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Yaeger REG > Mod 35 Individual Taxation part 1 > Flashcards

Mod 35 Individual Taxation part 1 Flashcards

1
Q

None left in an account is taxable in…

A

Medical savings account (MSA)

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2
Q

A medical savings account is similar to…

A

An IRA, but for health care only

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3
Q

Qualified plan is…

A

Offered to all employees

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4
Q

Moving expenses, what categories are taxable or not?

A

Qualified moving expenses are nontaxable

Nonqualified moving expenses are taxable

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5
Q

Qualified moving expenses, 3 items that are nontaxable when reimbursed by employer

A

1 cost of moving your goods

2 cost of moving family (pets)

3 insurance on goods

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6
Q

NonQualified moving expenses, 3 items that are taxable when reimbursed by employer

A

1 premoving house hunting trips

2 closing costs (sell home)

3 reimbursed meals

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7
Q

Damages for loss of income/wages is…

A

Taxable

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8
Q

Exclusions

A

Income items which are not included in gross income

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9
Q

Deductions

A

Amounts subtracted from income to arrive at AGI or taxable income

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10
Q

Property settlement

A

Division of capital received in divorce

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11
Q

Life insurance proceeds, if proceeds are received in installments, amounts received…

A

In excess of pro rata part of face amount are taxable

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12
Q

2 instances where life insurance proceeds are taxable

A

1 proceeds paid for reasons other than death

2 obtained by beneficiary in exchange for valuable consideration

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13
Q

Life insurance obtained by beneficiary in exchange for valuable consideration. What is taxable?

A

All proceeds obtained in excess of cost

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14
Q

Certain employee benefits are…

A

Excluded

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15
Q

Group term life insurance premiums, where premiums paid by employer…2

A

1 Up to $50,000 of insurance coverage are excluded

2 premiums for anything after that are taxable to employee

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16
Q

Group term life insurance premiums are excluded completely if beneficiary is…2

A

1 employer

2 qualified charity

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17
Q

Accident and health benefits provided by employer are excluded if…2

A

1 permanent injury or loss of bodily function

2 reimbursement for medical care of employee, spouse or
dependents

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18
Q

Qualified adoption expenses, when are they excluded?

Who are they excluded by?

A

Incurred by employer in connection with employee’s adoption of
child

Excluded by employee

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19
Q

Employee fringe benefits are…

A

Generally excluded

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20
Q

Workers compensation is…2

A

Fully excluded if received for occupational sickness or injury

And paid under workers comp act

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21
Q

Damages for physical injury and sickness are…

2) exception

A

Excluded

2) punitive damages not excluded

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22
Q

Gifts, devices or inheritances are…

2) what is taxable after inheritance?

A

Excluded

2) rents and interest generated from property after inheritance is
Taxable

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23
Q

Stock dividends 2

A

1 generally excluded from income

2 FMV of stock received is included in income of distribution

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24
Q

Health Savings Account 3 advantages

A

1 Contributions made by employee deductible to arrive at AGI

2 employee withdrawals are nontaxable

3 money left in account nontaxable

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25
Q

3 bonds excluded from taxation

A

1 private activity bonds

2 municipal bonds

3 sports complex bonds

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26
Q

U.S. Obligations are taxable, this includes…2

A

1 treasury bond

2 treasury note

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27
Q

Interest in refund is…

A

Taxable

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28
Q

Contribution to political campaign is…

A

Not deductible

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29
Q

Acquisition indebtedness

A

Principal you took out to acquire primary and secondary residence

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30
Q

Debts discharged in bankruptcy are…

A

Generally nontaxable

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31
Q

What is the form for a partnership return ordinary income/loss?

A

Form 1065

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32
Q

What is the form for a S corporation return ordinary income/loss?

A

Form 1120S

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33
Q

3 items recorded on schedule E

A

1 supplemental income

2 rents

3 royalties

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34
Q

Constant yield to maturity is…

A

Method used to amortize bonds

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35
Q

Child support is…2

A

Not taxable and not deductible

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36
Q

Series EE US savings bonds Accrued interest redeemed by taxpayer is excluded from gross Income to extent that…

A

proceeds are used to finance higher education for taxpayer, spouse,
or dependents

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37
Q

Series EE US savings bonds, for higher education exclusion to apply:

Bonds must be issued after December 31, 1989 to an individual…

A

Age 24 or older

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38
Q

Series EE US savings bonds, for higher education exclusion to apply:

Purchaser of bonds must be…

A

Sole owner or joint owner with his spouse

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39
Q

Series EE US savings bonds, for higher education exclusion to apply:

Married tax payers must…

A

File a joint return to qualify for exclusion

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40
Q

Series EE US savings bonds, for higher education exclusion to apply:

Redemption proceeds must be used to…

A

Pay qualified higher education expenses at accredited institution
Or vocational school

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41
Q

Degree candidate can exclude amount of scholarship or fellowship that is used for…5

A 
1 tuition 
2 course related fees
3 books
4 supplies
5 equipment
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42
Q

Scholarships and fellowships that are taxable…

A

1 teaching

2 research

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43
Q

Scholarships and fellowships:

Non degree students may…

A

Not exclude any part of scholarship or fellowship grant

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44
Q

Political contributions received by candidates campaign funds are…2

A

1 excluded from income

2 but included if put to personal use

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45
Q

Acquisition indebtedness discharge

A

1 excluded up to $2 million

2 reduces basis (but not below $0)

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46
Q

Lease improvements:

Increase in value of property due to improvements made by lessee is excluded from lessor’s income unless improvements are…

A

Made in lieu of fair value rent

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47
Q

Property received as compensation is included…

A

In income at FMV on date of receipt

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48
Q

Interest included in income:

Earnings from…3

A

1 savings and loan associations

2 mutual savings banks

3 credit unions

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49
Q

Interest included in income:

Interest on…3

A

1 bank deposits

2 corporate or US gov bonds

3 treasury bills

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50
Q

Alimony tax treatment 2

A

1 included in recipient’s gross income and

2 deductible toward AGI by payor

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51
Q

In order for payment to be considered alimony payment must:

Be made pursuant of…

A

Pursuant of decree of divorce or written separation instrument

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52
Q

In order for payment to be considered alimony payment must:

Be made in…2

A

1 cash and

2 received on behalf of payee’s spouse

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53
Q

In order for payment to be considered alimony payment must:

Terminate upon…

A

Death of recipient

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54
Q

In order for payment to be considered alimony payment must:

Not be made to…2

A

1 member of same house at time of payments

2 person whom filing a joint return with

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55
Q

In order for payment to be considered alimony payment must:

Not be characterized in…

A

Decree or written instrument as other than alimony

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56
Q

Alimony recapture may occur if…

A

Payments sharply decline in second or third years

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57
Q

Alimony recapture is accomplished by making the payor…

A

report recaptured alimony from first and second Years as income in
the third year

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58
Q

Alimony recapture allows the payee to…

A

Deduct the amount of recapture in the third year

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59
Q

If wife is entitled to child support of $9,000 and alimony of $40,000 and only gets paid $10,000 by her ex, how is the money allocated on the ex wife’s tax return?

A

The first $9,000 of payments is nontaxable child support

And the remaining $1,000 is taxable alimony

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60
Q

If you pay attorney a fee to collect alimony…

A

It is deductible on schedule A

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61
Q

Lottery winnings 2

A

1 reported as other income

2 can deduct cost of tickets up to winnings

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62
Q

Lottery winnings, can deduct lottery deductions up to winnings if…

A

Itemized deductions on schedule A are used

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63
Q

Tax benefits rule

A

1 state refund is taxable if itemized deductions are used

2 nontaxable if standard deduction is used

64
Q

Child support tax treatment of to payee and payor

A

Not gross income to payee

Not deductible to payor

65
Q

If a specified amount of alimony is to be reduced upon the happening of some contingency relating to a child then…

A

Amount equal to specified reduction will be treated as child
support rather than alimony

66
Q

the maximum amount of social security benefits taxable to high income tax payers…

A

Up to 85%

67
Q

Income in respect of a decedent, define 3

A

1 income that would have been income of decedent before death

2 but was not includible in income under decedent’s method of accounting

3 taxable

68
Q

Income in respect of a decedent is like a…

A

Receivable collected after death

69
Q

Taxable income includes fees received by…5

A 
1 executor
2 administrator
3 director
4 for jury duty
5 precinct election board duty
70
Q

Income from discharge of indebtedness…

A

Is taxable unless specifically excluded

71
Q

Prizes and awards are…

A

Generally taxable

72
Q

Prizes and awards received for religious, charitable, scientific, educational, artistic, literary or civic achievement can be excluded only if recipient, was selected…

A

without action on his part

73
Q

Prizes and awards received for religious, charitable, scientific, educational, artistic, literary or civic achievement can be excluded only if recipient, is not required to…

A

Not required to render substantial future services

74
Q

Prizes and awards received can be excluded only if recipient, designates that the prize or award is to be transferred by payor to…4

A

1 governmental unit
2 tax exempt charity
3 educational or
4 religious organization

75
Q

Prizes and awards received, that are non taxable are…2

A

1 excluded from recipient’s income but

2 no deduction is allowed for transferred amount

76
Q

Employee achievement awards are excluded from employee’s income if…2

A

1 Cost to employer of award does not exceed amount allowable by deduction

2 generally $400 to $1,600

77
Q

Unemployment compensation must

A

Generally be included in gross income

78
Q

Personal service corporation define

A

Doesn’t provide good for sale, just services

79
Q

With an estate, the administrator must…

A

File certain returns when a person dies

80
Q

C corps file form…

A

Form 1120

81
Q

When a company has inventory…

A

It generally uses the accrual basis

82
Q

When does an accrued expense before 12/31/14, have to be paid on that date instead of 3/15/15?

A

If own more than 50% of stock directly or indirectly

83
Q

If you own more than 50% of stock either directly or indirectly, you must…

A

Accrue expense and pay at end of year

84
Q

Own directly

A

I own it myself

85
Q

Own indirectly

A

My wife owns it

86
Q

Cash basis taxpayer should report gross income for year in which income is either…2

A

1 actually or constructively received

2 whether in cash or in property

87
Q

Special rules:

Prepaid expenses 2

A

1 treat as accrual basis

2 write off expense as it expires

88
Q

Special rules:

Income received in advance is…

A

Taxed when received

89
Q

Gross profit equation

A

Gross profit = sales - cost of sales

90
Q

Contract price equation

A

Contract price = selling price - liability assumed by buyer

91
Q

Installment method income formula

A

Income = (gross profit/total contract price) x amount received in year

92
Q

Under the completed contract method, when is income recognized?

A

Don’t recognize income until contract is completed

93
Q

When your company manufactures inventory, the foreman salaries and employee salaries are…2

A

1 charged to inventory account

2 they aren’t charged as salary expense

94
Q

Reserve method (AKA allowance method) 2

A

1 estimates bad debt expense

2 not generally allowed in taxation

95
Q

The reserve method is allowed and reduces taxation for…3

A

1 banks

2 savings and loan co.

3 financial institutions

96
Q

A taxpayer establishes an accounting period by…

A

Filing first tax return

97
Q

A taxpayer who doesn’t keep books (ex. An employee with wage income) must…

A

Use calendar year accounting period

98
Q

Taxable year:

C Corporations (other than personal service corporations)

A

May adopt any taxable year that it chooses

99
Q

Taxable year:

Personal service corporation

A

Generally must adopt calendar year

100
Q

Taxable year:

Sole proprietor

A

Must use same taxable year for business as used for personal

Return

101
Q

Taxable year:

Partnership is a pass through entity and generally must use…

A

Same tax year as used by its partners owning more than 50%

Of partnership income and capital

102
Q

Taxable year:

S-Corporation is a pass through entity and generally must…

A

Adopt calendar year

103
Q

Partnerships and S-corporations may be permitted to…

A

Use different taxable year if there is substantial business purpose

104
Q

Taxable year:

Estate

A

May adopt any taxable year for its income tax return that it chooses

105
Q

Taxable year:

Trust (other than charitable and tax exempt trusts)

A

May adopt a calendar year

106
Q

Tax accounting methods commonly used

A

Cash or accrual methods

107
Q

Cash method recognizes income when…2

A

1 first received or constructively received

2 received in cash or property

108
Q

Under the cash method when are expenses deductible?

A

Expenses deductible when paid

109
Q

Constructive receipt, define

Example

A

Item is unqualifiedly available without restriction

Ex. Interest on bank deposit is income when credited to account

110
Q

Under the cash method, expenses are generally deductible when paid:

Payment by check is considered payment as long as…

A

Check is honored by the bank

111
Q

Under the cash method, expenses are generally deductible when paid:

Payment by credit card is…

A

Considered payment at time of charge

112
Q

The cash method can generally not be used if…5

A 
1 inventories necessary to reflect income
2 C corporations
3 partnerships with C corp partner
4 tax shelters
5 certain tax-exempt trusts
113
Q

Cash method can be used by…3

A

1 qualified personal service corp
2 $5 million or less in sales entity
3 small business tax payer

114
Q

Qualified personal service corporations have no…

A

No inventory

115
Q

Cash method can be used by an entity (other than a tax shelter) if for every year it has average gross receipts of $5 million or less for…2

A

Any prior 3 year period and has no inventories

116
Q

Small business tax payer

A

Average annual gross receipts of $1 million or less for any prior
3 years

117
Q

What 2 areas must the small business tax payer use the accrual method for?

A

1 account for inventories

2 purchase and sale of merchandise

118
Q

A small business taxpayer with revenues between $1-10 million is eligible for cash method if meets any of the following requirements:

Principal business is not…6

A 
1 retailing
2 wholesaling
3 manufacturing 
4 mining
5 publishing or
6 sound recording
119
Q

A small business taxpayer with revenues of $1-10 million is eligible for cash method if meets any of the following requirements:

Principal business activity is… 2

A

1 provision of services or

2 custom manufacturing

120
Q

Accrual method is used by tax payers (other than small business taxpayers) for…

A

Purchases and sales when inventories are required to clearly reflect income

121
Q

Installment method applies to…2

A

1 gains (not losses) from disposition of property

2 where at least one payment is received after year of sale

122
Q

The installment method does not change…

A

Does not change the character of the gain to be reported (ordinary,
Capital, etc.)

123
Q

Installment method is required unless…

A

Taxpayer makes negative election to report full amount as gain in
year of sale

124
Q

The installment method cannot be used for…2

A

1 property held for sale in ordinary course of business

2 can’t usually use installment method when you sell inventory

125
Q

3 exceptions when installment method can be used in the ordinary course of business

A

1 time share units

2 residential lots

3 property used or produced in farming

126
Q

Installment method cannot be used for sales of…

A

Stock or securities traded on established securities market

127
Q

Formula for amount of gain reported each year under installment method

A

Reported gain =

(gross profit/total contract price) x amount received in year

128
Q

Percentage completion method can be used for…

A

Contracts that are not completed within year they are started

129
Q

Percentage of completion method recognizes income each year based on…

A

Percentage of contract completed that year

130
Q

Gross income for business equation

A

Gross income = sales - COGS + other income

131
Q

Business Income Deductions:

In computing cost of goods sold, inventory is generally valued at…

A

Cost or market, which ever is lower

132
Q

Business Income Deductions:

In computing cost of goods sold, 3 valuation methods that can be used

A

1 specific identification

2 FIFO

3 LIFO

133
Q

Business Income Deductions:

In computing cost of goods sold, use of LIFO 2

A

1 if LIFO is used for taxes, it must also be used on books

2 lower of cost or market can’t be used with LIFO

134
Q

All ordinary, necessary expenses incurred in…

A

Trade or business are deductible

135
Q

Ordinary

A

Customary and not capital expenditure

136
Q

Necessary

A

Appropriate and helpful

137
Q

What does UNICAP stand for?

A

Uniform capitalization rules

138
Q

Uniform capitalization rules (UNICAP) generally require that all costs incurred…

A

Both direct and indirect in certain areas must be capitalized
As part of cost of property

139
Q

What areas of costs must costs be capitalized under Uniform capitalization rules (UNICAP) 2

A

1 in manufacturing or constructing real/personal property or

2 in purchasing or holding property for sale

140
Q

Uniform capitalization rules (UNICAP):

These costs become part of…2

A

1 basis of property and

2 are recovered through depreciation and amortization

141
Q

Uniform capitalization rules (UNICAP):

These costs when included in inventory are recovered through…

A

Cost of good sold as offset to selling price

142
Q

Uniform capitalization rules (UNICAP):

Rules apply to…

A

1 Inventory

2 non inventory property produced/held for sale to customers

143
Q

Uniform capitalization rules (UNICAP):

Rules apply to assets or improvements to assets constructed by a taxpayer for the taxpayer’s…2

A

1 own use in trade or business or

2 an activity engaged in for profit

144
Q

Uniform capitalization rules (UNICAP):

Taxpayers subject to rules are required direct costs and indirect costs that benefit the assets produced or acquired for resale including…3

A

1 general

2 administrative

3 overhead costs

145
Q

Uniform capitalization rules (UNICAP):

Interest must be capitalized if…

A

1 debt is incurred or

2 continued to finance construction or production of real property

146
Q

Uniform capitalization rules (UNICAP):

These rules do not apply to small retailers and wholesalers who have average annual gross receipts of 3 years that…

A

Do not exceed $10 million

147
Q

Uniform capitalization rules (UNICAP):

Interest must be capitalized if the debt is incurred or continued to finance the construction or production of real property, property with recovery period of 20 years, property that takes more than 2 years to produce it property with a production period exceeding…

A

One year and cost exceeding $1 million

148
Q

Uniform capitalization rules (UNICAP):

UNICAP rules do not apply to…3

A

1 advertising
2 selling
3 research

149
Q

Mine development and exploration costs, property held for personal use, freelance authors, photographers and artists whose personal efforts create products…

A

UNICAP rules do not apply

150
Q

Business meals, entertainment and travel, what percent gets deducted?

A

Business meals and entertainment = 50% deduction

Business travel = 100% deduction

151
Q

Deductions for business gifts are limited to…

2) and must not…

A

$25

2) must not have advertising nature

152
Q

Bad debts are generally deducted in…

A

Year they become worthless

153
Q

Business bad debt, define

A

One that is incurred in trade or business of lender

154
Q

Business bad debts must be…

A

1 on an accrual basis

2 can write off when uncollectible

155
Q

Nonbusiness bad debt (not incurred in trade or business) can only be deducted…2

A

1 if totally worthless

2 can only write off as short term capital loss

Yaeger REG (77 decks)

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