R1 - Federal Taxation Ind Flashcards
Accruable Expense
Services have been received/performed but have not been paid for by the end of the reporting period
Nonaccountable Plan
Expenses are NOT reported to the employer, the extra monies are to be reported by the employer as wages to the employee’s W-2 for the year.
The gross amount received is reported as income
Fringe Benefits
Reimbursement of moving expenses is considered a FB.
Has to be recorded as taxable income but cannot deduct expenses for moving.
Only time Moving expenses are deductible is if they are incurred by members of the US Armed Forces.
EE US Savings Bonds after 1989
One of the conditions that must be met for tax exemption of accumulated interest on the bonds is that the purchaser of the bonds must be the sole owner of the bonds (including joint owner w/spouse)
Other conditions include, for post-1989 bonds:
** the taxpayer is over age 24 when issued and is used to pay for higher education, reduced by tax-free scholarships, of the taxpayer, spouse, or dependents
Interest Income
Interest Income from US Obligations is generally taxable
Int income on a federal tax refund is taxable.
What’s taxable?
Interest on Federal income tax refund
Interest on State income tax
Interest on Federal government obligations
What’s NOT taxable?
Interest on state government obligations is normally NOT taxable
Interest received from state and municipal bonds
Payments to be classified as alimony
- Payment must be in cash or its equivalent
- Payments cannot extend beyond the death of the payee-spouse
- Payments must be legally required pursuant to a written divorce (or separation) agreement
- Payments cannot be made to members of the same household
- Payments must not be designated as anything other than alimony
- The spouses may not file a joint tax return
The requirements for payments to be considered alimony (income) are the same as for payments to be alimony (deductions).
Alimony paid is not deductible and alimony received is not considered taxable income for all divorce or separation agreements executed after Dec. 31, 2018
Withdrawals from deductible traditional IRA
(IRAs for which the contributions were deducted) are taxed as ordinary income.
Withdrawals prior to age 59 1/2 are subject to a 10% penalty tax (unless and exception applies)
Effective Tax Rate
Total tax divided by the total taxable income
Marginal Tax Rate
Tax that applies to regular income
HIM DEAD TED
Premature distribution from a Traditional IRA have exceptions
Homebuyer (first time): monies used to buy first home within 120 days of distribution ( limit to $10k max exclusion )
Insurance ( medical if unemployed and with 12 consecutive weeks of unemployment compensation )
Medical expenses in excess of % of AGI floor
Disability (permanent or indefinite disability, but not temporary disability)
Education (college tuition, fees, books, etc.)
Adoption or birth of a child within 1 year from the date of birth or adoption ($5k max exclusion)
Disaster - Qualified natural disaster ($22k max per disaster)
Terminal Illness or death
Emergency Exp (for personal or fam emergency, up to $1k per year)
Domestic abuse victims (lesser of $10k or 50% of retirement account)
Distributions from a deductible tradition IRA are taxable to the recipient as ordinary income and would be included in taxable gross income in the year of distribution
Gain or loss on a year-end sale of listed stock
takes place on the TRADE DATE
whether on the cash or accrual method of accounting
taxpayers who sell stock or securities on an established securities market must recognize gains and losses on the trade date, rather than on settlement date
PUNITIVE DAMAGES
Received in a personal injury case are fully taxable
except in a wrongful death case where state law has limited wrongful death awards to punitive damages
PHYSICAL PERSONAL INJURY damages
Are NOT taxable and should be excluded from gross income
Amount that may be excluded from taxable income from payments to school made on behalf of employer
$5,250
Guaranteed Payments LLC
Partnership calculates net ordinary business income or loss and passes each partner’s distributive share through on Sch K-1
Guaranteed payments paid to partners for services provided or for the use of capital, W/O regard to partnership income or profit and loss sharing ratios, are an allowable deduction to the partnership and are also separately reported on Schedule K-1 for inclusion on the partner’s tax return
Schedule C
Wages paid to owner - are considered a draw
Business meals are - 50% deductible
Business bad debt loss (allowance) - direct write-off for accrual basis taxpayers
State income taxes for the business - not deducted on Sch C, an itemized deduction
Interest Paid in Advance
by a cash basis taxpayer on business loans cannot be deducted until the tax period to which the interest relates
The interest must both paid and incurred in order to be deducted
For Profit (a hobby)
Cannot deduct any expenses that would be a deductible
any income they would make would have to record as taxable income
