Review Flashcards
R1 Individual Tax
Due date April 15 and extensions are 6 months due on October 15
R1 Individual Tax
Qualifying widow(er) (Surviving Spouse) with Dependent Child - two years after spoue’s death; the surviving spouse must maintain a household thatfor the dependent child for the WHOLE year.
R1 Individual Tax
Head of household - maintains a household for more than half the taxable year; father and mother not required to live with the taxpayer; dependent relatives must live with the taxpayer
R1 Individual Tax
Dependency exemptions - qualifying child (CARES) - close relative; age limit (19/24 = college); residency and filign requirements (more than one half of the tax year); eliminate gross income test (but exemption is required); support test changes (when the child doesn’t contribute more than 1/2 of his or her own support)
R1 Individual Tax
Qualifying relative (SUPORT) - support test (more than 1/2 of the support); under exemption amount of (taxable) gross income (gross income has to be less than $3,950); precludes dependent filing a joint return (i.e. married dependents can’t file a joint return); only citizens of teh US or residents of the US, Mexico or Canada; relative; taxpayer lives with the individual (if nonrelative) for teh whole year
R1 Individual Tax
Additional standard deduction for being old (age 65 or older) and blind. Not an additional exemption.
R1 Individual Tax
Realization = real world; realization requires the accrual or receipt of cash, property, or services, or a change in the form ofr the nature of the investment (a sale or exchange)
R1 Individual Tax
Recognition = record; recognition means that that the realized gain must be included on the tax return
R1 Individual Tax
Only passive losses may offset passive income
R1 Individual Tax
Gross income includes many forms of compensation for services - money, property, cancellation of debt, bargain purchases (i.e. if employer is selling property for less than its fair market value is income to employee); guaranteed payments to a partner; taxable fringe benefits; partially taxable fringe benefits - portion of life insurance premiums;
R1 Individual Tax
Nontaxable fringe benefits - life insurance proceeds (interest income is taxable); accidental, medical, and health insurance (employer paid but employee’s portion is taxable); de minimis fringe benefits; meals and lodging employer payment of employee’s educational expenses (up to $5,250 from gross income); qualified tuition reductions; qualified employee discounts; qualified pension, profit sharing and stock bonus plans; flexible spending arragements ($2,500 pretax)
R1 Individual Tax
Taxable interest - federal bonds, industrial development bonds, corporate bonds, premiums received for opening a savings account, part of the proceeds from an installment sale is taxable as interest; interest paid by the federal or state government for late payment of tax refund is taxable; for certain taxpayers and certain bonds, teh amortization of a bond premium is an offset (reduction) to the itnerst received and a reduction to the bond;s basis , and the amortization of a bond discount is an addition to the interest received and an addition to the bond’s basis.
R1 Individual Tax
Tax exempt interest income - state and local government bonds, bonds, series EE (U.S. Savings bond) educational bonds interest; veterans administration insurance
R1 Individual Tax
Series EE (U.S. savings bond) Educational Expenses is tax-exempt when used to pay for higher education of the taxpayer, spouse, ord dependents; taxpayer is over age 24 when issued; bonds are acquired after 1989; phase-out starts when modified AGI exceeds an indexed amount (2014 - 76k for single and head of household and $113,950 for married)
R1 Individual Tax
Unearned income of a child under 18 is taxed at the parent’s higher tax rate for amounts over $2,000; otherwise taxed at 0% for less than $1k and $1k-$2k at child’s rate
R1 Individual Tax
Dividend income - source determines taxability; earnings and profits/current = distribute by current year-end; earnings and profits/acculumated = distributed date; return of capital = no earnings and profits; capital gain distributions = no earnings and profits/no basis
R1 Individual Tax
Tax free distribution - return of capital (no earnings and profits); stock split; stock dividend (unless cash or other property option/taxable FMV); life insurance dividend
R1 Individual Tax
Stock dividend - unless the shareholder has the option to receive cash or other property (which would then be taxable at the FMV of the dividend); the basis of the shares after distribution depends on the type of stock received. Same stock - original basis is divided by total shares; different stock - original basis is allocated based on teh relative FMV of the different stock
R1 Individual Tax
Capital gain distribution - distributions by a corporation that has no earnings and profits, and for which the shareholder has recovered his or her entire basis, are treated as taxable gross income.
R1 Individual Tax
State and local refund - itemized in the prior year = state or local refund is taxable; standard deduction used in prior year = nontaxable; interest income is taxable
R1 Individual Tax
Alimony is income to the spouse receiving payments and deductible to arrive at AGI (adjustment) for the contiributing spouse. Payments must be legally required pursuant to a written divorce (or separation) agreement; payments must be in cash or its equivalent; payments cannot extend beyond the death of the payee-spouse; payments can’t be made to members of the same household; payments must not be designated as anything other than alimony; and spouses may not file a joint tax return
R1 Individual Tax
Child support is nontaxable to ex-spouse (wife) receiving the $ and not deductible for paying spouse; payments apply first to child support and then alimony
R1 Individual Tax
Property settlement - non taxable (HIDE IT)
R1 Individual Tax
Business income or loss, schedule C or C-EZ; must use accrual method for inventory
R1 Individual Tax
Business expenses - cost of goods sold is expense when sold; business meals and entertainment (50%); interest expnese on business loans (interest expnse paid in advance by a cash basis taxpayer cannot be deducted until the tax year/period to which the interest relates).
R1 Individual Tax
Nondeductible business expenses - salaries paid to the sole proprietor, federal income tax, personal expenses
R1 Individual Tax
Health insurance of sole proprietor is not reported on schedule C, it is reported as an adjustment to arrive at AGI
R1 Individual Tax
The CPA exam often attempts to confuse the candidate by providign personal itemized deductions as expenses of a sole proprietorship. It is important to only subtract business expenses from business income. Expenses that qualify as itemized deductions and/or other adjustments are deducted elsewhere on the personal income tax return.
R1 Individual Tax
Net business income is taxable - income tax and federal self-employment (S/E) tax adjustment is allowed for one-half (which is 7.65% up to $115,500 of self-employment income)
R1 Individual Tax
Net taxable loss is 2-year carryback and 20-year carryforward
R1 Individual Tax
Uniform capitalization rules - guidelines with respect to capitalizing or expensing certain costs in connection with the acquisition of property . Costs requird to be capitalized include direct materials, direct labor (e.g. compenation, vacation pay, and payroll taxes), and applicable indirect costs (i.e. those to which an allocation must be applied, such as factory overhead). Costs that are not required to be capitalized include selling, advertising, and marketing expenses, certain general and admin expenses, research, and officer compensation not attributed to production services.
R1 Individual Tax
For inventory, even a sole proprietor will be required to apply the following rules: capitalized as inventory (direct materials, direct labor, factory overhead); period expense (selling, general, admin, research & development)
R1 Individual Tax
Unless an exemption exists for a taxpayer or a contract, longer-term contracts must be accounted for using the percentae-of-compoletion method to determine taxable income for a particular contract.
R1 Individual Tax
Certain contracts are exempt from the requirements long-term contract income recognition for tax purposes and may use other medthods (e.g. completed contract method) to calculate their taxable income under the contract for regular income tax purposes. These include: small contractors, home construciton contractors, a long-term construciton contract that includes land and hwere less than 10% of th etotal contract costs relates to teh actual construcion of property on the land; services performed by architects, engineers, designers, construction management advisors, and software implementaiton personnel related to the long-term project; services performed under warranty and maintenace agreements relate to the long-term contract.
R1 Individual Tax
IRA income - cannot be withdrawn until the 59 1/2 and required withdrawal is 70 1/2; taxed at ordinary income; roth IRA are nontaxable; penalty 10% + regular income
R1 Individual Tax
Exceptions to IRA penatlty tax (HIM DEAD) - home buyer 1st time $10k; insurance (medical) unemployed with twelve consecutive weeks of unemployment compensation or self employed; medical in excess of 10% of AGI; disability; education; and Death
R1 Individual Tax
Annuities - treat like depreciation; the investment amoutn is divided by a factor representing the number of months over which the investment will be recovered. Live longer than actuarial payout period (payment over annuity period is taxable); death before full recovery (unrecovered portion is deductible as a miscelaneous deduction not subject to the 2% of AGI)
R1 Individual Tax
Rental income (schedule E) - rental real estate, royalties, partnerships and limited liability company (schedule K-1), S Corp ( schedule K-1), estates (schedule K-1); trusts (schedule K-1)
R1 Individual Tax
Basic formula to determine rental income/loss - gross rental income + prepayment rental income + rent cancellation payment + improvement in-lieu-of rent (at FMV) - = net rental income/loss
R1 Individual Tax
Rental of vacation home - less than 15 days then rental income is excluded; rented more than 15 days (expense must be prorated) and rental use expenses are deductibe only to the extent of rental income. No rental loss allowed.
R1 Individual Tax
Passive activity loss (PALs) includes rental activities, interest in limited partnerships, S corporations,and most tax shelters. A net passive activity loss ay not be educted against wages, salaries, and other active income or against portfolio (interest and dividiends) or capital gains income. Expenses related to passive activities can be deducted only to the extent of income from all passive activiees.
R1 Individual Tax
Nondeductible PALs can be carry forward without any limit unused passive activity losses held in suspsension. Suspeded losses are used to offse passive income in future years. If still unused, it becomes fully tax deductible in the eyar the proerpty is disposed of (sold).
R1 Individual Tax
PAL (disallowed net loss) exception - mom and pop exception $25,000 and “active” in participating/managing and own more than 10%; carryforward indefinitely and 2 years after death. Phase-out starting at $100k and reduced by 50% of $25k and completely phased out at $150k.
R1 Individual Tax
Unemployment compensation is included in gross income. Workers’ compensation is tax-free
