Individuals Flashcards
Generally, a taxpayer must file a return if his or her income is equal or greater than the sum of…
The personal exemption, plus the regular standard deduction, plus the additional standard deduction amount for taxpayers age 65+ or blind.
When is the payment of tax due on an extended return?
Original due date - April 15
To file a joint return, the parties must be..
Married as of 12/31, living together in a recognized common law marriage, or married and living apart (but not legally separated or divorced).
If a spouse dies during the year, a joint return may be filed.
What are the qualifications for the Surviving Spouse w/Dependent Child filing status?
Must be the two years after death of spouse.
Surviving spouse must maintain a household (Whole year) that was the principal place of abode of a son, daughter, stepson, or stepdaughter.
Who may claim Head of Household?
Taxpayer who is not married, is not a “qualifying widow(er)”, not a resident alien, and who maintains a household (>Half) that is the principal residence of son/daughter, parent (not req’d to live in same house), and dependent relatives.
If a person dies during the year what happens to their personal exemption?
He or she is entitled to either a personal or a dependency exemption for the entire year.
Dependency exemption - qualifying child requirements
CARES
Close relative Age limit Residency and filing reqmts Eliminate gross income test Support test changes
Dependency exemption - qualifying relative requirements
SUPORT
Support (>50%)
Under a specific amt of taxable income
Precludes dependent filing a joint return test
Only citizens of us/Canada/mexico
Relative test
Taxpayer lives with individual for WHOLE year test
CARES - what is a close relative?
Child must be a child of a taxpayer - son/daughter/stepson/stepdaughter/brother/sister/stepbrother/stepsister/or a descendant of any of those
Legal adoption or lawfully placed/foster child = treated as blood
CARES - what is the age limit?
Must be younger than 19, or 24 if full-time student (5 months of year)
CARES - residency and filing requirements
Child must have the same principal residence as the taxpayer for >half year
Child cannot file a joint return for the year (unless it was filed only for a refund claim)
CARES - Eliminate gross income test
Does not apply to a qualifying child. Exemption req’d
CARES - Support test changes
Support test has been modified to determine if the child did not contribute more than 1/2 of his or her own support. Reqmt is eliminated.
SUPORT - Support test
TP must have supplied >1/2 of the support of a person in order to claim him or her as a dependent.
SUPORT - Under exemption amount of (taxable) gross income
A person may not be claimed as a dependent unless the dependent’s gross income is less than the exemption amount
SUPORT - Precludes dependent filing a joint return
A TP will lose the exemption for a married dependent who files a joint return unless the joint return is filed solely for a refund of all taxes paid or withheld for the taxable year.
SUPORT - Only citizens of us/Canada/mexico
self explanatory
SUPORT - Relative
Child, grandchild, parent, grandparent, brother, sister, aunts, uncles, nieces and nephews (as well as step-children, in-laws etc.)
SUPORT - Taxpayer lives with (non-relative) individual
A nonrelative member of a household may be claimed as a dependent, provided the TP relationship with that person does not violate local law.
There is an increased Standard Deduction for..
Being 65+ and/or blind.
If property is received as compensation, what amount is included in gross income?
The FMV of the property.
How do premiums paid by an employer on a group-term life insurance policy effect gross income?
Not income to the employees up to the cost on the first $50,000 of coverage per employee. Premiums above the first $50,000 are taxable income to the recipient and are normally included in W-2
Accident, Medical, and Health Insurance premiums (employer paid)
Premium payments are excludable from the employee’s income when the employer paid the premiums, but amounts paid to the employee under the policy are includable in income unless such amounts are reimbursement or compensation.
What is included in taxable interest income?
- Federal/Industrial development/Corporate bonds
- Premiums received for opening a savings account (FMV)
- Interest paid by the fed/state govt for late payment of a tax refund
What types of interest are tax-exempt?
- State/Local govt bonds
- Series EE (only when used to pay for higher edu)
What are the parameters of the Kiddie-Tax?
Net unearned income of a dependent child under 18 is taxed at the parent’s higher tax rate.
How is the child’s net unearned income taxed?
Child’s total unearned income
Less: Allowable std deduction plus addtl $1,000
The receipt of a state/local tax refund is a subsequent year is not taxable if…
The taxes paid did not result in a tax benefit in the prior year.
GR:
Itemized in PY = taxable
Std Deduct in PY = nontaxable
What expenses are nondeductible on Schedule C?
- Salaries paid to the sole proprietor
- Federal Income Tax
- Personal portion of (auto, travel, vacation, meals/ent, interest, SALT expense, health insurance of sp)
- Bad debt expense (cash basis)
- Charitable Contributions
What are the two taxes on Sch C Business income?
- Income Tax
- Federal S/E tax
How does UNICAP apply to sole proprietors?
They must capitalize DM/DL/FOH as inventory, and SGA/R&D is expensed in the period incurred.
IRA Distribution/Penalty
Generally cannot be withdrawn until 59 1/2, 10% penalty exists when withdrawn before.
Traditional Nondeductible IRA distributions
Must be prorated between contributed and noncontributory portions.
Principal - nontaxable
Accumulated Earnings - taxable
Exception to premature IRA distributions withdrawal.
HIM DEAD
Homebuyer (1st time) Insurance (medical) Medical expenses Disability (not temporary) Education (college/tuition/books/fees) and Death
Basic formula for determining Rental Income(Loss)
\+Gross Rental Income \+Prepaid Rental Income \+Rent Cancellation Payment \+Improvement in-lieu-of Rent -Rental Expenses =Rental Income (Loss)
If security deposits are held separately & not available to be applied to last months rent…
They are a liability of the TP and are not included in income in the year received.
When are prizes and awards NOT taxable?
When the winner is selected without entering into a contest and assigns the award directly to a governmental unit or charitable org.
When are scholarships and fellowships taxable?
When they apply to room and board or when services are required
Nonqualified stock option requirements
- Not >10% shareholder
- Option price is NOT less than FMV on the date of grant
- Held at least 2 years from the date of grant and at least 1 year from the exercise date
Employee taxation of nonqualified options - readily ascertainable value
Taxable at grant, no tax on exercise (holding date begins).
If options lapse unexercised, there is a capital loss based on the value of options previously taxed.
Employee taxation of nonqualified options - without readily ascertainable value
Taxable event is the exercise date.
OI = FMV - amts paid for option
Employer taxation of nonqualified options
Deduct in same year that employee reports income
Employee qualified stock options requirements
- ISO must be granted under a plan
- Must be granted within 10 years of date adopted/approved (the earlier) and must be exercisable within 10 years of the grant date
- Exercise price may not be less than FMV of stock at grant date
- Not >10% owner
- Must be held 2 years after grant date (once exercised) and at least 1 year after exercise date
- Employee must remain employee of the corp from the date option granted until 3 months before option exercised
Employee taxation of qualified options
Generally, there is no taxation of the option as compensation. Basis = exercise price + amt paid for option
G/L on sale of option is capital in nature, unless holding period requirements are not met. Then, any gain is OI up to the amt that the stock’s FMV on the exercise date exceeded the option price
Employer taxation of qualified options
No tax deduction for an ISO because it is not compensation to the employee
Employee stock purchase plan requirements
- Plan must be written/approved by SH
- Not >5%
- Plan must include all FT employees (except >2yrs employ, highly compensated)
- Exercise price may not be less than the lesser of 85% FMV when granted or exercised
- Cannot be exercised more than 27 months after grant date
- Not >$25,000 per year
- Must be held, once exercised, at least 2 years/grant and 1 year/exercise
- Employee must remain employee of the corp from the date option granted until 3 months before option exercised
Employee taxation of ESPP
Generally, there is no taxation of the option as compensation. Basis = exercise price + amt paid for option
G/L on sale of option is capital in nature, unless holding period requirements are not met. Then, any gain is OI up to the amt that the stock’s FMV on the exercise date exceeded the option price.
If option prices is less than FMV on grant then OI is recognized as the lessor of the difference of FMV when sold and exercise price OR different between exercise price and FMV of stock on grant.
What are adjustments to AGI?
- Educator Expenses
- IRA
- Student loan interest exp
- Tuition & fee deduction
- HSA
- Moving expenses
- 1/2 SE FICA
- SE health insurance
- SE Retirement
- Interest withdrawal penalty
- Alimony paid
- Attorney fees in certain discr/whistle-blower cases
- DPAD
Deductible IRA facts
- Earnings accumulate tax free
- Withdrawals are taxable as OI
- Cannot deduct contributions when too rich AND participate in other qualified plan (401k)
Roth IRA facts
- Contributions are not deductible when made
- Earnings accumulate tax free
- Distributions are tax free (if qualified)
Nondeductible IRA facts
- Earnings will accumulate tax free
- Untaxed earnings will be taxable when withdrawn
- Principal contributions are tax free
Coverdell Education Savings Account facts
- Set up to pay the qualified education expenses of a designated beneficiary
- Contributions are nondeductible
- Earnings accumulate tax free
- Distributions (principal/interest) are tax free to the extent they are used for qualified education expense
Student loan interest deduction
Limited to $2,500
Tuition and Fees deduction
- Applies regardless of whether education is work-related.
- Limited to $4,000
HSA deduction
- Any amount paid or distributed out of an HSA that is used exclusively to pay the qualified medical expense of any account beneficiary is not includable in gross income
- Drugs must be prescription
Any amount distributed not used to pay for medical expense are includible in gross income and subject to a 10% penalty
Moving Expenses
- Fifty miles farther from old house than old workplace was
- Must work FT in new location for at least 39 weeks
- Only direct moving costs are allowable: travel and lodging/transporting household goods
- Employer reimbursements are excludable from income to extent amounts qualify as deductions
Alimony deduction
If total amount paid is less than amount due, amounts paid are first allocated towards child support (nondeductible) then to alimony.
Items that are not reduced (i.e. not phased out)
- Gambling losses
- Investment interest expense
- Medical expenses
- Casualty and theft
Deductible Medical Expenses Formula
Qualified Medical Expenses (Insurance Reimbursement) =Qualified ME "paid' (10% AGI) =Deductible Medical Expenses
Medical expenses are deductible to the extent they exceed 10% of AGI
Types of NONdeductible medical expenses
- Elective surgery
- Life insurance
- Health club membership
- Personal hygiene/expenses
Types of NONdeductible taxes
FIB
Federal
Inheritance
Business and rental property taxes
Acquisition indebtedness interest
Up to $1,000,000 of acquisition indebtedness is deductible as qualified residence interest
What is acquisition indebtedness?
Debt that is:
- incurred in buying, constructing, or substantially improving the TP’s principal and second home
- Secured by home
What is home equity indebtedness?
Debt that is secured by TP principal or second home that is not acquisition indebtedness.
Home equity indebtedness
Lesser of:
$100,000 or FMV of property - amt of outstanding acquisition indebtedness
Investment interest deduction
Limited to net investment income.
Investment income - noninterest investment expenses = net investment income
What is included as investment taxable income
- Interest and dividends
- Dividends
- Rents
- Royalties
- Net LT and ST capital gains
What is excluded as investment taxable income
Interest expense used to purchase tax-free bonds is not deductible
Charitable contributions
Cash (50%) or property (30%) given to charitable orgs
Gifts and Political contributions are not deductible
STCG prop deductible at basis
Purchase of event tickets or the like is deductible at the amount over FMV
Carryover 5 years
Casualty and Theft losses calc
Smaller loss (LostCost/AB or Decr FMV) (Insurance recovery) = TP loss ($100) =Eligible loss (10% AGI) =Deductible loss
Miscellaneous itemized deductions (2% AGI test)
- unreimbursed business expenses
- educational expenses (job retention)
- uniforms
- business gifts ($25)
- business use of home
- employment agency fees
- expense of investors
- subscriptions to prof journals
- tax prep fee
- debit card convenience fee to pay income tax
Other miscellaneous itemized deductions (no 2% AGI test)
- gambling losses
- fed estate tax paid
Child and dependent care credit
- qualifying child (under age 13)
- any disabled dependent of any age
- a spouse who is disabled
Credit for the elderly and/or permanently disabled
15% of eligible income for individuals who are:
- 65+
- Under 65 and retired due to permanent disability
Adoption credit
Includes all necessary expenses (except medical), but does not apply to adopting spouse’s child
AMT Adjustments - Individuals
PANIC TIMME
(adj) (itemized)
Passive activity losses Accelerated depr Net operating loss Installment income of dealer Contracts
Tax "deductions" Interest deductions Medical deductions Misc. deductions not allowed Exemptions
Tax Preference Items - Individuals
PPP
Private activity bond interest income
Percentage depletion
Pre-1987 acc. depr.
