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Flashcards in M2 Deck (42):
1

Gifts and inheritences

Gifts and inheritences are both tax free to the recepient ( Tax is often paid by the person giving the gift or the estate upon death)

2

Damages for personal injury-workers comp

specifically excludede from gross income

3

Payment for university sponsored research

no exclusion under tax law even if for benefit of university

4

Social security benefits

85% of the social security benefits is the maxium amount to be included in gross income

5

Interest

State and local obligations are not taxable . However federal obligations and interest on state and federal tax are taxable

6

Unemployment compensation

Included in Gross income

7

prizes and awards

Generally the fair market value of prizes and awards is taxable income. However there is an inclusion when the following conditions are met . When the winner is selected for the award without any action on the winenrs part and than assigns the award to a government unit or charitible organization

8

accruable expenses

one which the services have been received/performed but have not been paid for by the end of the reporting period

9

Individual capital loss maximum

$3000

10

Scholarships

are non-taxable to degree seeking students to the extent that all the proceeds are spent on tuition , fees, books and supplies.

11

property settlements out of divorce

Are not taxable

12

Amortization of premium of a bond

The bonds basis is reduced by amortization

13

Stock trade

Whether on the cash or accrual method of accounting the sale of stock, must recognize gains and losses on the trade date rather than the settlement date

14

IRA Penalty

Amount withdrawn * Marginal tax rate+ Amount withdrawn *10% penalty rate

15

Taxable interest

includes amounts received from general investment accounts as well as interest on federal obligations . Interest received from state and municipal are not taxable.

16

HIM dead

It is important to note that if amounts removed have been previously deducted on the TP tax return, there that amount is taxable

17

if question says paid alimony of $10K to be reduced by 20% on childs 18 bday

this means that 20% is child support and the remaining 80% is alimoney

18

state tax refund from prior year

if TP claimed standard deduction, this means that the state tax was not deduction in the year paid therefore it is not taxable

19

Group term life insurance

the first $50 K is a non taxable fringe benefit. Amounts exceeding this are taxable based on tax tables

20

Annuity

Only prorated amount of cost recovery is not taxable. Total purchase amount/ months of life expectancy =Y
Y* number of months in the current year receiving payments

21

Alimony

Includes only payments received in cash or cash equivalents ( payment if bills on behalf of ex spouse

22

Life insurance policy

Total amount/total yers = non taxable portion

23

Jury duty fees

Adjustment to AGI

24

Interest income on EE bonds

tax exempt is using for higher education if purchaser of bonds is sole owner of bonds or joint owner with his or her spouse, TP is over 24 when issued,, reduced by tax free scholarships of the tax payer, spouse or dependant childen

25

Cash basis tax payer

should report income for the year in which income is either actually or constructively received whether in cash or property

26

1040ez

means that clark did not itemize in the prior year and therefore did deduct any sales income taxes last year. Under the tax rule the refund is not taxable this year because the TP did not deduct the tax last year

27

Life insurace proceeds

Life insurance proceeds on the life of an officer when the corp is the owner and beneficiary are not reported as taxable income of the corporation. Also any expense related to the premiums would not have been deduction by the corp

28

State and local tax refunds

The receipt of a state or local income tax refund in a subsequent year is not taxable if the taxes paid did not result in a tax benefit in the prior year. If itemized in prior year = state or local refund is taxable . If standard deduction used = non taxable

29

Accountable plan vs non accountable plan

non - accountable - any amt received from employer is part of gross income

30

rental property

if used personally more than 14 days any net loss from the rental property will be disallowed. All related expense must be prorated between the personal use portion and the rental activity portion

31

Uniform capitalization rules

Purchases of inventory for resale may deduct their marketings costs but must capitilize their offsite storage costs

32

Deductions to arrive to self employment income

All neccesary and ordinary expenses connected with the business. Estimted federal income tax is not an expense

33

taxable income

value of money or fair value of property, not amount billed

34

AR formula

Begin R+ sales-CC= ending AR . Accrual basis taxable income in sales

35

Uniform cap rules application

real or tangible property produced by TP for use in his trade of business or for sales to his customers or for resale

36

Prepaid rent

Prepaid rent is income when received even for an accrual based tax payer

37

Uniform cap rules

DM, DL and factory overhead are capitalized

38

Vacation residence

If a vacation residence is rented for less than 15 days per year, it is treated as a personal residence, the rental income is excluded from income. Depreciation, utilities and repaids are not deductible

39

Net rental income

Gross rental income +prepaid rental income+rent cancellation payments+ improvement in lie of rent - rental expenses. If security deposits are not held sep than include as rental income otherwise liability

40

net self employment income

Owner or spouse salary is considered a draw and not a deduction. Also if owner gets paid a salary he is paying taxes on net income, therefore his salary will not be included in his tax return as taxable income

41

Schedule C

no personal deductions allowed. Onlt those items related to operations and business itself.

42

Uniform capitilzation rules

do not apply to inventory acquired for resale if TP average gross receipts for the preceeding three tax years do not exceed $10m