REG Deck 1-Individual Taxes Flashcards
What is the qualifying Child test?
CARES acronym
Close Relative
Age Limit: under 19 or under 24 if full time student
Residency: a child must live in the same place as the taxpayer for over half the year
Eliminate Gross Income Test
Support Test: tax payer must contribute over half of their support
What is the Qualifying Relative test?
SUPORT acronym
Support test: taxpayer supports person by greater than 50%
Under Gross Income Limitation: Qualifying relative’s gross income is less than $5,050
Precludes Dependent filing a joint return
Only Citzens of the U.S or Residents of the US, Mexico, or Canada
Relative
Taxpayer lives with the individual (if non-relative) for the whole year
Individual Income Tax Formula
Gross Income
(Adjustments)
Adjusted gross income
Greater of (Standard or itemized deductions)
Taxable income before QBI deduction
Taxable income before QBI deduction
Federal income tax
(Tax credits)
Other taxes
(payments)
Tax due(refund)
What is the filing status of someone that is divorced during the year and has no children?
single
Qualifying surviving spouse must be principal residence for dependent child for _________ (a) year
whole
Head of household must be principal residence for qualifying person for more than ________ (a) year
half
Is inheritance included in gross income?
no, because the estate at death pays the tax
Is alimony from ex-spouse (divorce agreement finalized in 2015) included in gross income?
Yes, because it was executed on or before December 31, 2018
Is child support from ex-spouse included in gross income?
no
Is interest income from U.S. treasury certificates taxable?
Yes
Is receiving a gift included in gross income?
No, the person giving the gift pays the tax
What is the tax benefit rule for individuals?
Itemized in prior year, then state or local refund is taxable
Standard deduction used in prior year, state or local refund is nontaxable
Is alimony received based on a divorced agreement executed after December 31, 2018 taxable?
No
Are property settlements taxable?
No
At what age can a person start withdrawing from an IRA or 401(k)
59.5
What is the penalty if a person withdraws from a retirement account before 59.5?
10% penalty on amount withdrawn
The maximum amount of taxable Social Security benefits is ____ percent of Social Security benefits received
85
For a calendar-year taxpayer, the final return is due on _________ ___ following the year of death, regardless of when during that year the death occurred.
April 15
Is workers’ compensation following a job-related injury taxable?
No
When you have an annuity, how do you find out how much is taxable?
Total amount put into annuity/Years annuity will pay out = Amount not taxable
Annuity received - Amount not taxable = Taxable Amount
EXAMPLE
150,000 is put in for 15 years
Receives 12,000-10,000 = 2,000 is taxable
Generally, a premature distribution prior to age 59 1/2 from a traditional IRA is subject to a 10 percent penalty tax. Certain exceptions to this tax are available and are contained in the mnemonic
HIM DEAD TED
Homebuyer (first time): Distribution used toward the purchase of a first home within 120 days of distribution ($10,000 maximum exclusion)
Insurance (medical if unemployed and with 12 consecutive weeks of unemployment compensation)
Medical expenses in excess of percentage of AGI floor
Disability (permanent or indefinite disability, but not temporary disability)
Education (college tuition, fees, books, etc.)
Adoption or birth of child made within one year from the date of birth or adoption ($5,000 maximum exclusion)
Disaster: Qualified natural disaster ($22,000 maximum per disaster)
Terminal illness or death
Emergency expenses (for personal or family emergency, up to $1,000 per year)
Domestic abuse victims (lesser of $10,000 or 50 percent of retirement account)
Is interest received on state and local bonds included in gross income?
No
Is scholarship received that is used for room & board taxable?
Yes
How much can be excluded from gross income for payments made by an employer on behalf of an employee for an employee’s educational expenses?
$5,250
When does a taxpayer have to file a return?
If his/her income is equal to or greater the standard deduction + additional standard deduction if the taxpayer is 65 or older and/or blind
What is the tax rate for qualified dividend for lower income, most taxpayers, and high income?
0
15
20
What is the formula to calculated modified adjusted gross income (MAGI)?
AGI + tax exempt interest + 50% of social security benefits
What is the tax rates on social security income for lower income, middle income, and higher income?
0
up to 50% taxable
up to 85% taxable
What is the rule for whether travel expenses incurred can be deducted?
Primarily for personal, none of the travel expenses are deductible
What happens when you bill someone and they pay you some in cash and the other in services?
The gross income received amount = Cash Received + FV of property received/services provided
Is salaries paid to the sole proprietor deductible on Schedule C?
No, they are considered a withdrawal
Is federal income tax deductible on schedule C?
No
Where is state and local tax expense deductible for personal income taxes?
Schedule A
Itemized deduction
Where are charitable contributions deductible for personal income taxes?
Schedule A
Itemized deduction
How is interest paid in advance by a cash basis taxpayer on a business loan treated?
It cannot be deducted until the tax period to which the interest relates
How is taxable income affected for a person’s hobby activities that is not motivated to make a profit?
Income received from the hobby is taxable
Expenses are not deductible
What is the basic formula for determination of net rental income or loss?
Gross rental income
add prepaid rental income
add rent cancellation payments
add improvements in lieu of rent
less rental expenses
NET RENTAL INCOME (LOSS)
If the residence is rented for fewer than ________ days per year, it is treated as a personal residence
15
If the residence is rented for more than ______ or more days, and is used for personal purposes for the greater of more than ______ days or more than _ percent of the rental days, it is treated as a personal/rental residence and expenses are prorated
15
14
10
How much of self-employment tax is deductible and where is it reported?
50%
As an adjustment to AGI
In the case of noncash income, the amount of income to be reported is the fair market value of the property or services ____________
received
How is interest on state government obligations is normally treated?
not generally taxable
Whether on the cash or accrual method of accounting, taxpayers who sell stock or securities on an established securities market must recognize gains and losses on the ____ date, rather than on the settlement date.
trade
Net income from self-employment is computed on _________
Schedule C
The SE tax is calculated on _______ percent of self-employment income
92.35
Up to ______ is subject to the 12.4 percent of Social Security tax
168,600 (2024)
If an activity is profitable for _____ out of five consecutive years, the activity is presumed to be an activity engaged in for profit
three
Where is alimony paid pursuant to a divorce settled on or before December 31, 2018?
Before AGI
Where is Qualified mortgage interest paid deductible?
Schedule A
Itemized Deduction
Where is mortgage interest deductible?
Schedule A
Itemized deduction
Capital losses in excess of capital gains are deducted (up to __________) on Form 1040 ______________________________________.
$3,000
before the calculation of AGI
Trade or business expenses are deducted on Schedule __
C
How is contributions to a traditional IRA treated?
Deductible before AGI
In 2024, taxpayers can contribute and deduct up to ________ per year to an IRA.
$7,000
For a spouse who is an active participant, the phase-out range in 2024 begins at __________. For a spouse who is not an active participant, but is married to someone who is, the phase-out range in 2024 begins at __________.
$123,000
$230,000
Taxpayers may deduct student loan interest (____________) paid on qualified education loans up to a maximum of _________ for the tax year.
Above the line for AGI
$2,500
How are moving expenses treated?
Moving expenses are only deductible by members of the U.S. armed forces on active duty when moving pursuant to military orders.
The maximum annual deductible amount for self-employed individuals to a SEP IRA is the lesser of _________ (2024) or ____ percent of net earnings.
$69,000
20 percent of net earnings
How do you calculate net earnings for self employed individual?
Net self employment income less 50% of self employment taxes
Can child support be deducted?
No it is never deductible
Qualified dividends are also considered _________ ________
ordinary dividends
ordinary dividends are not always qualified dividends
How are punitive damages received treated by an individual?
fully taxable in gross income
How is money received for damages for personal physical injury treated?
Not taxable
How is disability pay received where the disability insurance is provided by her employer as a nontaxable fringe benefit?
It is all taxable
In a multiple support agreement a contributor must have contributed more than ______ percent of the person’s support in addition to meeting the other dependency tests in order to be able to claim him or her as a dependent.
10
Premiums paid by an employer on up to _________ of coverage for an employee are excludable from gross income.
$50,000
The value of employer-provided parking up to ______ per month may be excluded by an employee (2024).
$315
Alimony includes only payments received in __________________
cash or its equivalent
In order to qualify for the additional standard deduction, an individual must be age ______ or older or _______ by the end of the tax year.
65
blind
What is the formula to calculate deductible medical expenses on Schedule A (Itemized Deductions)?
Qualified medical expenses
(Insurance reimbursement)
EQUALS Qualified medical expenses “paid”
(7.5% of AGI)
Deductible medical expenses
What is the cash contribution limit for Public Charities, Private Operating Foundations, and Private Nonoperating Foundations?
AGI
Public charities: 60%
Private operating foundations: 60%
Private nonoperating Foundations: 30%
What is the ordinary income property contribution limit for Public Charities, Private Operating Foundations, and Private Nonoperating Foundations?
AGI
Public charities: 50%
Private operating foundations: 50%
Private nonoperating Foundations: 30%
What is the long-term capital gain property contribution limit for Public Charities, Private Operating Foundations, and Private Nonoperating Foundations?
AGI
Public charities: 30%
Private operating foundations: 30%
Private nonoperating Foundations: 20%
How to determine what value individual taxpayers can deduct for property donated?
FMV of property donated at the time of donation
What is the additional standard deduction if you are 65 or older
1550
How are medical expenses charged to a credit card treated?
They can be expensed and itemized in the year the charge is made
How to calculate the amount of the casualty loss?
Smaller Loss (Adjusted Basis/FMV of loss)
(Insurance recovery)
EQUALS Taxpayer’s loss
-$100
(10% AGI)
Equals Deductible Loss
In addition, a casualty loss is only deductible if it is in a ______________________________.
nationally declared disaster area
Are gambling losses deductible and if so where are they deductible?
Yes, but only to the gambling winnings
from AGI (Schedule A)
Interest paid on debt not used to acquire or substantially improve a home is ________________
not deductible
The deduction for investment interest expense is limited to __________________________________
net taxable investment income
What happens when for charitable contributions for assets like furniture or stock that is donated. What is the value?
If it is held less than one year then it is treated at ordinary income property and this means it is the basis
If it is held for more than one year then it is treated as a long term capital gain property and it is fair value
Charitable contributions subject to the 60 percent limit that are not fully deductible in the year made may be carried forward ___________.
five years
Under a nonaccountable plan (i.e., expenses are not reported to the employer), any amounts received by an employee from the employer must be reported by the employer as part of wages on the employee’s W-2 for the year (and subject to income tax withholding requirements). The ________ _______received is reported as income.
gross amount
Note that alimony paid on divorce settlements executed after _______________ is not deductible.
December 31, 2018
Mortgage interest on up to ____________ on loans to acquire a principal (and one other secondary) residence is fully deductible as qualified residence interest.
$750,000
Interest paid on personal credit cards is considered a personal expense and is __________________.
not deductible
What is the basic deduction calculation for the qualified business income deduction?
Qualified business income (QBI) * 20%
What is the overall limitation to the qualified business income (QBI) deduction?
Lesser of these two
QBI deductions
20% of the taxpayer’s taxable income in excess of net capital gain
A trade or business involving direct services in the fields of health, law, accounting, actuarial science, performing arts, consulting, athletics, financial services, brokerage, including investing and investing management, trading, or dealing in securities, partnership interests, or commodities, and any trade in which the principal asset is the reputation or skill of one or more of its employees or owners
specified service trade or business (SSTB)
When applicable, the QBI deduction is limited to the ________ of: ___ percent of W-2 wages for the business; or ____ percent of W-2 wages for the business plus ________ percent of the unadjusted basis immediately after acquisition (UBIA) of all qualified property
greater
50%
25%
2.50%
Category 1 for QBI deduction: Taxpayers with taxable income at or below $191,950 (single or head of household) or $383,900 MFJ (2024)
Full 20% QBI deduction for both QTB and SSTB
Category 2 for QBI deduction: Taxpayers with taxable income above $241,950 (single or head of household) or $483,900 MFJ (2024)
If QTB Full W-2 wage and property limitation applies
If SSTB - No QBI deduction allowed
How to calculate overall limit for QBI?
20% * (Taxable income - net capital gains)
How to calculate QBI deduction if a taxpayer is Category 2 and above the QBI Taxable Income limitations?
Step 1: 20% of Qualified Business income
Steps 2: Greater of 50% of W-2 wages or 25% of W-2 Wages + 2.5% of UBIA of qualified property
Step 3: Lesser of step 1 and step 2 is the QBI deduction for that business
What is the rule for the deduction of the fair market value of services contributed to a qualifying charitable organization?
No deduction is allowed
Because Molly’s parents have equal custody during the year, the parent with the ________________ would be eligible to claim Molly as a dependent, which in this case would be James. However, James could waive the right to claim Molly as a dependent.
higher AGI
What is the AGI limitations for student loan interest?
Deductible For AGI
2,500 limit
Unmarried: 80,000-95,000
MFJ: 165,000-195,000
What are qualifying expenses under the adoption credit?
Legal fees
Agency fee
Personal tax credits may reduce personal tax liability to zero, but hey may not result in a refund.
nonrefundable personal tax credits
Provided the taxes due after withholdings were not over __________, there is no penalty for underpayment of estimated taxes
$1,000
What are the refundable tax credits?
FACES acronym
Federal income tax withheld
American opportunity credit (40% refundable)
Child tax credit (refund is limited)
Earned income Credit
Excess Social Security Tax paid
What is the max age for the child depdent care tax credit?
under 13
What is the maximum eligible expenses of the child and dependent care tax credit for one dependent?
3000 for one dependent
6000 for two or more dependents
The retirement savings contribution credit is a ______________ credit for contributions of up to __________ to either a traditional or Roth IRA by an eligible taxpayer.
nonrefundable credit
$2,000
A family may claim a child tax credit of ________ for each of the children since the children are both under age ____.
$2,000
17
Higher income taxpayers must reduce the __________ allowable child tax credit by ____ for each ______ by which the MAGI exceeds: _________ for MFJ, _______ for unmarried individual, or ____ for MFS
$2,000
$50
$1,000
400,000
200,000
200,000
To avoid the penalty for the underpayment of estimated tax if the timely estimated tax payments equal the required annual amount of
90% of the tax on the return for the current year paid in four equal installments
110% of prior year’s tax liability paid in four equal installments if prior year’s AGI was greater than $150,000
100% of the prior year’s tax liability if the taxpayer’s AGI is less than $150,000
The net investment income (NII) tax applies a rate of ____ percent to certain net investment income of individuals who have AGI above _____________ for MFJ and _____ for single or head of household filing status
3.8
250,000
200,000
What is the rule for the Net Investment Income tax
the 3.8 percent tax is imposed on the lesser of net investment income or the excess AGI over the threshold amount
Net unearned income is calculated by taking the child’s unearned income and reducing it by the dependent child’s allowable standard deduction of _______ plus an additional __________ that is taxed at the child’s marginal tax rate (2024)
1,300
1,300
How do you calculate income tax owed?
Taxable Income
Less preferential rate things
Multiply this number by the applicable percentage based on the person’s filing status
Distributions to partners on a K-1 are _______________
not taxable
How to calculate Net Investment Income tax?
Step 1: Add up all the investment income: interest income, dividend income, capital gians, passive income from real estate
Step 2: Subtract the number for the AGI threshold depending on the filing status
Step 3: Multiply 3.8% by the lesser of the investment income or the excess AGI over threshold
Interest on the obligation of a possession of the United States, such as _______ or _____ _____, is tax-exempt
Guam
Puerto Rico
What happens when an individual’s interest expense exceeds net investment income?
Excess amount will be carried forward indefinitely
Can only deduct amount of investment interest expense than is equal to or less than net investment income
What is the tax rule for net operating losses after December 31, 2020?
Cannot be carried back, but can be carried forward indefinitely
