R1 Flashcards
Phase-out of Personal Exemptions rule
For every 2,500 for MFJ income above the limit the exemption is reduced by 2%
Qualifying Child dependency exemption test
CARES Close Relative Age Limit Residency and Filing Requirements Eliminate Gross Income Test Support Test Changes
Qualifying Relative dependency exemption test
SUPORT
Support (over 50%) test
Under a specific amount of (taxable) gross income test
Precludes dependent filing a joint tax return test
Only citizens (residents of U.S./Canada or Mexico) test
Relative test
OR
Taxpayer lives with individual for whole year test
Partially Taxable Fringe Benefits– Portion of Life Insurance Premiums
(non discriminatory plans only) premiums above the first 50,000 of coverage are taxable income to the recipient and normally included in W-2 wages
How much can be excluded from employer payment of employee’s educational expenses each year?
5,250
For Qualified Pension, profit-sharing, and stock bonus plans remember that payments made by employer are nontaxable but
benefits received are taxable, this means that the amount that is exempt from tax is taxable to the employee in the year in which the amount is distributed or made available to the employee
What are flexible spending Arrangements?
They are pretax deposits into an employee’s accounts and can have up to 2,550 deposited per year, they forfeit funds not used within 2 1/2 months after year-end
What is the general rule on interest income?
All interest income is taxable *unless it is specifically excluded
What are some tax-exempt interest income items?
Interest on state and local bonds/obligations is tax-exempt.
Series EE = educational expenses. These bonds are tax=exempt when it is used to pay for higher education, there is a phase-out when modified AGI exceeds an amount
Kiddie tax rules
Unearned income of a child under 18 is taxable at the parent’s higher tax rate but the child is allowed thee standard deduction of 1050 plus an additional 1050 that is taxed at the child’s rate.
Tax-free dividend income
Return of capital, stock split, stock dividend (unless cash or other property option/taxable FMV), life insurance dividend
Carryforward/carryback rule for net business loss
2-year carryback or 20-year carryforward
What categories are capitalized as inventory under the uniform capitalization rules?
direct materials
direct labor
factory overhead
what categories are period expenses for inventory under the uniform capitalization rules?
Selling
General
Administrative
Research & development
Difference between Cash basis farmers and accrual basis?
Inventories of produce, livestock, etc are not considered under the cash basis but are considered under the accrual
What is the penalty tax on IRA income?
10% + regular income tax
When is there an exception to the penalty tax?
Home buyer 10,000 maximum, insurance, medical, disability, education, death
Rental Vacation home rented less than 15 days is
nontaxable
Rental vacation home rented more than 15 days is
taxable and expenses must be prorated
What is the mom and pop exception for passive activity losses?
Taxpayers may deduct up 25,000 per year of net passive losses, the phase-out is 50% and starts when the taxpayer’s AGI is over 100,000 and ends at 150,000
When is social security income not taxable?
Low Income= below 25,000 of income
When is social security income taxable?
“high income”= income over 34,000 then 85% of social security benefits are taxable
Is Accident insurance taxable or nontaxable?
Nontaxable when all the premiums are paid by taxpayer
Nonqualified option is taxed when
granted if the option has a readily ascertainable value when granted. Otherwise, the option is taxed when exercised
What are the two types of qualified stock options?
Incentive Stock Option and Employee Stock Purchase Plan
What is an incentive stock option? When is it taxable?
It is the right to purchase the stock at a discount and is usually granted to a key employee. It is not taxable as compensation but only as a capital gain/loss when sold, for the employer it is not a tax deduction
Some requirements for employee stock purchase plans
Cannot grant options to an employee who has more than 5% combined voting power
Option exercise price may not be less than the lesser of 85% of the FMV of stock when granted or exercised
Stock must be held at least two years after grant date and at least one year after the exercise date
took out items included in gross income
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