R1, M5-M7 Flashcards
What is the additional standard deduction for an unmarried individual who is 65 or blind? What about if they are both 65 and blind?
OR: $1,950
AND: (double it) $3,900
What is the additional standard deduction for a married individual who is 65 or blind? What about if they are both 65 and blind?
OR: $1,550
AND: (double it) $3,100
What is the standard deduction if you are the dependent of another?
The greater of:
- $1300, or
- Earned Income + $450
What is the standard deduction for a dependent limited by?
the regular standard deduction
Can dependents claim the additional standard deduction for being 65 and over or blind?
Yes.
How do you decide whether to take the standard or itemized deduction?
Take whichever is larger!
If you are married filing separately, can one spouse take the standard deduction and the other take the itemized deduction?
No, they must do the same.
Payments on behalf of which individuals are considered medical expenses for the itemized deduction?
- filing taxpayer
- spouse
- dependent
What criteria must be met to be considered a dependent for Medical Expenses paid (for itemized deduction)?
All SUPORT tests, except for U (under gross income test) and P (precluded from filing joint return)
Can an amount charged to a credit card but not paid yet count as a medical expense for the year?
Yes.
If payments are made for a deceased spouse, what year are they deductible in?
in the year paid, regardless of the year of death
What is the equation to calculate deductible medical expenses for the itemized deduction?
Qualified Medical Expenses - Insurance Reimbursement - 7.5% of AGI
Is transportation to and from a medical facility a deductible medical expense (itemized deduction)?
Yes, based on actual costs or mileage allowance.
Are expenses incurred for someone who is physically disabled (ex: making a ramp) deductible as a medical expense (itemized deduction)?
Yes.
What does the cost of adding/modifying your home for a qualified medical issue need to be reduced by for the itemized deduction?
Reduce the expense by the increased value of your home from the change.
Are costs for funerals or cemetary lots qualified medical expenses for the itemized deduction?
No.
What is the general idea behind what medical expenses are qualified and not?
Qualified: medically necessary
Not Qualified: elective
Is insurance against loss of earnings due to sickness or accident a deductible medical expense (itemized)?
No.
Are life insurance premiums a deductible medical expense (itemized)?
No.
If you are reimbursed for your medical expenses in excess (reimbursed more than the cost), what is the tax treatment for the excess?
included in gross income
What is the tax treatement if you incurred and deducted a cost in a prior year but you were reimbursed this year?
The entire reimbursement is included in gross income.
Are foreign real property taxes deductible (itemized)? Is there an exception to this rule?
Not deductible, unless incurred for a trade or business.
What is the limitation on the itemized deduction for state and local taxes?
$10,000
State and local taxes (itemized deduction) includes what categories of taxes?
- real estate taxes
- personal property taxes
- state and local income taxes
- sales taxes
Can you deduct both state and local income and sales taxes for the itemized deduction?
No, you must pick one or the other.
If believe an amount of real estate tax is incorrect, but you still pay and then decide to litigate, how much do you deduct this year as an itemized deduction? What do you do if in a future year you receive a refund?
This year: deduct the full amount paid
Future year: include in taxable income
If you decide to help your mom out with her real estate taxes, can you deduct the amount you paid to help her out?
No, you must be legally obligated to deduct the taxes.
Real estate taxes paid for land held for appreciation get which two potential treatments that the taxpayer can elect?
- capitalize
- deduct
What is required for personal property taxes to be deductible?
Tax is based on the value of the property.
If a taxpayer chooses to deduct the sales tax, what are the two possible ways to calculate it?
(1) actual receipts
(2) relevant IRS table + big ticket items
Any taxes related to a business (personal property, real estate, state and local, etc.) are deductible on which schedule?
C
Any taxes related to a rental property (personal property, real estate, state and local, etc.) are deductible on which schedule?
E
Casualty losses are only deductible as an itemized deduction if they are from what type of event?
a presidentially declared disaster area
What value is used to determine the amount of casualty loss? The lesser of…
- the decrease in FMV of the property before and after the casualty
- the adjusted basis of the property
What is the equation to get to the deductible casualty loss?
Loss - Insurance Recovery - 100 per federally declared event (not per loss) - 10% of AGI
To deduct a loss for non-business property, you have to do what?
File an insurance claim (unless not insured).
What is the acronym to memorize the types of interest expense?
HIPPE
What does the H in HIPPE stand for (interest expense types)?
home mortgage interest
What does the I in HIPPE stand for (interest expense types)?
investment interest
What does the first P in HIPPE stand for (interest expense types)?
personal (consumer)
What does the second P in HIPPE stand for (interest expense types)?
prepaid
What does the E in HIPPE stand for (interest expense types)?
educational student loan
An itemized deduction is allowed for mortgage interest on how many homes?
a first and second home
What criteria must be met to qualify as a second home?
used personally for at least 14 days of the tax year
What is the limitation on home mortgage interest deduction?
interest on up to $750,000 (MFJ) or 375K (MFS) of principal is deductible as an itemized deduction
Indebtedness for home mortgage interest can be in the form of what two types of debt?
- original acquisition debt, or
- home equity loan (subject to extra criteria)
What two criteria must be met for a home equity loan?
- incurrred in buying/constructing/substantially improving the first or second home, AND
- secured by the home
What are points in a home mortgage?
the fee a bank collects for borrowing money
What is the tax treatement for points on the original mortgage for a home?
immediately deductible
What is the tax treatement for points on the refinancing of a home?
amortized over the period of the loan (not fully deductible today)
What is the limitation on deductibility of investment interest expense?
deduction is limited to net taxable investment income
Net long-term capital gains and qualified dividends can be included in net investment income if what criteria is met?
the taxpayer elects not to claim the reduced capital gains tax rate
What is the tax treatement of dividend income from a stock purchased with borrowed funds?
Ordinary dividend, cannot be a qualified dividend if purchased with borrowed funds.
What is the tax treatment of interest expense on loans used to purchase municipal/state bonds?
Not deductible, because the interest income from the bonds is not taxable.
What is the tax treatmeent of excess investment interest income that cannot be deducted today?
CF indefinetely
What is the tax treatment for personal (consumer) interest?
Not deductible.
Charitable contributions do NOT include what two types of payments?
- gifts
- political contributions
To be a charitable contribution, who must it be paid to?
a qualifying charitable organization
What is the amount of the charitable contribution if it is ordinary income property?
the lesser of: (1) adjusted basis or (2) FMV at contribution
What is the amount of the charitable contribution if it is long-term capital gain property?
FMV at contribution
What is the maximum allowable deduction for cash, ordinary income property, and LTCG property for public charities?
Cash: 60% of AGI
Ordinary Income: 50% of AGI
LTCG: 30% of AGI
What is the maximum allowable deduction for cash, ordinary income property, and LTCG property for private operating charities?
Cash: 60% of AGI
Ordinary Income: 50% of AGI
LTCG: 30% of AGI
What is the maximum allowable deduction for cash, ordinary income property, and LTCG property for private non-operating charities?
Cash: 30% of AGI
Ordinary Income: 30% of AGI
LTCG: 20% of AGI
What is the difference between a private operating and private non-operating foundation?
Operating conducts charitable activities, but non-operating just distributes funds to other charitable foundations.
If you have excess charitable contributions that cannot be deducted this year, what are the CB/CF provisions?
CF up to 5 years only
If you donate multiple types of property, in what order should you apply the limitations?
cash, then ordinary income, then LTCG
If you buy tickets to a charity ball for $200, and the value of the meal given to you is $50, what is the CC deduction allowed for this, before applying further limitations?
$150 (remove the value of consideration recevied)
If a charitable organization receives a contribution of more than $___, they need to provide the donor with a written statement of the amount that is deductible.
75
Can you deduct the value of your time if you volunteer for a charitable organization?
No.
What can you deduct if you provide a service for a charitable organization?
out-of-pocket expenses for providing services, including costs of driving to and from, parking, tolls, etc.
What are two ways to calculate the deduction for time spent driving to and from volunteering?
- 14 cents per mile, or
- actual cost of gas and oil
What is the tax treatment (broadly) of expenses incurred when a taxpayer takes into their home a full-time student? What is the limitation?
charitable contribution deduction; up to $50 per month for each full month student is in the home and attending the school (15+ days)
What grade does the student have to be for the CC deduction for when a taxpayer takes into their home a full-time student?
Student may not be beyonf the 12th grade.
Regardless of the amount of the cash contribution, what must taxpayers always do for CCs?
keep records that substantiate their deductions
What are two forms of substantiation for deductions?
bank record or written acknowledgement from the charity
Acknowledgement of a CC must be obtained by the earlier of what two dates?
- filing date, or
- due date of return
For charitable contributions of more than $____ of non-cash property, what needs to be done?
500, file a form giving certain information
Taxpayers claiming more than $5,000 for any one item or group of similar items must do what?
obtain a written appraisal for the items
What types of business are SSTBs (just name a few)?
health, law, accounting, actuarial science, performing arts, consulting, athletics, financial services
What types of businesses are specifically not SSTBs?
engineering, architecture
Which taxable income is used to determine which category you fall into?
Taxable Income before the QBI Deduction
What is the lower threshold for the QBI deduction for a single taxpayer? What is the higher threshold? (rounded is okay)
192K to 242K (50K range)
What is the lower threshold for the QBI deduction for a MFJ taxpayer? What is the higher threshold? (rounded is okay)
384K to 484K (100K range)
For category 1 (below the threshold), how does the QBI limitation calculation differ for QTB and SSTBs?
It does not!
For category 3 (above the threshold), how does the QBI limitation calculation differ for QTB and SSTBs?
No QBI deduction is allowed for SSTBs.
For the QTB, apply the full limitation.
What is an additional requirement about the business to be eligible for the QBI deduction?
It cannot be foreign.
What is the full limitation for the QBI deduction if you are over the income thresholds?
Take the greater of:
- 50% of your share of wages, or
- 25% of your share of wages plus 2.5% of unadjusted basis of property
What is the overall limitation applied to the aggregated QBI deductions from each business?
(Taxable Income Before QBI - Net CG) * 20%
What is the marginal tax rate?
the tax rate applied to the next amount of incremental taxable income or deductions
How do you calculate the marginal tax rate?
Change in Tax Liability / Change in Taxable Income
What % and $ of the American Opportunity Credit is refundable?
40%, up to $1,000
The child and dependent care credit is ___% to ___% of work-related expenses to care for qualifying persons.
20% to 35%
The 20-35% for the child and dependent care credit is applied to maximum allowable expenses of ____ for one qualifying person and ____ for 2+ qualifying persons.
$3,000; $6,000
T/F: You cannot take a charitable contribution deduction for contributions to foreign charitable institutions.
True, the organizations are domestic only.
For the child or dependent care credit, what three criteria must be met?
- maintain a household,
- work, and
- incurr eligible expenses for the care of qualifying persons
What the three groups of qualifying persons for the child and dependent care credit?
- qualifying child under the age of 13,
- disabled dependent (only needs to meet support test, regardless of age)
- disabled spouse
What is the general idea (incentive) behind the child and dependent care tax credit?
to help curb the cost of caring for your children/dependents while you are working
What types of expenses are eligible for the child and dependent care credit? Which expense is not eligible?
Eligible: babysitter, nursery school, day care
Not Eligible: elementary school
What is the earned income requirement for the child and dependent care credit?
If married, both taxpayers must produce earning income to be eligible for the credit (unless one is a full-time student or disabled).
The amount of expense that is eligible for the credit the lesser of which three numbers?
- earned income of lesser-earning spouse,
- actual expenses incurred,
- maximum allowable amount (3K or 6K)
How do you determine which % from the 20-35% applies to you for the child and dependent care credit?
(1) Start at 35%.
(2) Decrease by 1% for each $2,000 of AGI over $15,000.
(3) The % cannot be reduced below 20%.
The American Opportunity Tax Credit can be used for what type of education?
first four years of college education (undergrad)
What is the calculation of the maximum AOTC credit?
100% on the first $2,000 of expenses, plus
25% on the next $2,000 of expenses
The AOTC credit can be used by a taxpayer who incurrs expenses for which three people?
- taxpayer
- spouse, or
- dependent
How is the AOTC credit impacted if a child claimed as a dependent pays for part of their own educational expenses?
They are deemed to have been paid by the parent, so the parent’s AOTC credit is not impacted.
To claim the AOTC, how long does the student need to be in school? (full time, half time, etc.)
at least half time for at least one academic period (fall or spring semester)
If a student is convicted of a drug offense, can they still get the AOTC?
No.
What are the phase-out thresholds for the AOTC for single and MFJ?
Single: 80-90K
MFJ: 160-180K (double the single)
Can the AOTC be claimed for multiple students? How does that work computationally?
Yes. You can claim up to $2,500 per student.
To what type of schooling does the Lifetime Learning Credit apply (LLC)?
unlimited number of years of schooling (beyond the first four years)
What is the computation of the LLC?
20% of qualified expenses up to $10,000 (maximum of $2,000)
Do you need to be seeking a degree to take the LLC?
No.
Can the LLC be claimed for multiple students? How does that work computationally?
No, you simply get a maximum credit of $2,000.
Can a taxpayer claim both the AOTC and the LLC for the same student in a single tax year?
No, different students would be needed to claim both the AOTC and the LLC.
What is the phaseout for the LLC for single and MFJ?
Same as AOTC:
Single: 80-90K
MFJ: 160-180K (double the single)
Does the LLC cover the cost of course materials? Does the AOTC cover the cost of course materials?
No to LLC, Yes to AOTC.
Does the LLC cover the cost of room and board? Does the AOTC cover the cost of room and board?
No and no.
What is a Coverdell education savings account?
education savings account for pay for qualified education expenses of a beneficiary
What is the maximum annual contribution to a Coverdell account?
$2,000
The designated beneficiary for a Coverdell account must be below what age when the account is established?
below 18
Can a single taxpayer have multiple Coverdell accounts for multiple beneficiaries?
Yes.
What is the tax treatment in the year you make a contribution to a Coverdell account?
Not deductible (like a Roth IRA).
What is the tax treatment in the year you withdraw money from a Coverdell account?
Not taxable, as long as used for educational expenses.
Generally, what types of expenses can a Coverdell savings account be used for?
a BROAD range of educational expenses
Can a Coverdell account be used to pay for room and board?
Yes.
Can a Coverdell account be used for pay for pre-college educational expenses (elementary, middle, high)?
Yes.
Any amounts remaining when a beneficiary reaches ___ years of age must be distributed (for Coverdell).
30.
What is the tax treatement of a Coverdell distribution directly to the beneficiary (not for educational expenses)?
Income Tax + 10% Penalty
Can remaining amounts in a Coverdell account be rolled over to another beneficiary?
Yes.
Can you claim the AOTC and/or LLC on expenses paid using the Coverdell savings?
No! You cannot stack these benefits.
What is a Section 529 qualified tuition program?
One where you can purchase tuition credits in advance, and distributions are excluded as long as paid for qualified educational expenses.
The credit for the elderly/permanently disabled is a credit of ___% of eligible income.
15
What two requirements need to be met to be considered permanently disabled for the tax credit?
- retired due to total/permanent disability, and
- received taxable disability income for the year
How old do you need to be for the elderly tax credit?
65 or older
What is the base amount used to figure out the elderly/PD credit if single?
$5,000
What is the base amount used to figure out the elderly/PD credit if qualifying surviving spouse?
$5,000
What is the base amount used to figure out the elderly/PD credit if MFJ and both are qualified?
$7,500
What is the base amount used to figure out the elderly/PD credit if MFJ and only one is qualified?
$5,000
What is the base amount used to figure out the elderly/PD credit if MFS?
$3,750
What is the calculation for the elderly/PD credit for a single individual?
$5,000 (Base Amount)
Less: All Social Security Payments
Less: 50% * (AGI - 7,500)
Equals: Adjusted Base
Adjusted Base * 15% = Credit (Non-refundable)
What is the calculation for the elderly/PD credit for a MFJ individual (assume both are qualified)?
$7,500 (Base Amount)
Less: All Social Security Payments
Less: 50% * (AGI - 10,000)
Equals: Adjusted Base
Adjusted Base * 15% = Credit (Non-refundable)
How are the adoption tax credit and employer adoption assistance program similar (2)?
- The credit and exlcusion amounts are the same at $16,810.
- The phaseout threshold is the same at 252K to 292K.
Are there any CB/CF provisions for the Adoption Tax Credit?
Yes, you can CF any excess credit for up to 5 years.
The adoption credit is not available for which two parenting arrangements?
- adopting the child of a spouse (step-child), or
- surrogate parenting
The adoption credit does not apply for which types of expenses?
medical expenses
What is the difference in the timing of the adoption credit if you adopt domestically or a foreign child?
If domestic, use credit in year of payment (leading up to the adoption as well).
If foreign, only can use credit in the year the adoption becomes final.
What is the retirement savings contribution credit?
credit available for low and moderate income taxpayers for making contributions to (1) employer-sponsored retirement plan or (2) IRA
Eligible taxpayers for the retirement savings credit must meet what three criteria?
- 18+ years old, and
- not a full-time student, and
- not a dependent of another taxpayers
What are the 4 potential credit rates for the retirement savings credit?
0, 10, 20, or 50%
The lower your income, the (higher/lower) your percentage for the retirement savings credit.
higher
The maximum contribution eligible for the credit is how much per taxpayer?
$2,000
Can you carryover any disallowed retirement contribution credit?
No.
What are two options available to taxpayers with regard to the foreign income taxes paid?
- take the Foreign Tax Credit, or
- claim an itemized deduction for the taxes paid
What is the limit on the itemized deduction available for foreign taxes paid?
No limit.
What is the limit on the foreign tax credit?
(Foreign Taxable Income / Total Taxable Income) * U.S. Tax
What is the CB/CF provision for the foreign tax credit?
CB 1 year, CF 10 years
What is the general business credit (high-level)?
a combination of many other credits
What is the CB/CF provision for the general business credit?
CB 1 year, CF 20 years
What are the steps to calculate the maximum general business credit that is permitted?
(1) Find regular tax liability after other credits.
(2) First 25,000 is allowed as a credit.
(3) Excess tax liability over 25,000 is only 75% allowed as a credit.
What is the general thing that is being incentivized with the work opportunity credit?
hiring employees from a qualified group
What groups are qualified groups for the work opportunity credit (4)?
- disabled
- Vietnam veterans from economically disadvantaged areas
- 18 to 24 year olds from poor families
- food stamp recipients
What is the credit allowed for the work opportunity credit (general)?
40% of the first $6,000 of first year wages only
What is the credit allowed for the work opportunity credit (certain summer youth)?
40% of the first $3,000 of first year wages only
What two requirements must be met for an employer to be an eligible small business that is allowed a tax credit for start up costs of establishing a new qualified retirement plan?
- no more than 100 employees who received at least 5K in compensation in the preceding year, AND
- at least one employee is a non-highly compensated employee
The credit for start up costs of establishing a new qualified retirement plan is allowed over what time period?
the first three years of the plan
The credit for start up costs of establishing a new qualified retirement plan can include which two types of eligible start-up costs?
- ordinary and necessary costs to set up and administer the plan
- costs to educate employees about the plan
What is the amount of the credit for start-up costs of establishing a new qualified retirement plan?
The greater of:
(1) 100% (or 50% if there are 51-100 employees) of the first $1,000 of eligible expenses
(2) The lesser of:
(a) 5,000
(b) $250 per non-highly compensated employee
The credit for start-up costs of establishing a new qualified retirement plan, the credit for small business healthcare, and foreign tax credit all have what in common?
You can either take a deduction or use the credit.
The small business health care tax credit provides a credit of up to ___% of the employer’s costs of plan premiums, as long as the employer contributes at least __% of the costs of health coverage on behalf of employees.
50%, 50%
Costs of premiums for which individuals are excluded for the small business health care tax credit?
- family members
- SPs
- partners
- S corp owners with over 2% ownership
- Corporation SHs with over 5% ownership
What is the energy efficient home improvement credit % and maxmium value per year?
30% of qualified energy efficiency improvements, $1,200 credit limit
The Residental Clean Energy Credit is a maximum credit of what percent and for what costs?
30% of installation costs of solar, wind, and geothermal energy generating systems
What is the clean vehicle credit amount for new electric vehicles placed into service after December 31, 2022?
$7,500
What is the clean vehicle credit amount for used electric vehicles placed into service after December 31, 2022?
$4,000
What is the Alternative Fuel Refueling Property Credit %, subject matter, and maximum amount?
30% of installation costs for “qualified alternative fuel vehicle refueling property”, maximum credit of $1,000
What is the amount of the child tax credit for each qualifying child?
$2,000
What is the definition of a qualifying child for the child tax credit?
meets all CARES criteria, except that the chuld must be under the age of 17
How is the child tax credit phased out?
[(AGI - Threshold) / 1,000] * 50 = Reduction to the 2,000
What is the AGI threshold for the child tax credit for MFJ? MFS? Single?
MFJ: 400,000
MFS: 200,000
Single: 200,000
How do you figure out the refundable amount of the child tax credit? (Hint: the lesser of three numbers…)
- excess credit over liability
- (earned income - 2,500) * 15%
- 1,700 per qualifying child
What is the credit amount for non-child dependents under the child tax credit? This covers what types of dependents?
$500 for any QC age 17 and above or any QR
Is the credit for non-child dependents refundable?
No.
Earned income includes what three types of income?
- wages, salaries, and tips
- other employee compensation (bonuses)< and
- earnings from self-employment
What is not included in earned income?
pension and annuity income
To be eligible for the earned income credit, the taxpayer must:
- live …
- meet certain _____ ______ thresholds
- not have more than a specified amount of ____ ___
- if there are no qualifying children, be over ___ and under ___, and
- file a …
- live in the U.S. for more than half the taxable year
- meet certain earned low-income thresholds
- not have more than a specified amount of disqualified income
- if there are no qualifying children, be over 24 and under 65
- file a joint return (and not a dependent on another’s return)
Do you get a higher or lower earned income credit if you have a qualifying child?
higher
An individual cannot claim the earned income credit if they have ___ income that exceeds $_____.
investment income; $11,600
What is included in investment income for the earned income credit?
- taxable and nontaxable interest
- dividends
- net rental and royalty income
- net capital gains income
- net passive income
What is the tax treatment if you have excess SS tax withheld from your paycheck from one employer?
Ask the employer to refund you the excess, this is NOT a credit against your tax liability.
What is the tax treatment if you have excess SS tax withheld from your paycheck from two+ employers?
Claim the excess as a credit against income tax (as long as correct withholding).
What is the premium tax credit?
helps individuals with low to moderate incpme afford health insurance purchased through a Health Insurance Marketplace
You are required to make estimated tax payments if both of the following two conditions are met. What is the first one?
You expect a remaining tax liability of over $1,000 (liability > withholding).
You are required to make estimated tax payments if both of the following two conditions are met. What is the second one?
You withheld less than the lesser of:
- 90% of current year tax, or
- 100% of last year tax (or 110% if AGI is over 150K)
If you do not pay estimated quarterly taxes, what are two ways to get around the penalty imposed by the IRS?
- overall tax owed at filing is under $1,000
- casualty, disaster, illness, death (something precluded you from being able to pay estiamted taxes)
If a taxpayer realizes towards the end of the year that their estimated payments have been insufficient, what should they do to avoid penalty from the IRS?
Ask their employer to withhold more from their paycheck, and the money will then be considered evenly paid throughout the year.
What is the additional medicare tax amount?
0.9%
Additional medicare tax of 0.9% is imposed on wages in excess of what amount for a MFJ taxpayer?
$250,000
Additional medicare tax of 0.9% is imposed on wages in excess of what amount for a MFS taxpayer?
$125,000
Additional medicare tax of 0.9% is imposed on wages in excess of what amount for a single taxpayer?
$200,000
What is the rate of the net investment income tax (NII)?
3.8%
NII only applies to invidividuals with …
income over statutory threshold AGI amounts.
What is the AGI threshold amount for the NII tax for MFJ? What about single or head of household?
MFJ: $250K
Single or HoH: $200K
The 3.8% NII tax is imposed on the lesser of what two values?
- net investment income, or
- excess AGI over the threshold
What and who is the kiddie tax imposed on?
unearned income of a dependent child under 18 or between 18-23 and a full-time student
How do you determine the amount of a child’s unearned income that is subject to the parent’s tax rate?
The first 1,300 (or 1300 + earned income) is the standard deduction for the child.
The next 1,300 is taxed at the child’s rate.
Any unearned income in excess is taxed at the parent’s rate.
A parent can elect to include the unearned income of a child in their own return if the income is (1) between what values and (2) consists only of?
(1) $1,300 to $13,000
(2) interest, dividends, and capital gains
