Chapter 4 Flashcards
(39 cards)
Is interest expense taxable?
interest income is taxable except for municipal interest (interest paid on bonds owned by state and local gov)
Examples of taxable interest
- US treasury noted and bonds
- federal and state tax refunds
- mortgages
n interest on Series EE savings bonds be excluded?
- when the TP incurs college expenses in the year the bonds are cashed in.
- must be at least 24 years old
Alimoney recapture
Alimony recapture may occur if alimony payments sharply decline in the second and third years that payments are made. The payor must report the recaptured alimony as gross income in the third year, and the payee is allowed a deduction for the same amount. Recapture for the second year (2016) occurs to the extent that the alimony paid in the second year ($20,000) exceeds the alimony paid in the third year ($0) by more than $15,000 [i.e., $20,000 − ($0 + $15,000) = $5,000 of recapture].
Which type of entity is limited to a calendar year end?
S Corps
What is the hybrid method of accounting?
Cash basis for all income and expense items, but sales and purchases of inventory must be accounted for under the accrual method
Uniform Capitalization Rule
Uniform capitalization rules generally require that all costs incurred (both direct and indirect) in manufacturing or constructing real or personal property, or in purchasing or holding property for sale, must be capitalized as part of the cost of the property. However, these rules do not apply to a “small retailer or wholesaler” who acquires personal property for resale if the retailer’s or wholesaler’s average annual gross receipts for the three preceding taxable years do not exceed $10 million.
Are medical insurance premiums paid by the employer taxable to the TP?
no
are reimbursements of qualified moving expenses taxable to the TP?
no
Coverdell Education Savings Account
- contributions are not tax deductible
- contributions cannot be made to an edu IRA if the beneficiary is 18 or older
- A taxpayer may contribute up to $2,000 in 2016 to an education IRA to pay the costs of the designated beneficiary’s higher education.
- Eligibility for an education IRA is phased out if adjusted gross income exceeds certain threshold levels.
Who can receive an IRA deduction?
A single individual with AGI over $72,000 for 2017 would only be entitled to an IRA deduction if the taxpayer is not covered by a qualified employee pension plan.
What is the phaseout range for IRA deductions?
$99,000 and $119,000
What is the max amount contribution and deduction a TP can take for contributing to an IRA, over age 50
$5,500 plus catch up over 50 of an additional $1,000
Can a corp deduct the life insurance premiums on a policy for the president of which the corp is a beneficiary
no
Common deductions for AGI
- alimony
- rent or royalty expense
- losses
- trade or biz
- 50% of self-employment tax
- 100% of medical insurance for self-employed
- IRA and Keogh contrbutions
- moving expenses
- student loan interest up to $2,500
- higher edu tuition
- classroom exp for certain teachers
what is considered profit seeking for a hobby?
if profit in 3 of last 5 years
what happens to a net passive loss?
carried forward indefinitely to offset net passive gains. or deducted in the year that the passive activity is entirely disposed of by the TP
what is the maximum amount of contributions to defined contribution self-employed retirement plan is limited to:
the lesser of:
- $54,000 or
- 100% of self-employment income
is a corp’s penalty for underpayment of federal estimated taxes deductible?
no
once a person has been adjudicated incompetent by a court with proper jurisdiction all future contracts with that person are
Void
On a dependents return, what is their standard deduction limited to?
the greater of: $1,050 or earned income plus $350
is Self employment tax deductible?
The self-employment tax is imposed at a rate of 15.3% on individuals who work for themselves (e.g., sole proprietor, independent contractor, partner). Generally, one-half of an individual’s self-employment tax is deductible from gross income in arriving at adjusted gross income.
what tax rate should be used for decision making?
the marginal tax rate
What are the Personal tax credits
Child Tax IRA credit Education Tax credits Dependent Care Adoption Expense Credit Elderly Credit Alternative Motor Vehicle Credit Residential Energy Efficient Property Credit Foreign Tax Credit
