ITX - 34 Flashcards
Joint status can be used by a widow or widower in the year of the spouse’s death and___years afterwards if the widow or widower continues to provide a household for a dependent child and remain unmarried.
Two
Married filing jointly requires clients to be legally married on___of their tax year.
The last day
To file as a single taxpayer, a client must be unmarried, divorced, or legally separated on___.
The last day of the tax year
To file as head of household, a client must be single or separated from a spouse for___and must pay half the cost of providing a household that is the principal place of abode for___.
The last six months of the tax year
A child or dependent for at least half of the year
Interest and dividend income are reported on?
Schedule B
Profit or loss from a business is reported on?
Schedule C
Capital gains and losses are reported on?
Schedule D
Income from rental real estate, partnerships, S corporations, estates and trusts are reported on?
Schedule E
Farm income or loss is reported on?
Schedule F
Adjustments for AGI: up to ____ interest on qualified education loans – this adjustment is reduced for taxpayers whose modified AGI is between___.
$2500
MFJ: $130,000-$160,000
Single: $65,000-$80,000
Adjustments for AGI: domestic production activities – the deduction is up to__% of qualified production activities income (deduction based on the taxpayer’s AGI and no more than___% of wages).
6%
50%
The Standard deduction for individuals who are claimed as dependents cannot exceed the greater of?
$1000 or $350 plus the individual’s earned income, up to the regular standard deduction for single taxpayers of $6200.
An additional amount of standard deduction is available for taxpayers and spouses who are?
Over 65 or blind
Additional amount of standard deduction for married filing jointly or married filing separately
$1200
Additional amount of standard deduction for single
$1550
Name the itemized deductions categories on schedule A
Medical and dental expenses Taxes you paid Interest you paid Gifts to charity Casualty and theft losses Job expenses and certain miscellaneous deductions
Any costs reimbursed by health plan are not deductible, and any portion deductible for AGI (___) is not deductible.
Self-employed health premiums
Taxpayers may only deduct medical costs to the extent that they exceed__AGI.
10%
2010 healthcare reform threshold for deducting medical expenses: if the tax payer or spouse reaches age 65 or older by the end of the year, they will be allowed to use the___threshold through 2016.
7.5%
Schedule A: taxes you paid include?
State and local income taxes
Real estate taxes on an unlimited number of properties
Personal property taxes
Mortgage interest on a principal and a second residence is deductible up to a maximum acquisition cost of ___, and interest on home equity loans is deductible up to___(Not to exceed___of the home, less the debt incurred to acquire the home).
$1 million
$100,000
The fair market value
Mortgage interest on refinance loans is also deductible on the loan balance that was outstanding at the time of the refinance, plus up to___for a home equity loan.
$100,000
Schedule A - Mortgage interest: Generally,___paid on the acquisition of a principal residence are deductible in the year paid, even if paid by the seller.
Points
Schedule A – Mortgage interest: points paid on refinancing a mortgage must be?
Amortized over the life of the loan
Schedule A - qualified charitable contributions: the overall limit of cash contributions is?
50% of AGI
Schedule A - qualified charitable contributions: contributions of appreciated capital gain property are deductible at their fair market value,___, depending on the type of entity receiving the contribution.
20 or 30%
Schedule A - casualty and theft losses___are deductible.
In excess of 10% of AGI, less $100 per loss
Casualty and theft losses: bases losses are not subject to?
$100 per loss reduction or the 10% floor
How to calculate the deduction for casualty losses
- determine the lesser of the fair market value or adjusted basis
- subtract any reimbursement from insurance
- subtract $100 per event
- Subtract 10% of the taxpayer’s AGI
Interest from loans attributable to property held for investment.
Investment interest
Investment interest costs are deductible to the extent of?
Net investment income
Investment expenses are deducted only to the extent that they exceed?
The 2% of AGI floor for miscellaneous deductions
Calculation for the taxpayer’s net investment income
Investment expenses minus 2% of AGI equals allowable offset
Investment income minus allowable offset equals net investment income
Schedule A: The remaining miscellaneous itemized deductions are only deductible to the extent that the aggregate of all the miscellaneous deductions exceed?
2% of AGI
Schedule A: miscellaneous itemized items include:
Tax return preparation fees Home office expenses Union dues Work clothes Investment expense Professional dues/subscriptions Unreimbursed employee expense Safe-deposit box fee Uniforms Hobby expense to the extent of hobby income
The tax law presumption is that an activity producing profit (net income) in___consecutive years is a business rather than a hobby. For horses, a profit in___years is sufficient.
Three out of five
Two out of seven
The phaseout for itemized deductions reduces itemized deductions by___of the amount by which AGI exceeds the threshold, with a maximum reduction of___of the otherwise allowable itemized deductions, excluding medical expenses, casualty losses, gambling losses, an investment interest.
3%
80%
Phaseout of itemized deductions begins at ___ for single, head of household, MFJ, and MFS.
The phaseout threshold begins at: $254,200 for single taxpayers $279,650 for head of household $305,050 for married filing jointly $152,525 for married filing separately
Personal exemption phaseout: The total amount of exemptions that may be claimed is reduced by ___%.
2%
All dependents must meet all of the following criteria:
1) be a citizen of the United States, Canada or Mexico
2) not file a joint return with another taxpayer, unless the return was filed in order to claim a refund
3) not claim another person as their own dependent
For children of the taxpayer or the taxpayer’s spouse, the child will qualify as a dependent if the child meets all of the following additional tests:
1) The child is under the age of 19, or under the age of 24 and a full-time student for at least five months during the year, or any age and permanently and totally disabled.
2) The child lives with the taxpayer for more than half the year.
3) The child does not provide more than half of his or her own support.
4) The child must be younger than the taxpayer unless the child is permanently and totally disabled
For other non-family members, the individual will qualify as a dependent if this individual meets the following three additional tests:
1) The individual lived with the taxpayer
2) The taxpayer or the taxpayer’s spouse provides more than half of the individual’s support
3) The individual’s income is less than the $3950 exemption amount
For children who fail to meet the above tests and for other family members, the relative will qualify as a dependent if this relative meets the following two additional tests:
1) The taxpayer or the taxpayer’s spouse provides more than half of the relative’s support.
2) The relative’s income is less than the $3950 exemption amount.
The___of a taxpayer cannot be claimed as a dependent, but a taxpayer can claim a personal exemption for a___.
Spouse, spouse
Subtracting___and___from AGI result in taxable income.
Itemized deductions
Personal exemptions
Kiddie Tax - children under 19 (24 if a student) to have unearned income up to___and to use their standard deduction to shelter it from tax. The next___income is taxed at the child’s tax rate (currently__). The rest of the income is taxed at the parents’ marginal tax rate.
$1000
$1000
10%
Income from___bonds is not taxable.
Municipal
With a child age 19 (24 if a student) or older, the first___of unearned income is sheltered from tax by the standard deduction, and any additional unearned income is only a taxed at___.
$1000
The child’s rate
When a child age 19 (24 if a student) or older has both earned and unearned income and is claimed as a dependent on the parents’ return, the standard deduction will be the greater of?
1) $1000
2) $350 plus the individual’s earned income, up to the regular standard deduction for single taxpayers of $6200.
Self-employment income includes?
- The distributive share of partnership income allocated to general partners or to managing members of an LLC
- income reported on Schedule C
- Farm income as reported on Schedule F
- amounts paid to those serving on the board of directors of corporations
- income of ministers, priests, and rabbis (including rental value of residencies, etc.)
- part-time earnings
The following is not considered self-employment income
- allocated share of S corporation earnings (reported on K-1)
- S corporation wages
- dividends, interest, and capital gains
- rental income
Self-employment tax is based on?
Net self-employment earnings, not on taxable income
What percent of self-employment income is subject to self-employment taxes?
92.35%
The Medicare tax rate is___percent on the first___of self employment income, plus___% regular Medicare tax + ___% additional medicare tax on all self-employment income in excess of as stated already.
2.9% Single: $200,000 MFJ: $250,000 MFS: $125,000 2.9% 0.9%
Social security tax for the self employed
12.4% (6.2% + 6.2%)
FICA taxes paid by the employee
6.2% on the first $117,000 of earnings, +1.45% of all earnings,
+0.9% of earnings over the threshold for the additional Medicare surtax
For those with self-employment income, the self-employment tax must be added to the ___ tax when figuring the amount of estimated tax that must be paid and is added to the___tax on the client’s return to determine the___tax liability.
Income
Income
Total
Taxpayers who have domestic employees must pay the__taxes on the domestic employee’s salary with their___income tax returns.
Payroll
Individual
American opportunity tax credit: a taxpayer receives a credit of___% of the first___and___% of the second___paid for tuition for the taxpayer, the spouse, or their dependents, during the first four years of post secondary education.
100%
$2000
25%
$2000
What is the phaseout range for the American opportunity tax credit?
MFJ: $160,000-$180,000
Single: $80,000-$90,000
American opportunity tax credit: the student must be at least half time, and the tuition must be paid during the tax payer’s tax year, for education received during?
The tax year for the first three months of the next tax year
Lifetime learning credit: A taxpayer is allowed a credit of___% of the first___spent on qualified tuition expenses for higher education for the taxpayer, the spouse, or any of their dependents, regardless of which year of higher education the costs are paid.
20%
$10,000
Lifetime learning credit: The maximum credit is?
$2000 per tax return
Lifetime learning credit: The phaseout range is?
MFJ: $108,000-$128,000
Single: $54,000-$64,000
For___, a taxpayer can only use either the American opportunity tax credit or the lifetime learning credit, not both, and both credits are subject to phaseouts.
Each family member or dependent
Child tax credit: taxpayers who have a child, descendent, step child, or eligible foster child who lived with the taxpayer at least___of the year, and whom the taxpayer may claim as a dependent are entitled to___per child credit as long as the child is less than age___as of the end of the year.
Half
$1000
17
Child tax credit: One credit phases out for every___income by which a taxpayer’s AGI exceeds___. This credit is refundable to the extent of___% of the amount that the client’s earned income exceeds___.
$20,000 of income = $1000 credit MFJ: $110,000 Single: $75,000 15% $3000
Child care and dependent credit: Each taxpayer is allowed a credit of___% (higher if AGI is less than___) of the amount of dependent care expenses paid to allow a taxpayer to be gainfully employed. To qualify, the taxpayer must provide a home at the end of the year for a dependent child under___or an___dependent/spouse who is incapable of self-care.
20%
$43,000
13
Older
Child care and dependent credit: The maximum amount of expenses used to calculate the credit is the lesser of the amount of income generated by the__, or___for one dependent and___for two or more dependents.
Lowest-paid spouse
$3000
$6000
Adoption credit: a credit of to___may be claimed. Phaseout rules for AGI above___. For a special-needs child, the credit is___, regardless of the amount of the taxpayer’s qualified adoption expenses.
$13,190
$197,880
$13,190
Low-income credit (saver’s credit): the maximum annual contribution eligible for the credit is___. The credit is up to___% of the contribution but only applies to individuals with AGIs of___. The credit is in addition to___. The individual must be age___and must not be___.
$2000 50% MFJ: $60,000 HoH: $45,000 Single: $30,000 The deduction for IRA contributions 18 years of age or older Claimed as a dependent on another individual's tax return
Premium tax credit (for health insurance): in order to be eligible, the taxpayer’s household income must be___of the federal poverty line.
At least 100% but less than 400%
The___is the only credit that can be used as either an itemized deduction or a tax credit.
Foreign tax credit
The type of credit available for the employer’s FICA obligation paid on cash tips received by employees.
Employer social security credit
Disabled access credit: small businesses are eligible to claim a credit of up to___% of the first___(over___) they spend to provide access to the disabled. These business credits may be carried back___year or forward for___year.
50% $10,000 $250 1 year 20 years
Estimated payments and withholding requirements: unless the tax owed is less than___, payment of taxes are required throughout the tax year, as the income is earned.
$1000
In making estimated tax payments, a taxpayer has a choice of paying___% by the___of the month following the close of that tax year or paying___% of the previous year’s tax. For taxpayers with AGIs of more than___, the requirement is___.
90% 15th 100% $150,000 (MFS $75,000) 110% of the prior year's tax or 90% of the current year's liability
Estimated tax payments are due on?
The 15th of April, June, and September of the tax year, as well as on 15 January of the following year
Each estimated tax payment must be___% of the required annual payment.
25%
In addition to cash collected or constructively received, cash-basis taxpayers report as income: 1) the increment on___bonds unless the taxpayer has elected to the recognition of income until maturity; 2) The original issue discount earned on bonds, including___bonds.
Series E and EE
Zero-coupon
The___basis method cannot be used if it does not clearly reflect income.
Cash
Tax regulations do not allow the cash-basis to be used in businesses where? What is the exception?
Inventory is a material income-producing factor
For businesses with gross receipts of under $1 million
Type of accounting method: taxpayer must include any amounts that are constructively received during the taxpayer’s tax year.
Cash basis
Type of accounting method: A check written by a customer and held at the customer’s office for pick up by the taxpayer must be included in the tax payer’s income on the date it was available even if it was not actually picked up.
Cash basis
Type of accounting method: unearned income, such as advance payments of rent is taxed when received.
Cash basis
Type of accounting method: expenses are only deductible when paid
Cash basis
The___basis method of tax accounting requires a tax payer to record income when the right to receive it exists (accounts receivable), not when it is actually received.
Accrual
Type of accounting method: expenses are recorded when they are incurred (accounts payable).
Accrual
The accrual basis method must be used by?
- taxpayers who have inventories (at least for purchases and sales)
- C corporations which gross receipts of over $5 million dollars (except for qualified personal-service corporations)
- by partnerships which have a partner that is a C corporation with gross receipts over $5 million
- certain trusts
A taxpayer who must use ___ accounting for inventory-based business can still be a cash-basis taxpayer for___.
- Accrual
- Itemized deductions and other personal items
Many changes receive an automatic consent from the IRS. These automatic changes can only be made once every ___ years and are severely limited once a taxpayer is subject to___.
- Five
- Audit
For changes in the tax year: must file Form___ with the taxpayer’s income tax return for the first year of the change, by the due date of the return, including extensions.
Form 1128
For changes in accounting method: must file Form___, which is due___ in which the change is made unless the change is among those receiving automatic consent.
- Form 3115
- By the end of the year
When a client has a ___, this can be carried back to offset past income to produce a refund of tax paid, and/or it can be carried forward, to offset future income.
net operating loss (NOL)
In general, NOLs can be carried back ___ years and forward ___ years.
- 2
- 20
The carryback provision is extended to ___ years for NOLs arising from casualties that occur in a Presidentially-declared disaster area or that are incurred by businesses with less than ____ in gross receipts.
- 3
- $5 million
Farmers can carry back NOLs for ___ years.
5
Corporations can carry NOLs back ___ years and forward ___ years.
- 2
- 20
For an individual, the NOL must arise from ___.
business activities
To calculate the NOL for any given year for an individual, ___ are ignored, as are nonbusiness deductions in excess of nonbusiness income.
personal exemptions
The only adjustment to the taxable income used to calculate a corporate NOL is that no NOL from ___ may be used.
any other year
Certain companies who receive assistance under the Trouble Asset Relief Program (TARP) are not allowed to elect to carry back their NOL for ___ years. They are limited to the traditional __year carry back or __year carry forward.
- Five
- 2
- 20
An employee benefit program which permits employees to design their own benefit packages by allocating a predetermined number of dollars among available options.
Cafeteria plan
The law requires the employer of a cafeteria plan to offer___.
At least one cash benefit
A cafeteria plan is prohibited from offering?
- Pension or other retirement plan
- Deferred-compensation plan
- Educational assistance
- Employee discounts
- Noncash fringe benefits
- Cash value life insurance
- Long-term care insurance as a tax-free benefit
A cafeteria plan may offer a ___ plan with employer matching contributions.
401(k)
A cafeteria plan can offer ___ life insurance, but not ___ life insurance
- group term
- cash value
If the cafeteria plan includes long-term care insurance, the premiums will be treated as ___ income to the employee.
taxable
Health Savings Accounts in cafeteria plans: employers can deduct contributions, and employees can exclude the amount contributed from ___ income.
gross income
Under a ___ account, the employee elects a reduction in compensation and requests those dollars be allocated to the purchase of a specific benefit.
Flexible Spending Account
Benefits that can be provided under a flexible spending account
- health insurance premiums
- payment of medical expenses not covered under a health insurance plan
- expenses for dependent care
- disability insurance premiums
- parking
- mass transportation
The elections to reduce salary for a flexible spending account are made annually before ___ for which the reduction will be effective.
the beginning of the year
The 2010 Health Care Reform placed a ___ limit on health FSAs contributions starting in 2013.
$2,500
FSAs: If the money allocated to each benefit is not used by the end of the year, it is forfeited. However, money allocated to ___ is not forfeited and can be paid out as ___.
- Parking and mass transportation
- Additional compensation the following year
The dollars allocated by the employee to purchase specific benefits in the flexible spending account are not includible in the employee’s ___ income and are not treated as wages for ___ taxes.
- gross income
- Social Security taxes
Fringe benefits excluded from employee’s gross income:
1) ___ services, such as hotel rooms, airline, bus, or cruise seats, and telephone services that would remain unused if employees did not use them
2) ___ on products or services offered for sale to customers
3) ___, such as employer-paid business travel
4) ___ furnished for the employer’s convenience and on the employer’s premises and lodging furnished for the employer’s convenience and that the employee is required to accept as a condition of employment
5) ___ athletic facilities
6) ___ (Sec. 129)
7) ___ of an employer-provided automobile
8) ___, such as free parking at the employer’s place of business or mass transit passes
9) ___ expense reimbursement
10) ___ achievement awards
11) ___ plan benefits
12) ___, such as meals at employer-operated facilities, supper money, and local transportation due to overtime work
1) No-additional cost services
2) Employee discounts
3) Working condition fringe benefits
4) Meals
5) Employer-provided on-premises
6) Dependent care assistance benefits
7) Business use
8) Transportation benefits
9) Moving
10) Employee
11) Cafeteria or elective plan
12) De minimis
Fringe benefits included in employee’s gross income:
1) ___ of any employer-provided automobile
2) ___ of a company airplane or seats on a commercial aircraft
3) ___ available only to highly-paid employees
4) ___ for a country club, health club, or other club paid by an employer
5) ___ for entertainment or sporting events, other than occasional or de minimis benefits
1) personal use
2) personal use
3) discounts
4) dues
5) free tickets
Fringe benefits on employee discounts: The discount cannot exceed the employer’s ___ percentage and, for services, cannot exceed ___%; ___ cannot be discounted.
- gross profit
- 20%
- real estate and investment
