R1 Flashcards
Due date for return
April 15
*automatic 6 month extension for filing only
Qualifying Widow(er) (Surviving Spouse) with dependent child requirements
- have a qualifying dependent child
- child must live for the WHOLE year
- pay for over 50% of the household costs
Head of Household
- individual must live for over HALF of the year and falls into these categories:
1. single mother
2. nursing home for parents (if they don’t live with you, you must pay costs for entire year of residence)
3. dependent relatives (no freeloading friends)
Spouse as Personal Exemption on a Separate Return
- spouse has no income
2. spouse cannot be claimed by another taxpayer
Phase-Out of Personal and Dependency Exemptions
2% for every $2,500 increment over limit
Qualifying Child Requirements
C lose relative A ge (under 19 or 24 if full-time college student) (5 different months must be spend at college) R esidency (primary residence) E liminate Gross Income Test S upport test changes
Qualifying Relative Requirements
S upport test ( > 50%)
U nder exemption amount ($3,950) (TAXABLE income)
P recludes filing joint unless filing for a refund
O nly citizends of US or residents of US, Mexico, or Canada
R elative
T axpayer that lived with the individual for the entire year
General Rule - Custodial Parents
parent who has custody of the child for the greater part of the year takes the exemption
Multiple Support Agreements
- aggregate must be over 50%
2. claiming individual must contribute at least 10%
Four types of income
- Ordinary
- Portfolio
- Passive
- Capital
Partially Taxable Fringe Benefits - Life Insurance Premiums
*premiums above the first $50,000 of coverage are taxable income to the recipient
Nontaxable Fringe Benefits
- medical insurance
- life insurance proceeds
- de minimis fringe benefits
- meals and lodging
- employer payment of employee’s education expenses
- qualified tuition reductions
- qualified pension, profit-sharing, and stock bonus plans (benefits are taxable when distributed)
- flexible spending arrangements
* *up to $2,500 and expires 2 1/2 months after year end
Taxable Interest Income
- federal, industrial, and corporate bonds
- premiums received for opening a savings account
- interest paid for late payment of a tax return
Tax Exempt Interest Income
- state/local bond interest
2. Series EE Bonds (must be used for higher education and taxpayer must have ownership)
Kiddie Tax
First $1,000 excluded
Second $1,000 taxed at child’s rate
Thereafter at parent’s rate
Is forfeited interest a deduction or an adjustment?
adjustment
Tax-Free Distributions
- stock dividends
- stock splits
- return of capital
- life insurance dividends
Requirement to include state refund from prior year in income
- itemized last year
AND - received a refund
*amount is the lesser of the refund or the amount by which the itemized deduction exceeded the standard deduction
Is alimony income for the receiving spouse?
Yes
Is alimony a deduction or an adjustment for the paying spouse?
adjustment
Is child support included in income?
No
*look for what percentage is excluded past the age of 18
How are property settlements treated persuant to a divorce?
Nontaxable
For Schedule C, which method must be used for inventory?
accrual method
Nondeductible expenses for Schedule C
- federal income tax
- salary paid to you
- personal portion of other expenses
- bad debt for cash basis
- charitable contributions
Two taxes on self-employment income
- income tax
2. Federal self-employment tax
Net Operating Loss for Individuals
*can offset any other type of income
Carryback 2
Carryforward 20
Uniform Capitalization Rules
Capitalized
- direct materials
- direct labor
- manufacturing overhead
Period Expense
- R&D
- selling
- general
- administrative
Long-Term Contracts for Schedule C
- requires use of % of completion unless:
- *small contractors
- *home construction contractors
- *professional services
- *services performed under warranty and maintenance
Cost-to-Cost Method
costs incurred in period / total expected costs
Gross Income Recognition Method for LT Contracts
Cost-to-Cost % times contract price (cumulative)
Farming Income
Schedule F
Cash Basis (most)
**inventories of produce, livestock, are not considered
Accrual Basis
**must be used and maintained
IRA Income
*cannot be withdrawn until the individual reaches the age of 59 1/2
IRA Income Penalty
10% for early withdrawal
IRA Income Penalty Exclusions
H ome buyer (1st time) I nsurance (medical) M edical expenses D isability E ducation a nd D eath
Annuities should be treated like _____
Depreciation (i.e. portion is recovered principle)
Basic Formula for Net Rental Income/Loss
Gross Rental Income
Prepaid Rental Income
Rent Cancellation Payment
Improvement In-Lieu-of Rent
Rules for Vacation Home
Rented less than 15 days
**rental income is excluded
Rented more than 15 days
**pro rate expenses
Rental Use Expenses are limited by
Rental income; cannot be a rental loss
Passive Activity Losses
- net passive activity loss cannot be deducted
- carry forward without limit
- suspended losses are used to offset passive income in future years
- become fully tax deductible in the year the property is sold
Mom and Pop Exclusion
Rental Activity Income with Active Participation
- $25,000 can be deducted
- phased out by 50% of the excess over $100,000
Rental Income/Loss is what type of income
Passive
Is rental activity for a real estate professional passive or active?
Active so long as:
- 50% of services are performed in real estate
- performs more than 750 hours for real property services
Is unemployment compensation taxable?
Yes
Social Security Income (general income exclusion rules)
Low Income = 0%
High Income = 85% (15% was deducted out so this amount should be excludable)
Taxable Miscellaneous Income
Prizes and awards
Gambling Winnings and Losses
Business Recoveries
Punitive Damages
Partially Taxable Miscellaneous Items
- Scholarships for Degree-Seeking Student
* *excludable up to amount spent on tuition, fees, books, and supplies
* *no services can be performed
Nontaxable Miscellaneous Items
Life Insurance Proceeds (interest income is taxable though)
Gifts and Inheritanes
Medicare Benefits
Workers compensation
Personal (Physical) Injury or Illness Award
Accident Insurance
unemployment benefits vs. workers compensation
unemployment = taxable
worker’s compensation = nontaxable
Are punitive damages included in gross income?
Yes
Employee Stock Option Types
Qualified Options
**Incentive Stock Option (ISO)
**Employee Stock Ownership Plan (ESOP)
Nonqualified
Taxation for Nonqualified Employee Stock Options
With Ascertainable Value = taxed at grant
**ordinary income for FV of option
**basis = taxable income recognized + exercise price
Without Ascertainable Value = taxed at exercise
**ordinary income for difference between FV and option price
**basis = exercise price + ordinary income
Employer taxation for nonqualified employee stock options
deductible in the year in which the employee reports income
Taxation for Qualified Employee Stock Options
ISO
- taxed when ultimately sold
- exercise price may not be less than the FMV of the stock
- employer gets no deduction
- basis = exercise price
ESOP
- taxed when ultimately sold
- cannot be sold to someone owning more than 5% combined voting power
- employer gets no deduction
- basis = exercise price
- exception; income if option price is less than the FMV of the stock on grant date
Employer Payment of Employee’s Educational Expenses
*limited to $5,250 and is nontaxable up to that amount
Conditions needed to exclude prize money from gross income
- did not enter into the competition
2. all proceeds go to charity
Qualified Dividend Holding Period Requirement
60 days
