REG 1 - Individual Taxation Flashcards
Taxable Income Formula
Gross income (Adjustments) =AGI (Standard deduction or Itemized deduction) =Taxable income before QBI deduction (QBI deduction) =Taxable income
How do you determine your filing status (Single & Joint) for a particular year?
Use the End-of-Year Test. Dec 31 determines status.
*IF one spouse dies during the year, a joint return may be filed
Qualifying Widow(er) with Dependent Child
- May file joint tax return for each of the two years following the year of death of his or her spouse
- Must have the dependent child pass the 50% support test and live in the same household for the whole taxable year
W (whole year)
Head of Household
- Maintains his or her home a household that, for more than half the taxable year is the principal residence of a qualifying person
- H (half year)*
Qualifying Person for Head of Household
1) A Qualifying Child
2) Father or Mother (not required to live with the taxpayer)
- must maintain a home by contributing over half the cost of upkeep
3) Dependent Relatives (Must live with taxpayer)
- not freeloading friends
Qualifying Child (CARES)
1) Close Relative
2) Age Limit (under 19 / 19-24 in college)
3) Residency and filing requirements
- Must have the same principal place of abode as the taxpayer for more than one half of the year
4) Eliminate gross income test
5) Support test
- Child must not have contributed more than half of their own support
Qualifying Relative (SUPORT)
1) Support test
2) Under gross income limitation: taxable
- Less than 4,300 (2021)
3) Precludes dependent filing a joint return
4) Only citizens of US or residents of US, Mexico, Canada
5) Relative or
6) Taxpayer lives with the individual (non relative) for the whole year
Multiple Support Agreements
When two or more taxpayers contribute more than 50% to the support of a person but no one individually contributes 50% or more may claim the individual as a dependent if:
- Contributed more than 10% of the person’s support
- Must be a qualifying relative or lived with the individual the entire year
Tax Exempt Interest Income
- State and Local government bonds
- Bonds of a US possession (Guam or PR)
- US Series EE savings bonds
Alimony
- 2018 & Earlier = income to ex spouse
- 2019 & Later = nothing. not income
To be deemed alimony:
- payments must be legally required
- payments must be in cash or its equivalent (pay credit card bills, pay college bills)
- payments cannot extend beyond the death of the payee spouse
- spouses may not file a joint tax return
Penalty Tax for early withdrawal (Roth IRA) - (HIMDEAD)
Withdrawal before the age of 59.5 is subject to a 10% penalty tax, along with regular taxes. Exceptions include:
- Homebuyer (1st time, 10,000 maximum)
- Insurance (medical)
- Medical expenses in excess of percentage of AGI floor
- Disability
- Education
- Adoption or birth (5,000 maximum)
- Death
Fixed Period Annuity Calculation
(100% - Return of capital %) x Monthly payments
Return of capital % = Original investment / Expected Value
Nontaxable Misc. Items
- Life Insurance proceeds
- Gifts and Inheritance
- Works Compensation
- Personal Injury or illness award
Business Income or Loss, Schedule C
Gross business income
(Business expenses)
= Profit or loss
Business Expenses (deductible from income)
- COGS
- Salaries paid to others
- Business meals at 50%
- Interest expense on business loans incurred AND paid
- Bad debt actually written off for an accrual basis taxpayer
- others
Nondeductibe Expenses
- Your own salary
- Federal income tax
- Charitable contributions
- Entertainment expenses
- Bad debt expense of a cash basis taxpayer
- Personal portion of meal, interest, and health insurance expense
Self employment tax
Calculated on 92.35% of income. (15.3% is combination of Medicare tax and SS tax
Farming Income - Cash Basis
Expense inventory, not required to consider inventory
