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REG > R1 & R2 - Indiv. > Flashcards

R1 & R2 - Indiv. Flashcards

1
Q

Who has to file a tax return?

A

Anyone who makes too much money.

Self employment = $400 or more

Everyone else = Exemption amount + Standard deduction

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2
Q

Qualifications to file as “Qualifying Widower” include:

A
  1. ) Must have a dependent for Whole year (Widower)
  2. ) 2 yr grace period from date of death (2 returns as widow)
  3. ) can no longer file if remarry in that grace period
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3
Q

Qualifications to file as “Head of household” include:

A

1.) Must have dependent for at least Half year (H)

a.) dependent includes child & relative (must live with), 
and parent (doesn't need to live with you).  Cannot be a friend.

2.) No married, separated legally, or apart last 6 months

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4
Q

If baby is born during year and dies, do parents still get exemption?

A

Yes. If birth/death during year, you get full exemption.

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5
Q

What are the requirements for someone to be a “Qualifying child” dependent?

A

“CARES”

  1. ) Close relative (child / sibling / nephew)
  2. ) Age limit (19, or 24 if in school)
  3. ) Residency (more than half year)
  4. ) Exemption
  5. ) Support test change (more than half support)
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6
Q

What are the requirements for someone to be a “Qualifying relative” dependent?

A

“SUPORT”
1.) Support (more than half)
2.) Under exemption amount T.I (can’t make too much money, non-tax income doesn’t count)
3.) Prevents dependent from filing a joint return
4.) Relative
or
5.) Taxpayer lives with them (non-relative)

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7
Q

What is the difference between realization and recognition?

A

Realization = real world (actual receipt of cash)

Recognition = record (to make the JE)

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8
Q

Premiums paid for by an employer for an employee life insurance are not taxable to the employee on the first $XX,XXX amount of coverage

A

$50,000.

Proceeds would be non-taxable no matter what.

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9
Q

Employer payment of employee educational expenses are non-taxable as a fringe benefit up to what amount?

A

$5,250

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10
Q

When a shareholder has a capital account larger than what gets distributed to them, is the distribution taxable?

A

Reduces basis, not taxable. Not taxable until recovered entire basis.

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11
Q

When should you take your state income tax refund as income?

A

When you took the taxes paid to states as an itemized deduction in the prior year. (you get tax benefit, now taxable.)

If you did not itemize and only took standard deduction, then state refund is not income.

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12
Q

Explain the nuance between child support and alimony paid.

A

Child support is nontaxable to receiver and non-deductible to payer and is considered to be paid “first”

Alimony is any money paid after child support, taxable to receiver and deductible as adjustment for payer.

Property settlements are non-taxable.

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13
Q

Are distributions from a traditional IRA taxable?

A

Yes, the contribution was deductible as an adjustment, so the distribution must be taxed (principal & earnings)

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14
Q

What is the difference between a nondeductible IRA and a roth IRA?

A

Non-deductible = contribution is non-deductible and can be distributed tax free, but earnings are taxed as ordinary income

Roth = contribution is non-deductible and can be distributed tax free, & same with earnings.

*people do the non-deductible when their income limits are too high to participate in a Roth

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15
Q

What are the circumstances of not getting a 10% penalty for early withdrawal from a retirement account?

A
  1. ) First time home buyer
  2. ) Medical insurance
  3. ) Medical expenses
  4. ) Disability
  5. ) Education
  6. ) Death
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16
Q

Workers compensation, taxable?

A

No (if hurt).

Unemployment is taxable though.

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17
Q

Is social security income taxable?

A

Depends:

1.) Income less than $25k = NONTAXABLE

As income goes up, SS income becomes more and more taxable all the way up to 85% of it if income over $34k single

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18
Q

How are gambling winnings / losses taxed?

A

Gambling winnings are included in gross income.

Gambling losses are an itemized deduction, and cannot exceed winnings.

**only get the losses if you itemized, damn IRS

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19
Q

If you win money in a lawsuit, is that taxable?

A

Punitive damages are taxed as ordinary income.

Only time winnings are nontaxable is in event of wrongful death.

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20
Q

Are scholarships taxable?

A

Depends, must be a degree seeking student:

Not taxable if spent on tuition, fees, books and supplies.

Taxable is spent on room and board.

*if non-degree seeking student, fully taxable @ FMV

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21
Q

If you are given a gift, is that taxable?

A

Taxable to giver, not to receiver.

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22
Q

What are the two different taxes net income on a Sch. C is subject to?

A
  1. ) Income taxes

2) Federal self-employment (SE) tax (you pay both employer and employee portion)

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23
Q

How do you calculate SE tax?

A

Self-employment tax only applies to 92.35% of self-employment income.

After 92.35% carve out, 15.3% tax rate (7.65% employee, 7.65% employer)

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24
Q

Can you carry forward/back a schedule C loss?

A

In year of loss, can use to offset other income.

If nothing to offset, the NOL can be carried back to offset income 2 years, and carried forward 20 years.

(2 back, 20 forward)

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25
Q

Briefly describe uniform capitalization rules.

A

Uniform capitalization (Unicap) is the requirement to include certain costs in the cost of inventory. This increases taxable income upon implementation (less expense), and increases ending inventory

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26
Q

What are the types of costs that are subject to uniform capitalization rules?

A

Direct materials, direct labor, factory overhead, warehousing, repairs, rent, insurance, spoilage, etc.

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27
Q

What are the types of costs that are NOT subject to uniform capitalization rules?

A

SG&A costs.

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28
Q

Schedule A is:

A

To report itemized deductions (standard or itemized, can’t be both)

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29
Q

Schedule B is:

A

To report interest and dividends

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30
Q

Schedule C is:

A

To report business income (unincoporated biz)

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31
Q

Schedule D is:

A

To report capital gains/losses

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32
Q

Schedule E is:

A

To report rental, royalty, and passthrough income

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33
Q

Schedule F is:

A

To report Farm income

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34
Q

Can you take a loss on a rental property that is a non residence?

A

No passive losses allowed, can offset with other properties or carry forward indefinitely (only on non-residence)

EXCEPTION: “Mom & Pop” rule allows you to deduct up to $25,000 of net passive losses. Need to be participating owner with at least 10% ownership. Starts to get phased out @ $100k AGI. Completely phased out @ $150k AGI.

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35
Q

If you rent out a residence for 14 days, is the rental income taxable?

A

No, residence with fewer than 15 days of rental are excluded from income. Do not report on Schedule E, mortgage interest and real estate taxes are reported as itemized deductions.

36
Q

If you rent out a residence for 30 days, is the rental income taxable?

A

Include on schedule E, cannot take a rental loss.

Expenses must be allocated between personal (itemized deductions) and business (reported on schedule E as expense)

37
Q

When is the only time you are allowed to take a loss on a schedule E? (rental activity)

A

Never allowed a net loss.

EXCEPTION: “Mom & Pop” rule allows you to deduct up to $25,000 of net passive losses. Need to be participating owner with at least 10% ownership. Starts to get phased out @ $100k AGI. Completely phased out @ $150k AGI.

If cannot deduct losses (phased out), can carry forward indefinitely if a non residence.

38
Q

What happens when you have multiple years of losses for a passive rental property in the year of sale of the property?

A

Deduct the net loss in the year of sale

39
Q

What conditions must be present to take a net loss on rental property? (excluding Mom & Pop and year of sale exceptions)

A

Must be a real estate professional to take the loss.

  1. ) more than 50% of your time on the biz
  2. ) 750 hours of services

*all considered passive, even if participate in management actively, unless above two are satisfied.

40
Q

What are the allowed losses associated with capital losses?

A

$3,000 maximum deduction annually. Limited to taxable income.

Can carry forward forever, never carry back.

41
Q

Is a guaranteed payment a deduction to the partnership?

A

Yes, & treated as self-employment income to the partner (on K-1)

42
Q

Distributed net income (DNI) when distributed to beneficiaries is taxable to:

A

The beneficiary, not the trust

43
Q

Under a qualified stock option plan, when are employees taxed?

A

Only when options are sold (capital gain)

44
Q

Under a non-qualified stock option plan when the options have a readily available ascertainable value, when are employees taxed?

A

On the grant date (immediately), then again when sold for whatever gain they haven’t already been taxed

45
Q

Under a non-qualified stock option plan when the options do not have a readily available ascertainable value, when are employees taxed?

A

Not on the grant date (no value to assign yet), but on the exercise date, then again when sold for whatever gain they haven’t already been taxed

46
Q

When can an employer take a deduction for a non-qualified stock option plan

A

No tax deduction for an employer on a qualified stock option plan, because it is not considered to be compensation to the employee.

47
Q

What makes a stock option plan “Qualified”?

A
  1. ) must be granted & approved by shareholders
  2. ) employee cannot own more than 10%
  3. ) options must be granted within 10 years of being approved
  4. ) once exercised, stock must be held for two years after grant date & one year after exercise date
48
Q

What is the ultimate difference between a gain recognized on a non-qualified stock option plan and a qualified stock option plan.

A

The amount of the gain is the same in total, only difference is the timing of the tax.

49
Q

Student loan interest deduction is a:

A

Adjustment, for AGI

50
Q

What is the maximum student loan interest deduction allowed?

A

$2,500 annually.

Starts to phase out at $65k AGI

51
Q

Charitable contribution deduction is a:

A

Itemized deduction.

For cash contribution - can deduct up to 50% AGI.

For property contribution - can deduct up to 30% AGI.

52
Q

What kinds of taxes are deductible, and what kind of deduction are they?

A

All are itemized deductions:

  1. ) Real estate taxes
  2. ) State & local income or sales tax
  3. ) Personal property tax
53
Q

What itemized deductions are subject to 2% AGI (only excess can be deducted)

A

Miscellaneous deductions. (BIT)

  1. ) Business exp (unreimbursed) & education expenses to keep job
  2. ) Investment expenses (not interest, advisory fees)
  3. ) Tax prep fees
54
Q

What itemized deductions are subject to 10% AGI (only excess can be deducted)

A

Medical expenses.

  1. ) Must be net of reimbursements
  2. ) Careful, don’t include cost of financial insurance
  3. ) must be incurred & paid
  4. ) doctors, prescriptions, required surgery, etc for you and all dependents
55
Q

Name all of the refundable tax credits:

A
  1. ) Child tax credit
  2. ) Earned income creidt*
  3. ) Withholding tax (extra)
  4. ) Excess Social security paid
  5. ) American opportunity credit
56
Q

Name all of the tax credits allowed by AMT:

A
  1. ) Child & Dependent care credit
  2. ) Child tax credit
  3. ) Retirement savings contribution
  4. ) Foreign tax credit
  5. ) Adoption credit
  6. ) Child tax credit
57
Q

What are the items from AGI?

A 
AGI
(standard/itemized)
(exemptions)
=T.I
Fed inc tax
(credits)
\+other taxes like SE
(Pmts)
=Due / Refund
58
Q

What incentive does a blind person get for tax purposes?

A

Bigger standard deduction

59
Q

What are the rules for the lifetime learning credit?

A
  1. ) Non-refundable credit
  2. ) 20% of expenses up to $10,000 can be taken as a credit ($2,000 max)
  3. ) Can do forever, no limit
  4. ) Phase out starts at $56k AGI
60
Q

What are the rules related to the casualty and theft loss deduction?

A
  1. ) Itemized deduction
  2. ) Has to be either covered by insurance with a claim filed or have no insurance coverage
  3. ) Subject to $100 floor per loss, as well as 10% AGI
  4. ) Must be sudden and unexpected
61
Q

Gambling loss deduction is a:

A

Itemized deduction (Other Misc. Deduction), no limitation other than that of gambling winnings

62
Q

Moving expenses are:

A
  1. ) An adjustment
  2. ) must move 50 miles from home to qualify
  3. ) only exp’s that qualify would be to move your family and furniture
  4. ) have to live in new place for 39 weeks (75% of year)
  5. ) must be work related
63
Q

Educator expenses are a:

A
  1. ) Adjustment

2. ) $250 per qualified educator

64
Q

As a self-employed person, you have to cover the employee and employer portion of SE tax. The employer portion:

A

Can be taken as an adjustment for AGI. (50% of total SS paid = boss portion)

65
Q

What kinds of interest can be deducted by an individual and what kind of deduction are they?

A

Itemized deductions:

  1. ) Home mortgage interest (up to $1mm principal, used to buy/construct/improve)
  2. ) Home equity up to $100k for anything
  3. ) Investment interest (limited to invest income)

Adjustments:
1.) Student loan interest

All other interest is considered to be consumer interest and is not deductible.

66
Q

The tuition and fees deduction is:

A

An adjustment.

Does not need to be work related, up to $4,000 deduction per year. Expenses above maximum can be taken as itemized deduction, subject to 2% AGI (excess)

67
Q

When you invest in a CD, and take an early withdrawal that comes with a penalty, how should you treat the penalty?

A

Report all interest income, and take penalty as an adjustment (Penalty - Early Withdrawal of Savings Adjustment).

Do NOT net it against interest income, report both separately.

68
Q

How do you calculate the foreign tax credit?

A

Foreign income / All income + exemptions = Proportion of foreign

Proportion of foreign * U.S Tax = Credit limit

69
Q

What types of expenses qualify for the adoption credit?

A

Legal & agency fees to secure adoption.

Do not include child medical expenses for the credit.

70
Q

Is the adoption credit refundable?

A

No, but any credit in excess of your tax liability may be carried forward for up to 5 years.

$13,570 per child if you have enough expenses.

71
Q

What are the tax incentives around a Health Savings Account?

A

Can make a pretax contribution up to $3,400. Contribution can be taken as an adjustment to lower AGI.

72
Q

Alimony received is:

A

Included in gross income, less any child support included

73
Q

Alimony paid is:

A

Adjustment to reduce AGI. (less any child support included)

74
Q

How does the American Opportunity Credit work?

A
  1. ) Refundable credit up to 40%
  2. ) 100% of first 2,000 is deductible
  3. ) 25% of next 2,000 is deductible ($500)
  4. ) $2,500 max total, can only do for first 4 years of “extra” education
75
Q

Attorney fees in defense of a whistle blower case is a:

A

Adjustment to reduce AGI.

76
Q

Deduction for domestic production activities is a:

A

Adjustment to reduce AGI.

77
Q

What is an example of an item that can be taken as an adjustment and credit?

A
  1. ) IRA deduction adjustment ($5,500 max)

2. ) Retirement savings contribution credit ($1,000 max)

78
Q

What is the limit for an IRA contribution for an adjustment to reduce AGI if you are 50 years old?

A

$6,500 ($1,000 extra)

79
Q

What are the limits for a coverdell education account?

A

$2,000 annually per beneficiary taken as an adjustment to reduce AGI.

80
Q

When can you not take an IRA deduction as an adjustment?

A
  1. ) in a pension plan

2. ) make too much money (over $62k)

81
Q

As a self-employed person, you pay medical insurance premiums. Where are these deducted, if at all?

A

Can take as an adjustment for 100% of premiums paid (SE Health Insurance Adjustment)

82
Q

What is the maximum credit for a child & dependent care credit for one child?

A

$3,000. (must be 13 or younger, or disabled)

83
Q

Give some examples of moving expenses that would be disallowed:

A

Hotels while house hunting, food (would’ve eaten anyway), expenses for breaking lease, temp living exp

84
Q

What is a marginal tax rate?

A

Marginal tax rate is the rate you get taxed on your next dollar. Each bracket has a specific marginal rate that it taxes each income level. Each rate in each bracket is the marginal rate.

85
Q

What is the “annualization method” regarding estimated tax payments?

A

Pay 90% of current years tax

  • there is also the prior year method (pay 100% of last years tax)
  • if AGI exceeds $150k, must use 110% of last years tax (annualization method)
86
Q

What is the income limit for which an taxpayer must pay estimated tax pmts for 110% of last years tax?

A

$150,000 AGI (annualization method)

87
Q

When is a rental loss allowed to be taken against other ordinary income?

A
  1. ) When you are a real estate professional (active not passive)
  2. ) Mom & Pop exception ($25k loss allowed if AGI under $100k, full phase out at $150k)
    * if nonresident and have passive income property, can take a loss only to extent of gain of other passive properties

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