Section 4 Reg Flashcards
What is the most categorical change to the tax code in the last 30 years?
When did it take effect?
TCJA
Tax Cut & Jobs Act
1/1/2018
Under the new tax law what are the deduction amounts? MFJ HH Single - Personal Exemption
MFJ - 24K
HH - 18K
Single - 12K
Personal Exemption - 0
Kiddie tax
Taxable ____ of a child is taxed at the rate for ___ individuals & net ___ income is taxed at the ___ and ___ rates
Taxable earned income of a child is taxed at the rate for single individuals & net unearned income is taxed at the trust and estate tax rates.
When is the kiddie tax triggerd? (after what amount)
What rate does trust and estate rates start at?
After $2,100
37%
LOSS LIMITATION RULE
Excess business losses of a taxpayer other than a corporation are ____. Those losses are ___- and treated as the tax payers ____.
What is this netted against?
not allowed , carried forward, NOL Carry-forward
Netted against gains
LOSS LIMITATION RULE
NOL are the ___ of the carryover amt or ____ determined wihtout regard to the deduction of NOL
the lesser, or 80% of taxable income.
LOSS LIMITATION RULE
NOL carrybacks after 2017 tax years are ____
eliminated
CHILD TAX CREDIT Child tax credit is increased to \_\_\_\_ What is the cutoff age? Can a child get a credit w/o SSN? What is the refundable portion? What is the earned income threshold? What is the credit amount for qualifying dependents (not qualified children)
$2000, cut off age: 17, Cant get w/o ssn, refundable portion is $1,400 per child, Earned income threshold is $2,500,
Credit amount that is not a qualifeid child, is $500
EDUCATION PROVISION
Higher education expenses for section 529 includes ___ for elementary, secondary public, ___, or ___ schools up to $___ per year
includes tuition
Private & religious schools
$10k per year
EDUCATION PROVISION
Certain student loans are discharged on account of ___ or ___ and is excluded from Gross Income
Death or total disability
What is the deduction amount for new mortgages?
Home Equity Debt and lines of credit must be used to what?
$750k MFJ, or $375k Single
Must be used to buy, build, or improve the home that secures the loan
When are state and local taxes dedutible? (not the itemized one). Could you deduct foreign real property taxes?
What is the deductible amount for State and local taxes when itemizing? What is NOT deductible?
When paid/accrued in a trade or business. Yes, can deduct foreign real property taxes.
$10k – Foreign real property taxes are NOT deductible
What is the amount for personal casualty losses?
There are none – its suspended
Deductions for personal casualty losses incurred in a ___ is not affected. If an individual hass a net disaster loss, the standard deduction is increased by ___
federal declared disaster
increased by the net disaster loss.
All deductions for expense incurred in wagering & gambling are limited to ___
the winnings
What is the deduction % of cash contributed to charities?
60% (example - you donate $100 - $60 is deductible)
If the donation exceeds 60% of the donor’s AGI, what does that mean?
a 5 year carryover period will come into play
When is a charitable deduction not allowed?
If it was in exchange for tickets/seating at an event
All misc. itemized deductions that are subject to the 2% floor are ___
suspended
Moving expenses are ___ except for ___
Suspended, except for active duty armed forces
The AMT (Alternative minimum tax) is increased to ___
$109,400
What is the medical expense deduction %?
10%
A roth IRA conversion made after ___ cant be re-characterized as a____ to a ___
made after 1/1/2018 , as a contribution to a traditional roth IRA
For divorce or separation, alimony and separate maintenance are ____ by the payor and not included in the ___ of the payee.
What is this rule to follow?
not deductible by the payor, not included in the gross income of the payee.
Wants to follow Gould v Gould- reason is that payments are not income to the recipient
Like-kind changes are ___
suspended
What is the amount of the Affordable Care Act individual shared responsibility payment?
0
how much is the estate/gift tax exemption?
How much can MFJ exempt?
$10M
$22.36M
GROSS INCOME
What does constructive receipt mean?
Means that it is made available to the taxpayer w/o restrictions
GROSS INCOME
Can scholarship money – room and board be considered as income?
Can debt forgiveness be considered as income?
Yes to both
What are the following investment incomes maximum tax rates?
Qualified Dividends
Capital Gain Dividend
Capital Transactions
Either 0%, 15%, 20% for all
When would state and local tax refunds be included in gross income?
What is the amount limited to?
When would you not include the refund amount in gross income?
Include when: state & local taxes were deducted in the PY schedule A
Amount is limited to the amount of the tax benefit
Dont include when: standard deduction was taken in the PY tax return
GROSS INCOME
All income is taxable unless it is ___ or ___
fully or partially
STATUTORY OPTIONS - INCENTIVE STOCK OPTION (ISO)
Do employees recongize this as income?
Employees qualify for LTCG, ONLY IF: (2)
How much is the employer deduction for ISO?
When would employee include has ordinary income for ISO?
No - they dont recognize as income
LTCG: (1) Stock held >1yr & (2) stock isnlt sold within 2 years the stock was given
Ordinary income if the sale price exceeds the option price
Employer doesn’t get a deduction
Deferral Election - Stock
What can employees defer?
When can the election be made?
Does an employer get a deduction? If so, when?
Employees can defer the income
Election must be made within 30 days after given the stock (vested) or when the stock becomes transferable
Employer does get a deduction, it is deductible when the employee includes the stock in their income
NONSTATUTORY STOCK OPTIONS
Employees Tax Treatment of NSOs depnd on whether the ____
This is known as ___ stock option
FMV is readily ascertainable
Known as nonqualifeid stock option
If the NSO (nonstatutory stock option) is readily ascertainable, then:
Include as ____ the FMV less any amount ___ when the option is ___
Include ___ in income when option is exercised
Treat as a ___ when stock is sold – when does the holding period begin?
Include as ordinary income, less any amount paid when the option is received
Include $0 in income when exercised
Treat as a capital asset when sold. Holding period begins when the option is acquired.
For NSO, how much is the employer deduction?
Same amount as employee deduction
If an NSO is NOT readily ascertainable, then:
Include $___ in income when received
Include as ___ the ___ less any amount ___ when option is exercised
Treat as a ___ when stock sold
Include $0 in income when received
Include as ordinary income the FMV less any amt. paid when exercised
Treat as a capital asset
Which of the following is NOT included in gross income?
Punitive damages, bribes, found property
All included in gross income
Fringe benefits excluded from employee’s income:
___ & ___ premiums
_SA
____ assistance, which is subject to MAGI (Modified Adjusted Gross Income )
___ care assistance
____ assistance that’s covered up to $5,250/yr
Accident & Health premiums FSA Adoption Assistance, MAGI Dependent Care assistance Education assistance up to $5,250
FRINGE BENEFITS
Group-term ___ premiums are excludible on the first $____ of coverage
Life insurance proceeds paid by reason of death is excludible by the beneficiary unless ____
life insurance - first $50K
unless the beneficiary owns the policy
FRINGE BENEFITS
When are meals & lodging excludible? (4)
Furnished by employer
On employer’s premise
In-kind meals
Loding - MUST be a condition of employment
Cafeteria plans allow an employee to choose between ___ and ___
Cash & qualified benefits
FRINGE BENEFIT - CAFE PLAN
If employee chooses cash, the amt is treated as ___
If employee choose benefit, it is not ___
treated as wages
not taxable
INTEREST INCOME
Municipal bonds are ___ from gross income
excluded
Amounts received from an annuity policy in the form of dividends are excludible when received ____ and up to the point where the dividend exceeds the ___
before the annuity begins and up to the point where the dividend exceeds the premiums paid
GIFT & INHERITANCES
Property received as a gift/inheritance is ___ in gross income
Income earned from gift property is ___ in gross income
Property received from employer is what type of gift?
Not included
Included
Not a gift – it is payment for services
When are prizes/awards NOT included in gross income?
Received in accomplishments from religous/educational/charitable achievement &&&&&
Didn’t seek the award & not requreid to perform the services && doesn’t take ownership to award (gives to government)
Are employee awards/bonuses included in gross income?
yeppers
Childs support. worker’s comp, compensatory damages from injury/sickness, state&local refunds when opted to use the standard deduction.,……what do these have in common?
EXCLUDED FROM GROSS INCOME
Accelerated death payments received from a life insurance policy can be excluded from income if ___
the insured is terminally/chronically ill
Annutiy income is tricky b/c a problem can ask for the included / excluded amount of gross income.
What is the excluded amt formula?
What is the included amt formula?
Included
Amt received - Excluded Amt
Excluded
(investment / Expected return) * amt recv’d
T/F
Rebates are included in gross income
Medical cost reimbursements are excluded
Welfare/public assit. is included
F - excluded
True
False - Excluded
Distributions from traditional IRAs are
____ included in gross income if the taxpayer only made deductible contributions to all of his IRAs
___ included in gross income if the taxpayer made nondeductible contributions to any IRA
Totally included
Partially included
TRADITIONAL IRA
What is the excluded portion calculation?
(Nondeductible amt / IRA value at begin of year) * Distribution amount
When must IRA owners MUST start taking distributions?
Taxpayers incur a 10% penalty on the taxable portion of trad. IRA if withdrawn before age ___, UNLESS:
59 1/2
Unless:
Disabled/Purchase home for 1st time/Paying higher ed expenses/ paying med expenses >10% of AGI
ROTH IRA
Roth IRA distributions are ___ from gross income if qualifeid
What do you need to be qualified? (5)
excluded
1 Roth IRA owner must be 59 1/2 or older
2 Made to beneficiary or estate after owner’s death
3 Owner is disabled OR
4 Payment for first-time home buying expense
5 Must be in existence for at least 5 yrs
When are withdrawals from a Roth IRA required to be made?
no requirement
What is the most common source of business income?
Sole propreitorships
Sole proprietor business income is hte difference between business ____ and business ___.
Net income is ___ in a taxpayer’s gross income and net loss is ___ to a taxpayer’s gross income
Income, expense
Net income is included, net loss is fully
deducted
What type of taxes are sole proprietorship subjected to?
Self employment taxes
SOLE PROPRIETORSHIP
Self employment taxes is computed on net busienss income of $___ or more
_% of any self employment tax paid is deductible from total income to arrive at a taxpayer’s ___
$400 or more
50%, AGI
Net income is the difference between:
Total income less deductible business expenses
Business expenses are deductible:
Cash basis taxpayers
Accrual basis taxpayer
Cash basis - year incurred
Accrual – year accrued for
SPECIAL BUSINESS EXPENSE
Business gifts are deductible for (3)
Bad debts are deductible when?
Business NOL can be carried forward for how long?
Hobby expenses are dedctubile up to what?
How long can Hobby losses be carried forward for?
Deductible for: tax, mailing, wrapping cost
Deductible the year it becomes worhtless
NOL can be carried forward indefinitely
Hobby expenses are deductible up to the hobby income
There are no such thing as hobby losses
Passive income is included in ___
Passive losses are limited to ___, but the excess passive losses can be ____
included in gross income
Losses are limited to the income, but the excess passive losses can be carried forward to offset future passive income.
There are two categories of deductions, what are they?
Deductions for AGI (these deductions can be taken away even if the taxpayer doesn’t itemize
Deductions FROM AGI (standard vs. itemized deduction)
What is above the line deduction also called?
Deductions FOR AGI
Above the line deductions:
9
Educator expense HSA Moving Expense Self employment tax Self employment retirement plan contirbution Early savings withdrawl penalties Traditional IRA contribution Student Loan Interest
Above the Line deduction:
How much can someone deduct educator expenses?
How much Self-employment tax be deducted?
How much can Self-Employment Retirement contributions be deducted up to?
How much is student loan interest deductible?
Educator: $250
SE Tax - 50%
SE Retirement Contributions - All of it
Student Loan Interest - Up to $2500
IRA Deduction
A taxpayer may contribute up to the lesser of ____ or ____% of compensation
$5500 or 100% of compensation
$6500 if 50 or older
Medical/Dental Expense/Taxes/Interest/Gifts to Charities/SALT (State and Local Taxes)
These are what kind of deductions?
Itemized
Charitable gifts are contributions of moeny or property made to a _____
qualified organization
CHARITABLE GIFTS
A taxpayer’s itemized deduction is limited to ___% of the taxpayer’s AGI
What if there is an amount in excess of 60% of AGI?
60% of tax payer AGI
carried forward if >60%
What is the max deduction for mortgage interest?
$750K
T/F - Points purchased for home interest is not prepaid interest
Not T/F - How are points deductible?
What are points also called?
False - yes it is
Points are deductible over the life of the loan (mortgage)
Loan discounts / discount points / loan origination fees
Can points be deductible in full for the current year?
If the home is not the primary home, points must be ____
Yes - only if the home is the primary residence (you live there)
Points must be deducted over the course of the loan
Investment interest expense is deductible up to ____
Up the taxpayer’s investment income
What if investment interest expense is in excess of investment income?
What if investment interest expense is used for business/passive activities/personal purpose?
Carry forward to the next tax year
Allocate the expense
What type of interest payments are NOT deductible?
5
Personal Interest Service Charge Loan Fee CC annual/interest fee Interest on loans to buy tax-exempt securiteis
What can medical expenses be deducted?
What is the calculation for deductible medical expenses?
If it exceeds 10% of AGI
Calculation: Total Medical expense - Insurance Reimbursemnet -10% of AGI = Deductible Med. Expense
When are capital expenditures deductible for medical expenses?
Only when the Cost exceeds the increased value of the property
Ex: $10 increase in value, $20 medical capex = $10 deduction
When are standard deductions higher than normal taxpayers? (2)
If: 65 or older, and/or, blind
When are special standard deductions applicable?
When taxpayers can be claimed dependent on another’s return
BLINDNESS
When is blindness determined ((what time throughout the year)?
What if the person is not “totally” blind, what do you need? What must be included from the thing you need?
Detremined on last day of year
You need a certified statement from eye doctor. It must state
- Cant see better then 20/200 w/ glasses or contacts. ORRR
- Field of vision is 20 degrees or less
What two tests must be satisfied in order to deduct any tax at all?
Tax is imposed to the taxpayer and tax is paid during the tax year
Are State and Local personal property tax based on the value of the item deductible?
Taxes on property producing rent/royalty income deductible?
Yes to both
Are these taxes deductible?
Fed tax, FICA, estate/gift tax, excise, per capita tax, fine & penalties, Homeowners association charges
NOPE
Gross income includes domestic & ___ income
Internationally
Filing status means what
If you single, MFJ, HoH, etc
Taxpayers are considered 65 on the day____
before their birthday
Only example: b-day is 1/1/Year 2…..then in year 1, the person is 65
If one spouse dies during the year, then the they are considered to be ____
married throughout the entire year
People can file as MFJ only IF (2):
EAch spouse files separate return &&&& Each spouse must file the same deduction
If one spouse itemizes, the other has to as well
When can someone file as a qualifying widow w/ dependent child? (4)
- IF the widow could’ve filed MFJ the year the spouse died
- widow hasn’t remarried
- TP has a child/stepchild being claimed as a dependent
- Child lived @ tp all year
When can someone file as HoH? (3)
- Unmarried on last day of yr
- pays more than half of the upkeep on home
- Qualifying person lives w/ them for more than half the year
(examples of qualifying persons: child or qualifying relative (immediate family))
Do the parents have to live w/ the taxpayer in order to qualify as a “qualified relative” for the TP to file as HoH
Nope
How long do you get (extension) if you file the Form 4868?
6 months
What happens if you file late?
Penalties & Interest
When can you file an amended return? (2)
Within 3 years of the date of hte original return ORRR 2 years after the date the taxpayer paid the tax. Whichever is later
When must tax assessments be performed?
Within 3 years of the filing or 3 years of the due date, whichever is later.
If no tax return is filed or a fraudulent return is filed, what can be made?
tax assessment
There are two types of tax credits - what are they? & Define them
Nonrefundable - if person’s tax credit is more than tax liability, the excess is NOT refunded to the TP
Refundable - if tax credit is more than tax liability, it is refundable
What type of income must someone have in order to claim the child credit?
Earned income
A TP can take either a ___ or a ___ for income taxes paid to a foreign country
credit or deduction
If a TP chooses to take the credit option of the taxes paid to a foreign country, what does that mean?
If a TP chooses to take the deduction option of the taxes paid to a foreign country, what does that mean?
Credit: Credit reduces TP tax liability
Deduction: Deduction reduces TP taxable income
If you’re a qualifying child, can you receive EIC credit?
Can you get the EIC credit if you file as ingle?
No to both
How can someone receive the Family Care Credit?
If TP has an adult dependent
Lifetime Learning Credit
Can someone claim the lifetime learning credit on post-secondary education or courses to improve job skills?
Yep
What kind of tax is it called for a child to have unearned income?
What is considered a child?
Kiddie Tax
Under age 19, by end of year
Under 24 by year end if full-time student
Amounts in excess of the child’s tax rate for kiddie tax is taxed at what rate? (not a %, but whats it called?)
Estate Tax rate -37%
In the case of self-employed taxpayers, they pay both ___ and ___ portions of medicare tax?
Employer & Employee
Is medicare tax imposed on unearned income of individuals/estate/trusts?
Yes
