Individual_Taxation Flashcards

Question

_How_ are **charitable contributions of LTCG property** and property related to a charity's function **deducted**?

Answer 1

Deducted at **fair market value** (FMV), **up to 30% of AGI** **Note:**** • **property is given to a qualified charity • complete gift **Does not include** : • value of service performed • value of the service or goods received in return of contribution

Answer 2

**Deduction** is taken at **LOWER** of _adjusted basis_ in the property or _FMV at date of contribution_, **up to 50% of AGI (cash 50% limit too)** **Note**: property is given to a qualified charity **Does not include** : value of service performed , value of the service or goods received in return of contribution

Answer 3

**_No_** **It decreases** the fair market value - **FMV** **of the property**.

Answer 4

1) GROSS LOSS = the Lower of • Decrease in FMV or • Basis in property The loss is measured by the drop in FMV caused by the **_sudden event_** but is limited to the tax basis of the asset 2) Deductible casualty loss = GROSS LOSS - Insurance proceeds received - $100 - 10% of AGI

Answer 5

**BIT: deductible in excess of 2% of AGI** * **Business expenses** **for an employee** (job travel, hotel, 50% business Meals and entertainment Union dues, Uniform specialized, Job education, outside saleman expenses) * **Investment expenses** (safety deposit box, investment advisory fees) * **Tax preparation and attorney fees** (Legal fees to collect alimony, Appraisal fees to value casualty loss of charitable contributions)

Answer 6

1. • **Gambling losses** to the extent of winning included in AGI 2. • **Investment Interest Expense** to the extent of net investment income Schedule B 3. • **Estate taxes on income in respect of the decedent** 4. • **State tax** 5. • **Interest paid - mortgage/investment interest**

Answer 7

* **Citizenship** - must be US citizen, or resident of US, Canada, Mexico * **Age **- under age 19, or under age 24 if a full-time student * **Relationship _&_ Household member for the entire year **-TP child, stepchild, sibling, grandchild, eligible foster child * **Support** - child must NOT provide \> 1/2 of his own support ♦ _Support includes_ food, FMV of lodging, medical, recreational, educational, and certain capital expenditures made on behalf of a dependent. _Excluded from support_ is life insurance premiums, funeral expenses, nontaxable scholarships, and income and social security taxes paid from a dependent’s own income * **No Joint return with spouse** UNLESS to get a total refund * Cannot be claimed as dependent on more than one return **C -I (age)RS J**ack you

Answer 8

* *• Citizenship** - must be US citizen, or resident of US, Canada, Mexico * *• Income** – less than personal exemption of $3,900 – does not tax exempt income (i.e nontaxable social security) * *• Relationship _OR_ Household member for the entire year** – lineal descendant (not cousin) – temporary absence OK (vacation, school, sickness, retirement home) * *• Support** - TP must provide \> 1/2 of the dependent's support (10% multilple support) * *• No Joint return with spouse** UNLESS to get a total refund * *• Cannot be** _claimed as dependent on more than one return_ • **Cannot** be _a qualifying child_ • _MFS - TP can claim an exemption_ for spouse _if spouse no income_ **and** _not a dependent of another person_ • _TP wife is never a dependent of TP_ **C -IRS J**ack you

Answer 9

The Kiddie tax was established to prevent the “wealthy” from avoiding taxes on their investment income by transferring the investments into the names of their children who might not be subject to tax or, if so, would be taxed at a potentially significantly lower rate. **The Kiddie tax applies to children meeting three conditions:** * Either parent is alive as of the end of the taxable year * The child does not file a joint tax return for the year * The child is of the appropriate age, either: * Under 18 years old as of the end of the tax year; or * Is a student between the ages of 18 and 24 with earned income that does not exceed 50% of the child’s support **An individual subject to the Kiddie tax will be subject to a tax liability for the larger of 2 amounts**: 1) The tax that would be owed based on filing a return including the child’s earned and unearned income. 2) The total of the tax that would be owed based on filing a return including only the child’s earned income plus the allocable parental tax.

Answer 10

**Yes,** if they each own a small business. All non-business income is cash basis.

Answer 11

* **15.3% of net earnings from self-employment** (Note: executor of an estate is NOT self-employement) * **50% of self-employment tax is deductible on the return** 7.65% * **A self-employed individual can deduct 100% of the premiums for medical insurance for** the individual, spouse, dependents, and any child of the taxpayer under the age of 27 at the close of the tax year in arriving at AGI

Answer 12

* **Refundable tax credit**: is a tax credit which takes the taxpayer's tax owed on the return below zero, resulting in a refund to the taxpayer. ► Earned Income Credit (EIC), ►American Opportunity Credit, and ►the Additional Child Tax credit **Note:** the REGULAR child tax credit is NOT refundable. ►The child tax credit is now a refundable credit for taxpayers with one or more qualifying children when the taxpayer is not able to claim the full child tax credit for each child (because tax liability is less than the available credit).

Answer 13

* **American Opportunity Credit (****Hope)**- per student * **Lifetime Learning Credit** - per taxpayer **Note:** The American Opportunity Credit is refundable.

Answer 14

TP is only subject to an underpayment penalty **if balance due on the tax return is \>$1,000** **The lesser of**: * **90%** of **current year's total tax** OR * **100% of prior year's total tax ** _110%_ of prior year's total tax _if AGI is $150,000 or more_

Answer 15

**Deductible**: Costs incurred to PRESERVE soil/water **Non-deductible**: Costs incurred to drain wetlands or prep for irrigation (i.e. improve land)

Answer 16

* **3 years**, generally * **6 years** if _**25%** or more of **gross income** was **omitted**_** (Note:** _gross income_ based on gross receipts before any deductions) Tthe clock starts on the _LATER **of**_ **the due date or the filing date of the return** * NO STATUTE OF LIMITATIONS for either **fraud or failure to file**

Answer 17

It is treated as a **STCL, if totaly worthless**

Answer 18

Refunds must be claimed **LATER OF ** * within **3 years** of the return **due date** or * within **2 years** of **tax being paid**

Answer 19

**Premiums paid by an employer** **for coverage** **in excess of $50,000 per employee** are includable in income.

Answer 20

* When they are _n**ot in return for services rendered**_, **AND** * the money is _u**sed \*only\* for **_**_ tuition_** and course-related fees, **_books_**, supplies, and equipment **_Note_: **• Scholarships for room and board are includable in income. • Only a candidate for degree can exclude the scholarship

Answer 21

* **0% tax rate** if in the 10% or 15% tax bracket * **15% tax rate** if in the 25%, 28%, 33%, 35% tax bracket * **20% tax rate** if in the 39.6% tax bracket (“high income”taxpayer with AGI over $450,000 (MFJ), $400,000 (Single) * same as LTCG

Answer 22

**Not taxable dividends** * Dividends received _from S Corporation_ * Dividends received _on life insurance policies_ * Dividends received f_rom mutual funds investing in tax-exempt bonds _ * Liquidation dividend, dividend for common stock or splits

Answer 23

**Up to 85%**

Answer 24

**Payments made _to make you whole_ are NOT taxable** (i.e. to pay for losses of property, body parts or earning ability) **Any payments for _punitive_ damages ARE taxable**.

Answer 25

**No** - similar to an award for damage _to make a person whole_.

Answer 26

* **Alimony IS taxable** _Must be_: present in the divorce agreement, made in Cash or equivalent, living Apart, Terminate at the recipient's death, Not designated as other than alimony - child suport or property settlement , file Own return - CANNOT * **Child support** and **Divorce property settlemetns** are **NOT taxable** **Note:** payment is first allocated to child support then alimony

Answer 27

**NO**, they are **not deductible**. **However tax** benefits are available through the **adoption CREDIT**. _Adoption credit_ → ♦ child \<18yr , ♦ expenses incurred or paid in tax year prior to the year of which the adoption is finalized, ♦ phase out, ♦The credit for adoption expenses is a nonrefundable credit of up to $12,970 (for 2013)

Answer 28

**2nd Year RECAPTIURE =** when the alimony paid in the second year exceeds the third year alimony by more than $15,000 **1st Year ****RECAPTIURE =** occurs to the extent that the alimony paid in the first year exceeds the average alimony paid in the second year (reduced by the recapture for that year) and third year by more than $15,000 **Total Recapture** = 1st Year Recapture + 2nd Year Recapture * EXAMPLE: If a payor makes alimony payments of $50,000 in 2010 and no payments in 2011 or 2012, $50,000 – $15,000 = $35,000 will be recaptured in 2012 (assuming none of the exceptions apply). * * EXAMPLE: If a payor makes alimony payments of $50,000 in 2010, $20,000 in 2011, and nothing in 2012, the recapture amount for 2011 is $20,000 – $15,000 = $5,000. The recapture amount for 2010 is $50,000 – ($15,000 + $7,500) = $27,500. The $7,500 is the average payments for 2011 and 2012 after reducing the $20,000 2011 payment by the $5,000 of recapture for 2011. The recapture amounts for 2010 and 2011 total $32,500 and are reported in 2012.*

Answer 29

* Can be **carried back 2 years** If any left, can be **carried forward 20 years** * NOL is generally **a business loss BUT could also result from personal casualty loss - **3 yr carried back if the NOL relates to casualty of theft for farm, indv, small business * same carry back rule for corporation * NOL is NOT from : standard deduction, personal exemption, interest, dividend, CG or CL

Answer 30

**Traditional IRA = deductible ** ♦ 5,500 max deduction per indv (additioanal $1,000 if 50 yr or \>) ♦ not participate in a qualified pension or profit-sharing plan at work **Roth IRA = not deductible** _but qualified_ distribution of _earnings are taxed free_ if TP is at least 59 yr **Note:♦** contribution must be made by 04/15♦ conversion from IRA to Roth IRA does not have a AGI limit The contribution limit per individual applies to the total contributed to both varieties of IRA. The contribution limit for Roth IRAs does not apply to taxpayers with income below $110,000 ($178,000 for MFJ) and cannot be used by taxpayers with more than $127,000(2013) of AGI (or married couples filing a joint return with more than $188,000 (for 2013) of AGI. Traditional IRAs can be used by all taxpayers regardless of AGI.

Answer 31

* They must be **married at the end of the year** * If one spouse died during the year, they must be married **at the date of death** * can file MFJ or MFS * It doesn’t matter if they lived apart during the year. * Taxpayers are considered **unmarried for the whole year if,** on the last day of the year, they are divorced or are legally separated under a divorce or legal separate maintenance decree.

Answer 32

* Unmarried person * Must **provide** * **\> 50% of the cost of maintaining the household** * **_to_** a **qualifying child or relative living in the same house for more than 1/2 of the year** * TP's parents must be dependent but no need to live with him

Answer 33

* Must provide** \> 50% of the cost of maintaining the household** for **a dependent child** * **MFJ** return **was file at year of spouse death** * **Available 2 year after death of spouse** * Unmarried person **Cost of maintaining a household ** _includes_ rent, mortgage interest, taxes, insurances on the home, repairs, utilities, food eaten in the home

Answer 34

**LATER OF** * 3 year after original tax return due (including extension) OR * 2 year after actual payment

Answer 35

By April 15 but you _can file_ a _6 month extension_

Answer 36

1. Gross income \> personal exemption + standard deduction, 2. Net earnings for Self-employment **≥** $400, 3. Gross income \> personal exemption _if MFS_ 4. Are individuals claimed as dependents on another taxpayer’s return, have any unearned income and gross income of ≥ $1,000 5. Are anyone receiving advanced payments of the Earned Income credit (EIC) 6. Are subject to the Kiddie Tax

Answer 37

**_Gross Included_** • wages, salaries, tips • Bonus & commission • fees for jury duty • Discount on purchases of employer merchandise to the extend in excess of the gross profit percentage • Taxable fringe benefits - e.g. use of the company vehicle for personal use **_Excluded_** • Health insurance paid by employer • Cost of Group Term Life up to $50,000 coverage • Employer provided educational assistance limited at $5,250 • Fringe benefits incurred for employer benefit

Answer 38

Generally taxable **Excluded from income if** **• an employee achievement award** of tangible personal property received from employer for year of employment or safety achievement • **recipient (of prize/award for religious**, charitable, scientific …) **1.** was selected without any action on his part, **2.** not required to render future services and **3.** designates that the prize/award is to be transferred by the payor to a governmental unit or tax exempt charitable organization

Answer 39

* Interest on a **state or municipal bond** * Interest earned **on a qualified higher education bond** * Interest on a **Series EE U.S. savings bond** is not reported as income until the time that the bond is redeemed * **All over type of interest income are taxable** e.g. US Treasuries obligation, Federal bonds,

Answer 40

1. **Rents & royalties** including _rent collected in advance & nonrefundable deposit_ 2. Discount on nonqualified stock option upon exercise 3. **Injury awards for punitive damages** or lost profit (_not physical_) 4. 85% of SS benefit if Modified AGI \>$60,000 (rich) 5. State tax refund _IF_ ITEMIZED IN PY 6. Proceeds from a traditional IRA of the contributions previously deducted 7. Proceeds from a traditional IRA representing earnings of IRA 8. **Alimony received** _in cash_ provided the payments will terminates upon recipient’s death 9. **Unemployment compensation**

Answer 41

**UNICAP rules generally require that all costs incurred** (direct & indirect) **in manufacturing or constructing real or personal property, or in purchasing or holding property for sale MUST be CAPITALIZED as part of the cost of the property**. Among the costs that are **EXCEPTED from the UNICAP** rules are ♦ research and experimental expenditures, ♦ mine development and exploration costs, ♦ and the costs incurred by a freelance writer, ♦ photographer, ♦ or artist whose personal efforts create the product. ♦ the costs of small retailers and wholesalers who acquire personal property for resale if the retailer’s or wholesaler’s average gross receipts for the preceding three tax years do not exceed $10 million

Answer 42

1. **Damages received for physical injury** or lost wages (blood) 2. **Workers’ compensation benefits** 3. **SS benefit** received by _low income_ TP Modified AGI 4. **State tax refund** _IF_ claimed STANDARD deduction in PY 5. Portion of traditional IRA or pension withdrawal of prior nondeductible contributions 6. Qualified Roth IRA withdrawals 7. **Federal tax refunds** 8. **Gifts & inheritances received** 9. **Life insurance proceeds** paid by _raison of death_ EXCEPTION_ _If proceeds are received in installments, amounts received in excess of pro rata part of face amount are taxable as interest 10. **Divorce property settlements** 11. **Child support payments**

Answer 43

Moving expense are **deductible if** • New work must be at least _50 miles_ further form old home, each way • Must _remain employed for at least 39 week_ (9 months) after the move • Move _due to change in location of job_ or business (or start of job) ## Footnote **Amounts deductible include** _direct cost of moving_ family and belongings (shipping & temporary storage, cost of travel including lodging, cost moving pets, insurrance cost of household good during move) _NOT_ meals, house hunting or temporary living cost

Answer 44

**COMMITT** * *C**haritable Contribution (credit card payment OK but not promissory note) * *O**ther Miscellaneous (not subject to 2%AGI limitation) * *M**iscellaneous Expense (BIT) * *M**edical Expenses * *I**nterest Paid * *T**axes Paid (includ deficiency tax paid, real estate tax must be apportioned if property sold) **T**heft and Casualty losses

Answer 45

* **State and local taxes** * **Real property taxes** * **Personal property taxes- are deductible if ad valorem** (i.e., assessed in relation to the value of property). A motor vehicle tax based on horsepower, weight, or model year is not deductible. * **Foreign taxes paid** * **NOT deductible: ** inheritance tax, federal tax, fines, license & vehicle registration fee not based on FMV

Answer 46

* The max contribution allowed and deduction to a Keogh plan **is the LESSER of** $50,000 _OR_ 100% of earned income * **Earned income =** net earnings from self-employment reduced by 1/2 of the self-employment tax and deductible Keogh contribution itself * **Note:** this works out to 20% of the self-employment income before Keogh deduction

Answer 47

♦ **Blind** **_AND OR_** **♦ Older** more than 65

Answer 48

**AMIT** **_Adjustment_** **SIMPLE** (can increase or decrease) • **S**tandard deduction **• I**nterest on home equity loan _NOT_ used to buy, build, improve TP home **• M**edical expense 10% of AGI **• P**ersonal and dependency exemptions **• L**ocal and state tax deduction (state, local, and foreign income taxes, real and personal property taxes) **• E**mployee and investment expenses subject to 2% AGI limitation **AMIT _Preference_ PIE • P**rivate activity bond (not at preference in 2009 and 2010) • **I**ncentive stock options ISO • **E**xcess depreciation

Answer 49

** For 2013** • MFJ $80,800 • Single and HoH $51,900 • MFS $40,400 **AMTI** is reduced by exemption amount **AMT** = tentative AMT \> regular tax **Tentative min tax rate** = 26% up to $175,000; 28% if more

Answer 50

1. Dependent care credit 2. Credit for the aged & disabled 3. Earned income credit 4. Child tax credit → ♦ $1,000/child, ♦ \<17yr, phase out 5. American Opportunity/Hope credit 6. Lifetime learning credit 7. Foreign tax credit → foreign tax paid by a corporation can be deducted either as a credit or as a deduction at the option of the corporation

Answer 51

**Dependent care credit** * Child \<13yr, disable no age limit, * Dependent care expense limited to the _lesser of_ * actual expense OR * max credit amount $3,000 per 1 dependent, $6,000 for 2 or more dependent * ⇒ reduced by 35 % if AGI \<$15,000 reduce to 1% per point each to $2,000 but not below 20% * At least one spouse must me gainfully employed or be looking for work when the related expense occurred

Answer 52

Credit for the aged & disabled * Low income indv over 65 or permanently disabled * The amount of credit is = 15% x ( initial amount reduced by amount excluded from AGI and 50% of AGI in excess of $10,000 if MFJ)

Answer 53

* **_2 cdt_:** TP as earned income & provides support for a dependent child or grandchild 19 or 24 student who live with TP for more than 1/2 year * Refundable * Not available to MFS

Answer 54

* For 1st 4 year of college, * Max $2,500 per student, * Student must be enrolled on at least part-time basis, * Cover tuition paid for by TP, spouse, * If parent claim the child, only parent can

Answer 55

* Claimed for tuition and fees not eligible for Hope credit, * Credit equals 20% of the $10,000 of tuition and fees, * Max credit $2,000 **per family ** * Claimed unlimited number of years

Answer 56

**Excluded portion** of each payment is **= (Net cost of annuity /Expected total annuity payments) X Payment received** “**Expected total annuity payments**” = annual return X number of years receivable if it is an annuity for a definite period or life expectancy Once this exclusion ratio is determined, it remains constant until the cost of the annuity is completely recovered. Any additional payments will be fully taxable *EXAMPLE: Mr. Jones purchased an annuity contract for $3,600 that will pay him $1,500 per year beginning in 2012. His expected return under the contract is $10,800. Mr. Jones’ exclusion ratio is $3,600 ÷ $10,800 = 1/3. For 2012, Mr. Jones will exclude $1,500 x 1/3 = $500; and will include the remaining $1,000 in gross income.*