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CPA Exam > REG > Flashcards

REG Flashcards

1
Q

Qualified surviving spouse

A

-The taxpayer’s spouse died in one of the two pervious years and the taxpayer didn’t marry in the current year
-The taxpayer has a child who can be claimed as dependent
-The child lived in the taxpayer’s home for all of the current year
-The taxpayer paid over half of the living expenses for the child
-The taxpayer could have filed a joint return in the year the spouse died

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2
Q

Qualified Business Income (QBI)

A

Is taken from adjusted gross income (“below the line”). It is not part of the itemized deductions

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3
Q

If the spouse dies in the current year

A

The surviving spouse is considered to be married for the entire current year

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4
Q

Individuals

A

Are required to have a calendar year end

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5
Q

Head of household

A

can only be elected if the taxpayer is legally separated at year-end and live apart from the spouse for six months

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6
Q

If more than two year have passed since the spouse has died

A

The taxpayer can no longer file as a qualified surviving spouse

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7
Q

Head of household

A

can be used when the taxpayer maintains more than half of the upkeep on another person’s principal residence for the ENTIRE tax year. The taxpayer is not required to live with the individual

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8
Q

Social security benefits

A

are not included in gross income for purposes of the qualifying relative gross income test

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9
Q

Interest earned on a refund

A

Is taxable

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10
Q

Child support funds qualification

A
  • A specific amount is fixed or is contingent on the child’s status (reaching a certain age)
  • It is paid solely for the support of minor children
  • Payable by decree, instrument, or agreement

Note that for all divorce or separation agreements executed after 12/31/2018, the alimony is neither taxable to the recipient or deductible by the payor

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11
Q

Awards can be excluded from gross income when

A
  • The taxpayer was selected for the award without entering the contest
  • The award is paid to a governmental or charitable organization
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12
Q

Cash basis taxpayers

A

Should report gross income for the year in which the income is either actually or constructively received, whether in cash or property

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13
Q

Group term life insurance premiums paid by an employer

A

Are excludable from gross income up to $50,000. The first $50,000 is nontaxable, then the rest is

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14
Q

A trip for meeting sales goals

A

Would be included in an employees gross income

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15
Q

Gross income

A

Does not include inheritances. It does include treasure troves and employee achievement awards

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16
Q

Noncash income

A

The amount of income to be reported is the FMV of the property or services received

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17
Q

Even if a company car is provided to a spouse and the employee doesn’t use it

A

It’s still considered a taxable fringe benefit for the employee and not for the spouse

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18
Q

Moving expenses

A

Are only deductible by armed forces personnel who are moving pursuant to a military order

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19
Q

Employer contributions to a traditional defined contribution retirement plan, and earnings on those amounts contributed

A

Are not taxable income to the employee until distributed

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20
Q

Interest earned on Series EE bonds issued after 1989

A

May qualify for exclusion from gross income if the interest is used to pay tuition and fees for the taxpayer, spouse, or dependent enrolled in higher education. The interest exclusion is reduced by qualified scholarships that are exempt from tax and other nontaxable payments received for education expenses. The purchaser of the bonds must be the sole owner of the bonds.

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21
Q

Interest on state government obligations

A

Is not taxable

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22
Q

Interest income from muni bonds

A

Is not taxable

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23
Q

If common stock is received for services rendered

A

The FMV of those shares is recognized as income and dividend income on those shares of stock is also recognized as income

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24
Q

Under the tax benefit rule

A

an itemized deduction recovered in a subsequent year is included in income in the year recovered. Only the amount of the benefit, not the entire refund, is included in taxable income for the current year

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25
Q

Misc. items that aren’t included in income

A
  • Rental value of parsonages (furnished by churches and synagogues) is excluded from the AGI of the minister
  • Compensation for injuries and sickness
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26
Q

Taxes on alimony

A

Includes only payments received in cash (must be settled before 12/31/2018)

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27
Q

Child support and cash from property settlements

A

Are not included in gross income of the receiving spouse

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28
Q

Money received for child support and alimony - allocation

A

The money received must first be used to satisfy the child support category for the given time period, the remaining money is then applied to alimony, which is taxable if the divorced was finalized prior to 12/31/2018

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29
Q

Marginal tax rate should be used

A

When receiving a distribution from a traditional IRA. There will also be a 10% penalty assessed if the taxpayer is over 59.5 years old

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30
Q

For a cash and accrual basis taxpayer

A

Gain or loss on a sale of stock occurs when the trade date

31
Q

Rules for alimony deductions for divorces executed on or before 12/31/2018

A
  • Payments must be in cash or cash equivalents
  • Payments cannot extend beyond the death of the payee-spouse
  • Payments must ne legally required pursuant to an agreement
  • Payments cannot be made to members of the same household
  • Payments must not be designated as anything other than alimony
  • The spouses may not file a joint return
32
Q

Taxes on annuity (and life insurance) distributions

A

To calculate the nontaxable portion (nontaxable return on capital): Initial investment/years

Anything over this amount is taxable

33
Q

Taxes on social security benefits

A

Depends on the income of the benefit holder. The maximum amount of taxable Social Security benefits is 85% if the total benefit received. The amount depends on whether modified AGI ( AGI plus tax-exempt interest plus 50% of the SS benefit) is greater than a threshold amount. For higher income taxpayers with a modified AGI of more than 24,000, up to 85% of the SS benefits received during the year are taxable

34
Q

Unemployment compensation

A

Is included in taxable income

35
Q

Tax returns for a dead person

A

Are due the next year

36
Q

Interest income received after death

A

Are taxable to the estate, not the individual

37
Q

Damages awarded as a result of physical personal injury

A

Are not taxable

38
Q

Misc. items included in gross income

A
  • Payment to a part-time student for teaching services provided
  • Payment to a degree candidate for participation in a university-sponsored research project
39
Q

If vacation time is used on a business trip

A

The airfare isn’t deductible, even if business activities were involved part of the time

40
Q

Consideration for cancelling a lease

A

Is considered rental income

41
Q

A partnership generates net ordinary business income or loss

A

And passes each partner’s distributive share through on Schedule k-1

42
Q

Net self employment income

A

Gross income - license fees - marketing expenses

43
Q

Salaries paid to yourself as a business owner

A

Are considered draws and are not factored into gross income

44
Q

Total self employment income

A

Gross business receipts - Business expenses

45
Q

1040 schedule c, profit or loss from business

A

Personal expenses are not allowed as deductions on schedule c. Schedule c items should only be related to the operation of the business itself

46
Q

Business expenses

A

Do not include investment expenses

47
Q

Business meals

A

Are only 50% deductible on form 1040 C

48
Q

State income taxes for businesses

A

Are not deducted on schedule C. They are an itemized deduction

49
Q

Bad debt allowance

A

Is a direct write off only for accrual basis taxpayers

50
Q

Prepaid interest

A

Is deductible, and must be prorated over the life of the loan

51
Q

If a residence is rented for less than 15 days of the year

A

No rental income needs to be reported

52
Q

Shareholder distributions

A

Are not taxable if they don’t exceed the basis of the corporation

53
Q

Each shareholder in an S corp

A

Must report their share of the S corp’s profits in their gross income

The income is passed through to the shareholder whether or not it was actually distributed

54
Q

Partnership ordinary income

A

Ordinary income x 50%

55
Q

A partner

A

Is not considered an employee. They receive guaranteed payments on form K-1. This income is subject to the self employment tax

56
Q

Taxable vs. Nontaxable Events

A

Taxable = FMV for income and basis
Nontaxable = none for income and NBV for basis

57
Q

In order to be a taxable gain

A

The gain must be recognizable and realizable

58
Q

Bargain purchases

A

The difference is income to the employee

59
Q

Net income for partnerships

A

Gross income
- guaranteed partner payments (nothing withheld)
= net income

60
Q

Life insurance

A

Premiums above the first $50,000 are taxable

61
Q

1040 Schedule B

A

Is for stocks and bonds, and for interest

62
Q

Interest items that aren’t taxable

A

Interest on state and local bonds
Mutual fund dividends for funds invested in tax free bonds
Bonds of a US possession
Interest on US EE bonds after 1989 (higher education) for bond holders making under 100k

63
Q

Types of distributions and tax results

A

From corporate earnings and profits - Taxable dividend
If there are no earnings or profits but the taxpayer has basis in stock (return on your capital) - Nontaxable reduced basis of stock
If there are no earnings or profits and the taxpayer has no basis (earnings in excess of your capital) - taxable capital gain

64
Q

Stock dividends vs cash

A

Stock dividends are generally not taxable, unless cash could also be given

65
Q

1040 Schedule D - Capital gains and losses formula

A

Amount earned
- Basis
= Gain or loss

66
Q

Traditional (Deductible) IRA distributions

A

Are taxed as ordinary income

Required minimum distributions start at 73

67
Q

Nondeductible traditional IRAs

A

The principle portion (contributions) isn’t taxed, but earnings are taxable as ordinary income when withdrawn

68
Q

Roth IRAs

A

Are never taxable. Minimum distributions start at 59.5 years old

69
Q

Rental income formula - Reported on 1040 schedule E

A

Rental income
- Total rental apartment expenses
= Net amount

70
Q

Unemployment compensation

A

Is taxable

71
Q

Modified AGI (MAGI) - AEIOU

A

Foreign income and housing
Interest income from EE bonds
Any deduction claimed for student loan interest
Any employer paid adoption expenses that were excluded
Any deduction claimed for an annual contribution to a traditional IRA

72
Q

Gambling losses

A
  • Are deductible on schedule A as an itemized deduction
  • Gambling losses can only be deducted to the extent of gambling winnings
73
Q

Cancellation of debt

A

Is taxable except for certain circumstances

CPA Exam (2 decks)

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