Ch 5 and 6 review

Question 1

What is recognition

Answer 1

When income is report (usually based on timing)

Question 2

What is realization

Answer 2

When income is actually received (ex: when property is sold or exchanged, the amount realized is to be compared to tax basis of the property to determine if a gain/ loss is realized

Question 3

wherewithal to pay

Answer 3

ability now to pay tax on the transaction

Question 4

tax benefit rule

Answer 4

tax rule requiring that if an amount (as of a loss) used as a deduction in a prior taxable year is recovered in a later year it must be included in the GI for the later year to the extent of the original deduction

Question 5

Assignment of income doctrine

Answer 5

whoever earns the income is going to pay the tax

Question 6

What is the accrual method

Answer 6

recognize income when earned and expenses recognized as incurred

Question 7

Community property definition

Answer 7

income earned from services by one spouse is treated as though it were earned equally by both spouses

Question 8

Common law

Answer 8

income from services/ property owned separately is income to the spouse that earned it (joint property treated based on income share)

Question 9

Earned income

Answer 9

income from services

Question 10

What are three things that are seldom exempt from taxation

Answer 10

1. salaries and wages
2. other earned income
3. unemployment compensation

Question 11

why is unemployment compensation taxable

Answer 11

because its wage replacement

Question 12

Income from property includes:

Answer 12

dividends, interest, rents, royalties, etc.

Question 13

Tax treatment depends on what two things

Answer 13

• the type of income
• the type of the transaction generating the income

Question 14

How are gains and losses arising from property dispositions be characterized

Answer 14

ordinary or capital or short term or long term

Question 15

What are the two types of basic annuities:

Answer 15

• annuities paid over a fixed period
• annuities paid over a person’s life

Question 16

formula for annuity exclusion ratio: return on capital percentage=

Answer 16

original investment/ expected value of annuity

Question 17

what does the return on capital percentage mean

Answer 17

how much you exclude from each payment

Question 18

what is does the formula “ 1- return on capital “ mean

Answer 18

how much to include in each payment

Question 19

what are other sources of income? (6)

Answer 19

1. income from flow-through entity
2. prices, awards, gambling winnings
3. inputed income
4. alimony
5. Social Security benefits
6. discharge of indebtedness

Question 20

what are three common exclusions?

Answer 20

-municipal interest
-gain on sale of personal residence
-fringe benefits

Question 21

What are the two tests associated with the gain on sale of personal residence

Answer 21

ownership test and use test

Question 22

what are the ownership and use tests

Answer 22

have to have lived and owed in house for 2 out of the last 5 years (don’t have to be simultaneously)

Question 23

Are room and board fully taxable?

Answer 23

No

Question 24

Are scholarships nontaxable?

Answer 24

Yes, BUT only if used to pay for tuition, fees, books, supplies, and required equipment

Question 25

Are teaching assistants taxed?

Answer 25

The amount that the tuition is waved is not taxed but the stipend they receive is taxable

Question 26

Are athletic scholarships taxable?

Answer 26

if the scholarship is not contingent on if they are playing or not is is not taxable but if it is contingent then it is taxable

Question 27

What are some other exclusions? (4)

Answer 27

-worker's compensation - payment associated with personal injury - health care reimbursement - disability insurance

Question 28

are punitive damages are taxable?

Answer 28

yes

Question 29

for AGI:

Answer 29

(in)directly related to business activities, subsidize specific activities

Question 30

What are these example of: self-employment exp (trade or bus), rent & royalties, moving exp, health insurance for self-employed, self-employ taxes, ind retirement acct and health savings acct

Answer 30

for AGI deductions

Question 31

for self-employment taxes may deduct....

Answer 31

"employer" portion of Social Security and Medicare off of schedule C

Question 32

Qualified education loan interest

Answer 32

Loan proceeds used to pay for tuition, fees, books, room and board, etc.

Question 33

What is the maximum deduction for qualified education loan interest

Answer 33

$2500

Question 34

is the qualified education loan interest subject to phase-out?

Answer 34

yes

Question 35

What amount do you use when deducting cash for charitable contributions

Answer 35

face value

Question 36

what amount do you use when deducting long term capital gain property?

Answer 36

future market value

Question 37

what amount do you use when deducting ordinary income property

Answer 37

the lesser of: (1) FMV or (2) adjusted basis

Question 38

what are the limitations on deductions for cash charitable contributions?

Answer 38

60% of AGI

Question 39

what are the limitations on deductions for ordinary income property charitable contributions?

Answer 39

50% AGI

Question 40

what is the limitations on deductions for cash contributions to private non operating foundations

Answer 40

30%

Question 41

what is the limitations on deductions for LTCG contributions to private non operating foundations

Answer 41

20%

Question 42

what is the limitations on deductions for ordinary income property contributions to private non operating foundations

Answer 42

30%

Question 43

deductible for casualty & theft losses is

Answer 43

less of: 1) the decline in FMV or 2) the tax basis in the asset

Question 44

a loss must exceed 2 floor limitations for deduction which are:

Answer 44

1. $100 per casualty event 2. 10% of AGI (after $100 floor)

Question 45

Gambling losses are considered a part of what kind of deduction

Answer 45

miscellaneous itemized deduction

Question 46

Notes about gambling losses

Answer 46

- deductible to extent of winnings - not subject to 2% AGI floor

Question 47

qualified business income (QBI) is what kind of deduction

Answer 47

from AGI deduction ( in addition to standard/ itemized deduction)

Question 48

for a QBI deduction you can deduct the lessor of:

Answer 48

20% of QBI + 20% of REIT dividends and qualified publicly traded partnership incomer OR 20% of the excess of taxable income over taxpayer's net capital gains (including qualified dividends)

Question 49

Is the income limit for a QBI based off of combined income for all companies or based off each company individually

Answer 49

all companies combined

Question 50

what is the income limit for QBI

Answer 50

$191,950

Question 51

what businesses are excluded from QBI

Answer 51

any trade or business involved in the performance of services where the principal asset is the reputation or skill of one or more employees/ owners

Question 52

what is the QBI phased in income amount

Answer 52

$241,950

Question 53

What are the services excluded from definition of specified service

Answer 53

Architecture and engineering

Question 54

deduction for QBI income cannot exceed the greater of:

Answer 54

50% of wages paid in the QB or the sum of 25% οf the wages plus 2.5% of the unadjusted basis, immediately after acquisition of all qualified property in the business

Question 55

Is the wage limit for a QBI based off of combined income for all companies or based off each company individually

Answer 55

individually

Question 56

deduction of QBI is limited by _________________ and _____________

Answer 56

wage limit and income limit