REG Flashcards
1
Q
Under what accounting basis are individual tax returns prepared?
A
Cash Basis. Note: This basis is NOT allowed for Corporations, Partnerships with a C-Corp partner, or for inventories.
2
Q
What are the deductions to arrive at Adjusted Gross Income (AGI) for individuals?
A
*MSA/HSA contributions
*Investment penalties for early withdrawal
*Self-employed medical insurance premiums
*Self-Employment Tax (approx. 50%)
*IRA Contributions
*Student loan interest (can’t be another taxpayer’s dependent)
*Moving expenses
*Alimony
*Attorney fees in discrimination lawsuit
3
Q
Which items can be carried over to future years on an individual tax return?
A
Investment interest expense in excess of investment income
Charitable contributions
Excess Section 179
Capital losses
AMT Paid
Passive Activity Losses
4
Q
Characterize the following carryover: Passive Activity Loss
A
No carryback
Can carry forward indefinitely
5
Q
How is excess 179 expense carried forward?
A
Carry forward to next year.
Use in any year is limited to taxable income.
6
Q
How long can investment interest expense in excess of investment income be carried forward?
A
Indefinitely.
7
Q
How long is the carry forward for charitable contributions?
A
Can be carried forward 5 years.
8
Q
How long is AMT paid carried forward, and how is it applied?
A
It can be carried forward indefinitely.
It may be applied against future regular income tax, but not against future AMT tax liability.
9
Q
How are capital losses applied in individual taxes?
A
$3,000 net capital loss can be taken in each year, the rest is carried forward indefinitely.
The loss retains its character (STCL or LTCL).
10
Q
How does an individual capital loss carryover differ from a corporate capital loss carryover?
A
Corporate capital loss carryovers may be carried back 3 years and forward 5 years. Individual capital losses are carried forward indefinitely.
Individual capital loss carryovers retain their character (STCL or LTCL). Corporate loss carryovers are carried forward as STCL only.
11
Q
What ratio is applied to principle payments in an installment sale to determine the gain in a given year?
A
Gross Profit / Contract Price
12
Q
What is the contract price in an installment sale for income tax purposes?
A
Contract Price = Sales Price - Liability assumed by buyer
13
Q
On an individual return, regular mortgage interest on what loan amount is deductible?
A
$1,000,000
14
Q
Interest on home equity loans up to what amount are deductible on an individual tax return?
A
$100,000
15
Q
What business gift amounts are deductible on Schedule C of form 1040? What amount for service awards?
A
$25 per person for gifts
Service awards up to $400
16
Q
What income can business losses offset on a 1040?
A
They may only offset active business income.
Note: W2 wages are considered active business income.
17
Q
What income can passive losses offset on a 1040?
A
Only passive income such as rental income or limited partnership income.
Note: Wages are ACTIVE (cannot be offset by passive) and Interest/Dividends are PORTFOLIO (cannot be offset by passive)
18
Q
Are interest and dividends active or passive income?
A
Neither. They are portfolio income.
19
Q
What is (are) the depreciation convention(s) for personal property?
A
Mid-year/Mid-quarter
20
Q
When is the mid-quarter convention used?
A
For depreciation when 40% or more of all purchases occur in 4th quarter.
21
Q
What depreciation convention is used for real property?
A
Mid-month
22
Q
What depreciation life and convention are used for leasehold improvements?
A
15 year straight line (S/L)
23
Q
What amount of business start-up costs can be deducted? How is it expensed?
A
Up to $5,000
Amortized over 180 months
Reduced dollar-for-dollar by amount over $50,000
24
Q
How are medical expenses deducted on a 1040?
A
On Schedule A:
Amounts in excess of 10% of AGI may be deducted
25
Which personal insurance premiums are not deductible as medical expenses on Schedule A?
Accident or disability insurance premiums are not deductible.
26
Under what circumstances can medical expenses paid on behalf of another be deducted on someone's Schedule A?
Must be a citizen of North America
Must live with you, or if they do not, must be mother/father or a relative closer than a cousin.
Benefactor must provide more than 50% support to the beneficiary.
27
Which foreign taxes are deductible?
Foreign INCOME and REAL ESTATE taxes are deductible.
Foreign personal property taxes are NOT deductible.
Foreign tax assessments are not deductible- they are added to the basis.
28
How is net investment income calculated, for the purpose of deducting excess investment interest expense?
Gross investment income - investment expense in excess of 2% of AGI = net investment income
Investment interest expense in excess of net investment income is deductible.
29
What investment interest is never deductible?
Investment interest expense on tax-free securities is not deductible.
30
When are mortgage points deductible and how are they deducted?
They are deductible if they represent prepaid interest on purchase of a new home or improving a home.
Refinance points are amortized over the life of the mortgage.
31
How are charitable contributions of LTCG property and property related to a charity's function deducted?
Deducted at fair market value (FMV), up to 30% of AGI
32
How are charitable donations for STCG property and property not related to the charity's function deducted on Schedule A?
Deduction is taken for adjusted basis in the property, up to 50% of AGI.
33
Does a casualty loss affect the basis of property?
No. It decreases the fair market value (FMV) of the property.
34
How is the deductible portion of a casualty loss calculated?
Take the lower of either A) Decrease in FMV or B) Basis in property (call this number GROSS LOSS)
GROSS LOSS - insurance proceeds received - $100 - 10% of AGI = Deductible casualty loss
35
What are the miscellaneous deductions on Schedule A, and how are they deducted?
Deductible in excess of 2% of AGI
Continuing Education - if required to keep your job
Business travel
50% Meals and entertainment
Union Dues
Tax prep fees
Legal fees to collect alimony
Appraisal fees to value casualty loss of charitable contributions
36
Which itemized deductions are not subject to phaseout based on income or other factors?
Medical
Casualty
Gambling
Investment Interest Expense
37
Define qualifying child for most individual tax factors.
Must be resident of North America
Under age 19, or under age 24 if a student
38
Define qualifying relative for most individual tax factors?
Must be citizen of North America
Must live with you, unless mother/father or relative closer than a cousin
You must provide more than 50% support to the individual
39
How is minor income taxed at a parent's rate calculated (AKA kiddie tax)?
Child's unearned income
- early withdrawal penalties
- $1,000
- Greater than $1,000 or child's itemized deduction related to unearned income
= Amount taxed at parents' rate
40
Can spouses married filing jointly use different accounting methods?
Yes, if they each own a small business. All non-business income is cash basis.
41
At what rate is self-employment tax assessed?
15.3% of net earnings from self-employment
(Note: executor of an estate is NOT self-employment income)
42
What is a refundable tax credit? Which individual tax credits are most commonly refunded?
A tax credit which takes the taxpayer's tax owed on the return below zero, resulting in a refund to the taxpayer.
Earned Income Credit (EIC), American Opportunity Credit and the Additional Child Tax credit.
Note: the REGULAR child tax credit is NOT refundable.
43
How many education credits may be taken on a tax return?
American Opportunity Credit - per student
Lifetime Learning Credit - per taxpayer
Note: The American Opportunity Credit is refundable.
44
What estimated tax payments must be paid in by an individual taxpayer either via withholding or by quarterly tax payments?
The lesser of:
90% of current year's total tax
100% of prior year's total tax
110% of prior year's total tax (if AGI is $150,000 or more)
45
Which farming costs related to land are deductible? Which aren't?
Deductible: Costs incurred to PRESERVE soil/water
Non-deductible: Costs incurred to drain wetlands or prep for irrigation (i.e. improve land)
46
Which depreciation table is used for personal tangible property related to farming?
MACRS 150
47
How long does the taxpayer have to petition the court for appeal after an audit?
90 days
48
If no petition to appeal is filed, how long does a taxpayer have to pay tax due after an audit?
10 days
49
What is the statute of limitations for a tax audit?
3 years, generally
6 years if 25% or more of gross income was omitted
The clock starts on the LATER of the due date or the filing date of the return.
There is NO STATUTE OF LIMITATIONS for either fraud or failure to file a required return.
50
How is non-business bad debt deducted on a 1040?
It is treated as a STCL
51
How long does an individual taxpayer have to file a claim for refund?
Refunds must be claimed within 3 years of the return due date or within 2 years of being paid, whichever is later.
52
When are life insurance premiums of an employee includable in income?
Premiums paid by an employer for coverage in excess of $50,000 per employee are includable in income.
53
When are scholarships not taxable?
When they are not in return for services rendered,
AND
The money is used *only* for tuition and books
Note: Scholarships for room and board are includable in income.
54
What interest income is tax free?
State & municipal bond interest
US EE Savings Bond interest (note: HH bond interest is taxable)
55
Which dividend income is tax free?
S-corporation (actually distributions)
Life insurance
56
How much social security income can be taxed for individuals in higher income brackets?
Up to 85%
57
Is unemployment compensation taxable?
Yes.
58
Which damages awarded in lawsuits are taxable? Which are not?
Payments made to make you whole are NOT taxable (i.e. to pay for losses of property, body parts or earning ability)
Any payments for punitive damages ARE taxable.
59
Are workman's compensation insurance benefits taxable?
No - similar to an award for damage to make a person whole.
60
Which of the following are taxable: Child Support, Divorce Property Settlements, Alimony
Alimony IS taxable.
Child support and divorce property settlements are NOT taxable.
61
Adoption expenses - Are they deductible?
NO, they are not deductible. However tax benefits are available through the adoption CREDIT.
62
Describe alimony recapture.
2nd Year: (3rd year - 2nd year - $15,000)
1st Year:
1st Year Alimony Paid
- Avg alimony paid in 2nd & 3rd years
- $15,000
- Recapture from 2nd year
=1st Year Alimony Recapture
Total Recapture = 1st Year Recapture + 2nd Year
Recapture
63
How are Net Operating Losses (NOLs) utilized?
Can be carried back 2 years
If any left, can be carried forward 20 years.
64
Which IRA contributions are deductible?
Traditional IRA = deductible
Roth IRA = not deductible
65
When can a couple file married filing jointly?
They must be married at the end of the year.
If one spouse dies, they must be married at the end of the year.
66
What are the requirements for filing as Head of Household?
Must have a dependent child
Must provide more than 50% of the child's support
Must live with them more than 50% of the year
67
What are the requirements for filing as qualifying widower?
Must have a dependent child.
Essentially gets MFJ status for the year of death + 2 tax years
68
# Reg
Under what accounting basis are individual tax returns prepared?
Cash Basis. Note: This basis is NOT allowed for Corporations, Partnerships with a C-Corp partner, or for inventories.
69
# Reg
What are the deductions to arrive at Adjusted Gross Income (AGI) for individuals?
*MSA/HSA contributions
*Investment penalties for early withdrawal
*Self-employed medical insurance premiums
*Self-Employment Tax (approx. 50%)
*IRA Contributions
*Student loan interest (can't be another taxpayer's dependent)
*Moving expenses
*Alimony
*Attorney fees in discrimination lawsuit
70
# Reg
Which items can be carried over to future years on an individual tax return?
Investment interest expense in excess of investment income
Charitable contributions
Excess Section 179
Capital losses
AMT Paid
Passive Activity Losses
71
# Reg
Characterize the following carryover: Passive Activity Loss
No carryback
Can carry forward indefinitely
72
# Reg
How is excess 179 expense carried forward?
Carry forward to next year.
Use in any year is limited to taxable income.
73
# Reg
How long can investment interest expense in excess of investment income be carried forward?
Indefinitely.
74
# Reg
How long is the carry forward for charitable contributions?
Can be carried forward 5 years.
75
# Reg
How long is AMT paid carried forward, and how is it applied?
It can be carried forward indefinitely.
It may be applied against future *regular* income tax, but not against future AMT tax liability.
76
# Reg
How are capital losses applied in individual taxes?
$3,000 net capital loss can be taken in each year, the rest is carried forward indefinitely.
The loss retains its character (STCL or LTCL).
77
# Reg
How does an individual capital loss carryover differ from a corporate capital loss carryover?
Corporate capital loss carryovers may be carried back 3 years and forward 5 years. Individual capital losses are carried forward indefinitely.
Individual capital loss carryovers retain their character (STCL or LTCL). Corporate loss carryovers are carried forward as STCL only.
78
# Reg
What ratio is applied to principle payments in an installment sale to determine the gain in a given year?
Gross Profit / Contract Price
79
# Reg
What is the contract price in an installment sale for income tax purposes?
Contract Price = Sales Price - Liability assumed by buyer
80
# Reg
On an individual return, regular mortgage interest on what loan amount is deductible?
$1,000,000
81
# Reg
Interest on home equity loans up to what amount are deductible on an individual tax return?
$100,000
82
# Reg
What business gift amounts are deductible on Schedule C of form 1040? What amount for service awards?
$25 per person for gifts
Service awards up to $400
83
# Reg
What income can business losses offset on a 1040?
They may only offset active business income.
Note: W2 wages are considered active business income.
84
# Reg
What income can passive losses offset on a 1040?
Only passive income such as rental income or limited partnership income.
Note: Wages are ACTIVE (cannot be offset by passive) and Interest/Dividends are PORTFOLIO (cannot be offset by passive)
85
# Reg
Are interest and dividends active or passive income?
Neither. They are portfolio income.
86
# Reg
What is (are) the depreciation convention(s) for personal property?
Mid-year/Mid-quarter
87
# Reg
When is the mid-quarter convention used?
For depreciation when 40% or more of all purchases occur in 4th quarter.
88
# Reg
What depreciation convention is used for real property?
Mid-month
89
# Reg
What depreciation life and convention are used for leasehold improvements?
15 year straight line (S/L)
90
# Reg
What amount of business start-up costs can be deducted? How is it expensed?
Up to $5,000
Amortized over 180 months
Reduced dollar-for-dollar by amount over $50,000
91
# Reg
How are medical expenses deducted on a 1040?
On Schedule A:
Amounts in excess of 10% of AGI may be deducted
92
# Reg
Which personal insurance premiums are not deductible as medical expenses on Schedule A?
Accident or disability insurance premiums are not deductible.
93
# Reg
Under what circumstances can medical expenses paid on behalf of another be deducted on someone's Schedule A?
Must be a citizen of North America
Must live with you, or if they do not, must be mother/father or a relative closer than a cousin.
Benefactor must provide more than 50% support to the beneficiary.
94
# Reg
Which foreign taxes are deductible?
Foreign INCOME and REAL ESTATE taxes are deductible.
Foreign personal property taxes are NOT deductible.
Foreign tax assessments are not deductible- they are added to the basis.
95
# Reg
How is net investment income calculated, for the purpose of deducting excess investment interest expense?
Gross investment income - investment expense in excess of 2% of AGI = net investment income
Investment interest expense in excess of net investment income is deductible.
96
# Reg
What investment interest is never deductible?
Investment interest expense on tax-free securities is not deductible.
97
# Reg
When are mortgage points deductible and how are they deducted?
They are deductible if they represent prepaid interest on purchase of a new home or improving a home.
Refinance points are amortized over the life of the mortgage.
98
# Reg
How are charitable contributions of LTCG property and property related to a charity's function deducted?
Deducted at fair market value (FMV), up to 30% of AGI
99
# Reg
How are charitable donations for STCG property and property not related to the charity's function deducted on Schedule A?
Deduction is taken for adjusted basis in the property, up to 50% of AGI.
100
# Reg
Does a casualty loss affect the basis of property?
No. It decreases the fair market value (FMV) of the property.
101
# Reg
How is the deductible portion of a casualty loss calculated?
Take the lower of either A) Decrease in FMV or B) Basis in property (call this number GROSS LOSS)
GROSS LOSS - insurance proceeds received - $100 - 10% of AGI = Deductible casualty loss
102
# Reg
What are the miscellaneous deductions on Schedule A, and how are they deducted?
Deductible in excess of 2% of AGI
Continuing Education - if required to keep your job
Business travel
50% Meals and entertainment
Union Dues
Tax prep fees
Legal fees to collect alimony
Appraisal fees to value casualty loss of charitable contributions
103
# Reg
Which itemized deductions are not subject to phaseout based on income or other factors?
Medical
Casualty
Gambling
Investment Interest Expense
104
# Reg
Define qualifying child for most individual tax factors.
Must be resident of North America
Under age 19, or under age 24 if a student
105
# Reg
Define qualifying relative for most individual tax factors?
Must be citizen of North America
Must live with you, unless mother/father or relative closer than a cousin
You must provide more than 50% support to the individual
106
# Reg
How is minor income taxed at a parent's rate calculated (AKA kiddie tax)?
Child's unearned income
- early withdrawal penalties
- $1,000
- Greater than $1,000 or child's itemized deduction related to unearned income
= Amount taxed at parents' rate
107
# Reg
Can spouses married filing jointly use different accounting methods?
Yes, if they each own a small business. All non-business income is cash basis.
108
# Reg
At what rate is self-employment tax assessed?
15.3% of net earnings from self-employment
(Note: executor of an estate is NOT self-employment income)
109
# Reg
What is a refundable tax credit? Which individual tax credits are most commonly refunded?
A tax credit which takes the taxpayer's tax owed on the return below zero, resulting in a refund to the taxpayer.
Earned Income Credit (EIC), American Opportunity Credit and the Additional Child Tax credit.
Note: the REGULAR child tax credit is NOT refundable.
110
# Reg
How many education credits may be taken on a tax return?
American Opportunity Credit - per student
Lifetime Learning Credit - per taxpayer
Note: The American Opportunity Credit is refundable.
111
# Reg
What estimated tax payments must be paid in by an individual taxpayer either via withholding or by quarterly tax payments?
The lesser of:
90% of current year's total tax
100% of prior year's total tax
110% of prior year's total tax (if AGI is $150,000 or more)
112
# Reg
Which farming costs related to land are deductible? Which aren't?
Deductible: Costs incurred to PRESERVE soil/water
Non-deductible: Costs incurred to drain wetlands or prep for irrigation (i.e. improve land)
113
# Reg
Which depreciation table is used for personal tangible property related to farming?
MACRS 150
114
# Reg
How long does the taxpayer have to petition the court for appeal after an audit?
90 days
115
# Reg
If no petition to appeal is filed, how long does a taxpayer have to pay tax due after an audit?
10 days
116
# Reg
What is the statute of limitations for a tax audit?
3 years, generally
6 years if 25% or more of gross income was omitted
The clock starts on the LATER of the due date or the filing date of the return.
There is NO STATUTE OF LIMITATIONS for either fraud or failure to file a required return.
117
# Reg
How is non-business bad debt deducted on a 1040?
It is treated as a STCL
118
# Reg
How long does an individual taxpayer have to file a claim for refund?
Refunds must be claimed within 3 years of the return due date or within 2 years of being paid, whichever is later.
119
# Reg
When are life insurance premiums of an employee includable in income?
Premiums paid by an employer for coverage in excess of $50,000 per employee are includable in income.
120
# Reg
When are scholarships not taxable?
When they are not in return for services rendered,
AND
The money is used *only* for tuition and books
Note: Scholarships for room and board are includable in income.
121
# Reg
What interest income is tax free?
State & municipal bond interest
US EE Savings Bond interest (note: HH bond interest is taxable)
122
# Reg
Which dividend income is tax free?
S-corporation (actually distributions)
Life insurance
123
# Reg
How much social security income can be taxed for individuals in higher income brackets?
Up to 85%
124
# Reg
Is unemployment compensation taxable?
Yes.
125
# Reg
Which damages awarded in lawsuits are taxable? Which are not?
Payments made to make you whole are NOT taxable (i.e. to pay for losses of property, body parts or earning ability)
Any payments for punitive damages ARE taxable.
126
# Reg
Are workman's compensation insurance benefits taxable?
No - similar to an award for damage to make a person whole.
127
# Reg
Which of the following are taxable: Child Support, Divorce Property Settlements, Alimony
Alimony IS taxable.
Child support and divorce property settlements are NOT taxable.
128
# Reg
Adoption expenses - Are they deductible?
NO, they are not deductible. However tax benefits are available through the adoption CREDIT.
129
# Reg
Describe alimony recapture.
2nd Year: (3rd year - 2nd year - $15,000)
1st Year:
1st Year Alimony Paid
- Avg alimony paid in 2nd & 3rd years
- $15,000
- Recapture from 2nd year
=1st Year Alimony Recapture
Total Recapture = 1st Year Recapture + 2nd Year
Recapture
130
# Reg
How are Net Operating Losses (NOLs) utilized?
Can be carried back 2 years
If any left, can be carried forward 20 years.
131
# Reg
Which IRA contributions are deductible?
Traditional IRA = deductible
Roth IRA = not deductible
132
# Reg
When can a couple file married filing jointly?
They must be married at the end of the year.
If one spouse dies, they must be married at the end of the year.
133
# Reg
What are the requirements for filing as Head of Household?
Must have a dependent child
Must provide more than 50% of the child's support
Must live with them more than 50% of the year
134
# Reg
What are the requirements for filing as qualifying widower?
Must have a dependent child.
Essentially gets MFJ status for the year of death + 2 tax years
135
Under what accounting basis are individual tax returns prepared?
Cash Basis. Note: This basis is NOT allowed for Corporations, Partnerships with a C-Corp partner, or for inventories.
136
What are the deductions to arrive at Adjusted Gross Income (AGI) for individuals?
*MSA/HSA contributions
*Investment penalties for early withdrawal
*Self-employed medical insurance premiums
*Self-Employment Tax (approx. 50%)
*IRA Contributions
*Student loan interest (can't be another taxpayer's dependent)
*Moving expenses
*Alimony
*Attorney fees in discrimination lawsuit
137
Which items can be carried over to future years on an individual tax return?
Investment interest expense in excess of investment income
Charitable contributions
Excess Section 179
Capital losses
AMT Paid
Passive Activity Losses
138
Characterize the following carryover: Passive Activity Loss
No carryback
Can carry forward indefinitely
139
How is excess 179 expense carried forward?
Carry forward to next year.
Use in any year is limited to taxable income.
140
How long can investment interest expense in excess of investment income be carried forward?
Indefinitely.
141
How long is the carry forward for charitable contributions?
Can be carried forward 5 years.
142
How long is AMT paid carried forward, and how is it applied?
It can be carried forward indefinitely.
It may be applied against future *regular* income tax, but not against future AMT tax liability.
143
How are capital losses applied in individual taxes?
$3,000 net capital loss can be taken in each year, the rest is carried forward indefinitely.
The loss retains its character (STCL or LTCL).
144
How does an individual capital loss carryover differ from a corporate capital loss carryover?
Corporate capital loss carryovers may be carried back 3 years and forward 5 years. Individual capital losses are carried forward indefinitely.
Individual capital loss carryovers retain their character (STCL or LTCL). Corporate loss carryovers are carried forward as STCL only.
145
What ratio is applied to principle payments in an installment sale to determine the gain in a given year?
Gross Profit / Contract Price
146
What is the contract price in an installment sale for income tax purposes?
Contract Price = Sales Price - Liability assumed by buyer
147
On an individual return, regular mortgage interest on what loan amount is deductible?
$1,000,000
148
Interest on home equity loans up to what amount are deductible on an individual tax return?
$100,000
149
What business gift amounts are deductible on Schedule C of form 1040? What amount for service awards?
$25 per person for gifts
Service awards up to $400
150
What income can business losses offset on a 1040?
They may only offset active business income.
Note: W2 wages are considered active business income.
151
What income can passive losses offset on a 1040?
Only passive income such as rental income or limited partnership income.
Note: Wages are ACTIVE (cannot be offset by passive) and Interest/Dividends are PORTFOLIO (cannot be offset by passive)
152
Are interest and dividends active or passive income?
Neither. They are portfolio income.
153
What is (are) the depreciation convention(s) for personal property?
Mid-year/Mid-quarter
154
When is the mid-quarter convention used?
For depreciation when 40% or more of all purchases occur in 4th quarter.
155
What depreciation convention is used for real property?
Mid-month
156
What depreciation life and convention are used for leasehold improvements?
15 year straight line (S/L)
157
What amount of business start-up costs can be deducted? How is it expensed?
Up to $5,000
Amortized over 180 months
Reduced dollar-for-dollar by amount over $50,000
158
How are medical expenses deducted on a 1040?
On Schedule A:
Amounts in excess of 10% of AGI may be deducted
159
Which personal insurance premiums are not deductible as medical expenses on Schedule A?
Accident or disability insurance premiums are not deductible.
160
Under what circumstances can medical expenses paid on behalf of another be deducted on someone's Schedule A?
Must be a citizen of North America
Must live with you, or if they do not, must be mother/father or a relative closer than a cousin.
Benefactor must provide more than 50% support to the beneficiary.
161
Which foreign taxes are deductible?
Foreign INCOME and REAL ESTATE taxes are deductible.
Foreign personal property taxes are NOT deductible.
Foreign tax assessments are not deductible- they are added to the basis.
162
How is net investment income calculated, for the purpose of deducting excess investment interest expense?
Gross investment income - investment expense in excess of 2% of AGI = net investment income
Investment interest expense in excess of net investment income is deductible.
163
What investment interest is never deductible?
Investment interest expense on tax-free securities is not deductible.
164
When are mortgage points deductible and how are they deducted?
They are deductible if they represent prepaid interest on purchase of a new home or improving a home.
Refinance points are amortized over the life of the mortgage.
165
How are charitable contributions of LTCG property and property related to a charity's function deducted?
Deducted at fair market value (FMV), up to 30% of AGI
166
How are charitable donations for STCG property and property not related to the charity's function deducted on Schedule A?
Deduction is taken for adjusted basis in the property, up to 50% of AGI.
167
Does a casualty loss affect the basis of property?
No. It decreases the fair market value (FMV) of the property.
168
How is the deductible portion of a casualty loss calculated?
Take the lower of either A) Decrease in FMV or B) Basis in property (call this number GROSS LOSS)
GROSS LOSS - insurance proceeds received - $100 - 10% of AGI = Deductible casualty loss
169
What are the miscellaneous deductions on Schedule A, and how are they deducted?
Deductible in excess of 2% of AGI
Continuing Education - if required to keep your job
Business travel
50% Meals and entertainment
Union Dues
Tax prep fees
Legal fees to collect alimony
Appraisal fees to value casualty loss of charitable contributions
170
Which itemized deductions are not subject to phaseout based on income or other factors?
Medical
Casualty
Gambling
Investment Interest Expense
171
Define qualifying child for most individual tax factors.
Must be resident of North America
Under age 19, or under age 24 if a student
172
Define qualifying relative for most individual tax factors?
Must be citizen of North America
Must live with you, unless mother/father or relative closer than a cousin
You must provide more than 50% support to the individual
173
How is minor income taxed at a parent's rate calculated (AKA kiddie tax)?
Child's unearned income
- early withdrawal penalties
- $1,000
- Greater than $1,000 or child's itemized deduction related to unearned income
= Amount taxed at parents' rate
174
Can spouses married filing jointly use different accounting methods?
Yes, if they each own a small business. All non-business income is cash basis.
175
At what rate is self-employment tax assessed?
15.3% of net earnings from self-employment
(Note: executor of an estate is NOT self-employment income)
176
What is a refundable tax credit? Which individual tax credits are most commonly refunded?
A tax credit which takes the taxpayer's tax owed on the return below zero, resulting in a refund to the taxpayer.
Earned Income Credit (EIC), American Opportunity Credit and the Additional Child Tax credit.
Note: the REGULAR child tax credit is NOT refundable.
177
How many education credits may be taken on a tax return?
American Opportunity Credit - per student
Lifetime Learning Credit - per taxpayer
Note: The American Opportunity Credit is refundable.
178
What estimated tax payments must be paid in by an individual taxpayer either via withholding or by quarterly tax payments?
The lesser of:
90% of current year's total tax
100% of prior year's total tax
110% of prior year's total tax (if AGI is $150,000 or more)
179
Which farming costs related to land are deductible? Which aren't?
Deductible: Costs incurred to PRESERVE soil/water
Non-deductible: Costs incurred to drain wetlands or prep for irrigation (i.e. improve land)
180
Which depreciation table is used for personal tangible property related to farming?
MACRS 150
181
How long does the taxpayer have to petition the court for appeal after an audit?
90 days
182
If no petition to appeal is filed, how long does a taxpayer have to pay tax due after an audit?
10 days
183
What is the statute of limitations for a tax audit?
3 years, generally
6 years if 25% or more of gross income was omitted
The clock starts on the LATER of the due date or the filing date of the return.
There is NO STATUTE OF LIMITATIONS for either fraud or failure to file a required return.
184
How is non-business bad debt deducted on a 1040?
It is treated as a STCL
185
How long does an individual taxpayer have to file a claim for refund?
Refunds must be claimed within 3 years of the return due date or within 2 years of being paid, whichever is later.
186
When are life insurance premiums of an employee includable in income?
Premiums paid by an employer for coverage in excess of $50,000 per employee are includable in income.
187
When are scholarships not taxable?
When they are not in return for services rendered,
AND
The money is used *only* for tuition and books
Note: Scholarships for room and board are includable in income.
188
What interest income is tax free?
State & municipal bond interest
US EE Savings Bond interest (note: HH bond interest is taxable)
189
Which dividend income is tax free?
S-corporation (actually distributions)
Life insurance
190
How much social security income can be taxed for individuals in higher income brackets?
Up to 85%
191
Is unemployment compensation taxable?
Yes.
192
Which damages awarded in lawsuits are taxable? Which are not?
Payments made to make you whole are NOT taxable (i.e. to pay for losses of property, body parts or earning ability)
Any payments for punitive damages ARE taxable.
193
Are workman's compensation insurance benefits taxable?
No - similar to an award for damage to make a person whole.
194
Which of the following are taxable: Child Support, Divorce Property Settlements, Alimony
Alimony IS taxable.
Child support and divorce property settlements are NOT taxable.
195
Adoption expenses - Are they deductible?
NO, they are not deductible. However tax benefits are available through the adoption CREDIT.
196
Describe alimony recapture.
2nd Year: (3rd year - 2nd year - $15,000)
1st Year:
1st Year Alimony Paid
- Avg alimony paid in 2nd & 3rd years
- $15,000
- Recapture from 2nd year
=1st Year Alimony Recapture
Total Recapture = 1st Year Recapture + 2nd Year
Recapture
197
How are Net Operating Losses (NOLs) utilized?
Can be carried back 2 years
If any left, can be carried forward 20 years.
198
Which IRA contributions are deductible?
Traditional IRA = deductible
Roth IRA = not deductible
199
When can a couple file married filing jointly?
They must be married at the end of the year.
If one spouse dies, they must be married at the end of the year.
200
What are the requirements for filing as Head of Household?
Must have a dependent child
Must provide more than 50% of the child's support
Must live with them more than 50% of the year
201
What are the requirements for filing as qualifying widower?
Must have a dependent child.
Essentially gets MFJ status for the year of death + 2 tax years
