Individual Taxation Flashcards
1
Q
Form 1040 Order
A
Gross Income \+- Adjustments = AGI (Deductions) (Net Exemptions) = Taxable Income x Tax Rate =Tax Liability (Credits) \+ SE Tax \+ AMT (Withholdings) (Prepayments) = Tax Due
2
Q
Adjustments For AGI
A
I-EMBRACED Interest on student loans ($2,500 max) Employment Tax - 50%, Medical Premiums 100% Moving Expenses - military only Business Expenses (Sched C) Rent/Royalty & Flow-Through Entities (Sched E) Alimony (grandfathered in for divorces finalized before 2019) Contributions to Retirement (KEOGH/IRA) Early Withdrawal Penalty Jury Duty Pay HSA contributions Farm Income (Sched F)
3
Q
Itemized Deductions (Sched A)
A
COMMITT Charitable contributions Other Misc. (Gambling losses) Medical expenses Interest Taxes Theft or Casualty
4
Q
When must an individual file a tax return?
A
- If their income is greater than the standard deduction
- Have net self employment earnings of $400 or more
- Are claimed as a dependent on another taxpayers return and have gross income greater than the dependents standard deduction (Either $1,100 or earned income + $350)
- Are receiving advanced payments of the EIC or the PTC
- Are subject to Kiddie Tax
5
Q
Kiddie Tax Thresholds
A
- Unearned income up to dependent’s standard deduction ($1,100) = Not taxed
- Unearned income above standard deduction up to $2,200 threshold ($1,100-$2,200) = Child’s regular rate
- Unearned income above $2,200 = Parent’s tax rate
6
Q
Scholarships are taxable unless..
A
- Not compensation for services, and
- Money spent for tuition, books, or class supplies for degree-seeking student
7
Q
Dividends are taxable when received unless..
A
- Life insurance dividend - return of premium (but interest on the dividend is taxable
- Received from a S corp
- Stock dividends or stock splits on common stock (stock dividends from preferred stock are taxable at FMV) (Cash and property dividends from common stock are taxable)
- Liquidating dividend (return of capital)
8
Q
Qualifying Dividend Tax Rates
A
- 0% if income < $39,375 for individuals, < $78,750 for MFJ and SS, and < $52,750 for HH
- 15% if income greater than thresholds listed above and < $434,550 for individuals, < $488,450 for MFJ/SS, and $461,700 for HH
9
Q
Non Qualified Stock Options
A
Taxes when exercised, excess of FMV over exercise price treated as compensation
10
Q
Qualified Stock Options (ISOs)
A
Taxed when stock is sold, difference between sales price and exercise price treated as capital gain or loss
(For AMT purposes, ISOs are taxed when exercised)
11
Q
Injury Awards
A
- Nonphysical = taxable (discrimination, punitive damages, lost business profits)
- Bodily Injury = tax free (pain and suffering for physical injury, workers comp, reimbursement of medical expenses paid and not itemized on schedule A)
12
Q
Prizes and Awards
A
Taxable at FMV unless all conditions are satisfied:
- No services required of recipient
- Selected without any action on recipients part
- Payment assigned by recipient to governmental unit or charitable org
13
Q
Social Security Benefits
A
- 0 - 85% of benefits may be taxable
- In general, a person collecting social security who has less than $25,000 of provisional income can exclude all social security benefits, while those with provisional income >$60,000 usually are subject to the maximum 85% inclusion
14
Q
Non-Taxable Debt Forgiveness
A
- Gifts, bequests, inheritances
- Cancellation of qualified student loans
- Debt that, upon payment, would provide a tax deduction to the taxpayer
- Debt that is cancelled in a title 11 bankruptcy case
- Debt that is cancelled when the debtor is insolvent (debt>debtors assets)
- Qualified farm indebtedness
- Qualified real property business indebtedness
15
Q
Pensions and Annuities
A
- Amount considered return of capital = not taxable
- All employer funded = all benefits are taxable
- Cost of annuity/Expected total annuity payments = % of each payment that is excluded from taxes
16
Q
Foreign Earned Income Exclusion
A
- Can exclude up to $105,900 of income earned in a foreign country
- Bona Fide residence test -US citizen who is a foreign resident for an uninterrupted period that includes an entire taxable year
- Physical Presence Test - US citizen or resident present in a foreign country for at least 330 full days in any 12 month period
17
Q
Tax Refunds
A
- Federal refund not taxable, federal interest = taxable
- State interest taxable, state refund taxable if itemized in PY
18
Q
Inheritances, Gifts, Life Insurance Proceeds
A
Not taxable to recipient, income received from sale is taxable
19
Q
Capital Assets
A
- Long-term capital gains - Same taxable rates & thresholds as qualifying dividends
- Short-term capital gains are taxed at ordinary tax rates
- Net capital loss up to $3,000 is allowable against an individuals ordinary income (can be carried forward indefinitely)
- Personal assets - gains on sale are taxed except for gain on personal residence up to $250,000 (losses not deductible)
20
Q
NOLs
A
- Carried forward indefinitely
- Deduction limited to 80% of taxable income each year
- Calculation - all taxable income & deductions except for:
- Capital losses in excess of capital gains
- Nonbusiness deductions (standard deduction) in excess of nonbusiness income
- NOL carryforwards
- The section 199A qualified business income deduction
- Personal exemption
21
Q
Tax Schedules
A
- A = Itemized Deductions
- B = Interest and dividend income
- C = profit and loss from a business (employer expenses/ 1099 income)
- D = Capital gains and losses (ST and LT investments)
- E = supplementary income or loss (RRF-COP)
- Rental
- Royalty
- —Copyrights
- —Oil/gas leases
- —Patents
- -Flow-through entities (schedule k-1 income: S corps, partnerships, estates & trusts)
- F = Profit and loss from farming
