Section 1: Individual Taxation Flashcards
“For AGI” Adjustments (I-EMBRACED EHF)
Interest on student loans
Employment Tax -50%, Med. Premiums -100%
Moving Expenses
Business Expenses (Sch C)
Rent/Royalty & Flow-Through Entity (Sch E)
Alimony (CANNOT)
Contributions to Retirement (KEOGH/IRA)
Early Withdrawl Penalty
Jury Duty pay
Education - $4,000
Health Savings Accounts (HSA)
Farm Income (Sch F)
Itemized Deductions - Sch A
(COMMITT)
Charitable Contributions
Other Misc.
Misc. Expenses (2%)
Medical Expenses
Interest
Taxes
Theft or Casualty
1040 Tax Return
Gross Income
+- “For AGI” Adjustments (I-EMBRACED EHF)
AGI
- Deductions (Itemized Ded(Sch A)) (Std Ded)
- Net Exemptions
Taxable Income
x Tax Rate
Tax Liability
- Credits
+ SE Tax
+ AMT
- Withholdings
- Prepayments
Tax Due
1040X Due
3 years after original return was filed
2 years after actual tax was paid
Statute of Limitations for IRS
3 years - Error/Simple Negligence
6 years - Gross Negligence OR 25% of income not included
Unlimited - Fraud OR Failure to File
Who can use Cash Basis Accounting
Service type businesses whose gross income does not exceed $10M
Includes most individuals, S Corp, individually owned Partnerships, personal service corps
Who is prohibited from using Cash Basis Accounting?
- C Corps with gross receipts exceeding $5M
- Partnerships that have a C Corp as a partner exceeding $5M
- Tax Shelters
- Certain Trusts
When is a group term life insurance policy taxable?
Premiums are taxable when they exceed $50,000
Taxaxtion of Stock Options
Non-Qualified - Taxed when exercised, treated as compensation for excess of FMV over excercise price
Qualified (Incentive Stock Option (ISO)) - Taxed when sell stock, treated as capital gain or loss on diff. btw sale price and excercise price
- For AMT, ISO taxed when excercised
- ISO must be held for 2 yrs from grant date and 1 yr from exercise date
Taxation of Injury Awards
Non-Physical - TAXABLE
- Age, Race, discrimination
- Punitive Damages
- Lost Business Profits
Bodily Injury - TAX FREE (Blood)
- Pain & Suffering for physical injury
- Worker’s Comp
- Reimbursement of medical expenses pd and not itemized on Sch A
Taxation of Prizes and Awards
Taxable at FMV unless all conditions satisfied:
- No services required of recipient
- Selected without any action on recipient’s part
- Payment assigned by recipient and never actually rec’d by recipient
Taxation of Social Security Benefits
A person collection S.S. who has less than $25,000 of provisional income can exclude all S.S. benefits, while taxpayers with provisional income exceeding $60,000 usually are subject to the max. 85% inclusion
Taxation of Pensions and Annuities
Cost of Annuity / Expected Total Annuity Payments = % of each payment that is excluded from taxes
Taxation of Tax Refunds
Federal
- Refund - NOT taxable
- Interest - YES, Taxable
State
- Refund - If itemized in PY, taxable in CY.
- If didn’t itemize in PY, not taxable in CY
- Interest - YES, Taxable
Taxation of Capital Assets (Sch D)
- LT Capital Gains get special tax rates if held > 1 yr
- 10-15% bracket - 0% tax rate
- 25-35% bracket - 15% tax rate
- 39.6% brackey - 20% tax rate
- Held <= 1 yr, ordinary tax rate
- Net Capital Loss up to $3k against ordinary income
- Unused carried indefinitely
- Corps get $0 net capital loss, can carry back 3 yrs and forward 5 yrs. No special rate
Net Operating Losses (NOL)
Carryback 2 yrs and carryforward 20 yrs
Same for individuals and corps
Schedule A
Itemized Deductions (Personal and Employee Expenses)
Schedule B
Interest and Dividend Income
Schedule C
Profit and Loss from a Business (Employer Expenses/1099 Income)
Schedule D
Capital Gains and Losses (S/T and L/T investments)
Schedule E
(RRF-COP)
Supplementary Income or loss
- Rental Income
-
Royalties
- Copyrights
- Oil/Gas Leases
- Patents
-
Flow-Through Entities
- S Corps, Partnerships, Estates and Trusts
Schedule F
Profit and Loss from Farming
1040X
Amended Return (3 yrs)
1116
Foreign Tax Credit
4562
Depreciation and Amortization
4797
Sales of L/T Business Property
Business Expenses
- All costs of running a business
- Interest pd in advance is not deductable
- Gifts to customers up to $25 per recipient per year
- 50% of meals and entertainment
- 100% of travel
- $4 per promotional item
- No profit in 3 of 5 yrs, loss not deductable - Hobby Loss
- Net Income (Other Income) line 21
- Expenses on Sch A (Misc 2%)
Moving Expenses
New work must be 50 miles further from old home, each way.
Direct cost of moving you and stuff, not meals, house hunting costs, or temp living expenses
Must work 39 weeks (9 mo.)
Vacation Home
- Rented less than 15 days - income is excluded and expenses are deducted on Sch A
- Personal use more than 14 days OR 10% of days rented - income is included and deductions are limited to gross rental income.
- Unused deductions may be carried forward to future years
- Personal use is not more than 14 days OR 10% of of days rented. Rental income is included and all expenses allocated to the rental portion are allowed. Expenses in excess of income are subject to passive activity loss limits
Alimony
(CANNOT)
- Cash only or its equivilant (not property)
- Apart when payments are made (not living together)
- Not child support
- Not designated as property settlement
- Own return for pater and payee
- Terminates on death of recipient
Traditional IRA
Deductible to get to AGI, unless,
- Individual actively participates in another plan
- Exeeds threshold
- Single - $69k
- Married - $115k
Roth IRA
Not deductible
Early Withdrawl from IRA
10% penalty if before 59 and half years old.
- No penalty, but included as income, if payment of medical is greater than 7.5% (>=65), or payment for higher education costs
Charitable Contrbutions
Cash or property given to charity
Mileage and parking are included
Limited to 50% AGI (10% of ATI for Corps), carried for 5 yrs
Other Misc. Expenses
Not subject to 2% AGI
Gambling winnings and losses
Estate taxes on income in respect to a decedent
Misc. Expenses (BIT)
Deductible to extent total exceeds 2% of AGI
Unreimbursed Biz expenses
Investment Expenses (Safety deposit box)
Tax preparation/ Legal advice related to TAXABLE income
Medical Expenses
Deductable for amounts that exceed 10% of AGI
Theft and Casualty Losses
Must exceed 10% of AGI
Minus: $100 per event
Minus: Reimbursements
Underpayment Penalty
Owes more than $1,000 as of Apr 15
No penalty if:
- Withholdings and estimated taxxes exceeds 100% of prior yr (110% if tax income >150k)
- 90% of current tax liabilty
AMT
Regular Income
+- Adjjustments and preferences
AMTI before exemotion
- exemption
AMTI
X Tax Rate (26%/28%
Tentative Minimum Tax
-Regular Tax
AMT
AMT Adjustments and Preferences (SIMPLE-PIE)
Standard deduction - not claimed
Interest on home equity loans - not deducted unless main home
Medical expenses under 10% of AGI - cannot reduce AMTI, adj. equal to diff. between 10% and 7.5% for those 65 and older
Personal and dependent exemptions - not allowed
Local and state income taxes, all prop taxes and sales taxes - not allowed
Employee (2% BIT) - not allowed
Private activity bond interest - fully taxable
Incentive stock options - taxed on diff btw exercise pricce and FMV
Excess depreciation on personal property
