Flashcards in Individual Taxation Deck (67)
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31
Individual Taxation
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
Individual Taxation
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
Individual Taxation
Does a casualty loss affect the basis of property?
No. It decreases the fair market value (FMV) of the property.
34
Individual Taxation
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
Individual Taxation
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
Individual Taxation
Which itemized deductions are not subject to phaseout based on income or other factors?
Medical
Casualty
Gambling
Investment Interest Expense
37
Individual Taxation
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
Individual Taxation
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
Individual Taxation
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
Individual Taxation
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
Individual Taxation
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
Individual Taxation
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
Individual Taxation
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
Individual Taxation
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
Individual Taxation
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
Individual Taxation
Which depreciation table is used for personal tangible property related to farming?
MACRS 150
47
Individual Taxation
How long does the taxpayer have to petition the court for appeal after an audit?
90 days
48
Individual Taxation
If no petition to appeal is filed, how long does a taxpayer have to pay tax due after an audit?
10 days
49
Individual Taxation
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
Individual Taxation
How is non-business bad debt deducted on a 1040?
It is treated as a STCL
51
Individual Taxation
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
Individual Taxation
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
Individual Taxation
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
Individual Taxation
What interest income is tax free?
State & municipal bond interest
US EE Savings Bond interest (note: HH bond interest is taxable)
55
Individual Taxation
Which dividend income is tax free?
S-corporation (actually distributions)
Life insurance
56
Individual Taxation
How much social security income can be taxed for individuals in higher income brackets?
Up to 85%
57
Individual Taxation
Is unemployment compensation taxable?
Yes.
58
Individual Taxation
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
Individual Taxation
Are workman's compensation insurance benefits taxable?
No - similar to an award for damage to make a person whole.
60
Individual Taxation
