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CPA REG > R1 - Individual taxation > Flashcards

R1 - Individual taxation Flashcards

1
Q

What is the individual taxation formula to calculate taxable income?

A 
Gross income
(Adjustments)
= AGI
(Std. or Itemized Deduction)
(Exemptions)
= Taxable income
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2
Q

When must individual taxpayers file their 1040 by?

A

April 15

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3
Q

What is the general rule for who must file?

A

A taxpayer must file if his income is equal to or greater than the sum of:

Personal exemption
+ Regular std. deduction (except for married filing separately)
+ Additional std. deduction amount for taxpayers age 65 or over or blind (except for married filing separately)

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4
Q

True or false.

An individual whose net earnings from self-employment are $500 or more must file, even if their income is lower than the general rule requirement.

A

False.

EXPLANATION: $400 or more

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5
Q

True or false.

Individuals who receive advance payments of earned income credit do not need to file.

A

False

EXPLANATION: must file, even if their income is lower than the general rule requirement

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6
Q

True or false.

Individuals who can be claimed as dependents on another taxpayer’s return, have unearned income, and gross income of $1,000 (2014) or more must file.

A

True (even if their income is lower than the general rule requirement)

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7
Q

With an extension, is the tax payment still due on April 15th?

A

YES

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8
Q

If a spouse dies during the year, may a joint return still be filed?

A

YES

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9
Q

If divorced during the year, may a joint return be filed?

A

NO (end of year test)

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10
Q

To file as “qualifying widow(er) with dependent child,” the surviving spouse must maintain a household for how long as the principle place of abode of a son, stepson, daughter, or stepdaughter (whether by blood or adoption)?

A

Whole year

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11
Q

To file as “head of household,” the taxpayer must maintain as his household as the principal residence of a dependent son or daughter for how long?

A

More than half a taxable year

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12
Q

Are persons eligible to be claimed as dependents on another’s tax return allowed a personal exemption on their own returns?

A

NO

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13
Q

Which of the following are among the requirements to enable a taxpayer to be classified as a “qualifying widow”?

I. A dependent has lived with the taxpayer for 6 months
II. The taxpayer has maintained the cost of the principal residence for 6 months.

A

Neither I or II

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14
Q

Parker, whose spouse died during the preceding year, has not remarried. Parker maintains a home for a dependent child. What is Parker’s most advantageous filing status?

A

Qualifying widow(er) with dependent child

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15
Q

If an event is taxable, income is determined by what?

A

FMV (fair market value)

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16
Q

If an event is nontaxable, what is the basis used?

A

NBV (net book value)

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17
Q

What is the first step in determining tax liability?

A

Compute gross income

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18
Q

In order to be taxable, the gain must be both _____ and ______.

A

Realized and recognized

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19
Q

Realization is to real world as recognition is to what?

A

Record

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20
Q

Under the cash method, when does recognition occur?

A

Occurs in period the revenue is actually or constructively received in cash or (FMV) property

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21
Q

All income can be characterized and placed into one of what four baskets of income?

A

1) Ordinary
2) Portfolio
3) Passive
4) Capital

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22
Q

Mary owes the bank $80k on an unsecured note. She satisfies the note in full with a PMT of $30k. The bank accepts it and forgives the remaining $50k of debt. Mary has cancellation of debt income of what?

A

$50,000

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23
Q

If an employer sells property to the employee for less than its FMV, is the difference income to the employee?

A

YES

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24
Q

Premiums (paid by an employer on a group-term life insurance policy covering his employees) above what amount are taxable income to the recipient and normally included in W-2 wages?

A

Above the first $50,000 of coverage

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25
Q

Is the interest income element on deferred payout arrangements fully taxable?

A

YES

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26
Q

Perle, a dentist, billed Wood $600 for dental services. Wood paid Perle $200 cash and built a bookcase for Perle’s office in full settlement of the bill. Wood sells comparable bookcases for $350. What amount should Perle include in taxable income as a result of the transaction?

A

$550

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27
Q

Is interest income on state government obligations taxable?

A

NO

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28
Q

Clark filed Form 1040EZ for the Year 8 taxable year. In July, Clark received a state income tax refund of $900 plus interest of $10, for overpayment of Year 8 state income tax. What amount of the state tax refund and interest is taxable in Clark’s Year 9 federal income tax return?

A

$10

29
Q

Which of the following conditions must be present in a post-1984 divorce agreement for a payment to qualify as deductible alimony?

I. PMTs must be in cash or its equivalent.
II. The PMTs must end at the recipient’s death.

A

Both I and II

30
Q

Which of the following costs is NOT included in inventory under the Uniform Capitalization rules for goods manufactured by the taxpayer?

a) research
b) warehousing costs
c) quality control
d) taxes excluding income taxes

A

a) research

31
Q

True or false.

85% of the social security benefits is the max amount of benefits to be included in gross income.

A

True

32
Q

Robert Corp. granted an incentive stock option for 200 shares to Beverly, an employee, on March 14, Year 12. The option price and FMV on the date of grant was $150. Beverly exercised the option on August 2, Year 14, when the FMV was $180 per share. She sold the stock on September 20, Year 15, for $250 per share. How much gross income did Beverly recognize in Year 12?

A

$0

33
Q

True or false.

The recipient of an ISO will generally have to report compensation income in the year that the option is received.

A

False.

EXPLANATION: Generally there is no recognition of compensation expense with an ISO.

34
Q

Interest earned on Series EE bonds issued after 1989 may qualify for exclusion. One requirement is that the interest is used to pay tuition and fees for whom?

A

Taxpayer, spouse, or dependent enrolled in higher education

35
Q

Interest earned on Series EE bonds issued after 1989 may qualify for exclusion. The interest exclusion is reduced by what?

A

Qualified scholarships that are exempt from tax and other nontaxable PMTs received for educational expenses (other than gifts and inheritances)

36
Q

An accruable expense is one in which services have been _________ but have not been paid for by the end of the reporting period.

A

received/performed

37
Q

What is the max deduction allowed for a capital loss on an investment stock sale?

A

$3,000

38
Q

Are property settlements taxable?

A

NO

39
Q

For a cash basis taxpayer, gain or loss on a year-end sale of listed stock arises on what date?

A

Trade date

EXPLANATION: 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 the settlement date.

40
Q

The Uniform Capitalization Rules of Code Sec. 263A apply to retailers whose average gross receipts for the preceding three years exceed what amount?

A

$10 million

41
Q

The rule limiting the allowability of passive activity losses and credits applies to what type of corporations?

A

Personal service corporations

42
Q

A cash basis taxpayer should report gross income for the year in which income is what?

A

Either actually or constructively received, whether in cash or in property

43
Q

Fully taxable, partially taxable, or non-taxable.

FMV of property received as wages.

A

Fully taxable

44
Q

Fully taxable, partially taxable, or non-taxable.

Employer provided education reimbursement of $8,000.

A

Partially taxable.

EXPLANATION: Up to $5,250 may be excluded from gross income for payments made by an employer on behalf of an employee for an employee’s educational expenses.

45
Q

Fully taxable, partially taxable, or non-taxable.

Distribution from a traditional non-deductible IRA.

A

Partially taxable.

EXPLANATION: The principal, which was not deductible when contributed, is non-taxable. The accumulated earnings on the principal are taxable when withdrawn.

46
Q

Fully taxable, partially taxable, or non-taxable.

Property received as a gift.

A

Non-taxable

EXPLANATION: However, any income received from such property is taxable.

47
Q

Fully taxable, partially taxable, or non-taxable.

$450,000 of proceeds from the sale of a personal residence by a qualified single individual whose basis was $150,000.

A

Partially taxable

EXPLANATION: The sale of the taxpayer’s personal residence is subject to an exclusion from gross income for gain. For qualified single individuals, the exclusion from gain is $250,000. In this case, the realized gain is $300,000. $250,000 is exempt from tax and $50,000 would be taxable as a gain.

48
Q

Determine the amount of gross income to be reported on the individual income tax return and indicate the amount excluded from tax (if any).

Group term life insurance of $75,000 provided by the employer (premium cost is $8 per $1,000 of coverage).

A 
Included = $200
Excluded = $400

EXPLANATION: Premium is $75,000/$1,000 * $8 = $600. 1st $50,000 coverage is excluded from include so 1/3 is included or $200 included and $400 excluded.

49
Q

Determine the amount of gross income to be reported on the individual income tax return and indicate the amount excluded from tax (if any).

Distribution of $6,000 from a non-deductible IRA (total invested was $10,000 and value of entire account at date of distribution was $15,000).

A 
Included = $2,000
Excluded = $4,000

EXPLANATION: Allocate distribution based on total in the plan ($10,000/$15,000 = 2/3 principal). So 1/3 *$6,000 = $2,000 is included in gross income. Post-tax contribution of $4,000 is excluded.

50
Q

What are the requirements of an ISO?

A
  • Not more than 10% shareholder
  • Option price is not less than FMV of stock on date of grant
  • Stock was held at least 2 years from date of grant and at least one year from exercise date
51
Q

What are the requirements of an employee stock purchase plan (ESPP)?

A
  • Not more than 5% shareholder
  • Option price is not less than the lesser of 85% of the stock price when granted or exercised
  • Stock was held at least two years from date of grant and at least one year from exercise date
52
Q

Are the dividends received from a mutual fund that invests in foreign companies includable in gross income?

A

YES

53
Q

Is a dividend received from the stock owned in joint tenancy by a married couple includible in gross income on their joint return?

A

YES

54
Q

If I sell shares of common stock at a gain, is it includible in gross income?

A

YES

55
Q

If I receive money for serving as a juror in a state court proceeding, is it includible in gross income?

A

YES

EXPLANATION: Generally, all items of income are included in gross income unless specifically excluded. Jury duty payments are not excluded and therefore are includable in gross income.

56
Q

Are late payment penalties on farm payroll taxes included or deducted on the joint return?

A

NO

57
Q

Are state estimated tax payments on farm earnings reported on a farmer’s Schedule F?

A

NO; shown elsewhere on the joint return

58
Q

Are principal repayments on a farm line of credit reported on a farmer’s Schedule F?

A

NO; not included or deducted on the joint return

59
Q

Are proceeds from a farm line of credit reported on a farmer’s Schedule F?

A

NO; not included or deducted on the joint return

60
Q

Is bank interest on a farmer’s farm account reported on the Schedule F?

A

NO; shown elsewhere on the joint return

61
Q

What are the criteria for filing head of household?

A
  • Not married, legally separated, or is married and has lived apart from his/her spouse for the last 6 months of the year
  • Not a “qualifying widow(er)”
  • Not a nonresident alien
  • Individual maintained a home that, for more than half the taxable year, is the principal residence of a (son or daughter who is a qualifying child or qualifying relative; a dependent relative who resides w/ the taxpayer; OR a dependent father or mother, regardless of whether they live with the taxpayer)
62
Q

What is the total amount of taxable interest?

Greenpoint Bank $1,300
Whitewater Savings & Loan $1,000
Interest from County Bonds $500
Bank Interest on Foxy Partnership K-1 $1,600

A

$3,900

EXPLANATION: Interest from county bonds are reportable but NOT taxable.

63
Q

What is the total amount of taxable dividends?

Black & Decker $850
Mutual Funds, Greyline $1,250
Dividends from Foxy Partnership K-1 $800
Dividends on a Life Insurance Policy $1,450

A

$2,900

EXPLANATION: Dividends from life insurance policy are nontaxable.

64
Q

The following item appears on Dennis’ K-1: Interest on savings account $1,600.

Which schedule would Dennis use to report the above item from his K-1 on his individual tax return?

A

Schedule B

65
Q

The following item appears on Dennis’ K-1: Qualified Dividends Received $800.

Which schedule would Dennis use to report the above item from his K-1 on his individual tax return?

A

Schedule B

66
Q

The following item appears on Dennis’ K-1:
Charitable Contributions $2,000

Which schedule would Dennis use to report the above item from his K-1 on his individual tax return?

A

Schedule A

67
Q

The following item appears on Dennis’ K-1:
Capital Gains $500

Which schedule would Dennis use to report the above item from his K-1 on his individual tax return?

A

Schedule D

68
Q

The following item appears on Dennis’ K-1: Investment interest expense $200.

Which schedule would Dennis use to report the above item from his K-1 on his individual tax return?

A

Schedule A

CPA REG (17 decks)

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