R1

Question 1

Phase-out of Personal Exemptions rule

Answer 1

For every 2,500 for MFJ income above the limit the exemption is reduced by 2%

Question 2

Qualifying Child dependency exemption test

Answer 2

CARES
Close Relative
Age Limit
Residency and Filing Requirements
Eliminate Gross Income Test
Support Test Changes

Question 3

Qualifying Relative dependency exemption test

Answer 3

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

Question 4

Partially Taxable Fringe Benefits– Portion of Life Insurance Premiums

Answer 4

(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

Question 5

How much can be excluded from employer payment of employee’s educational expenses each year?

Answer 5

5,250

Question 6

For Qualified Pension, profit-sharing, and stock bonus plans remember that payments made by employer are nontaxable but

Answer 6

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

Question 7

What are flexible spending Arrangements?

Answer 7

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

Question 8

What is the general rule on interest income?

Answer 8

All interest income is taxable *unless it is specifically excluded

Question 9

What are some tax-exempt interest income items?

Answer 9

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

Question 10

Kiddie tax rules

Answer 10

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.

Question 11

Tax-free dividend income

Answer 11

Return of capital, stock split, stock dividend (unless cash or other property option/taxable FMV), life insurance dividend

Question 12

Carryforward/carryback rule for net business loss

Answer 12

2-year carryback or 20-year carryforward

Question 13

What categories are capitalized as inventory under the uniform capitalization rules?

Answer 13

direct materials
direct labor
factory overhead

Question 14

what categories are period expenses for inventory under the uniform capitalization rules?

Answer 14

Selling
General
Administrative
Research & development

Question 15

Difference between Cash basis farmers and accrual basis?

Answer 15

Inventories of produce, livestock, etc are not considered under the cash basis but are considered under the accrual

Question 16

What is the penalty tax on IRA income?

Answer 16

10% + regular income tax

Question 17

When is there an exception to the penalty tax?

Answer 17

Home buyer 10,000 maximum, insurance, medical, disability, education, death

Question 18

Rental Vacation home rented less than 15 days is

Answer 18

nontaxable

Question 19

Rental vacation home rented more than 15 days is

Answer 19

taxable and expenses must be prorated

Question 20

What is the mom and pop exception for passive activity losses?

Answer 20

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

Question 21

When is social security income not taxable?

Answer 21

Low Income= below 25,000 of income

Question 22

When is social security income taxable?

Answer 22

“high income”= income over 34,000 then 85% of social security benefits are taxable

Question 23

Is Accident insurance taxable or nontaxable?

Answer 23

Nontaxable when all the premiums are paid by taxpayer

Question 24

Nonqualified option is taxed when

Answer 24

granted if the option has a readily ascertainable value when granted. Otherwise, the option is taxed when exercised

Question 25

What are the two types of qualified stock options?

Answer 25

Incentive Stock Option and Employee Stock Purchase Plan

Question 26

What is an incentive stock option? When is it taxable?

Answer 26

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

Question 27

Some requirements for employee stock purchase plans

Answer 27

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

Question 28

took out items included in gross income

Answer 28

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