Flashcards in Chapter 1 Section 3: Gross Income Deck (44)
What can passive losses offset?
Only passive income
What creates capital gains or losses?
Selling capital assets
What value do you record property at?
What portion of partially taxable fringe benefits (life insurance premiums) are taxable?
Premiums above the first $50,000 of coverage are taxable income to the recipient and are usually included in the W-2
Are life insurance proceeds taxable?
The interest income on a deferred payout is
How are accident, medical, and health insurance premiums handled when paid by the employer?
They are excludable from the employee's income
What portion of employer payment of employee's educational expenses is excludable?
Up to $5,250
When is money from qualified pension, profit-sharing, and stock bonus plans taxable?
The payments by the employer (401K) are not taxable
Benefits received are taxable
Explain an FSA
Employees can elect to have money from their salary deposited pretax into an account designated for them, and they can use that money for medical expenses.
If you don't use it within 2 1/2 months after year-end, you lose it.
Is interest paid by federal or state governments for late payments of refunds taxable?
Is interest on state or local government bonds and obligations taxable?
Is interest on Series EE Bonds taxable?
What is it?
No, but it does have a phaseout and becomes taxable after a certain amount of AGI
It is used to pay for educational expenses
Explain the kiddie tax
Unearned income of a child under 18 (or 24 when a college student) is taxed at the parent's higher rate
What dividends are tax free?
Return of capital (when there is no E and P)
Life insurance dividend
When are state and local refunds taxable or not taxable?
Taxable if they itemized the prior year
Not taxable if they took the standard deduction the prior year
When do you file a 1040 EZ?
When you take the standard deduction
What are the requirements for a payment to be considered alimony?
Is it taxable?
Must be legally required to pay
Must be in cash or cash equivalents
Can't extend beyond their death
It is taxable income to the recipient, and deductible to the payer
Is child support taxable?
What is its relationship to alimony?
No, it's not taxable, and it's not deductible.
A lump sum payment must first address child support. The remainder is alimony.
When is a Schedule C used?
When you are self-employed
What items go into gross income on a schedule C?
Cancellation of debt
What expenses are nondeductible on a schedule C?
Salaries paid to the sole proprietor
Federal income tax
Any personal payments (considered draws)
What are the two taxes on net business income or loss under a schedule C?
Federal self employment tax
What can net taxable losses be offset against?
If there's more, you can do a 2 year carryback and 20 year carryforward
What do uniform capitalization rules mean for sole proprietors?
Capitalize direct materials, direct labor, and overhead to inventory
Expense selling, general, administrative and R and D expenses
What method is generally required for sole proprietors regarding long-term construction contracts?
What's the exception?
Percentage of completion
Unless you are a small contractor, home construction contractor, are performing professional services related to the project, or performing services under warranty or maintenance agreements. Then you can use completed contract.
What are the start and end dates for a long-term construction contract?
Start: when costs are first incurred
End: when the work is complete
What basis do most farmers use?
Cash, but some are required to use accrual.
How do you handle inventory for farming, depending on each method?
Cash: expense it
Accrual: use and maintain inventory (livestock etc)
How do you calculate gain or loss on disposal of property?
Amount realized less adjusted basis of assets sold