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REG > REG Chapter 1 > Flashcards

REG Chapter 1 Flashcards

1
Q

What are the requirements of single filing status?

A

Determined by status at year end: single or legally separated.

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2
Q

What are the requirements of filing Jointly?

A

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.

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3
Q

What are the requirements of married filing separately?

A

Community property state: split 50/50

Separate property state: report own

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4
Q

What are the requirement of qualifying widower (surviving spouse) status?

A

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
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5
Q

Head of Household requirements:

A
  • 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)
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6
Q

Qualifying child dependency exemption test

A

CARES:

  • Close relative
  • Age limit 19/24
  • Resident and filing requirements
  • Eliminate gross income test
  • Support test changes
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7
Q

Qualifying relative dependency exemptions test

A

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
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8
Q

What is the general rule for a taxable event?

A

Income is at FMV, basis is also at FMV

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9
Q

What is the general rule for a non-taxable event?

A

Not considered in gross income and basis in the net book value

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10
Q

What constitutes a taxable event?

A

The gain must be realized (real world) and recognized (recorded, included in the tax return)

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11
Q

What are the types of income?

A
  • Ordinary
  • Portfolio
  • Passive (only passive gains can offset passive losses, carried forward indefinitely)
  • Capital
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12
Q

Nontaxable Fringe Benefits include:

A
  • 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
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13
Q

Qualified tuition reduction

A

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.

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14
Q

Tax exempt interest income

A
  • State and local government bonds/obligations
  • Bonds of US possession
  • Series EE (US Savings Bond for educational expenses)
  • Veterans administration insurance
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15
Q

Unearned income of a child under 18 (kiddie tax)

A

1st $1000 tax free
2nd $1000 taxed at child’s rate
Anything over $2000 taxed at parent’s rate.

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16
Q

Tax exempt dividend distributions

A
  • Return of capital
  • Stock split
  • Stock dividend (unless option for cash)
  • Life insurance dividend
17
Q

State and local tax refund treatment

A
  • Itemized in prior year = refund is taxable

- Standard deduction in prior year = refund nontaxable

18
Q

Alimony as defined by the tax law is:

A
  • 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
19
Q

Non”deductible” business expenses include:;

A
  • 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)
20
Q

What is the treatment of a net taxable loss?

A

It may be deducted against other income, any excess can be carried back 2 years or carried forward for 20 years. Hindsight is 20X20

21
Q

Under the uniform capitalization rules, what costs are required to be capitalized?

A

Direct materials, direct labor, and indirect costs such as factory overhead.

22
Q

Under the uniform capitalization rules, what costs are required to be expensed?

A

SG&A, research and development

23
Q

What type of long term contracts are exempt from using the percentage-of-completion method?

A
  • small contractors
  • home construction contractors
  • serviced under warranty and maintenance agreements
  • services performed by contractors who are not responsible for the finished product
24
Q

What is the tax treatment for distributions from nondeductible IRAs?

A

Roth IRA - nontaxable

Traditional nondeductible IRA - Principal is nontaxable, accumulated earnings are taxable

25
Q

What are the exceptions to penalty taxes imposed on premature distributions of IRA income?

A 
HIMDEAD:
-Home buyer (1st time, 10K max, in 120 days)
-Insurance (medical)
-Medical expenses in excess of 10% AGI
-Disability (not temporary)
-Education
and
-Death
26
Q

What is the tax treatment of an annuity?

A
  • Investment amount / age in months (factor) = nontaxable amount of payments received
  • Anything over this amount is taxable
  • Live longer than factor, payments received fully taxable
  • Die early, unrecovered portion is misc itemized deduction not subject to 2% AGI floor
27
Q

What is the tax treatment for rental of a vacation home?

A
  • Rented less than 15 days: personal residence, rental income excluded from income
  • Rented 15 days or more: if used for personal more than 14 days or 10% of the rental days then treated as personal residence. Expenses prorated between personal and rental use, and are deductible only up to amount of income (no losses allowed).
28
Q

What is the tax treatment for passive activity losses (PAL)?

A
  • Net PAL can only be deducted to the extent of passive income
  • Excess is carried forward indefinitely
  • Excess becomes fully deductible in the year the property is sold
  • Exception: Mom and Pop rule, may deduct up to $25,000 of rental loss if managing the property and own 10% of rental activity
29
Q

List the nontaxable miscellaneous items.

A
  • prizes or awards where the winner did not enter the contest and assigns winnings to gov’t unit or charity
  • Life insurance proceeds (interest on deferred payments is fully taxable)
  • Gifts and inheritances
  • Medicare benefits
  • Worker’s compensation
  • Personal injury or illness award
  • Accident insurance (taxpayer paid premiums)
  • Foreign earned income exclusion
30
Q

Foreign earned income exclusion

A

May exclude a certain amount from gross income if:
-bona fide resident of foreign country for whole year
OR
-present in the foreign country for 330 days of any 12 consecutive month period.

31
Q

What are the types of Qualified Stock Options?

A
  • Incentive stock options (ISO)

- Employee stock purchase plans (ESPP)

REG (10 decks)

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