REG Flashcards
(37 cards)
Requirements that enable a taxpayer to be classified as a “qualifying surviving spouse” are? (Must meet all requirements)
The taxpayer’s spouse died in one of the two previous years and the taxpayer did not remarry in the current tax year;
The taxpayer has a child who can be claimed as a dependent;
This child lived in the taxpayer’s home for all of the current tax year;
The taxpayer paid over half the cost of keeping up a home for the child;
The taxpayer could have filed a joint return in the year the spouse died.
What is the exception to having to file a joint return if you’re married?
If the parties are married but are legally separated under the laws of the state in which they reside, they cannot file a joint return (they will file either under the single or head of household filing status).
If a taxpayer’s spouse die in the current year what does the taxpayer’s filing status have to be for the current year?
The surviving spouse is considered to be married (and thus able to file as married filing jointly) for the entire current year even if the spouse dies earlier in the year.
What are the qualifications/requirements to have the Head of Household filing status?
Head of household filing status is available to a single taxpayer who maintains a separate home for a dependent parent. To qualify for head of household filing status, a taxpayer must be unmarried as of the last day of the tax year and maintain a home that is the principal residence of a qualifying person for more than half of the tax year. A qualifying person includes a dependent child, parent, or relative. A dependent parent is not required to live with the taxpayer, provided the taxpayer maintains a home that was the principal residence of the parent for the entire year.
What are advantages of filing as “Qualifying surviving spouse”?
A qualifying surviving spouse is a taxpayer who may use the married filing jointly tax return standard deduction and rates for each of two taxable years following the year of death of his or her spouse.
Qualifying Child Test
CARES
Close relative - son, daughter, stepson, stepdaughter, brother, sister, stepbrother, stepsister, or descendant of any of these. Including adopted by taxpayer or foster child who is placed with taxpayer by law or authorized placement agency.
Age limit - Depends on benefit. Child must be: younger than tax payer and under age 19 (or age 24 as a full-time student (5 months of the year)). No age limit applies to individuals who are totally and permanently disabled at any time.
Residency and filing requirements - Must have same principal residency as the taxpayer for more that half of the tax year. Must be a citizen of US or resident of US, Canada, or Mexico
Eliminate gross income test - Gross income test does not apply to qualifying child
Support Test - Child must not have contributed more than half of his or her own support - supports means the actual expenses incurred by or on behalf of the dependent - social security and state welfare payments are included in dependents total support. Scholarships are not included in determining the support
Qualifying Relative Test
SUPORT
Support test - Taxpayer must have supplied more than greater than %50 of the support of a person in order to claim him or her as qualifying relative
Under a specific amount of taxable gross income test - A person may not be claimed as a qualifying relative unless the qualifying relatives’ gross income is less than $5,200 (2025).
Precludes dependent filing a joint tax return test - Does not meet relative if a married dependent who files a joint return, unless: there is no tax liability on the couples join return; and there would be liability on either spouse’s taxes if they had filed separately.
Only citizens (residents of U.S./Canada or Mexico) test - A citizen of the US or resident of US, Mexico, or Canada
Relative test - children, grandchildren, parents, grandparents, brothers, sisters, aunts and uncles, nieces and nephews, and all step relationship. Foster parents and cousins are not considered relatives.
Taxpayer lives with individual for whole year test - Any non-relative that lives with taxpayer for entire year.
Gross Income Limitation
$5,200 (2025)
Is Interest always taxable?
Except for interest from state and local government bonds, interest income is fully taxable, so interest is included in income.
Is Alimony in the year after divorce taxable?
Yes
If, at the employers request, the taxpayer is to move to a different state and the employer will reimburse 80% of the moving expenses. Are those reimbursements taxable?
The employer’s reimbursement of the taxpayer’s moving expenses is considered a fringe benefit. Unless the fringe benefit is specifically excluded from taxation, the value of the reimbursement is considered taxable income of the employee. As such, the reimbursement will increase the employee’s taxable income. Furthermore, the portion of the expenses that was not reimbursed is not deductible by the employee. Moving expenses are only deductible if they are incurred by members of the U.S. Armed Forces moving pursuant to a military order.
What two things must a gain be in order to be taxable?
Realized: Requires the accrual or receipt of cash, property, or services; or a change in the form or nature of the investment (a sale or exchange)
Recognition: Means that the realized gain must be included on the tax return and cannot be excluded or deferred.
Bargain Purchases for gross income.
If an employer sells property to an employee for less than its FMV, the difference is income to the employee.
Taxable Fringe Benefits
FMV of fringe benefit not specifically excluded by law is includable in income. i.e. company car
Amount included is subject to employment taxes and income and FICA tax withholdings.
Are Roth contributions made by the employer to an employee’s 401(k) account included in employee’s income?
Yes
Taxable portion of life insurance premiums
Premiums paid by by an employer on a group term life insurance policy covering the employees are not income to the employees up to the cost on the first $50,000 of coverage per employee.
Premiums above the first $50,000 of coverage are taxable income to the recipient and normally included in W-2 wages.
Nontaxable Fringe benefits
Accident, Medical, and Health Insurance (Employer-Paid)
-Premium payments are excludable from the employee’s income when the employer paid the insurance premiums.
Amounts paid to the employee under the policy are includable in income unless such amounts are:
-reimbursement for medical expenses actually incurred by the employee; or
-compensation for the permanent loss, or loss of use, of a member or function of the body.
De Minimis Fringe Benefits
-So minimal they are impractical. i.e. employee’s use of a company computer
Meals and Lodging’
-Gross income of an employee does not include the value of meals or lodging furnished to him or her in kind by the employer for the convenience of the employer on the employer’s premises.
-In order to be nontaxable, the lodging must be required as a condition of employment
Employer Payment of Employee’s educational expenses
- Up to $5,250 may be excluded from gross income for payments made by the employer on behalf of an employee’s educational expenses and/or student loans.
-exclusion applies to both undergrad and grad level education
Employee Adoption Assistance Program
-For 2025, a taxpayer can exclude from taxable income up to $17,280 of qualified adoption expenses paid by an employer.
-Exclusion is phased out for taxpayers with MAGI of $259,190 to $299,190 (2025)
Dependent Care Assistance
-Employees can exclude from gross income up to $5000 of benefits paid or reimbursements by an employer for dependent care expenses. (under 13, a spouse or other mentally or physically incapable)
Qualified Tuition Reduction
-Employees of educational institutions studying at the undergraduate level who receive tuition reductions may exclude the tuition reduction from income
-Graduate students may exclude tuition reduction only if:
They are engaged in teach or research activities
the tuition reduction is in addition to the pay for the teaching or research.
-To be excludable, tuition reductions must be offered on nondiscriminatory basis
Qualified Employee Discounts
-Merchandise Discount
Limited to the employers gross profit percentage
any excess reported as income
-Service Discounts
Excludable discount on services is limited to 20 percent of the
FMV of the services
Any excess discount must be reported as income
-Employee provided parking - up to $325 per month
-Transit Passes - up to $325 per month
Qualified non-Roth Retirement Plans
-Contributions by employer to non-roth account
-Contributions made by employee non-roth account
-Benefits Received
Flexible Spending Arrangements (FSAs)
-Allows employees to receive a pre tax reimbursement of certain (specified) incurred expenses.
-Employees have the ability to elect to have part of their salary (generally up to $3300 2025) to FSA
-employee has option to use the deposited funds to pay for qualified health care and or qualified dependent care costs, and submits claims for reimbursement
-must be done via salary reduction directly by the employer, and employee not taxed on that income.
- Generally employee must use money in an FSA within Flan year
-Funds not used 2 1/2 months after ye are forfeited
-Employer may amend plan to carry over up to $660
Taxable Interest income
Interest from fed bonds, industrial dev bonds, and corp bonds
interest paid by fed or state gov for late payment of a tax refund is taxable
Part of proceeds from installment sale is taxable as interest
certain taxpayers and certain bonds
-amortization of bond premium is offset to interest received;
-the amortization of a bond discount is an addition to the int received and an addition to the bonds basis
Tax-Exempt Interest
State and Local Government Bonds/Obligations
-interest on state and local bonds not taxable
-mutual fund dividends for funds invested in tax-free bonds are also tax-exempt
Bonds of US possession
-Interest on the obligation of a possession of the US, such as Guam or Puerto Rico, is tax-exempt
US Series EE Savings Bonds - Educational expense
Forfeited Interest (Adjustment to Gross)
Penalty for early withdrawals of savings
the bank credits the interest to the taxpayer’s account, and in seperate transaction, removes certain interest as a penalty for withdrawing the funds before maturity
Interest received is taxable on the taxpayer’s income tax return, but the amount forfeited is also deductible as an adjustment in the year the penalty is incurred.
Dividend Income
Sources Determine Taxability
-Dividend on Schedule B
-A dividend is defined by the IRC as a distribution of property by a C corporation out of the company’s earnings and profits (Retained Earnings)
-Taxability of the dividend is determined by the amount of the company’s earnings
From corporate earnings and profits = Taxable dividend
If there are no earnings and profit but taxpayer has no basis in stock = nontaxable and reduce basis on stock
If there are no earnings and profits and taxpayer has no basis in stock = Taxable capital gain income
Distributions From Traditional IRAs - taxable or nontaxable?
Taxable income are taxable if the taxpayer took a deduction for the contribution when made. Distributions of earnings are always taxable whether or not the taxpayer deducted the contribution made.
A distribution from a nondeductible, traditional IRA is allocated between principal (contributions) and earnings pro rata based on relative amounts in the IRA account at the time of distribution
Taxpayers required to make minimum distributions by April 1 of the year following the year they turn 73
Distributions from Roth IRAs - Taxable or nontaxable
distributions of principal (contributions) from a Roth IRA are never taxable because taxpayers are not allowed to deduct contributions to a Roth IRA
Distributions of earnings from a Roth IRA are only taxable if the distribution is a nonqualified Roth distribution
What is a qualified distribution from a Roth IRA?
Is made at least five years after the first day of the year in which the taxpayer made his or her first contribution to the Roth IRA; and
Meeting one of the following requirements:
-taxpayer is age 59.5 or older
-taxpayer is disabled
-taxpayer is a first time homebuyer (has not owned a home for two years) and uses the distribution to purchase a home (max $10,000); or
distribution is made to a beneficiary after the taxpayers death.
