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REG > R1 - Federal Taxation of Individuals > Flashcards

R1 - Federal Taxation of Individuals Flashcards

1
Q

Social Security Income Rule*

A

Low Income = Not taxable (S <25,000 / MFJ <32,000)

Lower Middle Income = Less than 50% of SS benefits are taxable

Middle income = 50% of SS benefits are taxable (inc over: S 25,000 / MFJ 32,000)

Upper Middle Income = 50%-85% of SS benefits are taxable

Upper Income = 85% of SS benefits are taxable (inc. over: S $34,000 / MFJ $44,000)

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2
Q

Additional Standard Deduction (Age and Blind rule)*

A

ONE QUALIFIED TAXPAYER

  • Unmarried: $1,850 (65 or blind)
    $3,700 (65 and blind)
  • Married: $1,500 (65 or blind)
    $3,000 (65 and blind)

TWO QUALIFIED TAXPAYERS
-Married: $3,000 (65 or blind)
$6,000 (65 and Blind)

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3
Q

Gross Income Relative test

A

Gross income must be less that $4,700*. Nontaxable income does not count towards this like Social security, tax-exempt interest, or scholarships.

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4
Q

Are premiums paid on a group term life insurance policy taxable to employee?

A

First $50,000 = NO
Anything over the first $50,000 = yes, it is taxable

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5
Q

Employer Payment of employees educational expenses

A

Up to $5,250 excluded for undergraduate and graduate eduction

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6
Q

Employee Adoption Assistance Program

A
  • exclude $15,950* of qualified adoption expenses paid by an employer.

Phased out for taxpayers with MAGI of $239,230 - $279,230

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7
Q

Employer dependent care assistance

A

Exclude up to $5,000 - Dependents under 13 or spouse/depednent physcially/mentally disabled

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8
Q

Excludable employee discounts

A

Merchandise - up to gross profit of employers cost
Services - 20% of the FMV of the service
Parking & Train - $300 per month

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9
Q

What are Flexible Spending Arrangements and what are its tax implications?

A

Similar to an HSA but FSAs have lower contribution limits and generally you can’t carry over funds. Retire after 2.5 years.

pretax employer contribution towards medication expenses for employee and dependents.

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10
Q

Bond Interest amortization rule on premiums?

A

Amortization of a bond premium is an offset to the interest received and reduces basis

Amortization of a bond discount is an addition to the interest received and an addition to the bond’s basis

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11
Q

What interest is reportable but not taxable

A

State and local gov bonds

bonds of us possession

series EE savings bond used for future education expenses for TP or Dep. (phaseout S 91,850-106,850 or MFJ 137,800 - 167,800)

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12
Q

When do you receive a preferential tax rate on dividends distribution and when do they not?

A

Held for more than 60 days during the 120 day period that begins 50 days before the ex dividend date

Does not receive low preferential tax rate when it is a nonqualified div (ESOP, inv. inc limit, short sale positions, some foreign corp. , div paid by credit unions or mutula savings banks or builidn and loan association)

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13
Q

Preferential Tax Rate for Qualified Dividends

A

BOOK FOR AMOUNTS

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14
Q

Who are some early IRA distribution penalty exception?

A
  • Homebuyer
  • Insurance - 12 cons. weeks of unemployment
  • Medical ex. excess AGI
  • Disability
  • Education
  • Adoption or birth of child within one year (5k)
  • Disaster (22k max)
  • Death or terminal illness
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15
Q

How to Calculate MAGI

A

AGI ->
+Adoption Exclusion
+ EE Bond Income
+ IRA deduction
+ out of U.S. Income
+UNi. student loan interest ded.

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16
Q

Recourse vs NonRecourse Definition, which is taxable if loan is cancelled?

A

Recourse Loan: lender to seize many of the borrower’s assets if the borrower fails to repay their loan (This type of loan is taxable if canceled)

NonRecourse Loan: Opposite

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17
Q

Nontaxable Miscellaneous Items

A
  • life insurance proceed
  • Personal injury/illness award
  • Accident insurance: if premiums paid by taxpayer
  • Foreign-earned income (up to $120,000* )
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18
Q

SE income tax rule and amount

A

50% deduction to the employer

Self employment tax is calculated on 92.35% of SE inc.

SS = 12.4%
Medicare = 2.9%
Total = 15.3%

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19
Q

What are the two taxes main taxes paid by sole proprietor/business income?

A
  • Income Tax
  • Self employment tax
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20
Q

Rule for personal residence rented out for fewer than 15 days

A
  • Rental income is excluded
  • Deductible: mortgage interest and real estate taxes
  • Nondeductible: utilities, depreciation, and repairs
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21
Q

What constitutes a disregarded entity? Where is everything reported?

A

If you are the only owner of an LLC.

Sch c but still has the limited liability protection.

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22
Q

What is a major payroll reason that a business may choose to organize as an S corporation rather than a partnership ?

A

Avoidance of self-employment tax since s corp shareholders receive wages from business income and receive a w-2

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23
Q

On a basic level, what is the big difference between partnership and s corp owner basis?

A

Partnership holds recourse and non-recourse debt while s corp only responsible for recourse debt.

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24
Q

NOL carryforward rule: before 2018 and after 2017?

A

Before: Offset 100% of a future years taxable income and carry forward 20 years

After: CF Indefinitely

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25
Q

Define NOL

A

Net operating Loss - company’s allowable deductions exceed its taxable income within a tax period

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26
Q

What is the excess business loss limitation?

A

There are thresholds in place that disallowed a certain amount of NOL to be used for the current year (like portfolio income)- and must be carried forward

*MFJ - $578,000
*other - $289,000

Example: NOL of business is 300,000 for single. carry forward would be 11,000 (300,000-289,000)

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27
Q

Where on the 1040 are the following Self employment expenses deducted? SE Tax, SE health insurance Deduction, deduction for contribiton to certain self-employed retirement plans

A

All Personal (Adjustment), non SCH C

28
Q

Education loan interest deduction limitation and phase out amount

A

Limit: $2,500

Phase-Out:
Unmarried ($75,000 - $90,000)
Married Filing jointly ($115,000 - $185,000)

Not for dependent, only for taxpayer taking out the loa+

29
Q
  • Maximum HSA contribution*
  • older than 55?
  • exceptions?
A

$3,850

+ $1,000 age > 55

Cannot contribute if on Medicare A or B

30
Q

HSA and MSA out-of-pocket limits*

A

HSA
self: $7,500
family: $15,000

Archer medical savings account (MSA)
self: $5,300
family: $9,650

31
Q

Explain: adjustment for Penalty on Early withdrawal of savings

A
  1. deposit money in bank for long term inv
  2. bank offers high interest
  3. amount is withdrawn
  4. bank returns money at resuced interest

The reduced interest (forfeited interest) is an adjustment on the front of the return.

32
Q

ira limitation for all*

A

Earned income or

unmarried: $6,500 under 50
$7,500 over 49

Married: $13,000 under 50
$15,000 over 49

33
Q

For IRA example, earned income does not include? 4

A
  • Interest and div
  • annuity income
  • Pensions
  • Alimony after 2018
34
Q

How is IRA income taxed? Rate?

A

Ordinary

35
Q

IRA rule on minimum distributions

A

must be taken on APRIL 1 of the following year of turn 73.

36
Q

ESRP - Deductible Traditional IRA Phase out 2023 and special rule

A

Unmarried: $73,000 - $83,000
MFJ: $116,000 - $136,000

If spouse is not active participant in employer retirement plan, they can take a ded. with the following phase out

MFJ: $218,000 - $228,000 (couples agi)
MFS: $0-$100,000 (to each)

37
Q

Roth IRA phase-out *

A

unmarried: $138k-$153k
MFJ: $218k - $228k
MFS: $0 - $10k

38
Q

rule with nondeductible traditional IRA

A

Contribution is after tax amount
Principal is returned tax free
but earnings are taxable

39
Q

Self-Employed Retirement Plans 3

A
  • SEP IRA: max contribution is lessor of (20% * (SE NI - 1/2 of SE tax ded.)) or ($66k/$73.5k over 50)
  • SIMPLE IRA: max contribution is lessor of (100% * (SE NI - 1/2 of SE tax ded.)) or ($15.5k/$19k over 50)
  • INDIVIDUAL 401k: max contribution is lessor of (20% * (SE NI - 1/2 of SE tax ded.)) or ($66k/$73.5k over 50)
40
Q

Medical Expense Deduction:

  1. Who Qualifies for it?
  2. what is the formula?
  3. What expenses are allowable?
A
  1. Anyone under the suport except for gross income limit or joint returns
    - support over 50%
    - only citizens
    - relative or taxpayer lives with
  2. Qualifying medical expenses - reimbursement = TOTAL - 7.5% AGI = DEDUCTION
  3. Prescriptions drugs, Doctors, Premiums, necessary surgeries, transportation, disability costs (maybe, increase to home fmv - medical expesnes = ded. amount)
41
Q

Casualty Loss:

  1. Formula
  2. Rule for qualifying amount
  3. What qualifies
  4. what if the incident was not reported to insurance?
A
  1. Qualifying casualty loss
    - Insurance Recovery
    = NEW TOTAL
    - $100
    =NEW TOTAL
    - 10% of AGI
    = Total Casualty deduction
  2. Qualifying casualty loss is the lessor of:
    - Decrease in FMV
    - Adjusted Basis of Property
  3. Casualty loss = presidentially declared disaster areas
  4. Estimate what the insurance coverage would have been to calc casualty ded. (unless you had no insurance company to begin with)
42
Q

Mortgage interest deduction:
1. What qualifies?
2. Limitation

A
  1. First and second residence (must live in second residense for atleast 14 days)
  2. $750,000 (50% for mfs)
43
Q

What is considered ordinary income property?

How is accounted for when deducted for when gifted as a charitable donation?

A
  • inventory, short term asset (less than 1 year), depreciated investments or personal asset, depreciation recapture on long term busienss use asset
44
Q

What are the two types of property that in a charitable deduction?

Basis amount

A

Ordinary income property and long term capital gain property

OIP - deduction is lessor of property adjust basis or FMV

LTCGP - FMV

45
Q

How does property interest qualify as deductible?

A

If the interest paid on debt is used to acquire or substantially improve a home. For example, a loan for other reasons even if its secured by a real estate.

46
Q

Two main thresholds for QBI deductions? and what is the code for it?

A

182,000 < Single > 232,000
364,200 < MFJ > 464,200

Section 199A

47
Q

What is the rule for QBI deduction if Taxable income is above the thresholds and it is not a specialized trade or business? steps

A
  • calculate the qbi deduction by following these steps:
  1. lessor of
    w-2 wage50%
    or
    w-2 wage    25% + ubia*2.5%
  2. less or
    that or 20% of qbi
  3. lessor of that or 20% of taxable income
48
Q

What is the marginal tax rate formula?

A

Change in tax liability
/
Change in taxable income

49
Q

child and dependent care credit rule, amounts of allowable expense, and types of all exp.

A

20%-35% of work related exp to care for qualifying person (with phase out $2k per 1% after 15k agi)

lessor of earned income, expense and
3k for one
6k for two or more

daycare, babysitter for 13 younger
for disabled children or spouse

50
Q

American Opportunity tax credit amounts?

phase out?

Refundable?

A

$2,500 max
- 100% of first $2,000
- 25% of next $2,000

s: 80k - 90k
mfj: 160k - 180k

40% of credit is refundable

51
Q

lifetime learning credit amount?

phase out?

A

20% of qualifying expenses up to 2,000, regardless of number of students.

phase out:
- s: 80k-90k
- mfj: 160k - 180k

52
Q

What is Coverdell Education Savings account similar too?

Benefit?

Phase out?

What if not used?

A

like HSA for childrens college esxpense. can contribute until kid turns 18 and

Account provides a tax haven for growth as distributions for educational expenses (any level) are tax free.

unmarried: 95k - 110k
married: 190k - 220k

if not used: its taxable and 10% but you can rollover balance to other child

53
Q

quick sum: sec 529 Qualified tuition program

A

purchasing todays tuition credit rates for the future. distributed amoutns are not taxable to beneficiary

54
Q

Are us obligations taxable?

A

Yes

55
Q

Are interest on federal tax refund taxable?

A

yes

56
Q

Are hobby actvities deductible or includable on tax return? why?

A

If the activity is not to generate profit, then no activity is not deductible but income is included

57
Q

Sum = steps and rules for Credit for the elderly and or perm disabled

A
  1. make sure that they are 65 or old / disabled person.
  2. reduce income by SS and excludable pensinos and 50% of adj over STATED* max.
  3. multiply the amount from step 2 by 15$ for credit (nonrefundable)
58
Q

what are the two main amounts for the Credit for the elderly and or permanently disabled:

  • Base Amounts
  • AGI STATED limit
A
  • S (5,000) mfj (7,500, but 5k if only one qualified)
  • S (7,500) MFJ (10,000)
59
Q

How much is adoption credit?

Is it refundable?

Phase Out?

A
  • $15,950
  • no
  • MAGI
    $239,230 - 279,230 (complete phase out)
60
Q

who qualifies for the IRA credit

How much is it?

is it refundable?

A

older than 18, not student, nor dependent

10%, 20%, or 50% of contribution depending on filing status & agi

61
Q

Foreign Tax credit sum.

formula

A

nonrefundable deduction on tax paid not in US

lesser of foreign taxes paid or
(Taxable income from foreign operations/total taxable worldwide income) X Us tax

62
Q

how much is child tax credit?

Who qualifies for child tax credit?

Refundable?

How does the treshold work?

A
  • $2,000
  • Cares, under 17
  • yes, lessor of: credit<tax liab, 1,600, or earned income in excess of 2.5k X 15%
  • reduce credit by $50 per $1,000 over threshold
63
Q

nonchild dependent credit amount

phase out rules

A

$500

same as child tax credit

64
Q

Is earned income credit refundable?

who is it for?

What increases the credit?

what reduces it?

A

yes

very low income individuals (does not include pension or annuity)

Having a qualifying child

too much investments (portfolio & passive)

65
Q

What is the safe harbor rule?

A

In regards to taxpayers withholding amount which must be either
- 90% of current year tax owed
or
- 100% of last years tax owed

66
Q

Exception to the safe harbor rule?

A

Witholding rule
If AGI greater than 150,000 in prior year
- 110% of prior year tax liability is used to estimate safe harbor for estimate payments

67
Q

what two additional taxes exist for higher net worth individuals?

How much are they?

Who qualifies?

A

Additional Medicare Tax
- 9% on wages excess of (250k mfj, 125k mfs, and 200k other)
Net Investment Income Tax
- 3.8% on certain NI inc. for (people with income>250k mfj or 200k other) on lessor of NI inc or excess age over threshold

REG (6 decks)

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