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Flashcards in Individual Taxation Deck (67)
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31

How are charitable contributions of LTCG property and property related to a charity's function deducted?

Deducted at fair market value (FMV), up to 30% of AGI

32

How are charitable donations for STCG property and property not related to the charity's function deducted on Schedule A?

Deduction is taken for adjusted basis in the property, up to 50% of AGI.

33

Does a casualty loss affect the basis of property?

No. It decreases the fair market value (FMV) of the property.

34

How is the deductible portion of a casualty loss calculated?

Take the lower of either A) Decrease in FMV or B) Basis in property (call this number GROSS LOSS)

GROSS LOSS - insurance proceeds received - $100 - 10% of AGI = Deductible casualty loss

35

What are the miscellaneous deductions on Schedule A, and how are they deducted?

Deductible in excess of 2% of AGI

Continuing Education - if required to keep your job
Business travel
50% Meals and entertainment
Union Dues
Tax prep fees
Legal fees to collect alimony
Appraisal fees to value casualty loss of charitable contributions

36

Which itemized deductions are not subject to phaseout based on income or other factors?

Medical
Casualty
Gambling
Investment Interest Expense

37

Define qualifying child for most individual tax factors.

Must be resident of North America

Under age 19, or under age 24 if a student

38

Define qualifying relative for most individual tax factors?

Must be citizen of North America

Must live with you, unless mother/father or relative closer than a cousin

You must provide more than 50% support to the individual

39

How is minor income taxed at a parent's rate calculated (AKA kiddie tax)?

Child's unearned income
- early withdrawal penalties
- $1,000
- Greater than $1,000 or child's itemized deduction related to unearned income
= Amount taxed at parents' rate

40

Can spouses married filing jointly use different accounting methods?

Yes, if they each own a small business. All non-business income is cash basis.

41

At what rate is self-employment tax assessed?

15.3% of net earnings from self-employment

(Note: executor of an estate is NOT self-employment income)

42

What is a refundable tax credit? Which individual tax credits are most commonly refunded?

A tax credit which takes the taxpayer's tax owed on the return below zero, resulting in a refund to the taxpayer.

Earned Income Credit (EIC), American Opportunity Credit and the Additional Child Tax credit.

Note: the REGULAR child tax credit is NOT refundable.

43

How many education credits may be taken on a tax return?

American Opportunity Credit - per student

Lifetime Learning Credit - per taxpayer

Note: The American Opportunity Credit is refundable.

44

What estimated tax payments must be paid in by an individual taxpayer either via withholding or by quarterly tax payments?

The lesser of:

90% of current year's total tax

100% of prior year's total tax

110% of prior year's total tax (if AGI is $150,000 or more)

45

Which farming costs related to land are deductible? Which aren't?

Deductible: Costs incurred to PRESERVE soil/water

Non-deductible: Costs incurred to drain wetlands or prep for irrigation (i.e. improve land)

46

Which depreciation table is used for personal tangible property related to farming?

MACRS 150

47

How long does the taxpayer have to petition the court for appeal after an audit?

90 days

48

If no petition to appeal is filed, how long does a taxpayer have to pay tax due after an audit?

10 days

49

What is the statute of limitations for a tax audit?

3 years, generally

6 years if 25% or more of gross income was omitted

The clock starts on the LATER of the due date or the filing date of the return.

There is NO STATUTE OF LIMITATIONS for either fraud or failure to file a required return.

50

How is non-business bad debt deducted on a 1040?

It is treated as a STCL

51

How long does an individual taxpayer have to file a claim for refund?

Refunds must be claimed within 3 years of the return due date or within 2 years of being paid, whichever is later.

52

When are life insurance premiums of an employee includable in income?

Premiums paid by an employer for coverage in excess of $50,000 per employee are includable in income.

53

When are scholarships not taxable?

When they are not in return for services rendered,

AND

The money is used *only* for tuition and books

Note: Scholarships for room and board are includable in income.

54

What interest income is tax free?

State & municipal bond interest

US EE Savings Bond interest (note: HH bond interest is taxable)

55

Which dividend income is tax free?

S-corporation (actually distributions)

Life insurance

56

How much social security income can be taxed for individuals in higher income brackets?

Up to 85%

57

Is unemployment compensation taxable?

Yes.

58

Which damages awarded in lawsuits are taxable? Which are not?

Payments made to make you whole are NOT taxable (i.e. to pay for losses of property, body parts or earning ability)

Any payments for punitive damages ARE taxable.

59

Are workman's compensation insurance benefits taxable?

No - similar to an award for damage to make a person whole.

60

Which of the following are taxable: Child Support, Divorce Property Settlements, Alimony

Alimony IS taxable.

Child support and divorce property settlements are NOT taxable.