Basic Income Tax

Question 1

Cousins

Answer 1

Can be a dependent. Cannot be eic

Question 2

1040EZ Qualifications

Answer 2

F- Filing status Single or MFJ
A- Age under 65 and not blind
I- Income from interest (limited) w-2, unemployment, and grants
T- Taxable income (Income minus deductions) under a certain amount
H- Not HOGGING money via EIC
S- Taking the standard deduction

Question 3

1040A

Answer 3

I- income from w-2, grants, pensions, annuities, taxable Social security benefits, withdrawals from IRA, Unemployment, interest, and dividends.

T- Taxable income under a certain amount

S- Standard Deduction

Question 4

Taxable income for tax purposes

Answer 4

AGI- Standard/Itemized deduction-personal exemption

Question 5

What is AGI

Answer 5

Wages, salaries, tips, interest income, unemployment compensation

Question 6

When do we use FMV?

What are ways to value it?

Answer 6

when we don’t know basis.

Use newspaper adds, real estate boards and broker records, assessments, Consumer Price Index.

Question 7

Hold on to records for at least how long?

Answer 7

3 years because IRS could go back and audit you.

Question 8

What is the house’s birth certificate

Answer 8

Certificate of occupancy, which shows what your house consisted of when built.

Question 9

Tax-sheltered plans

Answer 9

IRAs and 401k’s. are tax free until you withdraw the funds from retirement account at a certain time in your life.

If you withdraw before, there are tax penalties.

Question 10

Why is it important to pay off consumer debt?

Answer 10

the interest you must pay is not tax deductible, so you pay tax on it too.

Question 11

What is awesome about retirement accounts!?

Answer 11

money is put in there before taxes are taken out thus lowering taxable income, and the interest that accumulates is not taxed until withdrawal.

Question 12

Important concept to remember with investing and taxes?

Answer 12

don’t look at return, look at total money you have to keep, net of taxes.

Question 13

what do long-term stock investors try to avoid?

Answer 13

large capital gains distributions because they are taxed on the gain. The more years that appreciation can compound in a mutual fund without being taxed, the greater the value to the investor.

Question 14

Why you shouldn’t invest in LP’s

Answer 14

High commission fees, no voting power, illiquidity (meaning you can’t get your money out until its liquidated)

Question 15

what does load mean in tax and investing

Answer 15

sales commission will be paid

Question 16

Difference between credit and deduction.

Answer 16

deductions lower your taxable income, credits lower your tax amount

Question 17

gains and losses on investments–taxes

Answer 17

Long term (a gain/loss held for a year or more) is taxed at a lower rate than short term.

Question 18

age 65 or blind

Answer 18

increased standard deduction

Question 19

FMV of property that you purchased

Answer 19

cast + improvements- depreciation and casualty losses

Question 20

casualty loss

Answer 20

loss from sudden accident

Question 21

age 65 or blind

Answer 21

increased standard deduction

Question 22

FMV of property that you purchased

Answer 22

cast + improvements- depreciation and casualty losses

Question 23

casualty loss

Answer 23

loss from sudden accident

Question 24

Royalty

Answer 24

Payment for usage of an asset or property. Example if I wrote a book and others are selling it. I get a royalty fee. Musicians tambien.