Notes Flashcards
Non-resident aliens – don’t qualify for…
No standard deduction
Can only take some itemized deductions
No education credits – even if US citizen is married to a non-resident alien filing jointly
No premium tax credit and no investment income tax
No EITC
No CTC or ACTC
No Foreign earned income exclusion
No foreign tax credit
Divorced parents - only custodial parent can claim
HOH – only custodial parent can claim
CDCTC – only custodial parent
EITC – only custodial parent
When claimed as a dependent – not eligible for
HSA deduction
EITC
Savers credit
Premium tax credit
If eligible to be claimed as a dependent – not qualified for
No education credits
EITC childless
Social Security number required for the following credits
Earned income tax credit
Child tax credit
Additional child tax credit
MFS does not qualify for
Premium tax credit
Education credits
Adoption credit
Education savings program – bond
Student loan interest deduction
Don’t qualify for special $25,000 loss allowance – if living with spouse
Capital loss reduced to $1500 of $3000
Is the tax home based on the workers mailing address or place of work
A taxpayers tax home is usually determined by the location of the principal place of work, regardless of mailing address or where they actually live
$25,000 loss allowance
Max AGI of $100,000
Reduces the allowance one dollar for every two dollars over the limit
Recourse when 60 day rollover window is missed for a traditional IRA
Maybe be eligible for an automatic waiver of the 60 day IRA rollover rule
Or request a private letter ruling from the IRS
Schedule see deduction for meals and entertainment
Some business meals and entertainment expenses are 100% deductible if the expense is primarily for the benefit of employees who are not highly compensated or key employees
Meals are deducted at 50%
Business related entertainment expenses have been eliminated and are not deductible
Optional method of calculating the home office deduction
Taxpayer can deduct five dollars per square foot for the space in the home that is used for business
With a maximum allowable square footage of 300 ft.²
Equals a maximum deduction of $1500
There is no depreciation expense and no recapture of depreciation upon the sale of the home
How are losses on a second or vacation home deductible?
They are not deductible
Section 121 exclusion applies to primary residence
Loss on a vacation home or secondary home does not qualify and losses are not deductible
What fees cannot be included in the basis of a property when it is purchased
Casualty insurance premiums
Rent for occupancy of the property before closing
Charges for utilities or other services related to occupancy of the property before closing
Charges connected with getting alone – points,
mortgage, insurance, premiums,
loan assumption, fees
Cost of a credit report
Fees for an appraisal that are required by a lender
Fees for refinancing a mortgage
Or amount placed in escrow for the future payments of taxes or insurance
Wash sales – married filing separately
If spouses are married filing separately, wash sales still apply
Gross estate versus taxable estate
The value of the gross estate is figured without regard to liabilities. It is only the assets.
Taxable estate takes into consideration, several deductions to determine the amount of the taxable estate
Sales taxes on schedule C are…
A liability, not income, and are therefore excluded from gross receipts and deductible expenses
When a person with share an a partnership dies, how is the distributive shares allocated on each form?
Share of partnership income through the end of the month the person was alive is reported on 1040
Earnings in the months after the person died or reported on form 1041
Statutory non-employees
Three categories
Direct sellers
Licensed real estate agents
Certain companion sitters
These taxpayers are treated as self-employed for FICA purposes, and are usually required to pay estimated taxes
Can you deduct childcare expenses to receive medical treatment as a medical expense deduction on schedule a
No
When do you have to report a state income tax refund as income?
If itemizing deductions in the prior year and received a tax benefit from the state tax deduction
What type of insurance is not deductible on a schedule C?
The owners health insurance
Claimed as an adjustment to income on schedule one
But other types of insurance, including any health insurance cost for employees, would be deductible as ordinary business expenses on schedule C
Related party transaction rules do not apply to
Uncles, nieces, nephews, cousins, stepchildren, step siblings, step, parents, or in-laws
Mutual funds are always taxed as
Long-term capital gains or losses
Can a taxpayer deduct taxes if they were imposed in a prior year
Yes – as long as the taxes were paid during the current tax year
If you don’t reconcile the advanced premium tax credit…
Could be prevented from applying for PTC in the following year
For IRA purposes, is rental income considered qualified compensation
No
Qualifying charitable contributions must be made in…
Cash or property
The value of the free use of a taxpayers property is not allowed as a charitable deduction
For the purposes of determining the residency for a qualifying child, who is deemed the custodial parent
The parent with whom the child lived for the greater number of nights during the year
Regardless of who has legal custody
When calculating NIIT - does rental income count as investment income?
Yes
Itemizing salt taxes – what is the limit when filing married filing separately?
$5000, not $10,000
What is never considered a taxable recovery?
A federal income tax refund
If a K-1 includes business income, and other non-passive income – where does the beneficiary report it?
On part three of the beneficiaries schedule E
What happens if you itemized medical expenses claiming $200?…
And the following year received reimbursement for reported expenses of $500
How is it reported?
Only need to report the amount that was claimed as an itemized deduction in the prior year has taxable income
Only need to report $200 taxable income
Involuntary conversion – federally declared disaster area
How long does the taxpayer have to replace the home?
Four years after the end of the tax year
Real property that is held for investment or used in a trade or business is allowed a three year replacement.
When are scholarships taxable?
If a student is not a degree candidate, all scholarships are subject to federal income tax
Even if they spend it on educational expenses
Royalties from copyrights, patents, oil, gas, and mineral properties are taxable as
Ordinary income
Taxpayers cannot claim the refundable additional child tax credit if…
If they file form 2555 and elect to exclude for an earned income from tax
How is IRD reported to beneficiaries – on what form?
1099 – MISC
Not on a form W – 2
Nonbusiness bad debts
Always short term capital loss
A loan to a friend they can’t repay… write off as SHORT TERM capital loss on schedule D
Penalty for unreported tips
50% of SS and MW tax due on those tips
Statutory employee
Issued a form W – 2 by their employers
But they report their wages, income, and allowable expenses on schedule C just like self-employed taxpayers
The difference is that statutory employees are not required to pay self-employment tax
The employer pays that Sherrif, Social Security, and Medicare
Examples of statutory employees
Full-time life insurance sales people
Traveling sales people
Certain commissioned truck drivers
Certain workers who perform work on materials or goods furnished by the employer
In a lawsuit – our lost wages taxable
No, but any interest earned is
What are the two types of passive activity income?
Passive rental activity
A business activity in which the taxpayer does not materially participate
When determining Social Security tax ability – you need to include
All other income – including tax exempt interest like municipal bonds
Plus, half the Social Security benefits
Nonresident aliens with married filing jointly – electing to be taxed on worldwide income
What would end the election?
Revocation of the choice
Death
Divorce
Legal separation
In adequate records
What is not a preference item when calculating the AMT
Charitable contributions
Charitable contributions – things to remember
Appreciated property is subject to a 30% of AGI limit
Unused parts of a gift or charitable donation can be carried over to future tax years for five years
Lifetime learning credit – non-resident alien married filing jointly elects to be treated as a resident alien
Eligible for the lifetime learning credit
Municipal bond filing requirements
Even though they are tax exempt – they still need to be reported on the tax return
For the purposes of the premium tax credit – household income is the taxpayers adjusted gross income on the federal income tax return
plus…
Any excluded foreign income
Non-taxable Social Security benefits
And tax exempt interest
How is military severance pay taxed?
Generally taxable as wages
When members are separated from the military for medical reasons and given severance pay
Later awarded VA disability benefits – 100% of the disability severance benefit may be excluded from income
Can a full-time student still qualify for the EITC
Yes
Coverdell and 529 plans can be used for
Room and board
Not transportation expenses
Reporting requirements for an FSA and tax tax requirements
No reporting requirements for FSA on a taxpayers individual return
Not subject to employment, taxes, or federal income taxes
How are Worker’s Compensation payments reported on a tax return
They are not taxable and do not have to be reported on the return
