Individual tax Flashcards
(109 cards)
1
Q
Filing as a surviving spouse or qualifying widow(er) requires;
A
Filing as a surviving spouse or qualifying widow(er) requires the individual’s spouse to have died during one of the previous 2 tax years. In addition, the survivor must maintain a household that is the principal place of residence for a dependent child. “Maintain” means the spouse furnishes over 50% of the costs of the household for the entire year.
2
Q
What are the rules for a multiple support agreement?
A
The taxpayer must provide over one-half of the support of a dependent. An exception to the support test permits one of a group of taxpayers, who are otherwise eligible to claim the exemption and who together furnish more than one-half of the support of a dependent, to claim a dependency exemption even when no one person provides more than 50% of the support. Any such individual who contributed more than 10% of the support is entitled to claim the exemption if each of the other persons in the group who contributed more than 10% signs a written consent filed with the return of the claiming taxpayer.
3
Q
What does the gross income test for a qualifying relative include and not include?
what is the minimum?
A
If gross income is less than $4,000 for 2015 can take an exemption.
Gross includes income that is taxable.
Does not include non taxable portion of scholarships, non taxable social security benefits, tax exempt interest.
4
Q
Personal exemptions vs. Standard deduction
A
Personal exemption is $4,000 for 2015
Standard deduction is: Single $6,300 MFJ $12,600 SS/QW $12,600 HOH $9,250 MFS $6,300
Additional standard deductions: aged 65 or older and/or blind
Single, HOH $1,550
MFJ, MFS, SS $1,250
5
Q
What is the personal exemption phase out for taxpayers with high incomes?
What are the rules?
A
If a TP’s AGI exceeded a specific threshold amount (based on filing status), the deduction allowed for personal and dependency exemptions is reduced by 2% for each $2,500, or fraction thereof, by which the adjusted gross income exceeds the threshold amount.
For single TP that phase out amount is $258,250.
So if TP made $260,300-258,250=2050/2500=.82 round up to 1 so reduce the $4,000 exemption for 2%.
6
Q
What is alimony?
A
Alimony is any payment in cash if
(1) it is received under a divorce or separation agreement,
(2) the agreement does not designate the payment as not includible in gross income,
(3) the payee and payor are not members of the same household at the time the payment is made, and
(4) there is no liability to make such payment for any period after the death of the payee spouse.
7
Q
is income recognized on the discharge of indebtedness?
A
Gross income includes income from the discharge of indebtedness for consideration.
8
Q
When are security deposits considered income?
A
Security deposits are income if and when the lessor becomes entitled to the funds by reason of the lessee’s violation of the terms of the lease.
9
Q
When are advance rent received included in income?
A
Advance rent received upon execution of a lease is includible in gross income in the year received, whether the taxpayer is on the cash or the accrual basis.
10
Q
If rental property is rented for less than 15 days, how is income and expenses treated?
A
The IRC states that income from rental of a personal dwelling is excluded from income if rented for less than 15 days during the year. In addition, no deductions are allowed for rental use if rented for less than 15 days during the year.
11
Q
If property is 100% rental, how are expense and income treated?
A
all expenses are deducted and a passive loss may occur.
12
Q
Advanced payments for next year are included in income in which year?
A
Both cash- and accrual-basis taxpayers must include amounts in gross income upon actual or constructive receipt if the taxpayer has an unrestricted claim to such amounts.
13
Q
Are refundable deposits included in income?
A
NO
14
Q
are lease improvements made in lieu of rent included in income?
A
YES
15
Q
If a lump sum of $60,000 is received as an agreement not to operate a competing enterprise within 10 miles of the store’s location, for a period of 6 years, what is that $60,000 considered?
A
It’s ordinary income since it replaces what would otherwise be ordinary income and it’s all included in the year received.
16
Q
How do you calculate the taxable social security portion?
A
Lesser of:
50% of Social Security Benefits
50% (MAGI+50%(Social Security Benefits)-$32,000MFJ or $25,000 Single)
So basically if income is less than $32,000 for MFJ and $25,000 for Single, no need to tax.
But if SS income is $44,000 for MFJ and $34,000 for single then include 85% of it.
17
Q
what amount of gambling winnings is included if claiming standard deduction? what about itemized deduction?
A
Gambling winnings (whether legal or illegal) are included in gross income. Therefore, Emil must include the full $10,000 in gross income. Gambling losses, i.e., amounts spent on nonwinning tickets, may be deductible but only as an itemized deduction to the extent of gambling winnings.
18
Q
if an employer uses a nonaccountable plan to reimburse their employees for expenses, how much of it would be included in income? let’s say gets $400 for 12 months, but spent less than that amount.
A
In a nonaccountable plan, the reimbursements are included in the employee’s gross income, and all the expenses are deducted from AGI (below-the-line-deductions). These expenses are a miscellaneous itemized deduction subject to the 2% floor.
19
Q
Are scholarships included in gross income?
When is any money received from school included in gross income?
A
Scholarships may be excluded from gross income provided a student is enrolled in a degree-seeking program and that the scholarship is used for qualified expenses such as tuition and fees. However, amounts received for services such as teaching must be included in gross income.
20
Q
Are any amounts received for worker’s comp included in gross income?
A
Specifically excluded from gross income are amounts received under workers’ compensation acts as compensation for personal injuries or sickness.
21
Q
Are inheritances and proceeds of a lawsuit for physical injuries included in Gross income?
A
Inheritances are excluded from the gross income of the recipient as gifts, and proceeds of a lawsuit for physical injuries, provided they are for actual damages, are specifically excluded from gross income as compensation for injury or sickness.
22
Q
is interest on tax refunds taxable?
A
Yes, interest on tax refunds fully taxable.
23
Q
What kinds of interest is excluded from income?
A
The exclusion applies only to interest on states and LOCAL government bonds (Federal government obligations and fully taxable)
24
Q
As a result of a fire, Sam had to vacate his apartment for a month and move to a motel. If his normal living expenses are $800 and incurred expenses of $1500 because of vacating, Insurance money received $1100. What is included in income?
A
A taxpayer whose residence is damaged or destroyed and who must temporarily occupy another residence can exclude from gross income any insurance payment received as reimbursement for living expenses during such period. This exclusion is limited to the excess of actual living expenses incurred by the taxpayer, $1,500 over the normal living expenses of $800 the taxpayer would have incurred during the period, or $700. So $1100-700=400
25
Usually dividends on life insurance policies are usually not included in gross income unless?
The dividends on life insurance policies are generally considered a return of premiums or capital and are not included in gross income (provided the cumulative dividends do not exceed the cumulative premiums paid).
26
for Series EE bonds, what must be met for a tax exemption?
(1) The purchaser of the bonds must be the sole owner (or joint owner with his or her spouse) of the bonds;
(2) the issue date of the bonds must follow the 24th birthday(s) of the owner(s); and
(3) the redemption proceeds must be used to pay tuition and fees of the taxpayer, spouse, or dependent to attend a college, a university, or certain vocational schools.
27
What is the deduction amounts for Charitable contributions if using FMV or AB of property?
If using FMV of CG property for the contribution amount, the deduction will be 30% of AGI. If using AB of CG property for the contribution amount, the deduction will be 50% of AGI.
28
If Short Term stock was donated, what is the deduction to the taxpayer?
If the stock has not been held long term, it is ordinary income property, and the deduction is equal to the lesser of FMV or AB.
29
What is the limit for cash contributions by individuals to qualifies charities?
Properly substantiated cash contributions by individuals to qualified charities are limited to 50% of the taxpayer’s AGI
30
Charitable contributions can be carried forward how many years?
Carried forward 5 years.
31
How is the deduction amount calculated in casualty losses for individuals?
The amount of the loss for a personal use property is the lesser of AB or the decline in FMV of the property:
Reduce the smaller amount by insurance proceeds rcvd.
Reduce by a $100 per event floor for personal use property
Further reduce losses from personal use property by 10% of AGI
32
Charles and Marcia are married cash-basis taxpayers. In 2015, they had interest income as follows:•$500 interest on federal income tax refund
•$600 interest on state income tax refund
•$800 interest on federal government obligations
•$1,000 interest on state government obligations
What amount of interest income is taxable on Charles and Marcia’s 2015 joint income tax return?
A. $1,900
B. $1,100
C. $500
D. $2,900
A. $1,900
Answer (A) is correct.
Unless otherwise excluded in another section, the IRC includes interest in gross income. The IRC excludes from gross income interest on most obligations of states or political subdivisions of a state (e.g., municipal bonds). This exclusion does not apply to the obligations of the United States (with the exception of EE bonds used for qualifying education expenses) or interest on state income tax overpayments. Interest income is taxable unless specifically excluded from gross income.
33
What is excluded when a physical injury has occurred?
Gross income does not include benefits specified that might be received in the form of disability pay, health or accident insurance proceeds (even if the benefits are a substitute for lost income), workers’ compensation awards, or other damages for personal physical injury or physical sickness. Also excluded are damages received for emotional distress if an injury has its origin in a physical injury or physical sickness (regardless of whether the damages are received by a lawsuit or an agreement). However, punitive damages received are includible in gross income even if in connection with a physical injury or physical sickness.
34
As a result of a fire, Sam had to vacate his apartment for a month and move to a motel. His rent for the apartment had been $600 per month. No rent was charged for the month the apartment was vacated. His motel rent for this month was $1,000. He normally pays $200 a month for food, but food expenses for the month he lived in the motel were $500. He received $1,100 from his insurance company to cover his living expenses. Based on this information, determine the amount, if any, he must include in income.
A. $0
B. $300
C. $400
D. None of the answers are correct.
C. $400
Answer (C) is correct.
A taxpayer whose residence is damaged or destroyed and who must temporarily occupy another residence can exclude from gross income any insurance payment received as reimbursement for living expenses during such period. This exclusion is limited to the excess of actual living expenses incurred by the taxpayer, $1,500 ($1,000 rent + $500 food) over the normal living expenses of $800 ($600 rent + $200 food) the taxpayer would have incurred during the period, or $700 ($1,500 – $800). The exclusion covers additional costs incurred in renting suitable housing and any extraordinary expenses for transportation, food, and miscellaneous items. The amount of the reimbursement included in income is $400 ($1,100 reimbursement – $700 exclusion).
35
Exclusion of accumulated interest on U.S. savings bonds issued at a discount is permitted. The bonds must be issued after 1989. Exclusion of interest is conditioned on each of the following:
(1) The purchaser of the bonds must be the sole owner (or joint owner with his or her spouse) of the bonds; (2) the issue date of the bonds must follow the 24th birthday(s) of the owner(s); and (3) the redemption proceeds must be used to pay tuition and fees of the taxpayer, spouse, or dependent to attend a college, a university, or certain vocational schools.
36
What are the percentages for medical deductions?
exceeds 10% AGI
| or exceeds 7.5% AGi if the TP or spouse are age 65 or older.
37
Expenditures for new building construction or for permanent improvements to existing structures may also be
Expenditures for new building construction or for permanent improvements to existing structures may also be deductible in part. The excess of the cost of a permanent improvement over the increase in value of the property is a deductible medical expense.
38
How much of the investment interest expense is deductible?
Investment interest expense is deductible only to the extent of net investment income.
39
Who is ineligible for a standard deduction?
Nonresident aliens are ineligible.
40
How is appraisal fee to determine amount of fire loss treated?
Expense for appraisal of a casualty loss is not treated as part of the loss. It is treated as a cost to determine tax liability. It is a miscellaneous itemized deduction subject to the 2%-of-AGI floor.
41
Taxes may be deducted only by who?
Taxes may be deducted only by the person on whom they are legally levied and the person who owns the house.
42
In order to qualify as a dependent, an individual must be what kind of resident? or what countries?
In order to qualify as a dependent, an individual must be a citizen, national, or resident of the United States or a resident of Canada or Mexico at some time during the calendar year in which the tax year of the taxpayer begins.
43
What is allowed deduction per month by a taxpayer to maintain an individual other than a dependent as a member of his or her household under a written agreement between the taxpayer and a qualified organization to provide educational opportunity for pupils or students in private homes.
Amounts paid by a taxpayer to maintain an individual other than a dependent as a member of his or her household under a written agreement between the taxpayer and a qualified organization to provide educational opportunity for pupils or students in private homes are deductible up to $50 per month.
44
If a taxpayer sells a house and has an agreement in which the real estate taxes are not prorated between the buyers and seller, for tax purposes what can be deducted?
Real estate taxes must be apportioned between the buyer and seller on the basis of the number of days the property was held by each in the year of sale, regardless of an agreement not to prorate them.
45
How may taxes paid by an individual to a foreign country be treated?
A taxpayer may elect either a credit or an itemized deduction for taxes paid to other countries or U.S. possessions.
46
Is the cost of the health club membership included in the computation of the medical expense deduction?
No, since the cost is incurred for the purpose of improving the TPs general health, not for curing a specific ailment or disease.
47
What drugs are deductible and not?
Only prescription drugs and insulin are deductible, over the counter medicines are not included.
48
Investment interest expense is only deductible to the extent of taxable investment income. What does it not include?
Investment interest expense is only deductible to the extent of taxable investment income. Taxable investment income does not include tax-exempt municipal bond interest or rental income (which is accounted for separately).
49
Are services deductible as a charitable deduction?
The costs of services rendered to a charity (such as legal advice, accounting assistance, or volunteering time) as a donation are not deductible as a charitable contribution. However, any expenses incurred in the rendering of those services (such as travel costs, mileage, supplies, etc.) are deductible.
50
If a dependent child earns income, what is the standard deduction amount?
The basic standard deduction amount of a student under age 24 who is claimed as a dependent on another individual’s income tax return is limited to the greater of either $1,050 or the dependent’s earned income for the year plus $350 up to the otherwise applicable basic standard deduction amount. Earned income does not include either dividends or capital gains from the sale of stock.
51
How are gambling losses deducted?
Gambling losses are deductible to the extent of gambling winnings as an itemized deduction not subject to the 2%-of-AGI floor
52
Are the costs of casualty insurance deductible? itemized deduction subject to the 2% of gross income floor or not deductible?
The cost of insurance on personal use assets is a personal expenditure.
53
Which items are subject to the phaseout of the amount of certain itemized deductions that may be claimed by high-income individuals?
A. Investment interest deductions.
B. Nonbusiness casualty losses.
C. Charitable contributions.
D. Medical costs.
Answer (C) is correct.
Itemized deductions are subject to the phaseout for high income taxpayers. The phaseout applies to all deductions with certain exceptions including medical expenses, casualty losses, and investment interest expenses.
54
If AGI exceeds a certain $$ amount, how are itemized deductions treated?
An individual whose adjusted gross income exceeds $309,900 ($154,950 if married filing separately) must reduce the aggregate of itemized deductions by the lesser of 80% of otherwise allowable itemized deductions or 3% of the excess. The overall limitation, however, does not apply to deductions for medical expenses, investment interest expenses, casualty or theft losses, or gambling losses (to the extent of gains).
55
Education expenses may be deductible as a miscellaneous itemized deduction as well as any related travel and transportation expenses, but under what circumstances?
Education expenses are for the most part deductible as long as the taxpayer has already met the minimum requirements for the taxpayer’s established employment, trade, or business, the education does not qualify one for a new trade or business, and the education is necessary to keep a present job status or pay rate.
56
Credit for Child and Dependent care expenses are claimed by who?
Equals a qualified percentage of expenses incurred which enable a TP to work or search for work.
To qualify, taxpayer must have a dependent under 13 or a physically or mentally incapacitated spouse or dependent who lives with TP for more than half of the year.
57
how to you calculate Child and Dependent care expense credit?
Credit is 35% if AGI is $15,000 or less, but is reduced by 1% for each $2,000 (or portion) of AGI is in excess of $15,000. When AGI is $43,000 or more than 20% credit applies.
58
Is EIC refundable?
Education expenses may be deductible as a miscellaneous itemized deduction as well as any related travel and transportation expenses.
59
Lifetime Learning Credit: what is it? what is the % amount?
Credit is 20% of tuition and related expenses (but not for room, board) up to $10,000 incurred in a year when the AOTC is not claimed for the student.
One credit per TP
60
American Opportunity Tax Credit: what is it and what's the $$ amount?
Max credit of $2,500 per year (100% of the first $2,000 and 25% of the next $2,00) of qualified tuition expenses for the first four years of postsecondary education.
One credit per student.
40% of the allowable AOTC is refundable.
61
What is the credit allowed for qualified Adoption Expenses?
Max credit per child is $13,400.
62
For Child Tax Credit, what is the age requirement? and how much can be taken as a credit?
Credit is $1,000 for each dependent child under 17 who are U.S. citizens. Subject to phase outs.
63
EIC is unavailable to TPs who?
The Earned Income Credit is unavailable to taxpayers filing married filing separately.
64
To qualify for the Child Care Credit on a joint return, at least one spouse must: Have an AGI of $15,000 or Less/ Be gainfully employed when related expenses are incurred. True or False?
The IRC allows a nonrefundable credit to a provider of care to dependents for a limited portion of expenses necessary to enable gainful employment. The credit claimant must have qualified child care expenses when the claimant is employed or actively seeking gainful employment. The credit amount is not eliminated when AGI exceeds $15,000, only phased down from 35% to 20% in increments of 1% for each $2,000 AGI exceeds $15,000.
65
Elderly or Disabled credit: what is the age limit and allowable credit?
Credit is available to TPs 65 and older or TPs under 65 who are retired with a permanent and total disability receiving disability income as a result.
Max allowable credit is $1,125 (15% time $7,500 of qualifying income)
66
An individual eligible for the Earned Income Credit without a qualifying child is one who meets three qualifications:
(1) The individual has a principal place of abode in the United States for more than one-half of the tax year; (2) the individual is at least 25 years old and not more than 64 at the end of the tax year; and (3) the individual cannot be claimed as a dependent of another taxpayer for the year the credit is being claimed.
67
The amount of the Work Opportunity Tax Credit is equal to what?
The amount of the Work Opportunity Tax Credit is equal to 40% of the first $6,000 of wages paid to a qualified employee in his or her first year of service.To be eligible for the Work Opportunity Tax Credit, the employee must have completed a minimum of 120 hours of service. If the employee meets or exceeds the 120-hour minimum requirement but does not perform 400 or more hours of service, the employer is entitled to a credit of 25%. For employees performing 400 or more hours of service, the appropriate percentage is 40%.
68
What is the difference between accountable and non accountable M&E plans?
If an accountable plan exists, an employee turns in expense records to the employer and received reimbursement. If an expense allowance was made available, the employee must also return any excess reimbursement under the accountable plan rules. When an employee is reimbursed under an accountable plan, the reimbursement will not be treated as income to the employee. In this case the employer will report the M&E expenses and experience the 50% limitation.
If a non accountalbe plan exists, an employee received additional compensation to vocer business expenses. No records are turned over to the employer. The employee must now account for expenses on the personal level and generate an employee business expense deduction on Form 2106, where the 50% limitationn on M&E is applied.
69
When is half year and mid month convention being used for depreciation?
Half Yeaer convention is used for personal property. One excption: if more than 40% of the value of property other than realty is placed in service in the lastwuarter of the year, a mid quarter convention must be used.
Mid month convention is used for realty.
70
Over how many years must residential rental real property and nonresidential real property be depreciated over?
Residentail rental real property must be depreciated on SL basis over 27.5 years.
Nonresidential real property placed in serivce must be depreciated on SL basis over 39 years.
71
What is included in the 5 year and 7 year class?
5 year asset class: autos, light trucks, computer equipment, cell phones, typewriters, calculators and copiers.
7 year asset class: railroad track and office furniture, fixturs, machinery and equipment.
72
What are intangible and over how many years must they be amortized?
Goodwhill, franchises, trademarks, and trade names.
| Over 15 years.
73
Rental property: if 100% rental.
If property is personal/rental use (used personally for more than the greater of 14 days or 10% of rental days
If property is rental/personal use
If rental use is less than 15 days.
If property is 100% rental, all expenses are deducted and a passive loss may occur.
If property is personal/rental use (used personally for more than the greater of 14 days or 10% of rental days), prorated expenses are deductible only to the extent of rental income. Excess expenses are carried forward and are subject to the same limitation.
If property is rental/personal use, prorated expenses are deducted and a passive loss may be created.
If rental use is less than 15 days, income is excludable and expenses are personal.
74
For moving expenses what are the Distance test and TIme test?
Distance test: TPS new job must be at least 50 miles farther from the old residence than the old residence was from the former job.
Time tst: The TP must be employed FT at the new employer for at least 39 weeks in the 12 months following the move.
75
Whata re the qualifeid moving expenses and waht is the standard mileage deduction?
Qualified moving expenses include moving household goods and persnoal items. Travel costs include lodging, but not meals for members of the household.
Standard mileage rate of 23 cents per mile is allowed.
76
Interest on student loans?
Interest on qualifed education loans for students enrolled at least half time can be duducted up to max of $2,500. Includes tuition, fees, room and board.
77
What are the deductions for HSA?
Savings account set up to pay qualifeid medical expenses of TP, Spouse, or depends. Plans have high deductibles. Minimum deductibles are $1,300 for self and $2,600 for Family.
After tax contributions are adjustment for AGI, but limited for $3,350 for self and $6,650 for family. Additional catch up contributions of $1,000 are allowed for TPs over age 50.
78
What is DPAD?
DPADis the lesser of 9% of qualified domestic activities income or Taxalbe income.
DPAD is further limited to 50% of W-2 wages.
79
Explain IRA?
Contributions to all IRAs have an aggregate limit of the lesser of $5,500 or 100% of compensation. In addition, an individual who is at least 50 by the end of the year may make an annual catch up contribution of $1,000.
Deductible contributions can be made only if: Individual is not active participant in an employer-sponsored pension plan OR if an active participant, AGI must be less than or equal to $61,000 for unmarried TPS, $98,000 for MFJ, and $0 for MFS.
When AGI exceeds the above amounts, IRA deductions are pahsed out on a prorata basis as AGI increasted from $61-$71 for unmarried TPs and from $98 to $118 for MFJ.
80
For IRSs, what is the Tainted Spouse Rule?
If one spouse is covered by a qualified plan and the otehr is not, the deductible contribution of the tainted spouse is subject to pro rata phase out for AGI betwee, $183 to $193.
81
What is Coverdell Education IRAs?
Contributions up to $2,000 per beneficiary (up to age 18) can be made to pay the beneficiary's cost of higher education.
Contributions are non deductible but qualifed distributions of earnings are tax free. Qualified expenses include tuition, room andn board, andn notehr enrollment costs. Expenses for elementary and secondary schools are also eligible. Unused funds may be rolled over to another family member's education IRA, without tax or penalty.
82
Qualified Tuition Programs
State jsponsored programs that allow taxpayers to prepay or contribute to a plan that provides payments for qualified education.
Earnings accumulate tax free
Distributions are tax free as long as they are used for qualifed education expenses.
83
What is the standard deduction for individuals who can be claimed as dependents?
The standard deduction for individuals who can be claimed as a dependent on another TPs return is limited to the greated of $1,050 OR the sum of the individual's earned income plus $350
In no way can the standard deduction determined exceed the normal standard deduction.
84
For medical deductions, what is the percentage for normal people and 65 or older?
10% for normal
| 7.5% for 65 or older.
85
How are capital expenditures for medical purposes treated?
The deduction is limited to the amount of the expenditure in excess of the increased value of the related party.
86
What is the exception for dependency status for medical purposes?
The joint return and gross income tests for dependency status are disregarded for purposed of medical deductions for dependents.
87
What is the standard mile deduction for transportation to receive medical care?
23 cents per mile can be used in lieu of actual costs.
88
What taxes are deductible and not deductible?
State, local, and foreign real property taxes, personal property taxes and foreign income taxes are deductible.
Federal income and FICA taxes imposed on an employee as well as excise taxes, including the 10% tax on tanning services are NON deductible.
89
Are serevices for Charitable Contributions dedcutible?
No, contribution of services is not dedcutible, but out of pocket expenses may be deductible.
90
What is the mileage duduction for Charitable Contributions?
14 cents pere mile
91
What is the carryforward for contirbutions?
5 years.
92
What is not subject to the 2% AGI floor?
Gambling losses to the extent of gambling winnings included in gross income.
Impairment related work expenses of a handicapped person
Federal estate tax on income in respect of a decedent
The unrecovered cost of an annuity due to the death of the annuitant.
93
What items are deductible if in total they exceed 2% of AGI? BEBE U BEST
```
Business gifts
Educational expenses
Business use of home
Employment agency fees
Uniforms
Business expense-unreimbursed
Expenses of investors
Subscriptions to professional journals
Tax preparation fees.
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94
What are the qualifications of Qualifying Child?
Relationship test
Adobe test- live with TP for more than half the year
Age test-must be under 19 or 24 is a student
Support test- must not be self supporting
95
What are the qualification of Qualifying Relative?
Relationship test
Gross income test: less than $4,000 of taxable income
Support test: Over 1/2 the support of the dependent must be provided by the TP.
96
What are the adjustments for AMT? PANICTIMME
Passive activity losses
Accelerated depreciation
Net operating loss for the individual taxpayer
Installment income of a dealer
Contracts- percentage completion versus completed contract
Tax Deductions
Interest deductions on some home equity loans
Medical deductions limited to excess over 10% AGI
Miscellaneous deductions not allowed
Exemptions (personal) and standard deduction
97
What are Tax Preference Items? (always add backs) PPP
Private Activity bond interest income
Percentage depletion the excess over adjusted basis of property
Pre 1987 accelerated depreciation
98
What is Passive Loss limitation about?
Passive income (loss) any trade or business income or loss in which the TP does not materially participate. Subject to certain exceptions, all rental activities are classified as passive activities.
99
What is the General Rule for Passive loss limitations?
Passive losses can only be deducted each year to the extent of passive income. Excess losses can be carried forward to be deducted against future passive income or when the TP's entire interest in the activity is disposed of in a completely taxable transaction.
100
What are the Special Rental Allowance for Passive loss limitations?
Rental losses of up to $25,000 from an activity in which the TP actively participates can be deducted against income that is not passive.
This loss amount is reduced by 50% of the TP's AGI in excess of $100,000. the entire deduction is eliminated when AGI reached $150,000.
101
If rental real estate activity that produces a $30,000 loss during the current year. AGI is $120,000 before considering the rental activity. How much of the rental loss, if any, are deducted?
Because AGI is over $100,000
$120-100=20 x .5=10
Rental losses are allowed $25 deduction, but if AGI is over $100 it's reduced by the difference x 50%.
So what can be deducted is $25-10=15.
102
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Anna is a 22-year-old student with earned income of $3,000 from a summer job and dividend income of $1,000. Her parents claim her as a dependent on their tax return. What is Anna's basic standard deduction amount for 2014?
A: 1000
B: 3350
C: 4000
D: 6200
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Answer is B. The standard deduction for individuals who can be claimed as a dependent on another taxpayer’s tax return is limited to the greater of $1,000 or the sum of the individual’s earned income plus $350. The standard deduction can never exceed the regular standard deduction allowed for the individual (in this case the maximum standard deduction in 2014 would be $6,200). Anna can claim a standard deduction equal to $3,000 (her earned income) plus $350 for a total of $3,350.
103
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During 2014, George (age ten and claimed as a dependency exemption by his parents) received dividend income of $3,750 and had wages from an after-school job of $1,650. What is the amount that will be reported as taxable income for 2014?
A: 350
B: 3400
C: 3750
D: 5540
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B is Correct. As a dependent, George has a limited standard deduction (the greater of $1,000 or his earned income plus $350 and is not entitled to an exemption. George’s adjusted gross income is $5,400 and his taxable income is $3,400 ($3,750 + $1,650 - $2,000).
104
Qualified distributions from a Roth IRA are not included in the taxpayer’s gross income and are not subject to the 10% early withdrawal tax. To be a qualified distribution, the distribution must satisfy a 5-year holding period and must be:
(1) made on or after the date an individual attains age 59 1/2;
(2) made to a beneficiary (or the individual’s estate) on or after the individual’s death;
(3) attributed to the individual being disabled; or
(4) used to pay qualified first-time homebuyer expenses. Since Mark has held the funds over 5 years and is over age 59 1/2, he may withdraw the funds tax-free.
105
Paul and Lois Lee, both age 50, are married and filed a joint return for 2015. Their 2015 adjusted gross income was $107,000, including Paul’s $82,000 salary. Lois had no income of her own. Neither spouse was covered by an employer-sponsored pension plan. What amount could the Lees contribute to IRAs for 2015 to take advantage of their maximum allowable IRA deduction in their 2015 return?
The maximum amount that any taxpayer may deduct for a contribution to an IRA is limited to the lesser of $5,500 or the taxpayer’s compensation gross income for the year. If the taxpayer is age 50 or older, a $1,000 catch-up contribution is allowed in addition to the $5,500 per year IRA contribution limit. If one spouse is eligible to make deductible IRA contributions, that spouse may contribute up to $13,000 if a joint return is filed and both taxpayers are age 50 or over. Furthermore, the Lees may deduct their IRA contribution for AGI.
106
What is the rule for Jury duty is it was remitted to the employer?
Pay for jury duty is compensation gross income. Jury duty pay remitted to an employer (in return for being paid during the duty) is deductible for AGI.
107
Penalty is usually not deductible, but Penalty on early withdrawal of savings is deducted how?
A penalty charged for early withdrawal from a time savings account is a deduction for AGI. The deduction is taken on the return for the tax year the funds are withdrawn (January 2016).
108
Under a “cafeteria plan” maintained by an employer,
Participants may select their own menu of benefits. A cafeteria plan is one in which the employees may choose among their fringe benefits. Participation is restricted to the employee. There is no minimum period of employment required. Benefits that do not qualify include (1) deferred compensation plans other than Sec. 401(k) plans, (2) scholarships and fellowship grants or tuition reductions, (3) educational assistance, and (4) other fringe benefits.
109
Are death benefits included in gross income of the beneficiary?
Gross income includes amounts received by the beneficiaries or the estate of an employee although such amounts are paid by or on behalf of an employer and are paid by reason of the death of the employee.
