Chapter 3 - Individual Taxation and Gross Income Flashcards Preview

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Flashcards in Chapter 3 - Individual Taxation and Gross Income Deck (41):

An individual must file as single if (s)he neither is married nor qualifies for widow)er) or head of household status.



_____ file a ______ return account for their items of income, deduction, and credit in the aggregate.

Married individuals


Joint return is allowed when spouses use different ____.

Accounting methods.


Spouses with different tax years can/cannot?

Cannot file a joint return


Two individuals are treated as legally married for the entire tax year if, on the last day of the tax year, they are

1. Legally married and cohabiting as husband and wife
2. Legally married and living apart but not separated pursuant to a valid divorce decree or separate maintenance agreement, or
3. Separated under a valid divorce decree that is not yet final.


If a spouse dies and the surviving spouse does not remarry before the end of the tax year what filing status may the surviving spouse file as?


A joint return may be filed


If one spouse files separately what status is the other spouse?



How long may a qualifying widow(er) claim widow(er) status when filing?

2 years after the death of the spouse


To qualify for widow(er) the following conditions must be met

1) The taxpayer did not remarry during the tax year.
2) The widow(er) qualified (with the deceased spouse) for married filing joint return status for the tax year of the death of the spouse.
3) A qualifying widow(er) maintains a household for the entire taxable year. Maintenance means the widow(er) furnishes more than 50% of the costs to maintain the household for the tax year.


A widow(er) is entitled to the ____ ____ ___ amount for the deceased spouse.

full personal exemption


Head of household status

May not be a qualifying widow(er)
Not married (unless)
They live with a dependent apart from the spouse.
1. (s)he files separately
2. (s)he pays more than 50% toward maintaining the household; and for the last 6 months
a) the spouse is not a member of the household
b) the household is the principal home of a child of the individual
c) the individual can claim a dependency exemption for the child


Qualifying costs for maintaining a household for HOH status

Property tax
Mortgage interest
Property insurance
Food consumed on premises


Qualifying person and time. The taxpayer must maintain a household that constitutes the principal place of abode for more than half of the taxable year for at least one qualified individual who is:

a) An unmarried son or daughter, unmarried grandchild, or unmarried stepchild, or
b) Any other person eligible to be claimed as a dependent, except for those eligible under a multiple-support agreement.


There are two special rules concerning a qualifying person.

First, the taxpayer with a dependent parent qualifies even if the parent does not live with the taxpayer. Otherwise, the IRS maintains that the qualifying individual must occupy the same household (except for temporary absences).
Second, if a qualifying child lives with the taxpayer, that qualifying child need not be the taxpayer's dependent.


The amount for personal exemptions for 2015 is



4 tests for a qualifying child

1) Relationship - son, daughter, stepson, stepdaughter, brother, sister, stepbrother, stepsister, or any descendant of any such relative.
2) Age - Must be under 19 or a full-time student under the age of 24
3) Principal residence - the child must have the same principal place of abode as the taxpayer for more than half of the year.
4) not self-supporting - The child must not have provided over half of his or her own support


4 test for a qualifying relative

1) Relationship or residence
2) Gross taxable income
3) support
4) Must not be a qualifying child


Relationship or residence test

a) The residence requirement is satisfied for any individual who merely resides with the taxpayer for the entire tax year.
b) The relationship requirement is satisfied by existence of an extended (by blood) or immediate (by blood, adoption, or marriage) relationship.


Two types of relationships
1) Extended
2) Immediate
give examples

Extended - grandparents and ancestors, grandchildren and descendants, uncles or aunts, nephews or nieces.
Immediate relationships
1. Parent - natural, adoptive, stepparent; father or mother-in-law
2. Child; natural, adoptive, stepchild; son-or daughter-in-law foster child (who lives with claimant entire tax year)
3. Sibling: full or half brother or sister; adoptive brother or sister; stepbrother or sister; brother - or sister-in-law.


Gross taxable income of the relative must be less than the amount of the dependency exemption which is?

$4000.00 2015


The person who may claim and individual as a dependent must provide more than _____ of the support of the individual for the year.



Support includes:

welfare benefits, social security benefits, and any support provided by the exemption claimant, the dependent, and any other person.


Only amounts provided during the calendar year qualify as support

Amounts paid in arrears (payment for child support for a previous year) are not considered support for the current year.


Support includes money and items, or amounts spent on items, such as

Food, clothing, shelter, utilities
Medical and dental care and insurance
Child care, vacations etc.


Excluded. Certain items (or amounts spend on them) have not been treated as support:

Scholarship received by a dependent, taxes, or life insurance premiums.


A divorced or separated individual need not meet the support test if (s)he and the (ex-)spouse meet (or have met) the following conditions

1) Provided more than 50% of the support
2) Had (between them) custody for more than 50% of the year
3) Lived apart for the last half of the year
4) Did not have a multiple support agreement in effect.


What is a multiple support agreement?

One person of a group that together provides more than 50% of the support of an individual may, pursuant to an agreement, be allowed the dependency exemption amount.


To qualify for the multiply support

1) The person must be otherwise eligible to claim the exemption and must provide more than 10% of the support.
2) No other person may provide more than 50% of the support
3) Each other person in the group who provides more than 10% of the support must sign a written consent filed with the return of the taxpayer who claims the exemption.


To qualify as a dependent, an individual must be for any part of the year a citizen of

resident, or national


List Gross Income (GI) - the list is long, give some examples

1. Compensation for services,including fees, commissions, and fringe benefits
2. Gross income derived from business
3. Gains derived from dealings in property
4. Interest
5. Rents
6. Royalties
7. Dividends
8. Alimony and separate maintenance payments
9. Annuities
10. Income from life insurance and endowment contracts
11. Pensions
12. Income from discharge of indebtedness
13. Distributive share of partnership gross income
14. Income in respect of a decedent (income earned but not received before death)
15. Income from an interest in an estate or trust


Two types of accounting methods

Cash method
Accrual method


What is the cash method?

Includes income when constructively received.


What is the accrual method?

Reports income when:
1. All events have occurred fixing the right to receive the income.
2. The amount can be determined with reasonable accuracy


When is the accrual method required?

When there are inventories


What is the hybrid method?

Allows a business to use the cash method for the portion of the business that is not required to be on the accrual method.


Income is constructively received when?

1. Credited to his or her account
2. Made available so that (s)he may draw upon it at any time or could draw upon it if notice of intention to withdraw had been given.
3. Control of receipt is not subject to substantial limitations or restrictions.


Self employment income is reported on what Schedule?

Schedule C


Supplemental income is reported on what Schedule?

Schedule E


What is supplemental income?

1. Rental real estate
2. Royalties
3. Partnerships and LLCs (from Schedule K-1)
4. S corporations (K-1)
5. Estates (K-1)
6. Trusts (K-1)


What is Realization?

Investment income is realized upon a taxable event such as a disposition of the property by a sale or an exchange.


Proceeds received due to the death of the insured are generally excluded from GI. Interest paid on the proceeds of a policy that is retained by the insurance company is GI to the beneficiary.

Life Insurance and Endowments