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REG1 Flashcards

1
Q

When should a cash basis taxpayer report income?

A

In the year in which income is either actually or constructively received, whether in cash or property.

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2
Q

State the basic tax formula

A 
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
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3
Q

Identify the due date and extension available for individuals

A

Due date: April 15

Extension: Form 4868 - Automatic 6 months

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4
Q

Identify the various filing statuses

A
  • Single
  • Married filing jointly
  • Married filing separately
  • Head of Household
  • Qualified widow with dependent child
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5
Q

Criteria for filing single

A
  • Unmarried or legally separated from spouse at the end of the year
  • Does not quality for another filing status
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6
Q

Criteria for filing married filing jointly

A

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
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7
Q

Criteria for filing married filing separately

A

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
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8
Q

Criteria for filing head of household

A
  • 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
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9
Q

Criteria for filing qualifying widower/surviving spouse

A
  • 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)
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10
Q

Test for “qualifying child” CARES

A 
Close relative 
Age limit (19/24) and younger than the taxpayer
Residency and filing requirement 
Eliminate gross income test 
Support test changes
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11
Q

Test for “qualifying relative” SUPORT

A

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

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12
Q

Requirements for a multiple support agreement

A
  • 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
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13
Q

Define gross income

A

Includes all income from whatever source derived, unless specifically excluded

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14
Q

4 categories of individual income

A
  • Ordinary (wages/salaries)
  • Portfolio (dividends/interest)
  • Passive (real estate investment and limited partnership)
  • Capital
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15
Q

Name some nontaxable fringe benefits (exclusions)

A
  • De minimis fringe benefit
  • Qualified tuition reduction
  • Qualified employee discounts
  • Employer paid accident, medical and health insurance
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16
Q

Are life insurance premiums paid by an employer taxable to employee?

A

Premiums on the first $50,000 of group term life insurance are not includible in gross income. Premiums paid over should be included.

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17
Q

Give some examples of exempt interest

A
  • State and local gov’t bonds
  • Bonds of a US possession
  • Series EE if used for higher ed
  • Interest on Veterans Admin insurance
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18
Q

Tax treatment of unearned income of a child who falls under the “Kiddie tax”

A

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

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19
Q

State the tax treatment of property settlements in a divorce

A

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.

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20
Q

Requirements for alimony to be deductible by the paying former spouse and includible by the recipient

A
  • 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.
21
Q

Describe the self-employment tax

A
  • 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
22
Q

On what property do the uniform capitalization rules apply?

A
  • 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

23
Q

When are funds in a nondeductible IRA taxable

A

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.

24
Q

Formula to determine the excludable portion of an annuity

A

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.

25
Q

In premature distributions of an IRA what are the exceptions to the penalty tax? HIM DEAD

A

Home buyer (first time): $10,000 max
Insurance (medical) of unemployed for 12 weeks or self-employed
Medical expenses in excess of 7.5% of AGI
Disability
Education: college, tuition, books, fees….
and Death

26
Q

How is rental income from a vacation home treated?

A
  1. if rented fewer than 15 days = personal residence
  2. if rented 15+ days and personal 14 days or 10% of days rented = allocate expenses

If personal, income is excluded and deductions for mortgage interest and taxes are reported on Sch. A Other expenses not deductible

If rental, taxpayer reports income and deductions on Sch. E

27
Q

Define passive activity and some examples

A

Activity which the taxpayer does not materially participate. Rental activities, interests in limited partnerships, and S corp are examples.

28
Q

Tax treatment of nondeductible passive activity losses

A
  • Nondeductible passive activity losses are unused passive activity that are held in suspension
  • Used to offset passive income in future indefinitely
  • Fully tax deductible in the year the property is disposed
29
Q

Rules to determine taxable Social Security benefits

A

Depends on provisional income (AGI + tax-exempt interest + 50% Social Security benefits)

Low income = no SS benefits are taxable 
Lower middle income = less than 50% of SS taxable
Middle income (>$25,000single/$32,000MFJ) = 50% SS taxable 
Upper middle income = between 50-85% SS taxable 
Upper income (>$34,000/$44,000MFJ) = 85% SS taxable
30
Q

Are scholarships and fellowships includible in gross income?

A

For a degree-seeking student, scholarships and fellowships are excludable up to the amounts spent on tuition, fees, books, and supplies. All remaining amounts are includible in gross income. For nondegree-seeking student, all amounts are includible in gross income.

31
Q

Tests for foreign-earned income exclusion

A
  • Bona fide residence test (an entire taxable yr)

- Physical presence test (330 full days out of 12 consecutive months)

32
Q

List some nontaxable miscellaneous income items(exclusions)

A
  • Life insurance proceeds
  • Gifts and inheritances
  • Medicare benefits
  • Workers comp
  • Personal injury or illness award
  • Accident insurance-premiums paid by taxpayer
  • Foreign-earned income exclusion
33
Q

Tax treatment of capital gains/losses

A

Net capital losses are deducted up to $3,000 max per year against non-capital income. Any excess can be carried forward. Capital gains are fully taxable, but at lower tax rates. Holding period defines short or long term.

34
Q

In general, how is the donees’s basis of a gift determined? How is the holding period determined?

A
  • In general, donee’s basis is the same as donor’s.
  • If sale is greater than donor’s basis, then gain is the diff between donor basis and sales price.
  • If sale is less than FMV, the loss is diff between the FMV at gift date and sales price.
  • If sale is less than basis but greater than FMV, no gain or loss recognized.
  • The holding period includes the donor’s holding period unless basis become FMV, then it starts at gift date.
35
Q

In general, how is the basis of inherited property determined? How is the holding period determined?

A

The basis of inherited property is the lower of the:
1. FMV at date of death OR
2. FMV at alternate lower valuation date if elected
- 6 months from date of death or disposal date
The holding period is automatically deemed long-term for all inherited property.

36
Q

When is a gain NOT taxed? HIDE IT

A

Homeowner’s exclusion
Involuntary conversions
Divorced property settlement
Exchange of like-kind business/investment assets
Installment sale
Treasury and capital stock transactions by corp

37
Q

Identify the major tax provisions of involuntary conversions of property

A

Gain may be deferred if insurance proceeds are reinvested in property that is similar or related in service or use within 2 years for personal property or 3 years for business property. Realized gains exist when insurance proceeds are greater than the adj. basis in the converted property.

38
Q

What is the exclusion amount on the recognition of a gain on the sale of personal residence, provided the criteria for the exclusion are met?

A

$250,000 Single and $500,000 Married

39
Q

Identify the criteria for the exclusion provision on the sale of a personal residence

A
  • Must own and use property for 2+ years during 5 year period
  • Either spouse for joint return must meet the ownership requirement, both must meet use requirement.
  • May be eligible for partial exclusion if sale due to change of employment, health…
  • No age requirement
  • No rollover to another house
  • Renewable, can be utilized more than one time.
40
Q

Name the criteria for a classification as a like-kind exchange

A
  • Tangible real or personal property and
  • Used in trade or business or
  • Held for investment (except inventory, stock, and securities)
41
Q

In a like-kind exchange what is the basis of the property received?

A

Retains the basis of the property given up + or - any boot paid or received + any gain recognized.

Recognize gain to the extent of the lower of the realized gain or boot received.

42
Q

Identify the nondeductible losses “WRAP up these losses, because they are not deductible”

A

Wash sale loss
Related party transactions
and
Personal loss

43
Q

What is the tax treatment given to wash sales?

A

Losses are disallowed if the same security is bought within 30 days before or after the sale. This loss increases the basis in the property. Gains are taxable.

44
Q

Tax treatment for sales to related parties

A

No deduction is allowed for losses on sales to related parties. On later resale, any gain recognized is reduced (but not below zero) by the previous disallowed loss.

45
Q

What are the corporate capital gain/loss rules for C corps?

A

Net capital gains are added to ordinary income and taxed at reg rate. Sections 1231 gains are entitled to capital gain treatment.

Net capital losses are carried back 3 years and forward 5 as short term. They are deducted from capital or section 1231 gains.

46
Q

Describe the employee and employer taxation on nonqualified employee stock option

A

Employee: if there is a readily ascertainable value, the employee recognizes ordinary income in that amount. If no RAV, ordinary income recognized based on FMV of stock purchased - amount paid on exercise date.

Employer: may deduct the value as a business expense in the same year the employee recognizes ordinary income.

47
Q

Describe the employee and employer taxation on incentive stock options (ISOs)

A

Employee: generally not taxed as compensation. Basis of stock is exercise price plus any amount paid for option. Any gain/loss on subsequent sale is capital.

Employer: do no receive a tax deduction

48
Q

Describe the employee and employer taxation of employee stock purchase plans (ESPPs)

A

Employee: generally, not taxed as compensation. Basis of stock is exercise price plus any amount paid for option. Any gain/loss on subsequent sale is capital.

Employer: do no receive a tax deduction

REG (3 decks)

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