file a tax return?

A
  • If Income > Sum of Personal Exemption + Std. Deduction
  • Claimed as a dependent on another’s taxpayer’s return and gross income greater than dependent’s std. deduction.
  • If receiving advanced pmts of EIC or Premium Tax Credit
  • Subject to Kiddie Tax
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11
Q

What does kiddie tax prevent (why was it established)?

A

To prevent wealthy from avoiding taxes by transferring investments into the names of their children who may not be subject to tax.

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12
Q

What conditions must be met for the Kiddie Tax to be applied to children?

A

a. Unearned income > Threshold ($2,100)
b. Either parent is alive as of 12/31 of taxable year
c. Child doesn’t file a joint tax return for the year
d. Under 18 years as of 12/31
e. If 18, earned income< 50% of child’s support.
f. If ages 19-24, earned income < 50% of child’s support

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13
Q

Calculation of Kiddie Tax

Broken into 3 increments

A

a. Up to amount of dependent’s standard deduction is NOT TAXED.
b. Above deduction up to 2 times the amount - TAXED at CHILD’s RATE
c. Any remainder - TAXED AT PARENT’S RATE - KIDDIE TAX

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14
Q

What entities are prohibited from using the cash basis?

A

a. C Corps
b. Partnerships w/a C Corp Partner exceeding $5M
c. Tax Shelters
d. Certain Trusts

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15
Q

How is income measured, when services are exchanged for cash and property?

A

Income will be measured at amount of cash received PLUS the fair value of the property received.

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16
Q

How should a cash-basis taxpayer report gross income?

A

They should report gross income for the year in which income is either actually or constructively received, whether in cash or property.

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17
Q

What does constructive receipt of cash mean for cash-basis taxpayers?

A

Item of income is unqualifiedly available to taxpayer without restriction (e.g. interest on bank deposit is income when credited to account)

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18
Q

For individuals reporting cash basis, how is income recognized?

A

For cash or property (at FMV) actually or constructively received

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19
Q

Accrual basis individual taxpayers recognize income and expenses when?

A

Income is earned and as expenses are incurred.

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20
Q

How should individual taxpayers report deductions?

A

When the cash/check is disbursed, or when expense charged on a credit.

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21
Q

How do individual taxpayers on cash basis deduct prepaid interest?

A

Prepaid interest is not deductible. Must amortize over period that it applies

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22
Q

When must an item be included in gross income for an individual?

A

In the year that it is constructively received.

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23
Q

Bargain discount from existing stock to buy an employer’s stock for a price below market value.

Earned Income to be reported or NAH?

A

Earned Income

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24
Q

Earned Income or Nah?

a. Proceeds withdrawn from a traditional IRA
b. Injury awards
c. Worker’s compensation
d. recovery of prior nondeductible contributions and all Roth IRA withdrawals

A

a. Earned Income
b. Earned Income
c. Nah
d. Nah

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25
Q

Earned Income or Nah?

a. Up to 85% of Social Security benefits if tax payer is rich
b. Up to 100% of social security benefits if tax payer is poor
c. State Tax Refunds
d. Federal Tax Refunds

A

a. Earned Income
b. No
c. Earned Income
d. No

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26
Q

Earned Income or Nah?

a. Alimony (CANNOT)
b. Child Support
c. Property Settlement
d. Cancellation of Debt

A

a. Earned Income
b. No
c. No
d. Earned Income

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27
Q

Is health and medical insurance coverage taxable?

A

No

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28
Q

Are state and local muni bonds taxable?

A

No

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29
Q

Are Federal bonds and T-Bills interest taxable?

A

Yes

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30
Q

What type of injury awards are taxable? Not Taxable?

A

a. Non-Physical (e.g. punitive, age/race discrimination)

b. Bodily injury (i.e. BLOOD) (e.g. pain & suffering from bodily injury, worker’s comp)

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31
Q

Prizes and awards are taxable at FMV unless what conditions are satisfied?

A

a. No services required of recipient
b. Selected w/o any action on recipient’s part.
c. payment assigned by recipient to a governmental unit or charitable organization so that recipient never actually receives the prize or award.

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32
Q

Debtor’s debts are cancelled, forgiven, or discharged are taxable to the debtor.

True/False

A

True

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33
Q

In what circumstances is the cancellation of debt not taxable?

A
  • Debt cancelled in Chapter 11 bankruptcy.
  • Qualified farm indebtedness
  • Qualified real property business indebtedness
  • Debtor is insolvent (debt exceed MV of debtor’s assets)
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34
Q

Taxable:

a. Federal Refund
b. Federal Interest

A

a. Not taxable (return of your money)

b. YES, taxable

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35
Q

Taxable or Nah?

State

a. Interest
b. Refund

A

a. YES, Taxable
b. If taxpayer itemized deductions in PY, then yes it’s taxable in current year.

If taxpayer, didn’t itemize in prior year, it’s not taxable in current year.

*Note a refund is only taxable to the extent the taxpayer received a tax benefit in the prior year.

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36
Q

Net Operating Loss (NOL) carryforward and carry back provisions

A

a. Carryforward - 20 Years

b. Carry Back - 2 Years

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37
Q

Schedule A

A

Itemized Deductions (Personal & Employee expenses)

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38
Q

Schedule B

A

Interest and Dividend Income

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39
Q

Schedule C

A

Profit and loss from a business (Employer expenses/1099 income)

40
Q

Schedule D

A

Capital gains and losses (S/T and L/T investments)

41
Q

Schedule E

A

Supplementary income or loss (RuFF - COP)

a. Rental Income
b. Royalties
- Copyrights
- Oil/Gas leases
- Patents
c. Flow-through entities

42
Q

Schedule F

A

Profit and Loss from Farming

43
Q

Form 1040X

A

Amended Return

3 Years

44
Q

Form 1116

A

Foreign Tax Credit

45
Q

Form 4562

A

Depreciation and Amortization

46
Q

Form 4797

A

Sale of L/T business property (excludes inventory or receivables - Sched C)

47
Q

Adjustments FOR(to) AGI

I-EMBRACED Education, Health, & Farm

A

a. student loan Interest
b. self-Employment tax
c. Moving expenses
d. Business expenses
e. Rental, royalty, & flow-through entities
f. Alimony paid
g. Contributions to retirement plan
h. Early withdrawal penalty
i. jury Duty
j. Education
k. HSA contributions
l. Farm income

48
Q

How much of Self Employment (SE) tax is deductible on return?

A

50% of SE tax (7.65%)

a. 6.2% Social Security
b. 1.45% Medicare

49
Q

When are business expenses considered to be ‘hobby losses’ by the IRS?

A

If there’s been no profit in the business in 3 of 5 years.

It’ll then be reported as miscellaneous expenses subject to 2% threshold.

50
Q

Passive rental Activity

A

Any business venture in which the taxpayer doesn’t materially participate

51
Q

In general, passive rental activity losses may only be offset against?

A

passive income, with any unused loss carried forward indefinitely, or until activity is disposed of.

52
Q

Rental activities in which the taxpayer materially participates, may used to offset what?

A

Ordinary income

53
Q

What happens if the dwelling unit is used as a home greater than 14 days or 10% of the number of days rented?

A

Rental income is included and deductions are limited to gross rental income

54
Q

What happens if a dwelling unit is used as a home and it is rented for LESS THAN 15 DAYS during the tax year?

A

Rental income is EXCLUDED from gross income and expenses are not deductible as rental expenses.

55
Q

Alimony is both ____ to recipient and ___ by the payer.

A

a. taxable

b. deductible

56
Q

What conditions must be satisfied to be considered alimony?

CANNOT

A 
Cash only
Apart when pmts made (don't live together)
Not child support
Not designated as property settlement
Own return for payer and payee
Terminates on death of recipient
57
Q

For purposes of eligibility for the IRA, earned income includes what?

A
  • Salaries and wages
  • Net SE Income
  • Alimony received
58
Q

Traditional IRA contributions

A

Deductible

59
Q

Roth IRA contributions

A

Not Deductible

But after 59 1/2, all withdrawals are tax exempt.

60
Q

Age Limit

a. Traditional IRA
b. Roth IRA

A

a. < 70 1/2 years old

b. No

61
Q

Income Limit

a. Traditional IRA
b. Roth IRA

A

a. No

b.

62
Q

Contributions deductible

a. Traditional IRA
b. Roth IRA

A

a. Yes

b. No

63
Q

Contribution Limit

a. Traditional IRA
b. Roth IRA

A

Both, $5,500 ($1K for anyone over 50) and limited to taxable compensation.

64
Q

Contribution deadline

a. Traditional IRA
b. Roth IRA

A

Filing deadline (i.e. April 15)

65
Q

Required minimum distributions (RMD’s)

a. Traditional IRA
b. Roth IRA

A

a. Yes, after age 70 1/2

b. No

66
Q

Withdrawals generally taxable

a. Traditional IRA
b. Roth IRA

A

a. Yes
b. No

For both, there’s a 10% penalty for distributions prior to age 59 1/2

67
Q

Itemized Deductions FROM AGI (Schedule A)

“You should ‘COMMITT’ these to memory?

A

CHARITY (50%)

OTHER MISCELLANEOUS (NO LIMIT)

MISCELLANEOUS (BIT) - deductible to the extent total exceeds 2% of AGI

MEDICAL - Paid and not reimbursed (10%)

INTEREST (NO LIMIT)

TAXES (NO LIMIT)

THEFT/CASUALTY LOSS (EXCEEDING 10% OF AGI & $100 PER EVENT)

68
Q

Charitable Contributions

A

Deductible to the extent the taxpayer has provided cash or property that exceeds any value received from the charity.

Limited to 50% of AGI. Any excess can be carried forward up to 5 years.

69
Q

Are volunteer services to charitable organizations deductible?

A

No, except for the out of pocket costs incurred in the performance of such costs.

70
Q

Other miscellaneous expenses

A
  • Gambling losses to extent of winnings

- NOT subject to 2% minimum

71
Q

Miscellaneous expenses (BIT)

“a little BIT of a lot”

A

Deductible to extent total exceeds 2% of AGI

Includes:

a. Business expenses
b. Investment costs
c. Tax Preparation Fees/legal advice relating to TAXABLE income

72
Q

Medical expenses

A

Must be paid and not reimbursed

Deductible for amounts that exceed 10% of AGI

Non-Cosmetic

73
Q

Non deductible medical expenses

A

Non-prescription drugs and medicines

Costs for general health improvement

Life insurance premiums

Cosmetic Surgery, except to cure disfiguring illnesses, injuries, or birth defects

Medicare portion of social security and SE taxes

74
Q

Investment interest expense

A

deductible to extent of net investment income

unused portion is carried forward indefinitely

75
Q

True/False

Interest paid in advance is tax deductible

A

False, it is not deductible in the period paid. Must be allocated over the tax years to which it applies

76
Q

Rules on Personal residence interest paid

A

a. periodic interest payments on mortgages up to $1M are deductible
b. interest payments on home equity loans up to $100K are deductible

77
Q

Can you deduct Fees, Fines, Federal taxes, or FICA?

A

Nope

78
Q

Theft and Casualty losses

A

Once the total for losses is determined, it is reduced by:

  • amount exceeding 10% of AGI
  • any insurance reimbursements
  • $100 PER event

*Incl. phase out provisions for rich ppl

79
Q

Remember this about a 1040 EZ

A

Means that you’re not itemizing your deductions

So you won’t need to complete a Schedule A

80
Q

Qualifying Child - “JARRS”

A

JOINT RETURN - no

AGE

  • under 19 or full time student (5 months(any age if disabled)

RESIDENCY

RELATIONSHIP

  • child, stepchild, grandchild
    must live with taxpayer for more than 1/2 year

SUPPORT TESTS

  • child cannot have provided more than 1/2 of their own support.
81
Q

Qualifying Relative/Dependent - “C - IRS-Jack you out of your money”

A

Citizen/Relative

  • Must be citizen of US, Mexico, or Canada

Income

  • Limited to exemption amount

Relationship

  • Must be related to you or live with you for the entire year
    Doesn’t include cousins
    Provide over 50% of total annual support

no joint return with Spouse

82
Q

Married Filing Jointly

A
  • Determined by status of marriage on last day of year

- Includes same sex marriages

83
Q

Married Filing Separately

A
  • Each files its own return

- 50/50 split of community/property

84
Q

Qualifying Widow (Surviving Spouse) Filing Status

A

Spouse died in prior 2 years an qualified to file a joint return at death

Same as MFJ

Not remarried as of end of year.

85
Q

Head of Household filing status qualifications

A

a. Tax payer not married at YE

AND

b. Taxpayer must maintain a home as the principal place of residence for over 50% of the year and provide more than 50% of costs of maintaining household for:
- dependent qualifying relative, parent, or qualifying child

86
Q

Child Tax Credits

A
  • Refundable Credit

- $1,000 credit for each child under 17 years

87
Q

Child & Dependent Care Credit

A
  • Non-refundable
  • Based on smallest of 3 amounts:
    1. Actual dependent care expenses
    2. Earned income
    3. $3K for one dependent/$6K for multiple dependents
88
Q

Adoption Credits

A

Credit for costs incurred in adopting children under 18.

89
Q

Savers Credit

A

Available to low to moderate income workers to enable and encourage them to make voluntary contributions to IRAs and 401(k) plans.

Up to $1,000 ($2K MFJ)

90
Q

Foreign tax credit

A

payments on foreign income taxes that are not being claimed as itemized deductions.

91
Q

Earned Income Credit (EIC)

A

If a taxpayer has some form of earned income, they may qualify for this REFUNDABLE credits

92
Q

Types of refundable credits

A

a. Child Tax Credit

b. Earned Income Credit

93
Q

Contributions to Qualified Tuition Plans (QTPs) are deductible or non-deductible?

A

Non-Deductible

94
Q

Contributions to Roth IRA are deductible

True/False

A

False - Non-Deductible

95
Q

Deductible or Non Deductible:

Education Savings Accounts (ESA) contributions

A

Non Deductible

96
Q

Deductible or Non Deductible:

Donations to qualified organizations/needy individuals?

A

Non-deductible

Roger REG - Individual Taxation (1 decks)

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