Brainscape's Knowledge GenomeTM


Top Flashcards (Certified)
All Flashcards

REG - Tax > Individual Taxation > Flashcards

Individual Taxation Flashcards

(91 cards)

Start Studying
2
Q

Under what accounting basis are individual tax returns prepared?

A

Cash Basis.

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

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

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

A
  • 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
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

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

A 
Investment interest expense in excess of investment income
Charitable contributions
Excess Section 179
Capital losses
AMT Paid
Passive Activity Losses
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

Characterize the following carryover: Passive Activity Loss

A

No carryback

Can carry forward indefinitely

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

How is excess 179 expense carried forward?

A

Carry forward to next year.

Use in any year is limited to taxable income.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

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

A

Indefinitely.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

How long is the carry forward for charitable contributions?

A

Can be carried forward 5 years.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

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

A

It can be carried forward indefinitely.

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

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

How are capital losses applied in individual taxes?

A

$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).

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

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

A

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.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

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

A

Gross Profit / Contract Price

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

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

A

Contract Price = Sales Price - Liability assumed by buyer

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

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

A

$1;000;000

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

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

A

$100;000

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

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

A

$25 per person for gifts

Service awards up to $400

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

What income can business losses offset on a 1040?

A

They may only offset active business income.

Note: W2 wages are considered active business income.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

What income can passive losses offset on a 1040?

A

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)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

Are interest and dividends active or passive income?

A

Neither. They are portfolio income.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

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

A

Mid-year/Mid-quarter

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

When is the mid-quarter convention used?

A

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

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
22
Q

What depreciation convention is used for real property?

A

Mid-month

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
23
Q

What depreciation life and convention are used for leasehold improvements?

A

15 year straight line (S/L)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
24
Q

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

A

Up to $5;000

Amortized over 180 months

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

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
25
Q

How are medical expenses deducted on a 1040?

A

On Schedule A:

Amounts in excess of 7.5% of AGI may be deducted

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
26
Which personal insurance premiums are not deductible as medical expenses on Schedule A?
Accident or disability insurance premiums are not deductible.
27
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.
28
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.
29
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.
30
What investment interest is never deductible?
Investment interest expense on tax-free securities is not deductible.
31
When are mortgage points deductible and how are they deducted?
They are deductible if they represents prepaid interest on purchase of a new home or improving a home. Refinance points are amortized over the life of the mortgage.
32
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
33
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.
34
Does a casualty loss affect the basis of property?
No. It decreases the fair market value (FMV) of the property.
35
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
36
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
37
Which itemized deductions are not subject to reduction based on income or other factors?
Medical Casualty Gambling Investment Interest Expense
38
Define qualifying child for most individual tax factors.
Must be resident of North America Under age 19; or under age 24 if a student
39
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
40
How is minor income taxed at a parent's rate calculated (AKA kiddie tax)?
``` Child's unearned income - early withdrawal penalties - $950.00 - Greater than $950 or child's itemized deduction related to unearned income = Amount taxed at parents' rate ```
41
Can spouses married filing jointly use different accounting methods?
Yes; if they each own a small business. All non-business income is cash basis.
42
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
43
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.
44
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.
45
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)
46
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)
47
Which depreciation table is used for personal tangible property related to farming?
MACRS 150
48
How long does the taxpayer have to petition the court for appeal after an audit?
90 days
49
If no petition to appeal is filed; how long does a taxpayer have to pay tax due after an audit?
10 days
50
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.
51
How is non-business bad debt deducted on a 1040?
It is treated as a short-term casualty loss.
52
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.
53
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.
54
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.
55
What interest income is tax free?
State & municipal bond interest US EE Savings Bond interest (note: HH bond interest is taxable)
56
Which dividend income is tax free?
S-corporation (actually distributions) Life insurance
57
How much social security income can be taxed for individuals in higher income brackets?
Up to 85%
58
Is unemployment compensation taxable?
Yes.
59
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.
60
Are workman's compensation insurance benefits taxable?
No - similar to an award for damage to make a person whole.
61
Which of the following are taxable: Child Support; Divorce Property Settlements; Alimony
Alimony IS taxable. Child support and divorce property settlements are NOT taxable.
62
Adoption expenses - Are they deductible?
NO; they are not deductible. However tax benefits are available through the adoption CREDIT.
63
Describe alimony recapture.
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
64
How are Net Operating Losses (NOLs) utilized?
Can be carried back 2 years If any left; can be carried forward 20 years.
65
Which IRA contributions are deductible?
Traditional IRA = deductible Roth IRA = not deductible
66
When can a couple file married filing jointly?
They must be married at the end of the year. If one spouse dies; they must be married at the end of the year.
67
What are the requirements for filing as Head of Household?
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
68
What are the requirements for filing as qualifying widower?
Must have a dependent child. Essentially gets MFJ status for the year of death + 2 tax years
69
How do you arrive at tax due/refund?
``` Gross income (Adjustments) =AGI (Standard or itemized deduction) (Exemptions) =Taxable income (regular/AMT) ``` ``` Federal income tax (Tax credits) Other taxes (Payments) =Tax due/refund ```
70
What constitutes gross income?
``` Wages Interest Dividends State tax refund Alimony rec'd Business income Capital g/l IRA income Pension & annuity Rental income/loss K-1 income/loss Unemployment compensation SS benefits Other ```
71
What are adjustments from gross income (deduction to arrive at AGI)?
*anyone is automatically allowed any adjustment in any amount, any time, always ``` Educator exp IRA Student loan interest exp Tuition & fee deduction HSA Moving exp 1/2 S-E FICA S-E health ins S-E retirement Interest withdrawal penalty Alimony paid ```
72
What are the parts of itemized deductions?
*together this team is tested & if triumphant, they are tax deductible. If not, trash & use freebie ``` Medical (in excess of 7.5% AGI) Taxes - state/local (income/sales & prop) Charity (up to 50% AGI) Casualty/ Theft (in excess of 10% AGI) Misc (in excess of 2% AGI) Other misc ```
73
Typically tested for charitable contrib limitation
- overall limit = 50% AGI 1. Cash - may be all 50% 2. General prop - lesser of basis or FMV 3. Long term appreciated property - lesser of - 30% AGI - remaining amt to reach 50% after cash contributions
74
How do you find taxable inc?
``` Gross inc (Adjustments) --------------- AGI (Std OR itemized ded) (Exemptions) ----------------- Taxable inc ```
75
How to find your tax due/refund
``` Federal inc tax (Tax credits) Other taxes (Pmts) -------------- Tax due/refund ```
76
What are adjustments
ABOVE THE LINE (above AGI) Deduction to arrive at AGI *anyone automatically allowed, any amt, any time
77
What is a deduction
BELOW THE LINE (below AGI) ``` Standard = 1040EZ Itemized = tested together - triumphant or trash ```
78
Amount of 2014 personal exemption
$3950
79
Dependency status - qualifying child
CARES - Close relative - Age limit (19/24 college) - Residence and filing requirements - Eliminate gross inc test - Support test changes (prove child didn't provide over half of own support)
80
Dependency exemption - qualifying relative
SUPORT - Support test - Under exemption amt of taxable GI - Preclides dependent filing on joint return - Only citizens of US, Mex, or Can - Relative - Taxpayer lives with ind for whole year (of non-relative)
81
Personal exemption phase out
``` 2% for every $2500 (1250 married filing sep) of AGI over: Joint - 305,050 HOH - 276,650 Single - 254,200 Married filing sep - 152,525 ```
82
Realization vs recognition
Realization - what really happens in real world Recognition - what is recorded in records
83
General, all _____ is taxable
Interest Excluded: state and local govt bonds
84
Tax free distriubtions
Return of cap Stock split Stock div Life ins div
85
How to treat inventory (S-E)
Cap - DM, DL, factory OH | Exp - selling, general, admin, R&D
86
Workers comp vs. unemployment comp
Workers comp - tax free | Unemployment comp - taxable (gross inc)
87
Net earnings from self employment
``` Business inc (Business exp) --------------- Net bus inc (1/2 SE tax) (Keough ded) ------------- Keough NE ```
88
Formula for deductible medical exp
``` Qualified medical exp (Insurance reimbursement) ------------------- Expenses "paid" (10% AGI) ------------------ Deductible medical exp ```
89
Maximum allowable ded for charitable contributions
Cash = 50% AGI | FMV Property = 30% AGI
90
Formula for casualty and theft losses
``` Smaller of: 1. Cost/adjusted basis or 2. Decreased FMV (Insurance recovery) ----------------- Taxpayers loss ($100) ----------------- Eligible loss (10% AGI) ----------------- Deductible loss ```
91
Calculation for general business credit
Tent tax 0-25000 * 100% = 1. Excess * 75% = 2. Max credit allowed = 1 + 2
92
AMT calculation
``` Regular taxable income +/- adjustments + preferences ---------------- AMTI (Exemption) ------------- AMT base * tax comp ----------- Tentative AMT (Tax credits) -------------- Tentative min tax (Regular inc tax) -------------- AMT ```

REG - Tax (11 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2025 Bold Learning Solutions. Terms and Conditions