REG Chapter 1 Flashcards
(31 cards)
What are the requirements of single filing status?
Determined by status at year end: single or legally separated.
What are the requirements of filing Jointly?
Determined by status at year end: married, common law marriage, or married by living apart (not legally separated). If a spouse dies, may still file jointly.
What are the requirements of married filing separately?
Community property state: split 50/50
Separate property state: report own
What are the requirement of qualifying widower (surviving spouse) status?
Can claim for two years after spouse’s death or until remarriage if:
- principal residence for dependent child for the whole year
- be entitled to dependency exemption for the child
Head of Household requirements:
- No married, is legally separated, or lived apart from spouse for the last 6 months of taxable year
- Not a qualifying widower
- Not a resident-alien
- Maintains a home that for half the years is principal residence for: dependent son or daughter, father or mother (does not need to live with), or dependent relatives (must live with)
Qualifying child dependency exemption test
CARES:
- Close relative
- Age limit 19/24
- Resident and filing requirements
- Eliminate gross income test
- Support test changes
Qualifying relative dependency exemptions test
SUPORT:
- Support over 50% test
- Under a specific amount of taxable gross income test
- Precludes depended filing a joint return test
- Only citizens (residents of US, Canada, Mexico)
- Relative test or Tax payer lives with individual for the whole year test
What is the general rule for a taxable event?
Income is at FMV, basis is also at FMV
What is the general rule for a non-taxable event?
Not considered in gross income and basis in the net book value
What constitutes a taxable event?
The gain must be realized (real world) and recognized (recorded, included in the tax return)
What are the types of income?
- Ordinary
- Portfolio
- Passive (only passive gains can offset passive losses, carried forward indefinitely)
- Capital
Nontaxable Fringe Benefits include:
- Life insurance proceeds (interest on payouts is taxable)
- Accident, medical, and health insurance premium payments (employer paid)
- De Minimis benefits (minimal)
- Meals and lodging
- Educational expenses paid by employer
- Qualified tuition reductions
- Qualified employee discounts
- Qualified pension, profit sharing, stock bonus plans
- Flexible spending arrangements
Qualified tuition reduction
Tuition reduction may be excluded from income by undergraduate student, and by graduate student if they are engaged in teaching or research and the reduction is in the addition to the pay they receive.
Tax exempt interest income
- State and local government bonds/obligations
- Bonds of US possession
- Series EE (US Savings Bond for educational expenses)
- Veterans administration insurance
Unearned income of a child under 18 (kiddie tax)
1st $1000 tax free
2nd $1000 taxed at child’s rate
Anything over $2000 taxed at parent’s rate.
Tax exempt dividend distributions
- Return of capital
- Stock split
- Stock dividend (unless option for cash)
- Life insurance dividend
State and local tax refund treatment
- Itemized in prior year = refund is taxable
- Standard deduction in prior year = refund nontaxable
Alimony as defined by the tax law is:
- legally required by a written divorce agreement
- must be in cash or equivalent
- payments must end when payee-spouse dies
- cannot be made to member of the same household
- cannot be designated as anything else but alimony
- spoused may not file a joint tax return
Non”deductible” business expenses include:;
- salaries paid to the sole proprietor (a draw)
- federal income tax
- personal portion of items such as (meal, travel, interest, state taxes, health insurance)
- bad debt expense of a cash basis taxpayer
- charitable contributions (itemized on sched A)
What is the treatment of a net taxable loss?
It may be deducted against other income, any excess can be carried back 2 years or carried forward for 20 years. Hindsight is 20X20
Under the uniform capitalization rules, what costs are required to be capitalized?
Direct materials, direct labor, and indirect costs such as factory overhead.
Under the uniform capitalization rules, what costs are required to be expensed?
SG&A, research and development
What type of long term contracts are exempt from using the percentage-of-completion method?
- small contractors
- home construction contractors
- serviced under warranty and maintenance agreements
- services performed by contractors who are not responsible for the finished product
What is the tax treatment for distributions from nondeductible IRAs?
Roth IRA - nontaxable
Traditional nondeductible IRA - Principal is nontaxable, accumulated earnings are taxable
