R1 Individual Tax - Income pt 1

Question 1

When should a cash basis taxpayer report income?

Answer 1

A cash basis taxpayer should report income in the year in which income is either actually or constructively received, whether in cash or property.

Question 2

State the basic tax formula

Answer 2

Gross income less deductions FOR AGI = AGI

Less Deduction from AGI Less Exemptions = Taxable Income X Tax Rate = Gross Tax Liability

Less Credits and Prepayments = Tax due or refund

Question 3

Identify the various filing statues?

Answer 3

Single / MFJ / MFS / HoH / Qualified Widow(er) with dependent child

Question 4

What are the criteria for single filer?

Answer 4

1. Unmarried or legally separated from spouse at the end of the Tax year
2. Does not qualify for another filing

Question 5

What are the criteria for MFJ

Answer 5

At the end of the tax year

1. married and living together
2. living together in a recognized common law marriage or
3. Married and living apart but not legally separated or diviorce

Question 6

What are the criteria for MFS?

Answer 6

At year-end of tax year:

1. Married and
2. If one spouse wants to be responsible only for own tax or
3. If both spouses do not agree to file a joint tax return

Question 7

What are the criteria for filing HoH?

Answer 7

1. Individuals is not married, legally separated, or is married and has lived apart from his / her spouse for the last 6 months of the year
2. Individual is not a “qualifying window(er)?
3. Individual is not a nonresident alien
4. Individual maintained a home that, for more than half the taxable year, is the principal resident of a
   A) Son or daughter (qualifying child or qualifies as the taxpayer’s dependent (qualifying relative)
   B) A dependent relative who resides with the taxpayer, or
   C) A dependent father or mother, regardless of whether they live with the taxpayer

Question 8

What are the criteria for filing qualifying window(er) (surviving spouse)?

Answer 8

1. Unmarried at end of tax year and
2. Surving spouse must maintain a household, which for the entire taxable year was the principle place of adobe of a son, stepson, daughter, or stepdaughter and
3. The surviving spouse is entitled to dependency exemption for the son, daughter, ect.

The taxpayer qualifies for this status for 2 years after year of death of spouse.

Question 9

Name the tests for claiming an exemption for “qualifying child”

Answer 9

Qualifying Child (CARES)

1. Close relative
2. Age limit (19/24) and younger than the taxpayer
3. Residency and filing requirement
4. Eliminate gross income test (exemption required)
5. Support test changes

Question 10

Name the test for claiming an exemption for a “qualifying relative”

SUPORT

Answer 10

A taxpayer is entitled to an exemption for each qualify child and / or qualifying relative

Qualifying Relative

1. Support (over 50%) test
2. Under the personal exemption amount of (taxable) gross income test
3. Precludes dependent filing a joint tax return test
4. Only citizens (residents of USA / Canada or Mexico) test
5. Relative test or
6. Taxpayer lives with individual for the whole year test

NOTE that either the R or T test must be met. Although both of them may be met, only one is required.

Question 11

What are the requirements for multiple support agreement?

Answer 11

1. Two or more people together provide more than 50% of support, but no one contributes more than 50%
2. To claim the exemption, a person must provide more than 10% of support and meet the other dependency tests
3. A multiple support declaration, Form 2120 must be filed

Question 12

Define Gross Income

Answer 12

Gross income includes all income from whatever source derived, unless specifically excluded.

Question 13

What are the 4 categories of individual income?

Answer 13

Categories of individual income:
1. Ordinary (wages, salaries)
2. Portfolio (Dividends, Interest)
3 Passive (real estate investments, limited partnership income and Some S corporation)
4. Capital

Question 14

Name some nontaxable fringe benefits (exclusions)

Answer 14

1. De Minimis Fringe Benefit
2. Qualified Tuition reduction
3. Qualified employee discount
4. Employer paid accident, medical, and health insurance

Unless specifically excluded by law the fringe is includable in gross income

Question 15

Are life insurance premiums paid by an employer taxable to an employee?

Answer 15

Premiums on the first $50K (Face amount) of group term life insurance are not includable in gross income. Premiums paid for coverage above $50K should be included in gross income. This is calculated from an IRS table, and is not the entire amount of the premium over $50K