Individual Taxation: Part 1 Flashcards
taxable income formula for individuals
GI (adjustments) e.g., 1/2 SE taxes \_\_\_\_\_\_\_\_\_\_\_ AGI (itemized or standard deduction) \_\_\_\_\_\_\_\_\_\_\_ taxable income before QBI deduction (QBI deduction) \_\_\_\_\_\_\_\_\_\_\_ taxable income
*from AGI deduction is known as a “below the line” deduction
qualifying child (CARES)
close relative
age: under 19 (or 24 if FT student)
residency: lived with TP for more than 1/2 year. US citizen or resident of US, Canada, or Mex
eliminate GI test
support: did not provide more than half of his/her own support. If FT student and son, daughter, step of TP, scholarship not included in calculation
qualifying relative (SUPORT)
support: same as for QC
under GI limit: 4,300 of taxable income
precludes dependent filing a joint return
only US citizens or residents of US, Canada, or Mex
relative: foster parents and cousins excluded
taxpayer lives with person (if non-relative) for WHOLE YEAR
qualifying widow(er)
2 years following year of spouse’s death
primary residence for dependent child for WHOLE YEAR
head of household
primary residence for qualifying person for more than 1/2 the year:
child (CARES must be met)
parent (not required to live with TP) pays over 1/2 cost for the WHOLE YEAR
relatives (must live with TP) cousins, foster parents, and unrelated people excluded! (SUPOR)
what is the maximum amount of taxable SS benefits?
85%
what amount of payments made by employer on behalf of an employee’s educational expenses may be excluded from GI?
5,250
applies to both undergrad and grad
what amount of premiums paid by employer for employee’s group term life insurance are excludable from GI?
50,000
what amount of employer provided parking may be excluded from an employee’s GI per month?
270 (assuming 2020 rules)
what criteria must be met for interest on Series EE Savings Bond to be tax-exempt? 5
interest used for higher education of TP, spouse, dependents
eligible expenses are reduced by tax free scholarships
TP over 24 when interest issued
bonds are acquired after 1989
interest exclusion is subject to phase out
are scholarships taxable?
not if they are used for tuition, fees, and books
what portion of an annuity is included in GI?
anything over the return of capital
annuity pays 500 per month; return of cap is 364.58
500 - 364.58 = 135.42
when is a state income tax refund taxable?
when the original deduction created a tax benefit in the prior year. If PY itemized deductions exceeded the standard by 400, then that 400 would be taxable in CY
in relation to a divorce, are property settlement payments deductible/taxable?
NO
how are gambling losses treated?
deductible to the extent of winnings, but are deducted on Schedule A (itemized deductions)
is interest on a state tax refund taxable?
YES
when would a person with a traditional IRA not be subject to 10% penalty for withdrawing before age 59 1/2?
distribution used for college tuition, books, fees, supplies
pay for medical expenses in excess of 10% of AGI
pay for first-time home purchase. within 120 days of distribution and max $10,000
person received 12 consecutive weeks of unemployment and purchases medical insurance
is disability pay taxable?
Yes, if disability insurance is paid by employer as a nontaxable fringe benefit
if a person was supposed to earn 1,000 of interest on a CD, but withdrew early and paid a 200 penalty, actually earning only 800, how is this treated for taxes?
the 1,000 is included in GI, but the 200 is an adjustment for the forfeited interest resulting in an AGI of 800
if money is withdrawn from a traditional (deductible) IRA, what portion of that money is subject to income tax?
the entire amount, it does not matter if the money is kept or put into another investment such as a Roth IRA
are the proceeds of a life insurance policy paid because of the death of the insured taxable to the beneficiary?
NO
are gifts and inheritances taxable to the recipient?
NO
when would the uniform capitalization (UNICAP) rules not apply to a retailer’s inventory?
retailer’s avg gross receipts for the preceding 3 tax years do not exceed 26,000,000 annually
how is self-employment income taxed?
subject to fed income tax and SE tax
SE tax (15.3%) = medicare (2.9%) + SS (12.4%)
12.4% tax only up to a certain threshold
in what situations is the percentage-of-completion method for LT contracts not required to be used for tax purposes?
project not expected to last more than 2 years and performed by TP with avg annual gross receipts not exceeding 10 million for the previous 3 years
services performed under a maintenance agreement
service of an engineer contracted by a builder
LT contract that includes land and less than 10% of total contract cost relates to the actual construction of property on the land
what are business losses limited to?
250,000 (unmarried)
500,000 (married)
remaining business loss can be carried forward indefinitely
what kind of income is subject to self-employment tax?
income from a sole proprietorship (schedule C) and general partnerships
is estimated self employment tax deductible on Schedule C?
NO, but 1/2 of SE tax paid is deductible as an adjustment to AGI
if a person rents his/her beach house for fewer than 15 days, what is the tax treatment?
treated as a personal residence. rental income is excluded from GI. mortgage interest and real estate taxes are itemized deductions on Schedule A (subject to limitations)
are Roth IRA contributions deductible?
NO
are business meals deductible?
YES, but only 50%
basic calculation for QBI deduction
20% x QBI
when is no QBI deduction allowed for a specified service trade or business (SSTB)?
when the SSTB is over the taxable income limitation (213,300 for single/other) (426,600 for MFJ)
what is the overall limitation to the QBI deduction?
lesser of the combined QBI or 20% of the TP’s taxable income in excess of net capital gain.
*QBI deduction is first calculated based on TP’s eligibility
regarding S corps (and partnerships), when are distributions to shareholders (partners) not taxable?
shareholders’ (partners’) basis exceeds the distribution
*distributions reduce shareholders’ basis in stock
does a partnership’s ordinary income include distributions or LT capital gains?
NO
what’s the rule with suspended passive activity losses?
can be carried forward, but not back, until utilized
what are the 3 categories of income (loss)?
Active:
salaries/wages
guaranteed payments for services
business income/loss (active participation)
other that does’t fall into passive or portfolio
Passive:
business income/loss (TP does not materially participate)
rental real estate (unless an exception applies)
income/loss from limited partnership
Portfolio: interest dividends annuities royalties capital gains/losses
T or F, only a passive activity loss (PAL) can be offset against passive activity income.
T.
however, PALs can be used to offset any income in the year the activity is disposed of
what is the mom-and-pop exception to the passive activity loss limitation?
individual TP can deduct up to 25,000 of net PAL attributable to rental real estate if TP:
activity participates
owns at least 10% of the rental real estate activity
25,000 is reduced by 50% of the excess of the TP’s AGI over 100,000. 25,000 is eliminated when AGI exceeds 150,000
are incentive stock options generally taxed as compensation?
NO, no income is recognized in the year options are granted
