R1 - Federal Taxation of Ind Flashcards

M1

1
Q

QC Qualifying Child
CARES

A

Close Relative - son, daughter, stepson, stepdaughter, brother sister, step of these or descendent of any of these

Age Limit - Child must be younger than the taxpayer, and under age 19 ( or 24 for a full-time student ) permanently disabled at anytime during the year.

Residency and Filing Requirements - child must live in same place as taxpayer for than half a yr, Citizen or resident of US, Canada, or Mex

Eliminate Gross Income Test - gross income test does NOT apply to a qualifying child

Support Test - must not have contributed more than half of his or her own support. Social Security and state welfare payments are included in the dependent’s total support.

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2
Q

QR Qualifying Relative
SUPORT

A

Support Test - taxpayer supplied more than 50% support, for QR and QC

Under Gross Income Limitation - QR must have gross income less than $5,050 OF TAXABLE INC
Non-Taxable Income:
-Social Security (at low income levels)
-Tax-Exempt int income (state & municipal int income)
-Tax-exempt scholarships

Precludes Dependent Filing a Joint Return

Only Citizens of the US or Residents of US, Mexico or Canada - QR must be citizen of the US or resident of US, Mexico or Canada

Relative - Children, grandchildren, parents, g-parents, bro, sis, aunts & uncles, nieces & nephews (step - children, parents, brothers or sisters, in-laws)
Foster parents & COUSINS are not considered to be relatives.

Taxpayer Lives w/the individual the entire year - Foster parents & cousins must live with the taxpayer the entire year in order to be considered a QR

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3
Q

Multiple Support Agreement

A

Taxpayers who provide more than 10% of support to another individual may or are eligible to claim that individual as a dependent

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4
Q

Damages for personal injury are excluded from gross income

A

Workers’ Compensation for a job-related injury

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5
Q

Traditional IRA

A

Earnings from a Traditional IRA are taxable when withdrawn from IRA

at 59 1/2 distributions become penalty free

Early withdrawal are penalized
Penalized 10%

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6
Q

Disability Pay & Punitive Damages

A

If Disability pay was paid by employer and taxpayer gets reimbursed for the disability pay then it is considered taxable
BUT
If Taxpayer paid the disability insurance premiums after tax, then the benefits (reimbursement) received would NOT be taxable

Punitive damages monies are fully taxable

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7
Q

2nd Residence

A

Treated as a personal/rental residence and exp must be prorated between and rental use.

If it is rented for more than 14 days
AND
Is used for personal purposes for the greater of
1. more than 14 days
2. more than 10% of the rental days

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8
Q

Charitable Contribution

A

When an object or item is contributed
ONLY
The excess paid over the FMV is deductible.

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9
Q

Deductible Charitable Contributions

A

Artwork is ordinary income property only if held short term
ONLY BC
it was held for one year or less

Ordinary income property is the lesser of
Property ADJ basis OR FMV at the time is was contributed

Must be a qualifying charitable organization

If Artwork was held longer then its LTCG and if appreciated can be deducted at FMV at time of contribution, deduction 30% of AGI

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10
Q

To meet the SUPORT test QR

A

Statement must state that the taxpayers must provide more than 1/2 of the support of QR

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11
Q

Investment Interest Expense Deduction

A

Is an itemized deduction
LIMITED TO
Net investment income

Taxable interest is included in net investment income

Rental income and tax exempt interest are not

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12
Q

Interests that are Deductible

A

Interest on mortgages of up to $750,000 to buy, build, or substantially improve a home (the first loan) are fully deductible.

Interest on home equity loans is only deductible if the proceeds are used to substantially improve the home

Interest for personal exp such as auto loans and cc is not deductible

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13
Q

Adjustments for AGI: AKA above the line

A

Educator exp

Traditional IRA Contribution Deduction

Student loan int deduction

Health Savings account deduction

Moving exp (only in military and have a military order)

Deductible part of self-employment tax

Self employed health ins deduction

Deduction for contributions to certain self-employed retirement plans

Penalty on early withdrawal of savings

Alimony paid (on or before Dec 31 2018

Attorney fees paid in certain discrimination and whistle-blower cases

Exam will refer to adjustments as deductions to arrive at AGI

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14
Q

Taxpayers w/Taxable income above $241,950 (single or HOH)
OR
$483,900 (MFJ)

Then this applies
when using QBI

A

If QTB (Qualified Trade or Business) the Full W-2 wage & property limitations applies

If SSTB (Select Services Trade or Business) then No QBI deduction is allowed.

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15
Q

LTCGs - Long Term Capital Gains Preferential tax rate
Qualified Dividend Income

A

LTCGs preferential tax rate is 15%
and
Qualified Dividend Income 20% for High Income taxpayers,

0% for low income taxpayers

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16
Q

Kiddie Tax

A

Net unearned income of a dependent child under 18 years of age (or child 18 to 24 who does not provide over half of his/her own support and is a full time student)
is taxed at the parents rate.

Child’s Unearned Income Tax Rate
$0-$1,300 0%
$1,301-$2,600 Child’s Rate
Over $2,600 Parent’s Rate

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17
Q

Taxes are generally deductible in the year they are paid:

A

Real estate taxes
Income taxes
Personal Property Taxes

These taxes are allowable itemized deductions

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18
Q

Casualty and theft losses are limited to

A

Nationally declared disaster areas

They can be deductible if they qualify as a Casualty
AND
Must not exceed 10% of AGI plus $100 per casualty

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19
Q

Deductible Medical Expenses

A

Limited to the amount that exceeds 7.5 % of AGI

If it doesn’t exceed cannot deduct in itemized expenses

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20
Q

Limitations on Charitable Contributions
First in First Out and must in order:

CASH
Ordinary Income Property
LTCG property

A

PUBLIC CHARITIES & PRIVATE OPERATING FOUNDATIONS

Cash 60% AGI
Ordinary Income Property 50% AGI
Long-Term Capital gain Property 30% AGI

Publicly Traded Stocks are based on Cost Basis NOT FMV

Stock was held for 1 yr or less so it is ordinary income property
For the stock it is the lesser of the adjusted basis or of FMV at the time it was contributed

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21
Q

Limitations on Charitable Contributions
First in First Out and must in order:

CASH
Ordinary Income Property
LTCG property

A

PRIVATE NON-OPERATING FOUNDATIONS

Cash 30% AGI
Ordinary Income Property 30% AGI
Long-Term Capital gain Property 20% AGI

Publicly Traded Stocks are based on Cost Basis NOT FMV

Stock was held for 1 yr or less so it is ordinary income property
For the stock it is the lesser of the adjusted basis or of FMV at the time it was contributed

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22
Q

Charitable Contributions

A

Can by carried forward for 5 years

If under limitations of AGI can use the whole amount

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23
Q

To avoid underpayment penalty

Make the minimum of

A

90% of current tax on the return for CY

100% of the prior year’s tax liability paid in 4 equal installments

If taxpayer has AGI of more than $150,000 the prior year then rule is
110% of the prior year’s tax liability is used to compute Safe Harbor for estimated payments

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24
Q

Interest paid on debt not used to acquire or substantially improve a home

A

is not deductible. This is true even if the debt is secured by a home.

25
Q

Calculate Casualty Loss Deductible

A

Lesser of FMV or Adjusted Basis
- $100
- (X 10% of AGI)
= Casualty Loss Deduction

ALSO CONSIDER

Decrease in FMV
OR
Adjusted Basis

26
Q

Medical expenses charged on a CC

A

is expensed in the year the charge is made

Expenses paid for the medical care of a decedent by the decedents’ spouse are included as medical expenses in the year paid, whether they are paid before or after the decedent’s death

27
Q

Contributions (Long Term)

A

Taxpayer can deduct long-term capital gain property at the higher FMV without paying capital gains tax on the appreciated portion

This deduction is limited to 30% of AGI and the 5 yr carryforward of excess can apply

28
Q

Investment interest Expense

A

Will be limited to the net investment income of the taxpayer

Any excess amount will be carry forward INDEFINITELY

29
Q

Itemized Deduction for Investment Interest Expense

A

Limited to net taxable Investment interest
AND
Investment Income

Even Municipal Bond Income

30
Q

Gambling losses

A

Are deductible as a misc itemized deduction (from AGI) limited to gambling winnings

31
Q

QBI DEDUCTION

A

is taken from AGI (below the line)

It is NOT part of the itemized deductions

32
Q

An employee who has had Social Security tax withheld greater than the max for a particular year may claim

A

the excess as a credit against income tax, it that excess resulted from correct withholding by 2 or more employers

33
Q

A Charitable Contribution is

A

NOT allowed for the value of services rendered to a charity

34
Q

ROTH IRA CONTRIBUTIONS

A

Only $2k of Roth IRA contribution is eligible for credit

Its considered a non-refundable credit
Up to $2k
To either a traditional or Roth IRA

35
Q

AGI Phase out for IRA Contributions

In Employer-Sponsored Retirement Plans

A

Unmarried $77k-$87k
Married $123k-$143k

36
Q

AGI Phase out for IRA Contributions

If the spouse is not active participant

A

Married Filing Jointly $230k-$240k
Married Filing Separately $0-$10k ea spouse is subject to this limitation both the participant and the nonparticipant

37
Q

Subject to the Net Investment Income Tax

A

An ind who is a US resident may be subject to the 3.8% net investment income above AGI threshold amounts

38
Q

Self-Employed Health Insurance
AND
50% Tax on Self-Employment

A

Both business related items
Cannot deduct directly on Sch C

They are both considered adjustments and are deductible on Form 1040

39
Q

AGI above the CY Student Loan Interest Expense

A

AGI limitation for a single taxpayer is $110,000

40
Q

Real Estate Taxes

A

Are deductible whether the property is rented or not

Can either be deducted on rental Schedule E or as Itemized deduction (subject to limitations)

41
Q

Only the amount that exceeded the standard deduction (if itemized)

A

is included in taxable income for the CY

42
Q

Noninterest Investment Expenses

A

ARE NOT deductible

43
Q

SEP is an adjustment

A

Max deductible amount for self-employed individuals is the lesser of $69,000 or 20% of NET earnings

That means that you must take away the Self-employment income MINUS 50% of self-employment taxes

44
Q

The retirement savings contribution credit

A

Is a non-refundable credit

45
Q

What is considered Medical Expenses

A

Professional Medical Services (Physical Therapy)
Insurance Premiums providing reimbursement for medical care
Prescription Drugs

Insurance against loss of income is NOT payment for medical care and is NOT deductible

46
Q

Charitable Contribution

A

Artwork is short term is lesser of the property’s adjusted basis or the FMV at the time it was contributed

The taxpayer can deduct long-term (i.e., held longer than 12 months) capital gain property at the higher fair market value (higher than cost basis) without paying capital gains tax on the appreciated portion. This deduction is limited to 30 percent of adjusted gross income (AGI). A five-year carryforward period applies. BUT deduction will be limited to AGI rules

47
Q

Interest for personal expenses

Such as auto loan & credit cards

A

NOT DEDUCTIBLE

48
Q

ADOPTION CREDIT

A

Legal Fees
Agency Fee

49
Q

DEPENDENT CARE CREDIT

A

Under 13 years of age
Max for 1 dependent is $3k
Limited to lowest earned income of either spouse
20% to 35% applies to wages earned

50
Q

QUALIFIED DIVIDENDS

A

Includable in gross income as ordinary dividends

Subject to a special tax rate, which depends on taxpayer’s income

51
Q

IRA DEDUCTION

A

Dependent on income

but can deduct entire amount according to thresholds

52
Q

199A QBI DEDUCTION

A

Limited to 20% of TAXABLE INCOME

QBI deduction rate is 20%

53
Q

Employer reimbursement for EDUCATIONAL EXPENSES

A

Limited to OR Exclude $5,250

whatever exceeds is taxable

54
Q

Scholarships for degree-seeking students are excludable

A

Monies spent on:

Tuition
Fees
Books
Supplies

Room & Board are excluded and WILL BE taxable

55
Q

Unemployment Compensation Benefits

A

Are FULLY TAXABLE

56
Q

LTCG Preferential Income Tax

A

Is applied to LTCG and Qualified Dividends

According to Taxable income ( for MFJ & Single )

Its an additional tax aside from being added to Taxable Income
So its added to get to taxable income
then separated to get the Preferential Income tax

To get total to Ordinary Income must subtract from total taxable Income to calculate the tax

57
Q

NII - Net Investment Income Tax

3.8% of the lesser
1. Taxpayer’s net investment income
2. Excess of Modified AGI over a threshold ($250,000)

A

Contains:

Interest Income
Dividend Income
Capital Gains
Rental
Royalty
Nonqualified Annuities
Passive Income from business (ex: limited partner)

AGI
Less: NII tax MFJ AGI Threshold
Excess $250k over threshold
apply NII Tax Rate (X)
= NII Tax

Those taxpayers who (MFJ with investment income equal or greater to $250k - Pay NII for anything over $250k

58
Q

Federally Declared Disaster

A

Lower of the Items cost or the decline in FMV

59
Q

ROTH IRA Contribution

A

If they are over the Phase-out (2024)
It is irrelevant that neither spouse nor TP is covered by Employer-Sponsored Retirement Plan

Phase-Out (Participation in Employer-Sponsored Retirement Plan)
Unmarried $77k-$87k
Married Filing Jointly $123k-$143k

If not active participant of Employer-Sponsored Retirement Plan)
Phase out is
MFJ $230k - $240k
MFS $0-$10k each spouse is subject to this limitation each spouse is subject to this limitation