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Regulation CPA > Individual Tax > Flashcards

Flashcards in Individual Tax Deck (39):

Tax Due or Refund Formula

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


Gross Income

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



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


Itemized Deductions

Medical (in excess of 10% of AGI)
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



$3,960 per dependents


Requirement for filing a return

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


Filing Statuses

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


Qualifying Widower

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.


Head of Household

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


Gross Income Defined

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.


Payments Pursuant to Divorce

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


Child Support

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


Business Income

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


Business Expenses

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


Nondeductible expenses

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


Net Business Income Taxable

Two types of tax:

1) Income Tax
2) Federal Self Employment


Net Taxable Loss

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


Gain and Losses on Disposition of Property

Amount Realized- Adjusted Basis of Assets Sold


IRA Income

-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)


Rental Income

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.


Passive Activity Losses

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


Deductibility of PALs

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


Disallowed net losses exceptions

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


Unemployment Income

100% treated as gross income


Social Security Income

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)


Non-taxable Miscellaneous Items

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


Real Property

Land and all items permantley fixed to the land.


Capital Assets

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
Other Assets held for investment


Non-capital Assets

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


Determining the gain or loss

Amount Realized- Basis of Asset sold=Gain or Loss


Amount Realized Includes

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


Adjustments to basis

Increase basis for capital improvements
Reduce for accumulated depreciation


Donor's Rollover Cost basis

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


Exceptions to Rollover Basis

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.


Depreciable basis of gift

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


Inherited Property Basis

Date of Death Becomes FMV basis


Alternate Valuation Date

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.


Homeowner Exclusion

$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.


Like Kind Exchange

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.