Individual Tax

Question 1

Tax Due or Refund Formula

Answer 1

Gross Income
-Adjustments (Deductions)
\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_
Adjusted Gross Income
Standard Deduction or Itemized Deductions (Higher of 2)
(Exemptions)
\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_
Taxable Income

Question 2

Gross Income

Answer 2

Wages
Interest 
State Tax Refunds
Ailmony Received
Business Income
Capital Gain/Loss
IRA Income

Question 3

Adjustments

Answer 3

Educator Expenses
IRA Contributions
Student Loan Interest Expenses
Tuition & Fee Deduction
Health Savings Account
Moving Expenses
1/2 Self Employment FICA
Self Employed Health Insurance
Self Employed Retirement
Interest Withdrawal Penalty
Alimony Paid

Question 4

Itemized Deductions

Answer 4

Medical (in excess of 10% of AGI)
Taxes-State/Local 
Interest Expense (Home & Investment) 
Charity (Up to 50% of AGI)
Casualty/Theft (in excess of 10% of AGI)
Miscellaneous (in excess of 2% of AGI)
Other Miscellaneous

Question 5

Exemptions

Answer 5

$3,960 per dependents

Question 6

Requirement for filing a return

Answer 6

Must file a return if income is equal to or greater than the personal exemption plus
The regular standard deduction plus
the addtional standard deduction amount for taxpayers age 65 or over

Question 7

Filing Statuses

Answer 7

Single
Married Filed Jointly
Married FIled Separately
Qualified Widower with Child
Head of Household

Question 8

Qualifying Widower

Answer 8

May file a joint return standard deduction and rates for each of two taxable years following death. In event of remarriage the surviving spouse files a return with the new spouse.

Surviving spouse must maintain a hold for the whole taxable year for that dependent.

Question 9

Head of Household

Answer 9

Following Criteria

1) Indvidual is not married, legally separate or is married an has lived apart from his/her spouse for the last 6 months of the year.
2) Not a qualifying widower
3) Not a nonresident alien
4) Individual maintains a a household for more than 6 months of the year for a dependent son or daughter, father or mother or depedent relatives

Question 10

Gross Income Defined

Answer 10

In cases of cash received income is determined by amount of cash, FMV of property, or services obtained. In cases of noncash income, the amount of the income is the FMV of the property.

In addition, for income to be taxable in must be realized and recognized.

Question 11

Payments Pursuant to Divorce

Answer 11

To be considered alimony,

1) Must be legally required by written divorce
2) Must be in cash cash
3) Cannot extend beyond the death of the payee-spouse
4) Property Settlements receive no deduction

Question 12

Child Support

Answer 12

1) Non taxable

2) If alimony and child support required by decree, applied to child support first.

Question 13

Business Income

Answer 13

Cash=Amount Received
Property=Fair Market Value
Cancellation of Debt

Question 14

Business Expenses

Answer 14

COGS
Salaries and Commissions paid
State and Local business taxes paid
Office Expenses
Actual automoblie expenses
Business meal and entertainment at 50%
Depreciation of business assets
Interest Expense of Business Loans
Employee Benefits
Legal and Procfessional fees
Bad Debts Written off under accrual basis

Question 15

Nondeductible expenses

Answer 15

Salaries paid to sole proprietor
Federal Income Tax
Personal portion of any expenses
Bad Debt Expense for cash basis taxpayer
Charitable contributions- report as an itemized deduciton

Question 16

Net Business Income Taxable

Answer 16

Two types of tax:

1) Income Tax
2) Federal Self Employment

Question 17

Net Taxable Loss

Answer 17

Allowed either the 2-year carryback or 20 year carryforward.

Question 18

Gain and Losses on Disposition of Property

Answer 18

Amount Realized- Adjusted Basis of Assets Sold

Question 19

IRA Income

Answer 19

• 10% penalty on a premature distribution
• Roth IRA–> All qualified benefits are non taxable
• Traditional Non-deductible IRA–>
  1) Principal- non-taxable
  2) Accumulated earnings-taxable (when withdrawn)

Question 20

Rental Income

Answer 20

If rented less than 15 days- treated as a personal residence, real estate taxes are deductible, and depreciation, utilities, and repairs are not deductible

If rented 15 days or more and is used for personal purposes for the greater of more than 14 days or more than 10% of the rental days, it is treated as a personal/rental residence.

Question 21

Passive Activity Losses

Answer 21

Any activity in which the taxpayer does not materially participate include rental activities, interests in limited partnerships, S Corps and most tax shelters

Question 22

Deductibility of PALs

Answer 22

A loss may not be deducted against wages, salaries and other activity income or against portfolio or capital gains income. Expenses related to passive activities can be deducted only to the extent of cinome from all passive activities

Question 23

Disallowed net losses exceptions

Answer 23

1) Mom and Pop Exception,
a) 25,000 and active–>may deduct up to 25,000 of net passive losses to rental real estate annually are activitely participating or own more than 10% of activity. Allowannce is reduced to 50% when AGI is 100K and phased out at 150K
2) Real Estate Professional

Question 24

Unemployment Income

Answer 24

100% treated as gross income

Question 25

Social Security Income

Answer 25

Low Income- Not taxable (25K single, 32K married joint) Lower Middle Income- less than 50% of benefits are taxable. Middle Income- 50% of benefits are taxable (25K single, 32K married joint) Upper Middle Income- between 50% and 85% of benefits are taxable Upper Income - 85% of benefits are taxable (34K single, 44K married joint)

Question 26

Non-taxable Miscellaneous Items

Answer 26

``` Life Insurance Proceeds Gifts and Inheritances Medicare Benefits Workers Compensation Personal Injury Award Accident Insurance Premiums Paid Foreign earned Income Exclusion ```

Question 27

Real Property

Answer 27

Land and all items permantley fixed to the land.

Question 28

Capital Assets

Answer 28

``` Personal Automobile Furniture and Fixtures of taxpayer home Stocks and Securities of all type Personal Property of a taxpayer not used in trade or business Real Property not used in trade or business Interest in a partnership Goodwill of a corporation Copyrights Other Assets held for investment ```

Question 29

Non-capital Assets

Answer 29

Items normally included in inventory or held for sale to customers in the normal course of business. Depreciable property used in trade or business (section 1231, 1245, and 1250 property) Accounts and Notes receivable arising from sales or services Copyrights held by original artisit Treasury Stock

Question 30

Determining the gain or loss

Answer 30

Amount Realized- Basis of Asset sold=Gain or Loss

Question 31

Amount Realized Includes

Answer 31

``` Cash Received Cancellation of Debt Property and FMV Services received at FMV Reduced by selling expenses ```

Question 32

Adjustments to basis

Answer 32

Increase basis for capital improvements | Reduce for accumulated depreciation

Question 33

Donor's Rollover Cost basis

Answer 33

Basis is rollovered if property exchanges hands as a gift. Basis is increased by gift tax paid attributable to net appreciation.

Question 34

Exceptions to Rollover Basis

Answer 34

1) When a taxpayer sells a gift for the greater than the rollover basis, the gain shall be the difference between the sale price and rollover basis. 2) When a taxpayer sells a gift for the less than the rollover basis, the basis for determing the loss is the FMV of the gift at the time the gift was given. 3) When a taxpayer sells a gift for the less than the rollover basis but more than the FMV, neither a gain or loss is recognized.

Question 35

Depreciable basis of gift

Answer 35

The lesser of the donor's adjusted basis at date of gift or the fair market value at the date of gift.

Question 36

Inherited Property Basis

Answer 36

Date of Death Becomes FMV basis

Question 37

Alternate Valuation Date

Answer 37

Is the earlier of 6 months later or the date of distribution/sale may be used. Can only be used if it lowers the entire gross estate and estate tax.

Question 38

Homeowner Exclusion

Answer 38

$500K for married from gross income for gain. $250K for all others from gross income for gain. To qualify, taxpayer must have owned and used the property as principal residence for two years or more during the five year period ending on the date of sale or exchange. Ownership requirement is for either spouse, both must meet use requirement.

Question 39

Like Kind Exchange

Answer 39

When boot is received the recognized gain is the lower of the realized gain or boot. When the basis of property recieved in the exchange is orinarily the same as the basis of the property given up , the basis is given up, the basis is decreased by any money received and increased any gain recognized.