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REG > R1 > Flashcards

R1 Flashcards

1
Q

Individual Taxation Formula

A 
Gross Income
(adjustments)
= AGI
(standard or itemized deduction)
(exemptions)
= taxable income
Federal income tax
(tax credits)
other taxes
(payments)
= tax due/refund
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2
Q

Individuals who must file even if income is lower than the general rule requirement

A
  1. net earnings from SE >= $400
  2. dependents with unearned income and gross income >= $950
  3. receiving advance pmt of EIC
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3
Q

As of what date is the filing status determined?

A

end of the year - December 31 for individual and MFJ

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4
Q

Surviving spouse/qualifying widower filing requirements

A

household for WHOLE year as the principal place of abode for a son, stepson, daughter or stepdaughter and use the dependency exemption for them

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5
Q

Head of Household filing requirements

A

household for more than HALF the year, principal residence of

  1. dependent son/daughter (includes legally adopted)
  2. mom/dad (not required to live w/)
  3. dependent relative (must live w/)
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6
Q

MFS claim spouse’s exemption

A
  1. spouse has no gross income

2. spouse not claimed as dependent of another

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7
Q

Exemption rules for birth/death during the year

A

can claim entire personal/dependency exemption

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8
Q

Qualifying child requirements

CARES

A 
Close relative
Age limit
Residency & filing requirements
Eliminate gross income
Support test changes
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9
Q

Close relative test for qualifying child

A

son/daughter, stepson/stepdaughter, brother/sister, stepbrother/stepsister, or their descendant, legally adopted, foster child

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10
Q

Age limit test for qualifying child

A

under 19 or 24 if FT student (no age limit if totally & permanently disabled

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11
Q

Residency and filing requirements test for qualifying child

A

Same principal place of abode for more than 1/2 tax year, child cannot file joint return for the year (unless only filed for a refund)

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12
Q

Eliminate gross income test for qualifying child

A

gross income test does not apply

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13
Q

Support test changes

A

requirement that taxpayer provide over 1/2 support is eliminated

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14
Q

Qualifying relative requirements

SUPPORT

A

Support test
Under exemption amount of taxable gross income
Non-taxable income
Precludes dependent filing a joint return
Only citizens of US or residents of US, MX, CA
Relative
-or-
Taxpayer lives w/individual if non-relative for whole year

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15
Q

Support test for qualifying relative

A

taxpayer supplier more than 1/2 of actual expenses incurred by/on behalf of dependent
multiple support agreements - contributor must contribute > 10%

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16
Q

Precludes dependent filing joint return for qualifying relative

A

lose exemption for married dependent who files joint return unless only filed for a refund of all taxes paid/withheld

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17
Q

Relative test for qualifying relative

A

children, grandchildren, grandparents, parents, brothers, sisters, aunts & uncles, nieces & nephews
foster parents and cousins must live with the taxpayer the entire year

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18
Q

GR: Computation of income

A

Event = Income Basis
Taxable FMV FMV
Non-taxable none NBV

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19
Q

For a gain to be taxable it must be…

A

Realized (accrued or received thru sale/exchange)

Recognized (recorded and included on TR)

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20
Q

Characterizations of income

A

Ordinary
Portfolio - interest/div
Passive - rental (only passive losses can offset passive income)
Capital

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21
Q

Under exemption amount of taxable gross income for qualifying relative

A

gross income must be less than exemption amount

do not include social security, TEI, tax exempt scholarships

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22
Q

Items included in salaries & wages

A 
money
FMV of property
Cancellation of debt
Partially taxable fringe benefits 
Non-taxable fringe benefits
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23
Q

Partially taxable fringe benefits included in salaries and wages

A

portion of life insurance premiums (nondiscriminatory plans only) - prem above $50K are taxable income to recepient and included in W-2 wages

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24
Q

Non-taxable fringe benefits included in salaries and wages

A
  1. life insurance proceeds - int income on deferred payout is fully taxable
  2. accident, medical and health insurance (ER pd) - prem excluded from EE income when pd by ER
  3. ER pmt of EE educational expenses - up to $5,250 of pmts made by ER on behalf of EE educational exp may be excluded (okay for undergrad/grad level)
  4. qualified pension, profit-sharing and stock bonus plans - pmts by ER are nontaxable, benefits rec’d are taxable
  5. Flexible spending arrangement stems (FSAS) - EE can elect to have up to $5k per year of salary deposited pre-tax into FSA, forfeit funds not used w/i 2.5 months after YE
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25
Q

Taxable interest income

A

all interest is taxable unless specifically excluded
prem rec’d for opening a savings acct
int pd by fed/state gov’t for late pmt of tax refund

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26
Q

Tax exempt interest income

A 
State/Local gov't bonds
Series EE (US savings bonds interest used to pay for higher education, reduced by tax free scholarships of taxpayer/spouse/dependent) phase-out when MAGI exceeds index
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27
Q

Unearned income of child <18

A

kiddie tax - net unearned income of dependent child <18 (18-24 if FT student and not providing over 1/2 support) taxed at parents higher rate

28
Q

Taxable dividends

A 
cash = amt rec'd
property = FMV
29
Q

Qualified dividends holding period

A

must hold stock >60days during the 120 day period that begins 60 days before the ex-dividend date (date when purchased share is no longer entitled to any recently declared div)

30
Q

Tax free distributions related to dividends

A
  1. Return of capital
  2. Stock split
  3. Stock dividend
  4. Life insurance dividend (caused by ownership of insurance w/mutal co)
31
Q

Capital gain distribution

A

distrib by co that has no earnings/profits and shh has recovered their entire basis are taxable gross income

32
Q

Taxability of state and local tax refunds

A

if itemized PY - refund is taxable (unless ALTMIN caused taxes pd to be nondeductible)
if stardard deduct in PY - non-taxable

33
Q

Requirements to be considered alimony

A
  1. pmt legally required by written divorces/separation agreement
  2. pmt must be in cash or its equivalent
  3. pmts can’t extend beyond death of payee-spouse
34
Q

Child support

A

non-taxable, pmt applies to child support first, then alimony

35
Q

Divorce property settlement

A

non-taxable (lump sum pmt also non-taxable)

36
Q

Schedule C expenses

A
  1. COGS
  2. Salaries/commission pd to others
  3. state/local business tax pd
  4. business M&E @ 50%
  5. bad debts actually written off (direct method only)
37
Q

Non-deductible schedule C expenses

A
  1. salaries pd to sole proprietor
  2. federal income tax
  3. personal expenses (100% of country club dues are non-deductible)
  4. health insurance of sole proprietor
38
Q

Net business income on schedule C tax

A

income tax

federal s/e tax

39
Q

Net business loss on schedule C treatment

A

may deduct against other sources of income

  1. carry back 2 years
  2. carry forward 20 years
40
Q

Uniform capitalization rules

A 
capitalize as inventory
1. direct materials
2. direct labor
3. factory overhead
period expense
1. selling
2. general
3. admin
4. R&D
41
Q

General rule for income recognition on long-term contracts

A

Percentage of completion method unless an exemption exists

42
Q

Exemptions for other methods of income recognition for long-term contracs

A

small contractos, home construction contractors
services performed by architects, engineers, designers, construction management advisors, software implementation personnel
services performed under warranty and maintenance agreements related to LT contract

43
Q

Percentage of Competion method income recognition

A

Cost-to-cost: total cummulative costs YE / total expected costs of contract
Gross income recognition: ratio of cost-to-cost method * total contract price - income previous recognized

44
Q

Farming Income

cash vs accrual basis

A

cash - inventories of produce, livestock, etc, not considered
accrual - required for corp and ptnrship, farming tax shelters
must use and maintain inv, take a BOY and EOY

45
Q

formula for G/L on disposition of property

A

amt realized
(adjusted basis of asset sold)
= G/L realized

46
Q

IRA withdrawal age and RMD

A 
w/d = 59.5
RMD = 70.5
47
Q

Tax treatment of traditional, traditional non-deductibe and ROTH IRA

A

Trad - distribution = ordinary income
Trad non-ded - principal = nontaxable, accum earnings = taxable when w/d
ROTH - non-taxable

48
Q

IRA penalty for early w/d

A

penalty tax of 10%

49
Q

Exceptions to IRA penalty tax

HIMDEAD

A

H - home buyer (1st time) $10,000 max exclusion if used to purchase 1st home w/i 120 days of distrib
I - Insurance (medical) if unemployed w/12 consective wks of unemployment or SE (eligible for unemployment)
M - Medical expense > 7.5% AGI
D - Disability (permanent of indefinite)
E - Education : college tuition, books, fees
A - and
D - Death

50
Q

Annuities

A

investment / factor <- # mo expect invest to be recovered, amount is not taxable
if live longer, full amount is taxable
if die before full recovery - unrecorded portion is misc itemized deduction on final tax return, not subject to 2% floor

51
Q

Formula for net rental income/loss

A 
Gross rental income
\+ prepaid rental income
\+ rent cancellation pmts
\+ improvement in lieu of rent
(rental expenses)
= net income/loss
52
Q

Passive Activity Losses

A

carry forward w/no time limit

fully tax deductible in year property is disposed of

53
Q

Passive Activity Loss exceptions

A

mom & pop - deduct max $25,000 per yearof net passive losses attributable to rental real estate annualy if individuals are actively participating/managing
phase out: reduce $25,000 by 50% of excess of AGI over $100,000 (w/o considering loss deduction), elimated as $150,000

54
Q

Tax treatment for unemployment compensation

A

include full amount in gross income

worker’s comp is tax free

55
Q

Social Security income treatment

A

low income = not taxable

upper income = 85% taxable

56
Q

Taxable miscellaneous income

A 
prize/awards
gambling winnings (losses can be deducted only to the extent of winnings, amt goes on sch A, not subject to 2% AGI limit)
business recoveries (damange award for lost compensation)
punitive damanges (fully taxalbe if rec'd in bus context or for loss of personal reputation, or for an individual if for personal injury, except wrongful death)
57
Q

Scholarships and fellowships tax treatment

A

degree seeking student amount is excludeable up to amount spent on tuition, books, supplies if
1. grant made to degree seeking student
2. no services performed as a condition to rec
(room and board and services required are taxable)

58
Q

Nontaxable misc items

A
  1. life insurance proceeds (interest income on deferred payout is fully taxable)
  2. gifts and inheritances
  3. medicare benefits
  4. worker’s compensation
  5. personal (physical) injury/illness award
  6. accident insurance premiums pd by tax payer
59
Q

Real property

A

land and all items permanently affixed to the land (buildings, paving, etc.)

60
Q

Personal property

A

all property not classified as real property (machinery and equipment)

61
Q

Non-capital assets

A
  1. property normally included in inventory/held for sale to customers in ordinary course of business
  2. depreciable personal property and real estate used for trade or business (M&E, land and equip)(Section 1231, 1245, 1250 property)
  3. accounts and notes rec
62
Q

Amount realzied for calculation of G/L

A
  1. cash rec’d (boot)
  2. cancellation of debt (boot)
  3. property rec’d @ FMV
  4. Services rec’d @ FMV
  5. reduce amt realized by any selling expense
    boot is taxable if there is a gain
63
Q

Purchased property basis

A

cost
increase for capital improvements
reduce by A/D

64
Q

Basis for gifted property

A

use donor’s rollover cost basis (exception for lower FMV @ date of gift) use donor’s holding period

sell higher - use donor basis for gain
donor basis
sell between - no G/L
lower FMV @ date of gift
sell lower - use lower FMV @ date of gift for loss
65
Q

Inherited property basis

A

step up/down to FMV - date of death FMV is basis
may elect to use earlier of
1. six months after DOD or date or distribution/sale
2. date of distribution of asset
holding period = longterm

REG (2 decks)

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