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REG > Individual Taxation > Flashcards

Individual Taxation Flashcards

1
Q

Standard Deduction

A

Single $6,300

MFJ $12,600

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2
Q

Personal Exemption

A

$4,050

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3
Q

2016 Personal Exemption Phase-out

A

Single AGI - $259,400

MFJ AGI - $311,300

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4
Q

Two types of tax years

A

Calendar tax year – is 12 consecutive months beginning January 1 and ending December 31.

Fiscal tax year – is 12 consecutive months ending on the last day of any month except December.

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5
Q

Cash Basis recognizes income

A

when cash or property is received (FMV)

whether earned or unearned

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6
Q

Accrual Basis recognizes income

A

when cash or property is received

wheb Earned only

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7
Q

Cash basis reports deductions when

A

cash or check is disbursed

expense charged on CC

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8
Q

Accrual basis reports deductions when

A

incurred

liability exists when amount is determinable

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9
Q

Cash Basis allowed for

A 
Individual TP’s
Individual TP’s owning a business
Individually owned Partnerships
S-Corps
PSC’s (Health, Law, Accounting)
    -exception to corp. rule for accrual

*NOT PUBLICLY TRADED

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10
Q

Accrual Basis allowed for

A

Corporations

Partnerships with a Corp. partner
Inventory
Prepaid Rent and Royalties must include in GI in period received!

*Anyone can choose Accrual…

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11
Q

Cash Basis NOT allowed for

A 
Corporations (gross receipts > $5MM)
P-ships with C-Corp Partner  > $5MM
Tax Shelters
Certain Trusts
Inventory
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12
Q

Section 179 Deduction

A

Max Deduction: $500,000
Max Total Equipment Purchase: $2,000,000

$500,000 deduction is phased out dollar for dollar for the amount of equipment purchases that exceed $2,000,000

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13
Q

CARRYOVERS (GIN PAL CC NOL C)

A 
GL		0	0
Ind. CL	0	infinity ($3,000)(STCGL or LTCGL)
NII    	0	infinity 
PAL		0	infinity
Charity	0	5
NOL	2	20
CCL		3	5 (STCGL only)
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14
Q

Filing Status Determines

A

Tax rates
Deductions
Thresholds
Limitations

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15
Q

MFJ

A
  • Married last day of year
  • Living apart allowed
  • One spouse Itemizes, other is bound
  • Both a Citizen or RA taxed on WWB
  • Can be a NRA if taxed on WWB
  • Different accounting methods OK if each own a small business
  • Deceased spouse qualifies in year of death
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16
Q

MFS

A
  • Married last day of year
  • Living apart allowed
  • One spouse itemizes, other is bound
  • Both a Citizen or RA taxed on WWB
  • Can be a NRA if taxed on WWB
  • Use MFS if in process of divorce, don’t trust each other
  • Less benefits with MFS
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17
Q

QW

A

-Not married last day of year (SS Widow/Widower)

  • Year of death, considered MFJ or MFS not QW
    * Exemption allowed for deceased spouse
  • 2 years after death, MFJ favorable rates continue
    * No exemption for deceased spouse
  • Maintains HH for a QI for 100% of year
  • Provides 50% cost of HH for a QI
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18
Q

HH

A

-Not married or QW last day of year
-Only Custodial Parent is eligible for HH
 Legal
 Physical
-Can’t ever be a non-custodial Parent
-Custodial Parent can claim HH despite a written declaration not to claim child as dependent
-Tie Breaker Rules
 General Rule: Dep. of Custodial Parent
 Joint Custody: Dep. of Parent with most Time
 Joint Custody w/ Equal Time: Dep. of highest AGI
*UNLESS Parent entitled to dependent signs a written waiver annually…
-Maintains HH for a QI for 50% of year
-Provides 50% cost of HH for a QI
-HH QI can’t be unrelated:
 Friend
 Foster Parent
 Cousin

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19
Q

Single

A
  • Default

- Can be married but legally separated under a decree of separate maintenance

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20
Q

Qualified Relative

A

Joint Return - No

Gross Income < Statutory Exemption
(don’t make much $; don’t include scholarships in GI)

Residence - lived with TP 100% of year
OR
Relative - Lineal or Collateral

Support - TP provides more than 50% of support

21
Q

Qualifying Child

A

Joint Return No

Age - 19 or 24 and full time student (5 months)

Residence - lived with TP 50% of year

Relative - Lineal

Support - TP provides more than 50% of support

22
Q

Dependent Factors

A

Joint Return - No
Can’t be claimed by two people
North American Resident

23
Q

Multiple Support Agreement (MSA)

A
  • MSA - Group collectively providing more than 50% of support  must have written agreement of who can claim if more than 1 TP in group provides more than 10%. Mainly applicable to Parents.
  • If only 1 TP provides more than 10% support, automatically can claim
24
Q

Net Exemptions

A
  • Inflation adjusted – not prorated (if die during year)
  • Reduce AGI to get to Taxable Income

-Types of Exemptions:
Personal exemption - self and spouse
Dependent exemption - for each dependent
a. QI – Relative
b. QI – Child
c. QI – Parent

25
Q

Net Exemption Formula

A

Basic Statutory Amount

X # of Exemptions
________________
= “Net Exemptions”

26
Q

If TP is a dependent on another’s return:

A
  • Standard deduction amount is reduced

- Can’t claim exemption for themselves

27
Q

Qualifying Costs for a Dependent

MR TUFF

A
  • Mortgage Interest
  • Rent
  • Taxes (Real Estate)
  • Utilities, Repairs, Insurance
  • Fees for Condo
  • Food Consumed ON Premises
28
Q

Non-Qualifying Costs for a Dependent

A 
Clothing
Medical Treatment
Transportation
Vacation
Education
Food Consumed OFF Premises
29
Q

MUST file a return if: “disjunctive”

Individual must file by 4/15; extension must be filed 10/15

A

GI > Personal Exemption + Standard Deduction + additional age deduction
(TP can’t consider dependent exemptions or additional deductions based on blindness since these aren’t automatically available without supporting evidence)

“Net” SE Earnings > $400 (15.3%)

Dependents claimed on another return; AND have unearned income AND GI > $1000

Received advanced payments of EIC

Subject to Kiddie Tax

30
Q

Kiddie Tax Requirements:

A
  • Living parent
  • 19 or 24 full time student (5 calendar months)
  • Applies to UNEARNED Income only
    a. 1st 1000 – limited to child’s standard deduction
    b. 2nd 1000 – taxed at child’s rate
    c. Over 2000 - taxed at parents rate
31
Q

Kiddie Tax Rules do not apply if:

A

Child’s EARNED income is > 50% of their own support (supporting themselves basically)

Child is MFJ (files a joint return)

32
Q

Kiddie Tax Formula

A

Childs Unearned Income

  • (Early Withdrawal Penalty)
  • ($1,000)
  • (2nd $1,000 or Amount greater than $1,000 or child’s itemized deduction related to unearned income)

= Amount to be taxed at parent’s rate

33
Q

Installment Sales

A
  • Gross Profit / Contract Price
  • Gross Profit = Revenues (-) COGS
  • Contract Price = Sales Price (-) Buyer Liability
34
Q

Business Gifts (Sch. C)

A
  • $25 per person is deductible

- Service Awards up to $400 is deductible

35
Q

Business Losses

A

Business Losses only offset Business Income
(W2 Wages are considered Active Business Income)

Passive Losses only offset Passive Income
(Limited Partnership Income = Passive Income)

Interest / Dividend Income = Portfolio Income
(NOT PASSIVE)

36
Q

Conventions

A

Real Property - Midmonth

Personal Property - Midyear or Midquarter (40% Rule)

Leasehold Improvements - 15 years S/L

37
Q

Business Startup costs

A

o Deduct up to $5,000 of Startup costs
o Reduced dollar for dollar by amount over $50,000
o Remaining Costs are amortized

38
Q

Affordable Care Act – imposes penalty on those individuals who do not have health insurance

2016 Penalty for not having “minimum essential coverage” is the Greater of:

A

$695 per person ($347.50 if under 18)

2.5% of Household Income over threshold

39
Q

Increased Medicare tax rate (Hospital Insurance aka “HI”) for high income earners:

A
  1. 45% rate increased by .9% in individual TP’s earnings in excess of the threshold levels
    a. $250,000 MFJ
    b. $200,000 all others

New rate is 2.35% (1.45 + .9) on amounts in excess of the thresholds
a. This affects the SE tax rate from 2.9% to 3.8% on amounts in excess of the thresholds

40
Q

Underpayment Penalties

A

Estimated tax payments required:

   a. Due on form 1040ES
   b. Due on 4th, 6th ; 9th months of tax year and by the 15th of January (for Individuals)

TP subject to underpayment penalty only if balance due >$1000

*TP’s that have withholdings on salaries and wages have no estimated tax payments to IRS

41
Q

Late Filing Penalty

A

Based on net amount of unpaid tax (net amount due)
 5% per month
 Limited to 25% of unpaid tax

42
Q

Late Payment Penalty

A

 .05% per month

43
Q

Excess Social Security Withholdings

A

Multiple employers who don’t know of another employer withholding FICA
o Wage Base $107,000
o FICA rate 6.2% (excess FICA tax is refundable)
o Doesn’t apply to Medicare 1.45%

44
Q

Estimated Tax Payments

A

The Lesser of:
 90% of current total tax
 100% of prior year’s total tax
 110% of prior year’s total tax - If AGI is $150,000 or more

45
Q

Farming

A

Damaged crops
(Insurance proceeds included in GI in year received)

Weather forces sale of abnormal volume of livestock, the gain on the extra sales may be deferred until next year

Prepaid feed costs for livestock can be deducted up to 50% of other farming expenses

Farm Personal Tangible Property (i.e. Non Real Estate) use MACRS 150 (picture farmers F-150 truck)

46
Q

Preservation of Resources =

Costs to preserve soil and water

A

Deduction

47
Q

Use of Resources =

Cost to drain wetlands or for Irrigation

A

No Deduction

48
Q

Non-business bad debt

A

Treated as STCL

REG (11 decks)

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