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Individuals Flashcards

1
Q

Generally, a taxpayer must file a return if his or her income is equal or greater than the sum of…

A

The personal exemption, plus the regular standard deduction, plus the additional standard deduction amount for taxpayers age 65+ or blind.

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2
Q

When is the payment of tax due on an extended return?

A

Original due date - April 15

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3
Q

To file a joint return, the parties must be..

A

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.

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4
Q

What are the qualifications for the Surviving Spouse w/Dependent Child filing status?

A

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.

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5
Q

Who may claim Head of Household?

A

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.

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6
Q

If a person dies during the year what happens to their personal exemption?

A

He or she is entitled to either a personal or a dependency exemption for the entire year.

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7
Q

Dependency exemption - qualifying child requirements

A

CARES

Close relative
Age limit
Residency and filing reqmts
Eliminate gross income test
Support test changes
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8
Q

Dependency exemption - qualifying relative requirements

A

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

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9
Q

CARES - what is a close relative?

A

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

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10
Q

CARES - what is the age limit?

A

Must be younger than 19, or 24 if full-time student (5 months of year)

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11
Q

CARES - residency and filing requirements

A

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)

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12
Q

CARES - Eliminate gross income test

A

Does not apply to a qualifying child. Exemption req’d

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13
Q

CARES - Support test changes

A

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.

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14
Q

SUPORT - Support test

A

TP must have supplied >1/2 of the support of a person in order to claim him or her as a dependent.

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15
Q

SUPORT - Under exemption amount of (taxable) gross income

A

A person may not be claimed as a dependent unless the dependent’s gross income is less than the exemption amount

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16
Q

SUPORT - Precludes dependent filing a joint return

A

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.

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17
Q

SUPORT - Only citizens of us/Canada/mexico

A

self explanatory

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18
Q

SUPORT - Relative

A

Child, grandchild, parent, grandparent, brother, sister, aunts, uncles, nieces and nephews (as well as step-children, in-laws etc.)

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19
Q

SUPORT - Taxpayer lives with (non-relative) individual

A

A nonrelative member of a household may be claimed as a dependent, provided the TP relationship with that person does not violate local law.

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20
Q

There is an increased Standard Deduction for..

A

Being 65+ and/or blind.

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21
Q

If property is received as compensation, what amount is included in gross income?

A

The FMV of the property.

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22
Q

How do premiums paid by an employer on a group-term life insurance policy effect gross income?

A

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

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23
Q

Accident, Medical, and Health Insurance premiums (employer paid)

A

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.

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24
Q

What is included in taxable interest income?

A
  • 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
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25
Q

What types of interest are tax-exempt?

A
  • State/Local govt bonds

- Series EE (only when used to pay for higher edu)

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26
Q

What are the parameters of the Kiddie-Tax?

A

Net unearned income of a dependent child under 18 is taxed at the parent’s higher tax rate.

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27
Q

How is the child’s net unearned income taxed?

A

Child’s total unearned income

Less: Allowable std deduction plus addtl $1,000

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28
Q

The receipt of a state/local tax refund is a subsequent year is not taxable if…

A

The taxes paid did not result in a tax benefit in the prior year.

GR:
Itemized in PY = taxable
Std Deduct in PY = nontaxable

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29
Q

What expenses are nondeductible on Schedule C?

A
  • 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
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30
Q

What are the two taxes on Sch C Business income?

A
  • Income Tax

- Federal S/E tax

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31
Q

How does UNICAP apply to sole proprietors?

A

They must capitalize DM/DL/FOH as inventory, and SGA/R&D is expensed in the period incurred.

32
Q

IRA Distribution/Penalty

A

Generally cannot be withdrawn until 59 1/2, 10% penalty exists when withdrawn before.

33
Q

Traditional Nondeductible IRA distributions

A

Must be prorated between contributed and noncontributory portions.

Principal - nontaxable
Accumulated Earnings - taxable

34
Q

Exception to premature IRA distributions withdrawal.

A

HIM DEAD

Homebuyer (1st time)
Insurance (medical)
Medical expenses
Disability (not temporary)
Education (college/tuition/books/fees)
and
Death
35
Q

Basic formula for determining Rental Income(Loss)

A 
\+Gross Rental Income
\+Prepaid Rental Income
\+Rent Cancellation Payment
\+Improvement in-lieu-of Rent
-Rental Expenses
=Rental Income (Loss)
36
Q

If security deposits are held separately & not available to be applied to last months rent…

A

They are a liability of the TP and are not included in income in the year received.

37
Q

When are prizes and awards NOT taxable?

A

When the winner is selected without entering into a contest and assigns the award directly to a governmental unit or charitable org.

38
Q

When are scholarships and fellowships taxable?

A

When they apply to room and board or when services are required

39
Q

Nonqualified stock option requirements

A
  • 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
40
Q

Employee taxation of nonqualified options - readily ascertainable value

A

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.

41
Q

Employee taxation of nonqualified options - without readily ascertainable value

A

Taxable event is the exercise date.

OI = FMV - amts paid for option

42
Q

Employer taxation of nonqualified options

A

Deduct in same year that employee reports income

43
Q

Employee qualified stock options requirements

A
  • 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
44
Q

Employee taxation of qualified options

A

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

45
Q

Employer taxation of qualified options

A

No tax deduction for an ISO because it is not compensation to the employee

46
Q

Employee stock purchase plan requirements

A
  • 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
47
Q

Employee taxation of ESPP

A

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.

48
Q

What are adjustments to AGI?

A
  • 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
49
Q

Deductible IRA facts

A
  • Earnings accumulate tax free
  • Withdrawals are taxable as OI
  • Cannot deduct contributions when too rich AND participate in other qualified plan (401k)
50
Q

Roth IRA facts

A
  • Contributions are not deductible when made
  • Earnings accumulate tax free
  • Distributions are tax free (if qualified)
51
Q

Nondeductible IRA facts

A
  • Earnings will accumulate tax free
  • Untaxed earnings will be taxable when withdrawn
  • Principal contributions are tax free
52
Q

Coverdell Education Savings Account facts

A
  • 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
53
Q

Student loan interest deduction

A

Limited to $2,500

54
Q

Tuition and Fees deduction

A
  • Applies regardless of whether education is work-related.

- Limited to $4,000

55
Q

HSA deduction

A
  • 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

56
Q

Moving Expenses

A
  • 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
57
Q

Alimony deduction

A

If total amount paid is less than amount due, amounts paid are first allocated towards child support (nondeductible) then to alimony.

58
Q

Items that are not reduced (i.e. not phased out)

A
  • Gambling losses
  • Investment interest expense
  • Medical expenses
  • Casualty and theft
59
Q

Deductible Medical Expenses Formula

A 
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

60
Q

Types of NONdeductible medical expenses

A
  • Elective surgery
  • Life insurance
  • Health club membership
  • Personal hygiene/expenses
61
Q

Types of NONdeductible taxes

A

FIB

Federal
Inheritance
Business and rental property taxes

62
Q

Acquisition indebtedness interest

A

Up to $1,000,000 of acquisition indebtedness is deductible as qualified residence interest

63
Q

What is acquisition indebtedness?

A

Debt that is:

  • incurred in buying, constructing, or substantially improving the TP’s principal and second home
  • Secured by home
64
Q

What is home equity indebtedness?

A

Debt that is secured by TP principal or second home that is not acquisition indebtedness.

65
Q

Home equity indebtedness

A

Lesser of:

$100,000 or FMV of property - amt of outstanding acquisition indebtedness

66
Q

Investment interest deduction

A

Limited to net investment income.

Investment income - noninterest investment expenses = net investment income

67
Q

What is included as investment taxable income

A
  • Interest and dividends
  • Dividends
  • Rents
  • Royalties
  • Net LT and ST capital gains
68
Q

What is excluded as investment taxable income

A

Interest expense used to purchase tax-free bonds is not deductible

69
Q

Charitable contributions

A

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

70
Q

Casualty and Theft losses calc

A 
Smaller loss (LostCost/AB or Decr FMV)
(Insurance recovery)
= TP loss
($100)
=Eligible loss
(10% AGI)
=Deductible loss
71
Q

Miscellaneous itemized deductions (2% AGI test)

A
  • 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
72
Q

Other miscellaneous itemized deductions (no 2% AGI test)

A
  • gambling losses

- fed estate tax paid

73
Q

Child and dependent care credit

A
  • qualifying child (under age 13)
  • any disabled dependent of any age
  • a spouse who is disabled
74
Q

Credit for the elderly and/or permanently disabled

A

15% of eligible income for individuals who are:

  • 65+
  • Under 65 and retired due to permanent disability
75
Q

Adoption credit

A

Includes all necessary expenses (except medical), but does not apply to adopting spouse’s child

76
Q

AMT Adjustments - Individuals

A

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
77
Q

Tax Preference Items - Individuals

A

PPP

Private activity bond interest income
Percentage depletion
Pre-1987 acc. depr.

REG (16 decks)

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