Individual taxation Flashcards
statute of limitation: #1 :General #2: 25% understatement #3:bad debts,worthless securities
#1: 3 years from later of the date filed or due date of return(4/15) #2:6 years #3: 7 years
cost of life insurance in excess of $50,000 paid by employer is
taxable
- Life insurance proceeds (upon death)
- Accident, medical& health insurance
- Death Benefits
are Non Taxable
A. Return of Capital - Company distributes funds but has no E&P, reduce basis in common stock held.
B. Stock split - Allocate original basis over total shares now held.
C. Stock Dividend - (Unless Cash Option)
D. Life Insurance Dividend – Premium return
are Non Taxable
Alimony is
Non taxable!
Personal/dependent exemption is
NO MORE
BAD DEBTS & WORTHLESS SECURITIES:
A. Business
B. Nonbusiness
A. Business – Deductible against business income
B. Nonbusiness – when completely worthless it is deductible only as a short term capital loss.
Rental income = Passive income
A. Principal Residence Rental Income (14 days or less)
B. Improvements NOT in- lieu-of-rent
These are tax free
A. Principal Residence Rental Income (14 days or less)
B. Improvements NOT in- lieu-of-rent
All rental activity treated as “passive“ and net losses =
All rental activity treated as “passive“ and net losses = non deductible
Exception: (If AGI is below $100,000) (Phaseout $100,000 to $150,000)
a. Active Participant - $25,000.00 maximum
NONDEDUCTIBLE LOSSES – carry forward forever or used in year asset is sold
I. UNEMPLOYMENT II. COVENANT NOT TO COMPETE III. WINNIGS: A. Prize B. Gambling IV. JURY DUTY V. DAMAGES: - For lost profits, punitive damages VI. STATE TAX REFUND
I. UNEMPLOYMENT – Fully taxable II. COVENANT NOT TO COMPETE – All taxable as ordinary income
III. WINNIGS: A. Prize – All taxable (even Nobel) B. Gambling – All taxable income, may take a miscellaneous itemized deduction for gambling losses up to the amount of winnings.
IV. JURY DUTY: Fees paid are income, however, if these fees are turned over to employer, taxpayer is allowed to directly deduct (adjustment ) the amount on their tax return. V. DAMAGES: - For lost profits, punitive damages
VI. STATE TAX REFUND:
SCHOLARSHIPS
SCHOLARSHIPS:
A. Tax Free – Tuition for a candidate going for their degree.
B. Taxable – Tuition for noncandidate.
C. Taxable – Stipend or grant for student work.
D. Taxable – Room and board to all
I. DAMAGE AWARDS A. Workmens Compensation B. Accident & Health Proceeds C. Lawsuit Awards for Damages (Except: Punitive) D. Disability Benefits II. GIFTS III. INHERITANCE & BEQUESTS IV. DEBTS FORGIVEN
I. DAMAGE AWARDS: Tax Free – All are attempts to undo the damage and make you whole again. (Personal injury awards) A. Workmens Compensation
B. Accident & Health Proceeds C. Lawsuit Awards for Damages (Except: Punitive)
D. Disability Benefits
II. GIFTS: Tax Free III. INHERITANCE & BEQUESTS: Tax Free
IV. DEBTS FORGIVEN: Tax Free in Bankruptcy
MACRS
200% DDB
Half Year Convention
Mid Quarter Convention
5 years: car, copier, PC
& years: furniture desks
REAL PROPERTY LIFE
Mid month convention
- Residential building
- Commercial building
- Residential building – 27.5 year S/L
2. Commercial building – 39 years S/L
INTANGIBLES
Goodwill
Licenses & permits granted by government
Covenants not to compete Trademarks
15 years
NOL
No carry back any more,
carry forward forever
1/2 self employment tax
self employed health insurance
deductible
IRA
A.$5,500 per person with salary, compensation, or alimony
B. $5,500 for a non-working spouse
over 50 YO, can deduct +$1,000
NOt allowed if AGI is >$120,000
Jury duty
included in income but deductible later
Moving exp
NO MORE
EDUCATIONAL LOAN INTEREST
MEDICAL SAVINGS ACCOUNTS
deductible against Gross income = arriving at the AGI
STANDARD DEDUCTION
Joint : 24,000
Single:12,000
head of household:18,000
Itemized
medical
- insurance reimbursement
- 10% of AGI
REAL ESTATE TAXES
INCOME
PROPERTY
itemized deduction
income tax is up to total $10,000
Interest on $750,000 of debt for two houses
No MORE home equity indebt
Charity
cash:
Property(FMV):
cash:60% of AGI
Property(FMV):30% of AGI
charity carry over
5 years
Casualty loss
NO MORE for individual
corp is still allowed
social security(nenkin)
max.855 of SS to be included in gross income
NOL calculation
personal exemption
standard deduction
net capital loss
won’t be included!
interest on Home equity for adding room is
Non deductible!
kids income under 18
up to $1,050: non taxable
1,051 to 2,100:child tax rate
2,100 to:trust tax rate
profit of selling home
non taxable up to $500,00 for couple, 250,000 for single
AMT preference
private activity bond
child and dependent care credit
勤労収入のある独身ないし共働きの夫婦において、扶養家族である13才未満の子供や障害者(配偶者なども対象)などのためのディケア費の一部が認められます。
3,000 for child
6,000 for 2 and more
adoption credit
legal fee, agent fee is allowed
but not for medical exp
accuracy related penalty is for
Either
- 10% +
- 5,000 USD
estimated tax for AGI higher than 150,000USD
- 90% of current year tax basis
2. 110% of prior year tax basis (if AGI is more than 150,000USD)
business expense is
100% deductible against business income = above the AGI
The deduction for investment interest expense is now limited to the
individuals amount of net taxable investment income
if investment income is tax free, deduction is not allowed.
Disallowed interest expense has unlimited carry forward.
Jury Duty
Taxable as other income
not deductible item
Schedule
A : itemized
B : interest and dividends
C : Business income and losses
D : Capital gain/losses E : supplement income - rental activity - royalty - partnership income - S corp - trust
Deductible for arriving at AGI
- Self employed SEP
- Forfeit interest
- Keogh
- 1/2% self employment tax
- % self employed health insurance
Non-business bad debt (such as loan for friend) is
always treated as
short term capital loss
Loss from sale of Sec 1244 stock is treated as
Ordinary loss
“sale of business property”
Non-itemized deductible tax
federal tax
inheritance tax
gift tax
social security
interest income from tax free bond is
tax free!
Subscription for investment publication
NO deductible in 2019
interest expense on a home equity line of credit for personal use is non-deductible
but it’s deductible if the loan is for for business use
interest exp on 750,000 USD of debt for 2 houses
Estimated income tax paid is
itemized deductible
Disability income insurance premium
Not includable in medical deduction
registration fee for car
Non deductible
A cash basis taxpayer should report gross income
for the year in which income is either actually or constructively received whether in cash or in property
Prepayment interest
deduct the current year’s interest only and amortize the balance over next years
Nonpassive activity rule
work 500 hours a year
1040EZ is for
those who only do standard deduction
refund of state tax can be taxable only for those who did itemized deduction in last year. but interest on refund is taxable for both all
FICA tax
Federal Insurance Contribution Act
owner needs to withheld from employee’s wages. owner is not exempted.
No more itemized deduction for Employee business exp
home equity loan interest exp is no more deductible
Pension benefit exclusively paid by employer is taxable
Pension benefit exclusively paid by employee(beneficiary) is non taxable, it’s return of capital.
On W-2, state income tax is stated.
Don’t forget to put this amount to 1040 sch.A!
and deductible state/property/RE tax is up to 10,000USD.
deductible interest exp on Mortgage loan is only for
Purchase/improve home. loan for other purpose is non deductible!
Foreign charity is not deductible.
political party contribution is
not deductible!
Charity less than 250USD doesn’t require
supporting document (per donee)
An individual taxpayer reports the following items for the current year:
Ordinary income from partnership A, operating a movie theater in
which the taxpayer materially participates $70,000
Net loss from partnership B, operating an equipment rental business
In which the taxpayer does not materially participate (9,000)
Rental income from building rented to a third party 7,000
Short-term capital gain from sale of stock 4,000
What is the taxpayer’s adjusted gross income for the year?
70,000+4,000=74,000
passive activities inc.Rental activity :(9,000)+7,000=(2,000)
Remember, you cannot deduct passive activity loss!
actively-participated rental activity is the only exception passive loss can be taken(up to 25,000)
For taking gambling loss, you must use itemized deduction
standard deduction cannot take particular gambling loss.
Earned income credit will be granted to those who have AGI with 5,000+
but the EIC will be reduced for excess portion of 5,000USD
IRA deduction would be limited if you are covered by
employer’s retirement plan
If neither spouse was covered by employer-sponsored pension plan, then IRA contribution is deductible
FUTA
Federal Unemployment Tax Act
corporation will pay, no withhold from employee is needed
Child tax credit under 17YO (16YO is OK)
2,000USD per child
If you are a nonresident alien, you cannot claim the
standard deduction
Above the line deduction
- IRA
- Student loan interest
- Moving expense is no more, except for military person
Estimated income tax for those AGI was lower than 150,000USD
either lower of
- 90% of this year’s TL
- 100% of current year’s TL
A claim for refund must be filed?
3 years from the date of original return or 2 years after paying the tax, which is later
Under a divorce settlement, Joan transferred her 50% ownership of their personal residence to Jim. The joint basis of the residence was $200,000. At the time of the transfer, the property’s fair market value was $300,000. What was Joan’s recognized gain and Jim’s basis for the residence?
NO gain, Basis is 200,000
no gain recognition in divorce settlement which covers lump-sum payment or property settlement.
Divorce settlement is nontaxable to the recipient and nondeductible to the giver.
Casualty loss incurred in a federally declared disaster
itemized deduction
subject to the $100-per-casualty and 10%-of-AGI limitations
Jury Duty pay > need to include in AGI
Jury duty remitted > deductible above the line!!
qualified educator can deduct up to
250 USD for unreimbursed business expenses, school supplies, course fee etc
nonbusiness bad debts
deductible if it’s completely worthless
AMT adjustment - not so many
standard deduction:not allowed
SALT:not allowed
All property taxes
excess depreciation
charitable contribution below 250USD
no need of substantiate for deduction 証明書が無くてもdeductできる！
the Tax Cuts and Jobs Act of 2017 suspends the deduction for interest paid on home equity loans from 2018 through 2025
unless they are used to “buy, build, or substantially improve the taxpayer’s home that secures the loan.”
Under the new law…interest on a home equity loan used to build an addition to an existing home is typically deductible, while interest on the same loan used to pay personal living expenses, such as credit card debts, is not..
As under prior law, the loan must be secured by the taxpayer’s main home or second home (known as a qualified residence), not exceed the cost of the home and meet other requirements.
Under the new tax code, nurses can no longer write off their scrubs. Salespeople can’t deduct their travel expenses. Professors can’t subtract research costs.
Previously, employees could potentially write off work-related expenses that added up to more than 2 percent of their gross income, and for which an employer didn’t reimburse them.
Sec 179 1,000,000 USD spending cap:2,500,000USD
For new and used equiopment, off the shelf software
