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CFP 3/17 > Income Tax Calculations > Flashcards

Income Tax Calculations Flashcards

1
Q

Filing Status

A 
Single
Married
Married filing separately
Head of Household
Qualifying widower(married filing jt in year of death, QW for 2 years after death)
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2
Q

Tax Calculation

A

Income
-less exclusions from income
=Gross income

-less deductions (adjustments)
=Adjusted Gross Income

-itemized or standard deductions
=taxable income

-less credits or other taxes
=tax liability

-less quarterly payments or withholding
=Net tax due or refund

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3
Q

Exclusions from Income

A 
Gifts
Inheritances
Child Support
Muni Bond Income
Workers Comp
Compensatory Damages
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4
Q

Inclusions to Income

A 
Dividends - Schedule B
Taxable Interest - Schedule B
Business Income - Schedule C
Capital Gains - Schedule D (net capital gains and losses)
Real Estate - Schedule E
Punitive Damages (except wrongful death)
Salary, wages, tips
IRA distributions
pension and annuities
Alimony
Unemployment
Taxable SSI
Employee awards
Bargain Purchase
Clergy fees
Debt forgiveness
Embezzled funds
Gains from illegal activity
Gambling
cost of group term life over 50k
hobby income
jury duty fees
season tickets given
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5
Q

Tax Free Fringe Benefits

A
  • health premiums for family
  • group life on your life up to 50K
  • Company Car
  • transit pass $130/mo
  • $2500/$5000 employer dependent care
  • Education assistance $5250/yr
  • adoption assistance $10,000
  • parking ($255/mo)
  • occasional overtime meal money, and sporting events)
  • discounts co products that don’t exceed profit %
  • discounts on services 20% of selling price
  • Group disability policy (benefits are taxable)
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6
Q

Taxable Fringe

A

Health Insurance
-partners, self-employed, more 2% owners of S corp
-100% deductible as adjustment to income
includes medical, dental, LTC
Insurance Premiums
-in excess of $50,000 (non discriminatory)

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7
Q

Adjustments for Gross Income (above the line)

A

-IRA contributions
-Self Employment Tax .07065 (half 14.13)
-100% self employment insurance (partners 2% owners)
-Keogh or SEP
-Alimony Paid
-Student Loan Interest $2500
-Medical Savings Account
-Moving Expenses
-$4000 education expenses (no AOC too)
-HSA
-penalty early withdrawal savings
(taxes incurred in trade or business)
(taxes incurred in connection with property held for rents and royalties)

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8
Q

Deductions from AGI ( below the line)

A 
Standard deductions 
Itemized deductions
Personal and Dependent
Miscellaneous Schedule A
Home office 2%
Entertainment unreimbursed 50%
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9
Q

Standard Deductions

A 
NOT SUBJECT TO PHASEOUT
Single        $6300
MFJ            $12600
MFS            $6300
HH              $9300
Elderly/blind$1250 (65 or older for elderly)
Child unearned $1050
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10
Q

Itemized Deductions

A 
Schedule A
Medical, dental, LTC (>10% AGI /7.5% over 65)
Sate and Local tax
Personal property tax
Charitable gifts
Mortgage Insurance <100k AGI
Home Mortgage Interest
Real Estate Taxes
Investment Interest 2%
Casualty and theft losses 10%AGI
Misc deductions
  • reduced to 3% of AGI above $259,400 S $311,300Jt
  • overall deduction can’t exceed 80% (does not apply to medical, investment interest, wagering losses, casualty or theft- they have their own phaseouts)
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11
Q

Qualified Residence Interest

A

Interest paid on first $1.0M (separate $500k) deductible

Interest on 100k deductible for:
Refi where loan exceeds original debt
home equity - other than home improvement
home equity can’t exceed difference between FMV and principle owed

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12
Q

Investment Interest Deduction

A

deduction limited to net investment income

includes margin

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13
Q

Investment Income

A

interest
dividends (elects not to use qualified rate)
royalties
short term gains (elects not to use qualified rate)
*question will say qualified otherwise assume ordinary)
no long term cap gains unless opted out of long term treatment

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14
Q

Investment Interest Expenses

A

Fees - UP to 2% AGI = offset

Investment Income - offset Net Investment Income

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15
Q

Casualty and Theft

A

Schedule A
Not termite damage
Fire, earthquake, auto accident, vandalism

reduced by insurance
$100 floor (out of pocket)
-10% of AGI

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16
Q

Misc Deductions (Schedule A)

A

no 2% AGI (Tier I)
Impairment- work expenses handicapped employees
Gambling Loses up to Gambling Winnings

2% AGI (Tier II)
fees to investment counselors
tax advice and prep fees
hobby losses
home office
unreimbursed employee business expense
union dues
work clothes
safe deposit box
education costs
job agency fees
unreimbursed salaried employee entertainment expense 50% the subject to 2%
17
Q

Home Office Deduction

A

2% AGI
Area used exclusively for business and on a regular basis
No other fixed location you do business
At convenience of employer

Self employed - schedule C
Can’t create a loss

18
Q

Entertainment Expense

A

Corporation - can pay 100% and deduct 50% on 1120

Self-employed - can pay 100% can deduct 50% line 24 schedule C

Salaried employee - deduct 50 % expense 2%agi floor Schedule A

19
Q

Personal and Dependent Exemption

A

$4050 exemption (dependent income under this amount if parent)
you
spouse
(more if 65 older/blind additional $1250)
children
-under 24 at end of the year and full time student
-under 19 at end of the year not a student
must provide 50% of support

Phase out 2% per $2500 over $311,300

20
Q

Medicare Tax Rate

A

1.45%
Over 250K MFJ 200 S 125K MFS
.9% extra Total 2.35%

Additional Medicare tax on investment income
Over 250K MFJ 200 S 125K MFS
3.8% in addition to cap gains rates

21
Q

Dividend Tax

A

10%-15% Bracket = 0%
25%-35%Bracket = 15%
39.6% Bracket = 20%

22
Q

Kiddie Tax

A

All unearned income taxed at parents marginal rate

Under 18
$1050 standard deduction
$1050 taxed at 10% ($105.00)
In excess of $2100 is child’s net unearned income

23
Q

Child 18 or older Tax

A

18-23

18-23 Full time student - kiddie tax applies
Earned income 1/2 or less of support
One living parent

If child has earned and unearned income

standard deduction is greater of
$1050 unearned income or
earned income + $350
but no more than Personal Standard deduction of $6300

24
Q

Self Employment Tax

A

ssi and medicare - employer and employee

based on net earnings from self employment

does not include

  • dividends or interest
  • gains
  • real estate income
  • distributive share of income
  • loss limited partner
  • wages from S corp
  • K-1 income
does include
Schedule C income (T&amp;E will be accounted for)
GP K-1 Income
BOD fees
Part time earnings 1099

On test will not exceed $118,500, above that Medicare only

.1413

25
Q

Self Employment Tax calculation

A
  1. Total all Self Employment Income
  2. multiply by .1413

1/2 is subtracted on front of 1040 (above the line deduction

Above $118,500 just 1.45% Medicare due
additional .9% earners over $200k S $250 jt

can deduct medical, dental and up to 3720 LTC (61)

26
Q

Child Credits

A

Credit for Child and Dependent Care Expenses - until 13
1 dependent $3000 x20% = $600
2 or more $6000 X20% =$1200

Subtract from taxable Income

Child Tax Credit
$1000 per child under 17

Phase out $ 110,000 MFJ $70,000 S
reduced by $50 per $1000 above phaseout

Be careful: question is asking about Child care credit or Child credit????

27
Q

Foreign Tax Credit

A

Taxes paid to a foreign gov

can deduct $ for $ or apply as credit to tax due

28
Q

Adoption Credit

A

Max credit $13,460

Can claim entire amount for special needs child even if expenses are less.

Phase out MAGI $201,920-$241,920

Take credit in year adoption is final
Can take credit for expenses in yr after adoption is final for any residual expenses

29
Q

Tax Schedules

A 
Schedule A - Misc Itemized deductions
Schedule B - Interest and Dividends
Schedule C- Business Income
Schedule D- Capital Gains
Schedule E - Real Estate, Royalties Partnerships and Trusts, S Corp (passive income)
Schedule F - Farm
Schedule H- household employee tax
Schedule SE- self employment (deductible tax)

CFP 3/17 (48 decks)

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