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Flashcards in Individual Taxation Deck (67)
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Individual Taxation

Under what accounting basis are individual tax returns prepared?

Cash Basis. Note: This basis is NOT allowed for Corporations, Partnerships with a C-Corp partner, or for inventories.

Individual Taxation

What are the deductions to arrive at Adjusted Gross Income (AGI) for individuals?

*MSA/HSA contributions
*Investment penalties for early withdrawal
*Self-employed medical insurance premiums
*Self-Employment Tax (approx. 50%)
*IRA Contributions
*Student loan interest (can't be another taxpayer's dependent)
*Moving expenses
*Tuition - can't take AOC/Lifetime Learning Credit for same expense
*Teacher expenses
*Attorney fees in discrimination lawsuit

Individual Taxation

Which items can be carried over to future years on an individual tax return?

Investment interest expense in excess of investment income
Charitable contributions
Excess Section 179
Capital losses
AMT Paid
Passive Activity Losses

Individual Taxation

Characterize the following carryover: Passive Activity Loss

No carryback

Can carry forward indefinitely

Individual Taxation

How is excess 179 expense carried forward?

Carry forward to next year.

Use in any year is limited to taxable income.

Individual Taxation

How long can investment interest expense in excess of investment income be carried forward?


Individual Taxation

How long is the carry forward for charitable contributions?

Can be carried forward 5 years.

Individual Taxation

How long is AMT paid carried forward, and how is it applied?

It can be carried forward indefinitely.

It may be applied against future *regular* income tax, but not against future AMT tax liability.

Individual Taxation

How are capital losses applied in individual taxes?

$3,000 net capital loss can be taken in each year, the rest is carried forward indefinitely.

The loss retains its character (STCL or LTCL).

Individual Taxation

How does an individual capital loss carryover differ from a corporate capital loss carryover?

Corporate capital loss carryovers may be carried back 3 years and forward 5 years. Individual capital losses are carried forward indefinitely.

Individual capital loss carryovers retain their character (STCL or LTCL). Corporate loss carryovers are carried forward as STCL only.

Individual Taxation

What ratio is applied to principle payments in an installment sale to determine the gain in a given year?

Gross Profit / Contract Price

Individual Taxation

What is the contract price in an installment sale for income tax purposes?

Contract Price = Sales Price - Liability assumed by buyer

Individual Taxation

On an individual return, regular mortgage interest on what loan amount is deductible?


Individual Taxation

Interest on home equity loans up to what amount are deductible on an individual tax return?


Individual Taxation

What business gift amounts are deductible on Schedule C of form 1040? What amount for service awards?

$25 per person for gifts

Service awards up to $400

Individual Taxation

What income can business losses offset on a 1040?

They may only offset active business income.

Note: W2 wages are considered active business income.

Individual Taxation

What income can passive losses offset on a 1040?

Only passive income such as rental income or limited partnership income.

Note: Wages are ACTIVE (cannot be offset by passive) and Interest/Dividends are PORTFOLIO (cannot be offset by passive)

Individual Taxation

Are interest and dividends active or passive income?

Neither. They are portfolio income.

Individual Taxation

What is (are) the depreciation convention(s) for personal property?


Individual Taxation

When is the mid-quarter convention used?

For depreciation when 40% or more of all purchases occur in 4th quarter.

Individual Taxation

What depreciation convention is used for real property?


Individual Taxation

What depreciation life and convention are used for leasehold improvements?

15 year straight line (S/L)

Individual Taxation

What amount of business start-up costs can be deducted? How is it expensed?

Up to $5,000

Amortized over 180 months

Reduced dollar-for-dollar by amount over $50,000

Individual Taxation

How are medical expenses deducted on a 1040?

On Schedule A:

Amounts in excess of 10% of AGI may be deducted

Individual Taxation

Which personal insurance premiums are not deductible as medical expenses on Schedule A?

Accident or disability insurance premiums are not deductible.

Individual Taxation

Under what circumstances can medical expenses paid on behalf of another be deducted on someone's Schedule A?

Must be a citizen of North America

Must live with you, or if they do not, must be mother/father or a relative closer than a cousin.

Benefactor must provide more than 50% support to the beneficiary.

Individual Taxation

Which foreign taxes are deductible?

Foreign INCOME and REAL ESTATE taxes are deductible.

Foreign personal property taxes are NOT deductible.

Foreign tax assessments are not deductible- they are added to the basis.

Individual Taxation

How is net investment income calculated, for the purpose of deducting excess investment interest expense?

Gross investment income - investment expense in excess of 2% of AGI = net investment income

Investment interest expense in excess of net investment income is deductible.

Individual Taxation

What investment interest is never deductible?

Investment interest expense on tax-free securities is not deductible.

Individual Taxation

When are mortgage points deductible and how are they deducted?

They are deductible if they represent prepaid interest on purchase of a new home or improving a home.

Refinance points are amortized over the life of the mortgage.