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Individual Taxation > R1 > Flashcards

R1 Flashcards

0
Q

Qualifying Relative

A

SUPORT

S - support > 1/2
U - under exemption amount of (taxable) gross income
P - precludes filing joint return (unless only for a refund)
O - only citizens of US or residence of US, Mex, or Canada
R - relative
-or-
T - TP lives with individual for whole year

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1
Q

Qualifying Child

A

CARES

C - close relative
A - age limits 19 / 24 (FT college)
R - resides with TP whole year
E - earned income under exemption amount not required (child can earn any amount of income)
S - support test changes, must not provide more* than 1/2 own support

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2
Q

If spouse dies during year

A

Still file joint return for that year

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3
Q

Surviving spouse status

A
  • must have qualifying dependent lives with for full year

* get this status for 2 full years after year spouse dies

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4
Q

Head of household

A

must have qualifying child

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5
Q

Single includes

A

Legally separated

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6
Q

Exemption amount if someone is born or dies within a taxable year

A

Get exemption

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7
Q

4 characterizations of income

A
  • ordinary
  • portfolio (real estate)
  • passive (passive losses may only be deducted against passive gains; otherwise net passive loss CF)
  • capital (property)
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8
Q

Event: taxable

A 
Income= FMV
Basis = FMV
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9
Q

Event: nontaxable

A 
Income= none
Basis= NBV
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10
Q

Blind or 65+ means:

A

Increased standard deduction*

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11
Q

Tax formula

A

Gross income - adjustments = AGI - (itemized ded or standard ded) = tax + AMT = taxable income - payments - credits = taxes due

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12
Q

Gross income

A

Cash = amount received (cash basis)
Property = FMV
Cancellation of debt

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13
Q

Business meal and entertainment expenses on schedule C:

A

May only deduct 50%

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14
Q

Schedule C, salary and commissions:

A

Deductible only if paid to *others (not to yourself)

**For SE: you are taxed on “net profits”

  • like bank account, you’re taxes on the interest income, whether or not you left it in the account or took it out
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15
Q

Schedule C, deduction of interest expense on business loans

A

Interest expense paid in advance by a cash basis TP cannot be deducted until the tax year/ period to which the interest relates

  • must be “incurred and paid” **
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16
Q

Determination of net rental income (loss):

A 
Gross Rental Income
\+ prepaid rental income (nonrefundable deposits)
\+ rent cancellation payment
\+ improvements in-lieu-of rent (at FMV)
- rental expenses
== Net Rental Income (Loss)
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17
Q

SS benefits included in gross income

A

85% is max amount of SS benefits to be included in gross income (none is lowest)

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18
Q

Workers’ Compensation included in gross income?

A

No, it’s nontaxable

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19
Q

Unemployment compensation included in gross income?

A

Yes, it’s taxable

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20
Q

Roth IRA contributions on a tax return:

A

Roth IRA contributions are not deductible contributions and are NOT reported on a personal tax return, nor on Schedule C

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21
Q

State estimated tax payments on farm earnings

A

Estimated tax payments are grouped together and shown as one line item for “Estimated Tax Payments” in the payments sections of the state* income tax return.

If person itemizes, provided the payments were made within the year, the payments would be reported as itemized deductions (taxes paid) on Schedule A form 1040. They might also be reported on the AMT form (form 6251) if person is subject to AMT.

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22
Q

Property taxes on home

A

If person itemizes, property taxes paid would be reported as an itemized deduction (taxes paid) on Schedule A form 1040. They might also be reported for AMT form if subject to AMT.

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23
Q

Farmer’s fertilizer cost

A

Farmer allowed to elect to expense (simply by claiming the deduction on the tax return) fertilizer costs, even if they provide benefit for more than 1 year (and thus would be chargeable to a capital account and amortized to expense). In either case, fertilizer costs reported on Schedule F

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24
Q

Late payment penalties on payroll taxes- deductible?

A

No. Penalties are never deductible, even if they relate to the business.

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25
Q

Prepaid feed for cash-basis farmers

A

Provided the feed purchases are payments (not deposits) for feed necessary for farming business and there’s no material distortion of income from farming activities, the farmer may expense all feed expenditures in the year of the expenditure. (If not prepayments)

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26
Q

Proceeds from business line of credit

A

Proceeds from line of credit are never line items of gross income for a business. (Merely increase the liability account of the business and not reported on the income statement or any tax form (Schedule C) that’s used to calculate net taxable income. (Note that it will be a line item on statement of cash flows)

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27
Q

Interest on business line of credit loan

A

Reported on Schedule F (C)

As opposed to interest income, interest EXPENSE on money borrowed to fund business activities is deductible as an item of ordinary business expense on Schedule F(C)

28
Q

Principal repayments on business line of credit

A

Principal repayments are never items of expense, regardless of the business. They are merely payments made to reduce a liability.

Note that just as the (farm) line of credit proceeds were not income, repayments are not expense.

29
Q

Bank interest (income) on farm (business) account

A

Shown elsewhere on joint return (not on Schedule F(C)

Income is reported in separate types of “baskets” of income: ordinary, capital, passive, portfolio. These baskets of income generally do not net against each other on the joint return, as special rules govern deductibility of expenses and reporting of income in several cases. With regard to interest income, an item of portfolio income is not reported on Schedule F(C) with the (farming) business, even though it is from the account used in the farming business. All interest is reported on Schedule B of Form 1040.

(Note that interest expense, however, is an item of business expense)***

30
Q

Inventories for crops or livestock raised by cash-basis farmer

A

Inventories NOT use.

If farmer raised cattle, costs expenses in year of expenditure. When sells cattle, income = sale proceeds - cost of livestock

31
Q

Section 1231 gain

A

Capital gain

32
Q

Section 1231 loss

A

Ordinary loss

33
Q

Gross income test eliminated under

A

CARES (qualifying child)

34
Q

To be a qualifying relative under SUPORT, gross income must be:

A

Less than the exemption amount for the year

35
Q

To be full time student for dependency purposes, how many months out of year must someone be a full-time student

A

For at least parts of 5 different months during the year

36
Q

For qualifying relative dependent under SUPORT, the taxpayer must provide how much support for the taxpayer?

A

at least 50%

37
Q

Life insurance premiums paid by taxpayer

A

Not deductible

Life insurance premiums are a personal expense that is not specifically listed as a deductible expense and, as a result, may not be taken as a deduction

38
Q

Homeowners insurance paid on family home

Deductible?

A

Not deductible

Homeowners insurance premiums are a personal expense

(Homeowners insurance premiums on rental property may be deducted on Schedule E)

39
Q

Sales tax paid on purchase of family car

Deductible?

A

Deductible from AGI

During a tax year, TP may choose to deduct the higher of state and local income tax payments or sales tax payments

40
Q

Tax Treatment of earnings and distributions from Roth IRA

A

Earnings and distributions from Roth IRA are generally excluded from gross income

41
Q

Medical insurance premiums deducted from an individual’s disability checks

A

Deduction from AGI

42
Q

Qualified dividends on the tax return

A

On “qualified dividends” line
AND on “ordinary dividends” line

(The qualified dividends are includable in gross income as ordinary dividends.)

(The qualified dividends are subject to a special tax rate that is dependent upon the TP’s income.)

43
Q

Mom-and-Pop Exception

A

$25,000 rental real estate loss excludable from gross income if taxpayer:

  • actively participated
  • AGI under $100,000 (phases out 50% up to $150,000)
44
Q

Rental real estate taxes paid

A

Deductible FROM AGI (itemized deduction),

NOT deductible on the front page of the 1040

45
Q

Contributions to a Traditional IRA are deductible unless:

A

TP’s income is above the statutory amount AND the TP is a member of a qualified plan

(Must have earned income in excess of contribution too - spouses income combined)

Max contrib = $5,500 per person ($11,000 MFJ even if one spouse has no earned income)

46
Q

Half of the SE Income tax is rate of

A

7.65%

47
Q

SE tax deduction from AGI calc for SS and Medicare

A

Half of SE taxes (7.65%) are deductible $117,000 (max for S.S. Deduction)

S.S. Tax = 12.4%
Medicare Tax = 2.9%

(After $117,000 income threshold, can still deduct Medicare taxes (half of 2.9%, but not half of SS taxes))

48
Q

Tax treatment of individual who buys an airplane ticket for work and was not reimbursed by his employer

A

Itemized deduction subject to the 2% limitation

(Unreimbursed business expenses are a miscellaneous itemized deduction for an employee (a SE individual has different rules))

49
Q

Tax treatment of gambling losses

A

Itemized deduction not subject to the 2% itemized deduction

Deduct separately from gambling winnings instead of netting

50
Q

Tax treatment of

Health insurance premiums for indiv and his family paid by a SE indiv

A

100% deductible as adjustment, up to earnings

Not subject to 10% AGI medical expense threshold

51
Q

What’s the tax treatment and limit for

Penalties on early withdrawal of savings

A

Adjustment for AGI
** if HIMDEAD

(Any amount??)

Can be written as “withdraws savings from CD early and forfeits $250,000 of interest”

52
Q

Are chiropractors a qualifying medical expense?

A

Yes. Chiropractors are considered doctors.

53
Q

Qualifying medical expenses include what expenses for drug addiction treatment

A

Treatment, lodging, and meals are all covered

Regardless of whether incidental or not

54
Q

If a tax benefit was received for the deduction of medical expenses in the PY, the reimbursement by health insurance company in the CY for PY qualifying medical expenses

A

Is included in income for year and does not affect the medical expense deduction in the CY

55
Q

Property insurance for home office

Deductible on Schedule C and/or A?

A

For home: property insurance is a personal expense (nondeductible)

Schedule C: deductible

(Bc home used as primary place of business)

56
Q

Mortgage Interest

Deductible on Schedule C and/or A?

A

For home- deduct on Schedule A

Schedule C - deduct

57
Q

Real estate taxes

Deductible on Schedule C and/or A?

A

For home - deduct on Schedule A

Schedule C - deduct

58
Q

Furnace repair

Deductible on Schedule C and/or A?

A

For home- *nondeductible personal expense on Schedule A

Schedule C - *deduct

*Note the different rules

59
Q

Kitchen remodeling

Deductible on Schedule C and/or A?

A

Home - nondeductible on Schedule A

Schedule C - nondeductible

(Personal capital expenditure for the home. It’s not an expense of operating the home, therefore none of this expenditure is deductible at all. It will, however, add to the adjusted basis of the home).

60
Q

Utilities

Deductible on Schedule C and/or A?

A

For home - *nondeductible personal expense

Schedule C - *deductible

note the difference*

61
Q

Expenses of home office deductions

for personal taxes (Schedule A) and

For Schedule C (SE business (if using home office as TP’s primary place of business))

A 
Schedule A (itemized deductions) - cannot deduct expenses of operating the home
(Can deduct mortgage interest, RE taxes)
(CANNOT deduct property insurance, furnace repair, kitchen remodeling, utilities, cleaning services, depreciation)*

Schedule C - can deduct expenses of operating the home (not capital expenditures)
(Can deduct cleaning services, RE taxes, mortgage interest, property insurance, utilities, depreciation (Cannot create a loss**)

*for nondeductible personal expenses, think of how I cannot deduct utilities, depr, furnace repair, remodeling, maids)

62
Q

Cleaning services

Deductible on Schedule C and/or A?

A

For home - *nondeductible

For Schedule C - *deductible

*Note difference

63
Q

Depreciation on home

Deductible on Schedule C and/or A?

A

Depreciation of the office portion of a home used as a principal place of business is deductible on Schedule C, *but home office deductions may NOT create a loss on Schedule C
- if amount given is $4,000 depreciation (tax method for home office portion only), and there’s only $3,000 income left after deducting all of expenses from gross receipts of business, then only $3,000 is deductible. The additional $1,000 (of the $4,000 allocated to the home office) may be CF to next year

64
Q

Gambling income and loss goes where on tax form?

A

Gambling income included in AGI***

Gambling losses (up to amount of gambling income) is added to Miscellaneous Itemized Deductions

(NOT netted*)

65
Q

Medical expenses for mother who would have been dependent are deductible as qualified medical expense of yours IF

A

only reason for lack of dependency is the gross income limitation ( or the joint return requirement)

66
Q

Are personal disability insurance premiums deductible?

A

Not deductible (but also generally NOT taxable when received** if paid by TP with post-tax dollars)

(*only medical and hospital insurance premiums are deductible as medical expenses)

67
Q

Interest paid on a home equity loan

Deductible?

A

Deductible as an itemized deduction on Schedule A

UP TO the lesser of $100,000 or the (FMV home - acquisition indebtedness = equity in home)

Individual Taxation (1 decks)

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