Individual Taxation Flashcards Preview

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Flashcards in Individual Taxation Deck (123):
1

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

Individual Taxation

2

*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
*Alimony
*Tuition - can't take AOC/Lifetime Learning Credit for same expense
*Teacher expenses
*Attorney fees in discrimination lawsuit

Individual Taxation

3

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

Individual Taxation

4

No carryback

Can carry forward indefinitely

Individual Taxation

5

Carry forward to next year.

Use in any year is limited to taxable income.

Individual Taxation

6

Indefinitely.

Individual Taxation

7

Can be carried forward 5 years.

Individual Taxation

8

It can be carried forward indefinitely.

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

Individual Taxation

9

$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

10

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

11

Gross Profit / Contract Price

Individual Taxation

12

Contract Price = Sales Price - Liability assumed by buyer

Individual Taxation

13

$1,000,000

Individual Taxation

14

$100,000

Individual Taxation

15

$25 per person for gifts

Service awards up to $400

Individual Taxation

16

They may only offset active business income.

Note: W2 wages are considered active business income.

Individual Taxation

17

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

18

Neither. They are portfolio income.

Individual Taxation

19

Mid-year/Mid-quarter

Individual Taxation

20

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

Individual Taxation

21

Mid-month

Individual Taxation

22

15 year straight line (S/L)

Individual Taxation

23

Up to $5,000

Amortized over 180 months

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

Individual Taxation

24

On Schedule A:

Amounts in excess of 10% of AGI may be deducted

Individual Taxation

25

Accident or disability insurance premiums are not deductible.

Individual Taxation

26

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

27

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

28

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

29

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

Individual Taxation

30

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.

Individual Taxation

31

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

Individual Taxation

32

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

Individual Taxation

33

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

Individual Taxation

34

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

Individual Taxation

35

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

Individual Taxation

36

Medical
Casualty
Gambling
Investment Interest Expense

Individual Taxation

37

Must be resident of North America

Under age 19, or under age 24 if a student

Individual Taxation

38

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

Individual Taxation

39

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

Individual Taxation

40

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

Individual Taxation

41

15.3% of net earnings from self-employment

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

Individual Taxation

42

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.

Individual Taxation

43

American Opportunity Credit - per student

Lifetime Learning Credit - per taxpayer

Note: The American Opportunity Credit is refundable.

Individual Taxation

44

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)

Individual Taxation

45

Deductible: Costs incurred to PRESERVE soil/water

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

Individual Taxation

46

MACRS 150

Individual Taxation

47

90 days

Individual Taxation

48

10 days

Individual Taxation

49

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.

Individual Taxation

50

It is treated as a STCL

Individual Taxation

51

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

Individual Taxation

52

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

Individual Taxation

53

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.

Individual Taxation

54

State & municipal bond interest

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

Individual Taxation

55

S-corporation (actually distributions)

Life insurance

Individual Taxation

56

Up to 85%

Individual Taxation

57

Yes.

Individual Taxation

58

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.

Individual Taxation

59

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

Individual Taxation

60

Alimony IS taxable.

Child support and divorce property settlements are NOT taxable.

Individual Taxation

61

NO, they are not deductible. However tax benefits are available through the adoption CREDIT.

Individual Taxation

62

2nd Year: (3rd year - 2nd year - $15,000)

1st Year:
1st Year Alimony Paid
- Avg alimony paid in 2nd & 3rd years
- $15,000
- Recapture from 2nd year
=1st Year Alimony Recapture

Total Recapture = 1st Year Recapture + 2nd Year
Recapture

Individual Taxation

63

Can be carried back 2 years

If any left, can be carried forward 20 years.

Individual Taxation

64

Traditional IRA = deductible

Roth IRA = not deductible

Individual Taxation

65

They must be married at the end of the year.

If one spouse dies, they must be married at the end of the year.

Individual Taxation

66

Must have a dependent child

Must provide more than 50% of the child's support

Must live with them more than 50% of the year

Individual Taxation

67

Must have a dependent child.

Essentially gets MFJ status for the year of death + 2 tax years

Individual Taxation

68

What is the primary objective of accounting?

To measure income

69

What is the most authoritative set of accounting pronouncements?

The FASB Codification

All pronouncements fall under the Codification umbrella

70

What are the 2 Levels of Authority within the FASB codification?

Authoritative and Non-Authoritative

71

How does managerial accounting differ from financial accounting?

Managerial Accounting has a timeliness focus

Managerial Accounting is not required to follow GAAP

72

Which financial reports are required to be filed with the SEC?

Form 10K - Annual and Audited
Form 10Q - Quarterly and Reviewed

73

What is the focus of financial reports for individual companies?

Focus is on the needs of users to help them make decisions and assessments about the company

Does not make assessments of the economy

74

What are the Primary Constraints of Financial Reporting?

Cost vs. Benefit

Materiality

75

What are the Secondary Constraints of Financial Reporting?

Consistency - Year vs. Year

Comparability - Company vs. Company

76

What are the Qualitative Characteristics of Financial Reporting?

Relevance & Faithful Representation

Relevance - Makes a difference to the user
Includes:
Predictive Value - Future Trends
Confirming Value - Past Predictions
Materiality - Could affect User Decisions

Faithful Representation
Includes:
Completeness - Nothing omitted that would impact the decision-making of a user
Neutrality - Information is presented is without bias
Free from Error - No material errors or omissions


77

What are the Enhancing Qualitative Characteristics of Financial Reporting?

Comparability Verifiability Timeliness and Understandability

Comparability - Allows users to compare different items among various periods
Verifiability - Different people would reach a similar conclusion on the information presented
Timeliness - Information is made available early enough to impact the decision making of users
Understandability - Information is easy to understand

78

How does Conservatism affect the recording of accounting transactions?

When an estimate is necessary due to uncertainty conservatism chooses the best option that won't overstate the financial position of the company

79

What is an accrual?

Earned (Revenue) or Incurred (Expense) but no Cash Receipt/Outlay yet

80

What is a deferral?

Cash Receipt/Outlay but not Earned (Revenue) or Incurred (Expense)

81

What is recognition in accounting?

When an item is recorded and included in the financial statements

82

Describe fair value with respect to an asset

The price you would receive if you sold the asset

Assumes asset is at its highest and best value

Assumes asset is sold at its most advantageous market to get the best price possible

83

What market assumptions are made in a fair value assessment?

Buyer and Seller are not Related

Buyer and Seller are Knowledgeable

Buyer and Seller are able to transact - i.e. This isn't a hypothetical transaction for Fair Value measurement purposes. The buyer actually does have the $10M to purchase the asset you're trying to value at $10M

Buyer and Seller are both motivated to buy/sell

84

What items are included in a Level 1 input in the fair value hierarchy?

Price quotes or market prices

For example NYSE or NASDAQ

85

What items are included in a Level 2 valuation input?

Interest rates

Prime rate

86

What items are included in Level 3 inputs of the fair value hierarchy?

Unobservable inputs such as assumptions or forecasts

Lowest priority for valuation

87

What are acceptable valuation techniques for fair value?

Market approach - uses market transactions and prices to value the asset

Income approach - uses present value discounts earnings

Cost approach - uses replacement cost to value the asset

88

What are current assets?

Cash

Inventory or Assets expected to be converted or consumed during a business' operating cycle

Deferred Gross Profit on Installment Sales (Contra Asset)

Receivables expected to be collected in 12 months or less

89

What are current liabilities?

Liabilities that will use current assets during the present operating cycle

90

What is an accrued liability?

Expense that has been incurred but not paid

Example: rents payable

91

What is a deferred revenue?

A type of current liability

Payments that have been received but cannot be recorded as revenue yet

Example: Tenant pre-pays rent - Landlord still must perform to earn it and is a liability until this happens

92

When are revenues recognized?

When they have been earned; i.e. company has performed

93

What is a gain?

Increase in equity from an activity or event that is not central to the main activities of the business

Can be operating or non-operating

94

What is a loss?

Decrease in equity from an activity or event that is not central to the main activities of the business

Can be operating or non-operating

95

What is an operating cycle?

Average time it takes to turn materials or services into Cash

96

What is the present value of future cash flows?

Valuation method - the current value of a future amount of money using a specific interest rate

97

What is historical cost?

How much an asset cost - (net of depreciation and amortization)

98

What is replacement cost?

How much it would cost to reacquire an asset today (Entrance Cost)

99

What is a market cost?

The sale price of an asset (Exit Cost)

100

What is Net Realizable Value?

Sale Price of an Asset - Selling/Disposal Fee

101

When is royalty income recognized? How is it recognized?

Recognized when earned

If the royalty % is applied against net sales then subtract the estimated return amount from the gross sales first and then apply the royalty rate

102

When is revenue recognized in an installment sale?

Revenue recognized upon receipt of cash

Only used when cash collection is uncertain

103

What is deferred gross profit?

Gross Profit that can't be recognized until cash is received

D.GP : Gross Profit % x Accounts Receivable

Pay attention to the year if GP% varies

104

What is the cost recovery method?

No revenue recognized until all costs are recovered from purchase of the asset

Most conservative method of revenue recognition when collection of sale price is uncertain

105

What is subscription revenue? How is it recorded?

Payment has been received but performance is not complete.

As company performs revenue is recognized.

Recorded as a Deferred Revenue (Liability) on Balance Sheet

106

How are franchise revenues recorded?

Franchisor - Startup franchise fee revenue deferred until substantial performance

Franchisee - Costs are deferred until corresponding revenue is recognized

107

How do you calculate sales revenue starting from cash basis income?

Mnemonic: SPEAR-BAR

Sales (i.e. Customer Payments)
+ Ending Accounts Receivable
- Beginning Accounts Receivable
: Sales Revenue on an Accrual Basis

108

How do you calculate COGS starting from Cash Basis?

Mnemonic: CRAP-I

Cash Remitted (i.e. paid)
+Increase in Accounts Payable
-Increase in Inventory
:COGS on an Accrual Basis

109

How are discontinued operations reported? When are they used?

Reported Net of Tax after Continuing Operations but before Extraordinary Items

Company decides to cease operating a segment of its business

Includes Income (or loss) from the period plus the gain (or loss) from disposal

110

What qualifies as an extraordinary item? How is it recorded?

Both unusual AND infrequent

Reported Net of Tax after Discontinued Operations

Note: Usual *or* Infrequent Items are reported as part of Continuing Operations

111

What is constant dollar accounting?

Adjusts assets to reflect a consistent level of purchasing power due to inflation

Uses the Consumer Price Index (CPI)

112

When are expenses recognized?

When they are incurred. Accrue if not yet paid.

113

What are accrued expenses?

Those incurred but not paid.

Product costs - Expenses should be matched with associated revenues as they are recognized (sales commission on a used car sale)

Period costs - Expenses amortized and recognized with the passage of time

114

When should impaired assets be written down to fair value and expensed?

Immediately.

115

What major items should be classified under General & Administrative (G&A) expenses?

Office staff salaries

Office/building rent

Office supplies

Note: Sales staff salaries and portions of the building assigned to Sales should be allocated to Selling Expense not G&A

116

What are business start-up costs?

One-time costs for opening a new business

Expensed as they are incurred

117

When is interest *not* expensed?

Interest on projects (software) for internal use is not expensed but is instead capitalized

118

What are the major components of Comprehensive Income?

Net Income + Other Comprehensive Income (OCI):

Revenues/Expenses

Gains/Losses

Cumulative accounting adjustments

Reclassifications adjustments

Non-owner changes in equity

119

What items are considered cumulative accounting adjustments?

Foreign Currency Translation Adjustments

Unrealized gains on AFS Securities

Minimum Pension Liability adjustment for defined benefit plans

120

What is the purpose of a reclassification adjustment?

Avoids double counting items that were included in both Net Income and OCI

Example: AFS Securities previously included in OCI are now sold at a loss and reported on the Income Statement

121

Where is Comprehensive Income reported?

Reported in a Single or Combined Income Statement

122

What disclosures on accounting policies are required in financial statements?

Accounting Principles used

Basis of Consolidation

Inventory Pricing Methods

Depreciation Method

Amortization of Intangibles

123

What are some major risks and uncertainties that must be disclosed?

Nature of Operations

Use of Estimates and listing of Significant Estimates

Concentration vulnerability