Individual Taxation Flashcards
TAX FILER
Someone required to file a tax return because (Irate Napoleon Choked Roger Stone:
- I: Income is higher than their standard deduction
- N: Net self-employment earnings of at least $400
- C: Claimed as a dependent and has gross income over the standard deduction for a dependent
- R: Receiving advanced Earned Income Credit (EIC) or Premium Tax Credit (PTC) payments
- S: Subject to the Kiddie Tax.
Unearned Income Medicare Contribution Tax (Surtax on Unearned Income)
A 3.8% surtax charged on the lower of the net investment income or modified adjusted gross income (MAGI) in excess of:
- $200,000 for most taxpayers
- $250,000 for married couples filing joint returns
- $125,000 for married filing separate.
Constructive Receipt
Term used to describe the date on which a cash basis taxpayer has income made available for use, which is the date on which it is considered received for tax purposes.
“FOR” AGI Adjustments
(I EMBRACED Health & Farmers)
Adjustments added to or subtracted from gross income in computing AGI, including deductions for:
Interest on student Loans
50% self-Employment tax
Moving expenses (military only), Business expenses (Sch. C)
Rent/royalty & Flow-through entities (Sch. E)(S corps, P/S, Trusts)
Alimony (pre-2019 divorces/separations)
Contributions to Retirement (IRA/Keogh)
Early withdrawal penalty
jury Duty pay
Health savings accounts (HSA)
Farm income (Sch. F).
Standard Deduction
- An amount a taxpayer may deduct from AGI in computing taxable income when deductions for certain personal expenses are not itemized
- the amount depends on the taxpayer’s filing status.
Itemized Deductions
Expenses incurred by a taxpayer that may be deducted “FROM AGI” on Schedule A, instead of the standard deduction when computing taxable income.
The deductions include (COmMITT):
Charitable contributions
Other miscellaneous (e.g., gambling losses)
Medical & dental expenses (10%)
Interest
Taxes paid
Theft or casualty loss (from federally declared disasters or to the extent of personal casualty gains).
Qualifying Widow(er) with Dependent Children Filing Status
To qualify, taxpayer must meet the following criteria:
- Spouse died in prior 2 years and taxpayer qualified to file a joint return in year of death.
- Taxpayer provided over 50% of cost of maintaining principal residence of dependent child.
- Taxpayer must not be remarried as of end of year.
Head of household (HOH) Filing Status
To qualify, taxpayer must:
- Be unmarried, and
- Maintain a home as the principal place of residence for over 50% of the year and provide more than 50% of costs of maintaining a household for a dependent:
- “Qualifying Child”
- “Qualifying Relative,” including uncles/aunts, nephews/nieces, adult siblings or children, or certain step-relatives and in-laws. Dependent relatives further removed and unrelated persons do NOT qualify a taxpayer for HOH.
- Exception: Dependent parents need not live with the taxpayer.
Qualifying Child
- No Joint Return w/ spouse, unless filing only to get a refund.
-
Age – Unless disabled, child must be:
- Under age 19, or 24 if a full-time student for at least 5 months of the year, and
- Younger than the taxpayer or spouse.
- Relationship – Taxpayer’s child, stepchild, foster child, sibling, step sibling, half sibling, or a descendant of any such individual.
- Residency – Child must live with the taxpayer more than half the year in the U.S.
- Support – Child must NOT have provided more than 50% of their own support, not including scholarships.
Qualifying Relative
A dependent Relative of the taxpayer, or someone who lived with the taxpayer for the entire year, provided certain qualifications are met:
- Not a qualifying child of another taxpayer.
- Citizen of U.S., or resident of the U.S., Canada, or Mexico.
- Income for the year less than $4,200 for 2019.
- The taxpayer provided more than half of the cost of Support.
- Joint return not being filed.
Nonrefundable Tax Credits
Tax credits that may be used to reduce taxes and, when in excess of the tax liability, may be carried back or forward, depending on the provisions of the credit, but may not reduce the tax liability below zero. Examples include:
- Dependent Care Credit
- Lifetime Learning credit
- Credit for Elderly or Disabled
- Family Tax Credit
- Foreign Tax Credit
- Retirement Savings Credit
- Adoption Credit
Refundable Tax Credits
Tax credits that may be used to reduce taxes and, when in excess of the tax liability, may reduce the tax liability below zero, resulting in a refund to the taxpayer. Examples include:
- Earned Income Credit (EIC)
- Additional Child Tax Credit
- American Opportunity Credit (40%)
Underpayment Penalty for Individuals
A penalty imposed on individual taxpayers who do not prepay a sufficient portion of their tax liability (through estimated payments or withholding) during the year, which results in a tax balance due of $1,000 or more. The penalty does not apply, however, if the taxpayer has paid in the lower of:
- 100% of the prior year’s liability (110% for certain high-income individuals), or
- 90% of the current year’s liability.
Alternative Minimum Tax (AMT) for Individuals
Taxes an individual taxpayer may be required to pay, in addition to the regular income tax, when taxable income includes certain items that qualify for preferential tax treatment, or when it has been reduced by certain deductions.
It is the excess of the tentative minimum tax over the regular income tax.
Alternative Minimum Tax (AMT) Calculation for Individuals
AMT - Individuals
Regular taxable income
+/− Adjustments & Preferences (PLIERS)
= AMTI before exemption
− Exemption
AMTI
× Tax rate (26%/28%)
= Tentative minimum tax
− Regular tax
= AMT
