OA Review Webinar Flashcards
The U.S. Federal Income Tax System is:
Regressive tax rate structure
Progressive tax rate structure
Proportional tax rate structure
Possessive tax rate structure
Progressive tax rate structure
U.S. Federal and State Income Taxes use a progressive tax rate structures. Progressive tax rate structures increase the marginal tax rate as the tax base increases.
Regressive tax rate structures decrease the marginal tax rate as the tax bases increases. Our Social Security Tax and federal and state unemployment taxes are regressive. Ex. Social Security is capped at $135,200 in 2018. You will be taxed up to that income, any money you make over that amount will not be taxes.
Proportional Tax rate structure is also known as a flat tax. It is a constant tax rate throughout the tax base. Sales taxes and excise taxes are examples of a proportional tax.
The 16th amendment established that congress has the power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration. The amendment was ratified in:
1861
1892
1909
1913
1913
Judging the _______________ of a tax system means assessing the amount of the tax revenues it must generate to pay governmental expenditures.
Sufficiency Equity Certainty Convenience Economy
Sufficiency
Sufficiency – must tax enough $$$ to pay for the government.
Equity – how tax burden should be distributed across taxpayers.
Certainty – taxpayer should be able to determine when to pay taxes, where to pay taxes, and how to determine taxes.
Convenience- system should be designed to collect tax revenue without undue hardship on the taxpayer. Ex. Collecting from wages as earned, or sales tax when purchasing item.
Economy- Compliance cost should be reasonable
What is the Old Age, Survivors, and Disability Insurance (OASDI) tax rate to an employee? A) 12.4% B) 2.9% C) 6.2% D) 6.0%
C) 6.2%
Old Age, Survivors, and Disability Insurance (OASDI) Tax is social security tax. The rate for the tax is 12.4%. 6.2% is paid by the employee from their paycheck the other 6.2% is paid by the employer. There is a cap on how much income you are taxed on, tax is capped at $135,200 for 2018. This is a regressive Tax.
Medicare Tax rate is 2.9%. Employee pays 1.45% of that amount in wages to $200,000. Additional income is taxed at .9%. The employer also pays Medicare at a rate of 1.45% up to $200,000 Employer doe not pay after your reach $200.000.
What is the filing date for an Individual taxpayer if he is out of the country when his taxes are due?
A) Taxpayer is granted an automatic filing extension and his taxes are due by October 15
B) Taxpayer must file by April 15
C) Taxpayer missed the deadline and will be subject to late filing penalty
D) Taxpayer must file as soon as he returns to the United States
B) Taxpayer must file by April 15
Individual taxpayers have a tax year ending on December 31. Taxes must be filed the 15th day of the fourth month (April 15). The exception would be if it is a holiday or a weekend, then the next business day.
Taxpayers can ask for an extension to file a return, if they ask the IRS will grant it automatically. The extension is for 6 months.
If taxes are owed, taxes must be paid on the filing date, there is no extension for taxes owed.
What comes first in the tax research process? A) Issue B) Facts C) Locate Relevant Authorities D) Document
B) Facts
FACTS always comes first 1) Facts 2) Issue 3) Locate Relevant Authorities 4) Analyze Tax Authorities 5) Document and Communicate Results To answer a tax question, you must understand it. To understand the question, you must know the facts. Open Fact/Closed Facts – open facts allow the taxpayer to arrange a transaction to achieve the most advantageous outcome
What is a primary source of administrative tax law in the United States? A) Court Decisions B) Internal Revenue Code C) Treasury Regulations C) RIA Federal Tax Handbook
C) Treasury Regulations
Primary Authorities are official sources of the tax law. Primary sources can be broken down to:
Legislative branch- statutory authority issue by Congress – Internal Revenue Code
Judicial branch – court rulings interpreting the IRC
Executive/Administrative branch – ruling handed down from administrative agencies. Dept. of Treasury is an administrative agency, the IRS is a Bureau/Sub-Office of the Treasury. They produce Treasury Regulations and IRS pronouncements.
Highest Authority – Internal Revenue Code, Treasury Regulations and Tax Treaties
Secondary Authorities are unofficial tax authorities that explain the primary sources. They are written by private individual/companies. Examples are law review, professional journals, textbooks. Ex. CCH Master Tax Guide or RIA Federal Tax Handbook.
Never cite a secondary source!
A Taxpayer recognizes gross income when:
A) They receive an economic benefit B) They realize the income C) No tax provision allows them to exclude the income D) All of the Above E) A and B
D) All of the Above
A taxpayer has realized income when he engages in a transaction with another party and the transaction results in a measurable change in property rights.
Once you realize income the question is do you have to recognize it? Do you claim it on your income tax.
Unrealized – you have not completed the financial transaction
You may realize a gain but not have to recognize the gain – ex. Interest from tax free bonds.
You may realize a loss but not be able to recognize a loss – ex. Sale of personal use property like an automobile
Items excluded from income are…
***Items excluded from income are gifts, inheritances, and proceeds from the sale of personal residence
An individual purchases a piece of property for $83,000. The Fair market value for the property is $87,500. The individual puts down 20% of the cost of the property and takes out a loan for $66,400. The closing cost to buy the property are $2000. The individual plans on renting the property with estimated income of $10,000 a year. What is the basis for the property?
A) $83,000
B) $85,000
C) $87,500
D) $89,500
B) $85,000
A Taxpayers initial basis in an item is the cost of the item plus any expenses/cost to put it into services.
A tax basis is the value of an asset that is used when determining the gain or loss when the asset is sold. Generally, it equals the asset purchase price minus any accumulated depreciation.
Which items are capital assets?
Pick 2
A) Business Inventory for resale to customers
B) A personal residence
C) A Business Warehouse
D) Stock held by business for investment purposes
B) A personal residence
D) Stock held by business for investment purposes
Section 1221 defines Capital Assets in the negative:
(a)In general For purposes of this subtitle, the term “capital asset” meanspropertyheld by thetaxpayer(whether or not connected with histrade or business), but does not include—(1)stockin trade of thetaxpayeror otherpropertyof a kind which would properly be included in the inventory of thetaxpayerif on hand at the close of thetaxable year, orpropertyheld by thetaxpayerprimarily for sale tocustomersin the ordinary course of histrade or business;
(2)property, used in histrade or business, of a character which is subject to the allowance for depreciation provided in section 167, or realpropertyused in histrade or business;
Business Inventory and real property used in the business are not considered capital assets.
Grandma Charity purchased 10 shares of Disney Stock on June 15, 1989 for $10 a share, total purchase cost $100. In honor of Sadie, her favorite granddaughter, on her 18th birthday she gave her the stock. FMV at the time of gift $146 a share total value $1460. What is the Sadie’s basis in the gift?
A) $100
B) $1460
C) Cannot determine until Granddaughter sells the stock
D) $1
A) $100
Basis in a gift depends on whether the value of the asset exceeds the donor’s basis on the date of gift.
If the fair market value of the asset on the date of the gift is greater than the donor’s basis, the recipient takes the donors basis. Purchase price and date of purchase.
If the asset has declined in value, if the fair market value is less than the basis you use the Dual Basis Rule. Basis will depend on when the asset is sold. If sold below FMV, basis is FMV on date of gift and holding period is date of gift. If sold above gift basis, basis is gift basis and holding period is date or original purchased.
Any amount between is a wash – no gain no loss to report.
Inherited property – you take at FMV on date of decedent’s death and your holding period is always deemed long-term.
A business spends $20,000 for light truck on February 5. The business buy a new computer system on June 25 for $10,000. The business buys new office furniture on November 14 for the cost of $5000.
What is the MACRS depreciation deduction for the truck? (Ignore section 179 and any applicable bonus depreciation.)
MACRS: Depreciation for year 1 of 5yr asset is 20% and 7yr is 14.29%.
$2858
$6745
$4000
$5000
$4000
Truck $20,000 x 20% 5-year asset = $4,000
Computer $10,000 x 20% 5 year = $2,000
Furniture $5,000 x 14.29% 7 year = $715
Total Depreciation $6715
Recovery Period for Cars, light general-purpose trucks, computers, and peripheral equipment are 5 years.
Recovery Period for office furniture, fixtures, and equipments are 7 year.
MACRS Depreciation
You pick what depreciation method you want 200%, 150%, or straight line
Default is the 200%
If business puts more than 40 percent of their total tangible personal property in service during the fourth quarter, you must mid-quarter depreciation. Use mid-quarter chart for the quarter asset put in service.
Real Property – land, residential rental property, or nonresidential property is straight line depreciation. LAND IS NONDEPRECIABLE
A 35-year-old taxpayer is calculating her deductions for a given tax year. She examines her records and finds that in the last calendar year she paid $4000 in property tax, received a $500 tax refund, donated $3000 to qualified charities, paid $5,000 in mortgage interest for her house, spent $7200 on medical expenses and paid her accountant $350 to prepare her taxes. Her adjusted gross income is $67,500. What are her itemized deductions? (assume 2018)
A) $12,000
B) $19,137
C) $14,137
D) $17,000
B
Medical itemized deductions are a floor. You have to spend more than the floor to get a deduction. Take AGI $67,500 x 7.5% = $5062.50 (floor) rounded up to $5063.
Medical expenses were $7200 - $5063 = $2137
Medical $2137 + property tax $4000 + Charity $3000 + Mortgage interest $5,000 = $14,137
↓これは絶対に覚える！
Rate for 2018 – 7.5%
Rate for 2019 – 10%
Mileage Rate for medical 2018 – 18 cents per mile
