R1 INDV TAX - Income 1 (M)

Question 1

Qualifying Child (CARES test)

Answer 1

Close relative
Age Limit
Residency and filing requirements
Eliminate gross income test (but exemption is required)
Support test changes

Question 2

Qualifying Relative (SUPORT test)

Answer 2

Support test
Under exemption amount of (taxable) gross income
Precludes dependent filing a joint return
Only citizens of the US or residents of N. America
Relative
Taxpayer lives with for 1 year

Question 3

To be deemed alimony payment under the law

Answer 3

Payments must be legally required pursuant to a written divorce
Payments must be in cash (or cash equivalent)
Payments cannot extend past the death of the payee-spouse

Question 4

Workers’ Compensation Taxability

Answer 4

Exclude from gross income compensation received under a workers’ compensation act for personal injury or sickness

Question 5

Social Security Income Taxability

Answer 5

Eighty-Five percent is the maximum amount of benefits to be included in gross income

Question 6

Gross Income

Answer 6

Cash = Amount received (cash basis)
Property = Fair market value
Cancellation of debt

Question 7

Net Rental Income

Answer 7

Gross rental income
Prepaid rental income
Rent cancellation payment
Improvement in-lieu-of rent

Question 8

Tax Benefit Rule

Answer 8

If a taxpayer recovers an amount that was deducted or credited against tax in a previous year, the recovery must be included in income to the extent that the deduction or credit reduced the tax liability in the earlier year

Question 9

Guaranteed Payments

Answer 9

Reasonable compensation paid to a partner for services rendered (or use of capital) without regard to his ratio of income. Payments not guaranteed are simply another way to distribute partnership profits.

Question 10

Ordinary Income reported for an S Corporation

Answer 10

Taxable income to the individual or their own individual tax return but is not subject to self-employment tax

Question 11

Ordinary Income reported for a Partnership

Answer 11

May be subject to self-employment tax (if to a general partner)

Question 12

State and Local Government Bonds/Obligations

Answer 12

Interest on state and local bonds/obligations is tax-exempt. Furthermore, mutual fund dividends for funds invested in tax-free bonds are also tax-exempt

Question 13

Unearned Income of Child Under 18 (Kiddie Tax)

Answer 13

The net unearned income of a dependent child under 18 years of age is taxed at the parent’s higher rate

Question 14

Property Settlements (nontaxable)

Answer 14

If a divorce settlement provides for a lump-sum payment or property settlement by a spouse, that spouse gets no deduction for
payments made, and the payments are not includable in the gross income of the spouse receiving the payment

Question 15

Trade Date

Answer 15

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 the settlement date

Question 16

Passive Activity

Answer 16

Any activity in which the taxpayer does not materially participate