REG1 Flashcards
When should a cash basis taxpayer report income?
In the year in which income is either actually or constructively received, whether in cash or property.
State the basic tax formula
Gross Income Less: Deductions FOR AGI = Adjusted gross income Less: Deductions FROM AGI (Greater itemized or standard deduction) Less: Exemptions = Taxable Income * Tax rate = Gross tax liability Less: Credits and prepayments =Tax due
Identify the due date and extension available for individuals
Due date: April 15
Extension: Form 4868 - Automatic 6 months
Identify the various filing statuses
- Single
- Married filing jointly
- Married filing separately
- Head of Household
- Qualified widow with dependent child
Criteria for filing single
- Unmarried or legally separated from spouse at the end of the year
- Does not quality for another filing status
Criteria for filing married filing jointly
At the end of the tax year:
- married and living together or
- Living together in a recognized common law marriage or
- Married and living apart but not legally separated or divorced
Criteria for filing married filing separately
At the end of the tax year:
- Married AND
- if one spouse wants to be responsible only for own tax, or
- if both spouses do not agree to file a joint return
Criteria for filing head of household
- Individual is not married, legally separated, or is married and has lived apart from his/her spouse for the last 6 months of the year
- Individual is not a “qualifying widower”
- Individual is not a nonresident alien
- Individual maintained a home that, for more than half the taxable year, is the principle residence of a:
1. Son/daughter who is a qualifying child or dependent
2. Dependent relative who resides with taxpayer
3. Dependent father/mother, regardless is live with taxpayer
Criteria for filing qualifying widower/surviving spouse
- Unmarried at the end of the tax year
- Surviving spouse must maintain a household, which for the entire tax year was the principle place of abode of a son/daughter or step children and
- Surviving spouse is entitled to a dependency exemption for the son/daughter
(The taxpayer qualifies for this status for 2 years after the death of spouse)
Test for “qualifying child” CARES
Close relative Age limit (19/24) and younger than the taxpayer Residency and filing requirement Eliminate gross income test Support test changes
Test for “qualifying relative” SUPORT
Support over 50% test
Under the personal exemption amount of gross income test
Precludes dependent filing a joint return
Only citizens of US/Canada/Mexico
Relative test
Taxpayer lives with for whole year
Requirements for a multiple support agreement
- 2 or more people together provide more than 50% of support, but no one contributes more
- To claim the exemption, must provide more than 10% of support, and meet the other dependency tests
- A multiple support declaration, Form 2120, must be filed
Define gross income
Includes all income from whatever source derived, unless specifically excluded
4 categories of individual income
- Ordinary (wages/salaries)
- Portfolio (dividends/interest)
- Passive (real estate investment and limited partnership)
- Capital
Name some nontaxable fringe benefits (exclusions)
- De minimis fringe benefit
- Qualified tuition reduction
- Qualified employee discounts
- Employer paid accident, medical and health insurance
Are life insurance premiums paid by an employer taxable to employee?
Premiums on the first $50,000 of group term life insurance are not includible in gross income. Premiums paid over should be included.
Give some examples of exempt interest
- State and local gov’t bonds
- Bonds of a US possession
- Series EE if used for higher ed
- Interest on Veterans Admin insurance
Tax treatment of unearned income of a child who falls under the “Kiddie tax”
Is taxed at his parents’ higher tax rate.
Net unearned income = child’s total unearned income - standard deduction of $950 - additional $950(which is generally taxed at child’s 10-15% rate
State the tax treatment of property settlements in a divorce
The transferring spouse gets no deduction for the payments made or property transferred, and the payments are not includible in the gross income of the spouse receiving it.
Requirements for alimony to be deductible by the paying former spouse and includible by the recipient
- Payments must be legally required pursuant to a written decree
- Payments must be in cash
- Cannot extend beyond death of payee
- Cannot be made to members of same household
- No joint tax return filed
Before alimony is taxable by the recipient, any child support due must be paid.
Describe the self-employment tax
- All net self-employment income is subject to the 2.9% Medicare tax, but only self-employment income up to $110,100 is subject to the 12.4% Social security tax
- An adj. to income for 1/2 of self-employment tax paid
On what property do the uniform capitalization rules apply?
- Real or tangible personal property produced by the taxpayer for use in his trade or business, for sale to customers, or purchased for resale
Exception: do not apply to property purchased for resale if the taxpayer’s gross receipts for the preceding 3 yrs do not exceed $10,000,000 annually
When are funds in a nondeductible IRA taxable
Withdrawals from nondeductible IRAs are partially taxable. When withdrawn, amount previously contributed are nontaxable. Any earnings on those contributions are taxable when withdrawn. A pro rata allocation is generally applied to the distribution to determine the taxable amount.
Formula to determine the excludable portion of an annuity
Excludable amount in the current yr = (investment in contract/age factor in months)
Note: If live longer, further payments taxable. If die before all paid, rest is miscellaneous itemized deduction on final tax return.