M2 Flashcards
Gifts and inheritences
Gifts and inheritences are both tax free to the recepient ( Tax is often paid by the person giving the gift or the estate upon death)
Damages for personal injury-workers comp
specifically excludede from gross income
Payment for university sponsored research
no exclusion under tax law even if for benefit of university
Social security benefits
85% of the social security benefits is the maxium amount to be included in gross income
Interest
State and local obligations are not taxable . However federal obligations and interest on state and federal tax are taxable
Unemployment compensation
Included in Gross income
prizes and awards
Generally the fair market value of prizes and awards is taxable income. However there is an inclusion when the following conditions are met . When the winner is selected for the award without any action on the winenrs part and than assigns the award to a government unit or charitible organization
accruable expenses
one which the services have been received/performed but have not been paid for by the end of the reporting period
Individual capital loss maximum
$3000
Scholarships
are non-taxable to degree seeking students to the extent that all the proceeds are spent on tuition , fees, books and supplies.
property settlements out of divorce
Are not taxable
Amortization of premium of a bond
The bonds basis is reduced by amortization
Stock trade
Whether on the cash or accrual method of accounting the sale of stock, must recognize gains and losses on the trade date rather than the settlement date
IRA Penalty
Amount withdrawn * Marginal tax rate+ Amount withdrawn *10% penalty rate
Taxable interest
includes amounts received from general investment accounts as well as interest on federal obligations . Interest received from state and municipal are not taxable.
HIM dead
It is important to note that if amounts removed have been previously deducted on the TP tax return, there that amount is taxable
if question says paid alimony of $10K to be reduced by 20% on childs 18 bday
this means that 20% is child support and the remaining 80% is alimoney
state tax refund from prior year
if TP claimed standard deduction, this means that the state tax was not deduction in the year paid therefore it is not taxable
Group term life insurance
the first $50 K is a non taxable fringe benefit. Amounts exceeding this are taxable based on tax tables
Annuity
Only prorated amount of cost recovery is not taxable. Total purchase amount/ months of life expectancy =Y
Y* number of months in the current year receiving payments
Alimony
Includes only payments received in cash or cash equivalents ( payment if bills on behalf of ex spouse
Life insurance policy
Total amount/total yers = non taxable portion
Jury duty fees
Adjustment to AGI
Interest income on EE bonds
tax exempt is using for higher education if purchaser of bonds is sole owner of bonds or joint owner with his or her spouse, TP is over 24 when issued,, reduced by tax free scholarships of the tax payer, spouse or dependant childen
Cash basis tax payer
should report income for the year in which income is either actually or constructively received whether in cash or property
1040ez
means that clark did not itemize in the prior year and therefore did deduct any sales income taxes last year. Under the tax rule the refund is not taxable this year because the TP did not deduct the tax last year
Life insurace proceeds
Life insurance proceeds on the life of an officer when the corp is the owner and beneficiary are not reported as taxable income of the corporation. Also any expense related to the premiums would not have been deduction by the corp
State and local tax refunds
The receipt of a state or local income tax refund in a subsequent year is not taxable if the taxes paid did not result in a tax benefit in the prior year. If itemized in prior year = state or local refund is taxable . If standard deduction used = non taxable
Accountable plan vs non accountable plan
non - accountable - any amt received from employer is part of gross income
rental property
if used personally more than 14 days any net loss from the rental property will be disallowed. All related expense must be prorated between the personal use portion and the rental activity portion
Uniform capitalization rules
Purchases of inventory for resale may deduct their marketings costs but must capitilize their offsite storage costs
Deductions to arrive to self employment income
All neccesary and ordinary expenses connected with the business. Estimted federal income tax is not an expense
taxable income
value of money or fair value of property, not amount billed
AR formula
Begin R+ sales-CC= ending AR . Accrual basis taxable income in sales
Uniform cap rules application
real or tangible property produced by TP for use in his trade of business or for sales to his customers or for resale
Prepaid rent
Prepaid rent is income when received even for an accrual based tax payer
Uniform cap rules
DM, DL and factory overhead are capitalized
Vacation residence
If a vacation residence is rented for less than 15 days per year, it is treated as a personal residence, the rental income is excluded from income. Depreciation, utilities and repaids are not deductible
Net rental income
Gross rental income +prepaid rental income+rent cancellation payments+ improvement in lie of rent - rental expenses. If security deposits are not held sep than include as rental income otherwise liability
net self employment income
Owner or spouse salary is considered a draw and not a deduction. Also if owner gets paid a salary he is paying taxes on net income, therefore his salary will not be included in his tax return as taxable income
Schedule C
no personal deductions allowed. Onlt those items related to operations and business itself.
Uniform capitilzation rules
do not apply to inventory acquired for resale if TP average gross receipts for the preceeding three tax years do not exceed $10m
