Brainscape's Knowledge GenomeTM


Top Flashcards (Certified)
All Flashcards

REG > REG > Flashcards

REG Flashcards

(338 cards)

Start Studying
1
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
2
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
*Attorney fees in discrimination lawsuit

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
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
4
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
5
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
6
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
7
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
8
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
9
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
10
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
11
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
12
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
13
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
14
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
15
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
16
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
17
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
18
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
19
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
20
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
21
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
22
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
23
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
24
Q

How are medical expenses deducted on a 1040?

A

On Schedule A:

Amounts in excess of 10% of AGI may be deducted

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
25
Which personal insurance premiums are not deductible as medical expenses on Schedule A?
Accident or disability insurance premiums are not deductible.
26
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.
27
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.
28
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.
29
What investment interest is never deductible?
Investment interest expense on tax-free securities is not deductible.
30
When are mortgage points deductible and how are they deducted?
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.
31
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
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
Does a casualty loss affect the basis of property?
No. It decreases the fair market value (FMV) of the property.
34
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
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
Which itemized deductions are not subject to phaseout based on income or other factors?
Medical Casualty Gambling Investment Interest Expense
37
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
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
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
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
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
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
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
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
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
Which depreciation table is used for personal tangible property related to farming?
MACRS 150
47
How long does the taxpayer have to petition the court for appeal after an audit?
90 days
48
If no petition to appeal is filed, how long does a taxpayer have to pay tax due after an audit?
10 days
49
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
How is non-business bad debt deducted on a 1040?
It is treated as a STCL
51
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
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
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
What interest income is tax free?
State & municipal bond interest US EE Savings Bond interest (note: HH bond interest is taxable)
55
Which dividend income is tax free?
S-corporation (actually distributions) Life insurance
56
How much social security income can be taxed for individuals in higher income brackets?
Up to 85%
57
Is unemployment compensation taxable?
Yes.
58
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
Are workman's compensation insurance benefits taxable?
No - similar to an award for damage to make a person whole.
60
Which of the following are taxable: Child Support, Divorce Property Settlements, Alimony
Alimony IS taxable. Child support and divorce property settlements are NOT taxable.
61
Adoption expenses - Are they deductible?
NO, they are not deductible. However tax benefits are available through the adoption CREDIT.
62
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
63
How are Net Operating Losses (NOLs) utilized?
Can be carried back 2 years If any left, can be carried forward 20 years.
64
Which IRA contributions are deductible?
Traditional IRA = deductible Roth IRA = not deductible
65
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.
66
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
67
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
68
How is Gift taxation different from Estate taxation?
Property transferred while taxpayer is living
69
What is the annual exclusion amount for a taxpayer's Gift taxation? What is required to get the exclusion?
$14,000 per year per spouse to each individual In order to get the exclusion, the recipient must immediately acquire a present interest in the property and get unrestricted access to the property and all of its benefits
70
If a Gift is an annuity, what value is used for the Gift?
If the Gift is an annuity, use Present Value to determine the gross Gift
71
What is the basic Gift tax calculation?
Gross Gifts - 1/2 of Gifts (treated as given by spouse) - Total # of donees x $14,000 exclusion = Taxable Gift
72
How is a Gift taxed if a recipient gains a future ownership in the Gifted property?
Recipient must gain ownership and all rights to property to get the annual exclusion. If recipient merely gains a future ownership, then the present value of the Gift is 100% taxable to donor and cannot exclude from Gift tax calc
73
What are the deductions for Gift tax, besides the annual exclusion?
Tuition and medical expenses paid directly to the provider organization (note: NOT books or dorm fees) Political contributions Charitable Gifts Unlimited Gifts to spouse
74
What is the basis of Gifted property for the recipient?
If a loss on sale, basis is FMV on the date of the Gift If a gain on sale, basis is same as donor's basis No G/L if donor basis is less than sales price, and sales price is less than FMV @ Gift date
75
How/when are Gift tax returns filed?
Calendar-year basis only Due April 15
76
What are the basic characteristics of complex Trust?
Income distributions are optional Accumulation of income ok Charitable contributions ok Contributions using tax-exempt income are not deductible Allowed personal exemption of $100 Key Point: Distribution of Trust corpus (principal) ok
77
What are the basic characteristics of a Simple Trust?
Income distributions mandatory Accumulation of income disallowed No charitable contributions Distribution of Trust corpus DISALLOWED Allowed personal exemption of $300
78
How are Net Operating Losses handled in a Trust?
Trusts can have a Net Operating Loss Any unused NOL flows through to the beneficiaries
79
How are expenses and fees related to tax-exempt income handled in a Trust?
Expenses and fees from tax-exempt income are not deductible for either a Complex or Simple Trust
80
When is property transferred in an Estate?
After the death of the donor
81
What amount of a decedent's Estate is exempt from Estate Tax?
The First $5,250,000 is exempt with a 40% tax on amount above that
82
How are a decedent's medical expenses handled with respect to an Estate?
Medical expenses paid after death, but incurred within 1 year of death go on decedents personal tax return
83
How is an Estate's NOL handled?
Estates can have a Net Operating Loss Any unused NOL flows through to the beneficiaries
84
What does a gross Estate consist of?
Cash and Property FMV at death, or alternate valuation.
85
What is joint tenancy with respect to an Estate? How is it calculated?
When two non-spouses jointly own property FMV at death X % Ownership = Amount in Estate
86
What is tenancy by entirety?
1/2 of marital assets go to deceased spouses Estate
87
What is tenancy in common in an Estate?
A, B, and C own property If A dies, FMV of As share goes to heirs
88
How is Estate tax handled with respect to a beneficiary?
Property received through inheritance not income to recipient Property value is FMV at date of death or 6 months later If property is sold prior to 6 month date and the alternative date is used, FMV at date of sale is used to value property Basis in property automatically assumes LT holding period
89
What is distributable net income (DNI)?
DNI = Taxable Income Expenses (from income production) Trust beneficiaries only pay tax if earnings are distributed Estate beneficiaries pay tax on DNI, regardless if distributed
90
When must a tax exempt organization file a 990-T for Unrelated Business Income?
If a tax exempt organization has more than $1,000 of UBI, it must file a Form 990-T
91
What are the requirements for a 501(c)3 organization?
Organized and Operated exclusively for exempt purposes No earnings can benefit an individual or private shareholder Cant attempt to influence legislation as a major part of its activities Cant campaign politically
92
Under what accounting basis are individual tax returns prepared?
Cash Basis. Note: This basis is NOT allowed for Corporations, Partnerships with a C-Corp partner, or for inventories.
93
What are the deductions to arrive at Adjusted Gross Income (AGI) for individuals?
*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 *Attorney fees in discrimination lawsuit
94
Which items can be carried over to future years on an individual tax return?
Investment interest expense in excess of investment income Charitable contributions Excess Section 179 Capital losses AMT Paid Passive Activity Losses
95
Characterize the following carryover: Passive Activity Loss
No carryback Can carry forward indefinitely
96
How is excess 179 expense carried forward?
Carry forward to next year. Use in any year is limited to taxable income.
97
How long can investment interest expense in excess of investment income be carried forward?
Indefinitely.
98
How long is the carry forward for charitable contributions?
Can be carried forward 5 years.
99
How long is AMT paid carried forward, and how is it applied?
It can be carried forward indefinitely. It may be applied against future *regular* income tax, but not against future AMT tax liability.
100
How are capital losses applied in individual taxes?
$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).
101
How does an individual capital loss carryover differ from a corporate capital loss carryover?
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.
102
What ratio is applied to principle payments in an installment sale to determine the gain in a given year?
Gross Profit / Contract Price
103
What is the contract price in an installment sale for income tax purposes?
Contract Price = Sales Price - Liability assumed by buyer
104
On an individual return, regular mortgage interest on what loan amount is deductible?
$1,000,000
105
Interest on home equity loans up to what amount are deductible on an individual tax return?
$100,000
106
What business gift amounts are deductible on Schedule C of form 1040? What amount for service awards?
$25 per person for gifts Service awards up to $400
107
What income can business losses offset on a 1040?
They may only offset active business income. Note: W2 wages are considered active business income.
108
What income can passive losses offset on a 1040?
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)
109
Are interest and dividends active or passive income?
Neither. They are portfolio income.
110
What is (are) the depreciation convention(s) for personal property?
Mid-year/Mid-quarter
111
When is the mid-quarter convention used?
For depreciation when 40% or more of all purchases occur in 4th quarter.
112
What depreciation convention is used for real property?
Mid-month
113
What depreciation life and convention are used for leasehold improvements?
15 year straight line (S/L)
114
What amount of business start-up costs can be deducted? How is it expensed?
Up to $5,000 Amortized over 180 months Reduced dollar-for-dollar by amount over $50,000
115
How are medical expenses deducted on a 1040?
On Schedule A: Amounts in excess of 10% of AGI may be deducted
116
Which personal insurance premiums are not deductible as medical expenses on Schedule A?
Accident or disability insurance premiums are not deductible.
117
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.
118
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.
119
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.
120
What investment interest is never deductible?
Investment interest expense on tax-free securities is not deductible.
121
When are mortgage points deductible and how are they deducted?
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.
122
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
123
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.
124
Does a casualty loss affect the basis of property?
No. It decreases the fair market value (FMV) of the property.
125
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
126
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
127
Which itemized deductions are not subject to phaseout based on income or other factors?
Medical Casualty Gambling Investment Interest Expense
128
Define qualifying child for most individual tax factors.
Must be resident of North America Under age 19, or under age 24 if a student
129
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
130
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
131
Can spouses married filing jointly use different accounting methods?
Yes, if they each own a small business. All non-business income is cash basis.
132
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)
133
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.
134
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.
135
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)
136
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)
137
Which depreciation table is used for personal tangible property related to farming?
MACRS 150
138
How long does the taxpayer have to petition the court for appeal after an audit?
90 days
139
If no petition to appeal is filed, how long does a taxpayer have to pay tax due after an audit?
10 days
140
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.
141
How is non-business bad debt deducted on a 1040?
It is treated as a STCL
142
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.
143
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.
144
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.
145
What interest income is tax free?
State & municipal bond interest US EE Savings Bond interest (note: HH bond interest is taxable)
146
Which dividend income is tax free?
S-corporation (actually distributions) Life insurance
147
How much social security income can be taxed for individuals in higher income brackets?
Up to 85%
148
Is unemployment compensation taxable?
Yes.
149
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.
150
Are workman's compensation insurance benefits taxable?
No - similar to an award for damage to make a person whole.
151
Which of the following are taxable: Child Support, Divorce Property Settlements, Alimony
Alimony IS taxable. Child support and divorce property settlements are NOT taxable.
152
Adoption expenses - Are they deductible?
NO, they are not deductible. However tax benefits are available through the adoption CREDIT.
153
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
154
How are Net Operating Losses (NOLs) utilized?
Can be carried back 2 years If any left, can be carried forward 20 years.
155
Which IRA contributions are deductible?
Traditional IRA = deductible Roth IRA = not deductible
156
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.
157
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
158
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
159
How is shareholder basis calculated for a new interest in a Corporation?
Adjusted basis of property transferred + Gain recognized (if less than 80% ownership) - Boot received = Shareholder basis. If shareholders have 80% control after a property transfer, no taxable event occurs. If liabilities exceed basis on contributed property to a Corporation, a gain is recognized.
160
How is shareholder basis calculated for a TRANSFEROR of an interest in a Corporation?
Transferor's basis + Gain recognized by shareholder = Basis OR FMV of Corporate Interest - Adjusted basis of property = Gain
161
What basis do shareholders and Corporations use for property?
They both use ADJUSTED BASIS, NOT FMV of property.
162
Describe how loss is taken on Section 1244 small business Corporation stock?
A loss on worthless stock is an ordinary loss.
163
What are the requirements for taking an ordinary loss on Section 1244 small business Corporation stock?
Taxpayer must be original stock owner, and either an individual or partnership $50k (single) or $100k (MFJ) limit - remainder is a capital loss Must have been issued in exchange for money or property (not exchanged for services) Shareholder equity must not be in excess of $1 million Both common and preferred stock is allowed
164
What are the basic rules for filing a form 1120?
Return is due regardless of income level Return is due 3/15 if on a calendar year basis, or 2 1/2 months after end of fiscal year An automatic six-month extension is available
165
When are Corporate federal tax estimated payments required, and how are they calculated?
Required if more than $500 in tax liability expected, or 100% current year liability 100% previous year liability Note: If Corporation had more than $1 Million in revenue the previous year, the first estimated payment must be based on the previous year and the remainder based on the current year.
166
Describe the AMT calculation for C-Corporations
``` Taxable Income +Tax Preference Items +/- Adjustments = Pre-ACE +/- ACE Adjustments = AMTI - 40,000 Exemption = Tax Base x 20% = Tentative Minimum Tax - Regular Tax Liability = AMT ```
167
What are the pre-ACE adjustments for C-Corporation tax AMT calculations?
Real Estate purchased between 1986 and 1999 using Straight Line Depreciation must depreciate over a useful life of 40 years Personal Property - use 150% MACRS, not 200% Construction must use % completion method
168
What are the ACE adjustments in the C-Corporation AMT tax calculation?
Municipal Bond Interest Life Insurance Proceeds 70% Dividends Received Deduction Organizational Expenditures must be capitalized, not amortized Note: AMT paid gets carried forward indefinitely, but never carried back
169
When are C-Corporations exempt from AMT?
In year one In year two, if year one gross receipts were less than $5 Million In year three, if the average gross receipts for years 1 and 2 were less than $7.5 Million In year four and beyond, if the average from the previous 3 years is less than $7.5 Million
170
How are gains and losses handled with respect to a Corporation's transactions involving its own stock?
Corporations have no gain/(loss) from transactions involving their own stock, including Treasury Stock. If Corporation gets property in exchange for stock, there is no gain/(loss) on the transaction.
171
How are Corporate organization costs handled?
Amortization of costs begin the month the Corporation commences business activity If the Corporation doesn't amortize organization costs in year one, they can never be amortized Costs associated with offerings are neither deductible nor amortized
172
How are a C-Corporation's deductible charitable contributions calculated?
Sales -COGS= Gross Profit Gross Profit + Rent, Royalties, Gross Dividends, Capital Gains =Total Income Total Income - Deductions (No charitable contributions, Dividends Received Deductions (DRD), or NOL Carrybacks allowed) - NOL Carryforwards =Taxable Income before charitable contributions, DRD, NOL Carrybacks x 10% =Deductible Charitable Contributions
173
How are excess charitable contributions treated in a C-Corporations?
Excess charitable contributions get carried forward 5 consecutive years (No Carryback)
174
When can a board of directors authorize charitable contributions for a tax year?
The Board of Directors can authorized charitable contributions up to 3/15 and have them count in the previous tax year
175
How is the dividends received deduction (DRD) calculated, and what are the limitations?
80% Interest = 100% DRD 20-79% = 80% DRD less than 20% = 70% DRD Only allowed if no consolidated return is filed. Qualified dividends from domestic Corporations only.
176
What is the Dividends Received Deduction (DRD) calculation when there is a loss from operations?
Only take DRD % x Taxable Income Note: If DRD brings a loss situation, then you can take the full DRD If Taxable Income remains after DRD, only a partial DRD (T.I.. x DRD %) is allowed
177
How are Corporate losses on a sale to a Corporation where a taxpayer owns a 50% or more interest handled in a C-Corporation?
A loss on a sale to a Corporation where taxpayer owns a 50% or more interest is disallowed
178
How are capital losses handled in a C-Corporation?
Capital Losses are deductible only to the extent of Capital Gains
179
How are net short term capital gains taxed in a C-Corporation?
Net Short Term Capital Gains are taxed at ordinary income rates
180
How are Corporate losses carried back/forward?
Corporations can carry back losses 3 years and carry forward losses 5 years as a Short Term Capital Loss
181
How are bad debt losses handled in a Corporation?
Bad debt losses are classified as ordinary
182
What is the casualty loss floor for a C-Corporation?
No floor on Corporate casualty loss like there is with an individual taxpayer If destroyed, the loss is the property's basis (minus proceeds) Calculation: Adjusted basis - Proceeds from Insurance = Loss If partially destroyed, take the lesser of FMV or adjusted basis reduction (minus proceeds)
183
How are net operating losses handled in a C-Corporation?
If loss includes NOL Carryforward, reduce the loss (add back the amount) to get the loss without the Carryforward Then, carry back the NOL 2 years starting with the earliest year and reduce the taxable income there and then move to the most recent year Any leftover NOL = This year's NOL
184
How is investment interest expense handled in a C-Corporation?
Unlike individual taxation, investment interest expense is not limited to investment income. Investment interest on tax-free investments are NOT deductible.
185
What is the purpose of Schedule M-1 on a Corporate tax return? Which items are included?
Schedule M-1 reconciles book to tax income before Net Operating Loss/Dividend Received Deduction Includes permanent differences (such as tax-exempt interest and non-deductible expenses) and temporary differences (accelerated depreciated tax depreciation, straight-line, etc.)
186
What is the purpose of Schedule M-2 on a Corporate tax return? How is it calculated?
Reconciles beginning to ending retained earnings Beginning Unappropriated Retained Earnings + Net Income + Other Increases - Dividends paid - Other decreases = Ending Unappropriated Retained Earnings
187
What is the purpose of Schedule M-3 on a Corporate tax return?
Like M1, but for Corporations with $10M+ in assets
188
How are affiliated (80%) Corporation tax returns handled?
Consolidation election is binding going forward Dividends between them are eliminated, Advantage- Gains are deferred, Disadvantage- losses are deferred. One AMT exemption One accumulated earnings tax allowed Note: In order to consolidate, the parent must have 80% voting power and own 80% of the stock value
189
How are Corporate distributions to shareholders handled?
Distribution is a dividend to the extent of current accumulated earnings and profits (ordinary income) Then, remainder (if any) is a return of basis. Then, add'l remainder (if any) is a Capital Gain Distribution amount = FMV of Property + Cash - Liability Assumed Shareholder basis = FMV of Property + Cash received (basis not reduced by the attached liability)
190
What is the order of treatment in a Corporation's distribution to a shareholder?
1. Distribution is a dividend to the extent of current and accumulated earnings and profits 2. Shareholder basis is then exhausted 3. Remainder, if any, is a Capital Gain
191
What is the basic calculation for accumulated earnings and profits in a Corporation?
Beginning Accumulated Earnings and Profits + Net Income + Gain on Distribution (if not already in book income) - Distribution (but cannot create a deficit) - NOL of prior years = Ending Accumulated Earnings and Profits
192
What is the treatment of a gain in a complete Corporate liquidation?
If Capital Property, then Capital Gain If Non-Capital Property, then Ordinary Income Gain characterization is the same for both the Corporation and the shareholder
193
What is the treatment of a loss in a complete Corporate liquidation?
Corporation: Depends on if property is capital in nature, otherwise ordinary loss Individual: capital loss only
194
What is the treatment of the liquidation of a subsidiary?
No G/L to parent company
195
What is a consent dividend? How is it treated?
Consented by the Board of Directors but not yet paid Treat as if distributed by the end of the year
196
Describe the requirements for a personal holding company.
No banks or financial institutions can be PHCs 5 or fewer individuals own more than 50% of the stock 60% of the PHC's income must be from passive means PHC tax is self-assessing - 20% tax rate on undistributed PHC Income
197
How is Corporate accumulated earnings tax (AET) different from PHC taxation?
Not Self-Assessing like a PHC
198
How is the accumulated earnings credit calculated for a Corporation?
Take greater of $250,000 ($150,000 for Service Corps) or the legitimate balance based on future needs (i.e. purchasing a building)
199
What are the requirements for holding S-Corporation status?
Only individuals, estates and trusts can be shareholders Domestic only, no international S-corps or foreign shareholders Up to 100 shareholders allowed, and only one class of stock allowed Calendar tax year only
200
How is an S-Corporation election made?
Election for S Corp status must be made by 3/15 and counts as being an S Corp since the beginning of the year To make election, 100% of the shareholders must consent
201
How is an S-Corporation terminated?
To terminate election, 50% of the shareholders must consent No S Corp election allowed for 5 years after termination S Corp termination effective immediately following an act that terminates status
202
What items are not included in calculating an S-Corporation's ordinary income?
These items are included on Schedule K, not in ordinary income: ``` Foreign Taxes paid deduction No Investment Interest expense Section 179 Deduction 1231 Gain or Loss Charitable Contributions Portfolio Income (dividends or interest) ```
203
How is S-Corporation shareholder basis calculated?
Beginning Basis +Share of Income Items (including non-taxable income!) -Distributions (cash or property) -Non-deductible expenses -Ordinary Losses (but don't take income below zero) = Ending basis
204
What is the formula for an S-Corp Built-in Gains Tax?
FMV of Assets @ S-Corp Election Date - Adjust. Basis of Assets = Built-in Gain x 35% Corporate Rate
205
# Ind Under what accounting basis are individual tax returns prepared?
Cash Basis. Note: This basis is NOT allowed for Corporations, Partnerships with a C-Corp partner, or for inventories.
206
# Ind What are the deductions to arrive at Adjusted Gross Income (AGI) for individuals?
*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 *Attorney fees in discrimination lawsuit
207
# Ind Which items can be carried over to future years on an individual tax return?
Investment interest expense in excess of investment income Charitable contributions Excess Section 179 Capital losses AMT Paid Passive Activity Losses
208
# Ind Characterize the following carryover: Passive Activity Loss
No carryback Can carry forward indefinitely
209
# Ind How is excess 179 expense carried forward?
Carry forward to next year. Use in any year is limited to taxable income.
210
# Ind How long can investment interest expense in excess of investment income be carried forward?
Indefinitely.
211
# Ind How long is the carry forward for charitable contributions?
Can be carried forward 5 years.
212
# Ind How long is AMT paid carried forward, and how is it applied?
It can be carried forward indefinitely. It may be applied against future *regular* income tax, but not against future AMT tax liability.
213
# Ind How are capital losses applied in individual taxes?
$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).
214
# Ind How does an individual capital loss carryover differ from a corporate capital loss carryover?
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.
215
# Ind What ratio is applied to principle payments in an installment sale to determine the gain in a given year?
Gross Profit / Contract Price
216
# Ind What is the contract price in an installment sale for income tax purposes?
Contract Price = Sales Price - Liability assumed by buyer
217
# Ind On an individual return, regular mortgage interest on what loan amount is deductible?
$1,000,000
218
# Ind Interest on home equity loans up to what amount are deductible on an individual tax return?
$100,000
219
# Ind What business gift amounts are deductible on Schedule C of form 1040? What amount for service awards?
$25 per person for gifts Service awards up to $400
220
# Ind What income can business losses offset on a 1040?
They may only offset active business income. Note: W2 wages are considered active business income.
221
# Ind What income can passive losses offset on a 1040?
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)
222
# Ind Are interest and dividends active or passive income?
Neither. They are portfolio income.
223
# Ind What is (are) the depreciation convention(s) for personal property?
Mid-year/Mid-quarter
224
# Ind When is the mid-quarter convention used?
For depreciation when 40% or more of all purchases occur in 4th quarter.
225
# Ind What depreciation convention is used for real property?
Mid-month
226
# Ind What depreciation life and convention are used for leasehold improvements?
15 year straight line (S/L)
227
# Ind What amount of business start-up costs can be deducted? How is it expensed?
Up to $5,000 Amortized over 180 months Reduced dollar-for-dollar by amount over $50,000
228
# Ind How are medical expenses deducted on a 1040?
On Schedule A: Amounts in excess of 10% of AGI may be deducted
229
# Ind Which personal insurance premiums are not deductible as medical expenses on Schedule A?
Accident or disability insurance premiums are not deductible.
230
# Ind 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.
231
# Ind 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.
232
# Ind 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.
233
# Ind What investment interest is never deductible?
Investment interest expense on tax-free securities is not deductible.
234
# Ind When are mortgage points deductible and how are they deducted?
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.
235
# Ind 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
236
# Ind 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.
237
# Ind Does a casualty loss affect the basis of property?
No. It decreases the fair market value (FMV) of the property.
238
# Ind 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
239
# Ind 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
240
# Ind Which itemized deductions are not subject to phaseout based on income or other factors?
Medical Casualty Gambling Investment Interest Expense
241
# Ind Define qualifying child for most individual tax factors.
Must be resident of North America Under age 19, or under age 24 if a student
242
# Ind 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
243
# Ind 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
244
# Ind Can spouses married filing jointly use different accounting methods?
Yes, if they each own a small business. All non-business income is cash basis.
245
# Ind 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)
246
# Ind 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.
247
# Ind 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.
248
# Ind 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)
249
# Ind 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)
250
# Ind Which depreciation table is used for personal tangible property related to farming?
MACRS 150
251
# Ind How long does the taxpayer have to petition the court for appeal after an audit?
90 days
252
# Ind If no petition to appeal is filed, how long does a taxpayer have to pay tax due after an audit?
10 days
253
# Ind 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.
254
# Ind How is non-business bad debt deducted on a 1040?
It is treated as a STCL
255
# Ind 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.
256
# Ind 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.
257
# Ind 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.
258
# Ind What interest income is tax free?
State & municipal bond interest US EE Savings Bond interest (note: HH bond interest is taxable)
259
# Ind Which dividend income is tax free?
S-corporation (actually distributions) Life insurance
260
# Ind How much social security income can be taxed for individuals in higher income brackets?
Up to 85%
261
# Ind Is unemployment compensation taxable?
Yes.
262
# Ind 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.
263
# Ind Are workman's compensation insurance benefits taxable?
No - similar to an award for damage to make a person whole.
264
# Ind Which of the following are taxable: Child Support, Divorce Property Settlements, Alimony
Alimony IS taxable. Child support and divorce property settlements are NOT taxable.
265
# Ind Adoption expenses - Are they deductible?
NO, they are not deductible. However tax benefits are available through the adoption CREDIT.
266
# Ind 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
267
# Ind How are Net Operating Losses (NOLs) utilized?
Can be carried back 2 years If any left, can be carried forward 20 years.
268
# Ind Which IRA contributions are deductible?
Traditional IRA = deductible Roth IRA = not deductible
269
# Ind 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.
270
# Ind 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
271
# Ind 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
272
Under what accounting basis are individual tax returns prepared?
Cash Basis. Note: This basis is NOT allowed for Corporations, Partnerships with a C-Corp partner, or for inventories.
273
What are the deductions to arrive at Adjusted Gross Income (AGI) for individuals?
*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 *Attorney fees in discrimination lawsuit
274
Which items can be carried over to future years on an individual tax return?
Investment interest expense in excess of investment income Charitable contributions Excess Section 179 Capital losses AMT Paid Passive Activity Losses
275
Characterize the following carryover: Passive Activity Loss
No carryback Can carry forward indefinitely
276
How is excess 179 expense carried forward?
Carry forward to next year. Use in any year is limited to taxable income.
277
How long can investment interest expense in excess of investment income be carried forward?
Indefinitely.
278
How long is the carry forward for charitable contributions?
Can be carried forward 5 years.
279
How long is AMT paid carried forward, and how is it applied?
It can be carried forward indefinitely. It may be applied against future *regular* income tax, but not against future AMT tax liability.
280
How are capital losses applied in individual taxes?
$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).
281
How does an individual capital loss carryover differ from a corporate capital loss carryover?
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.
282
What ratio is applied to principle payments in an installment sale to determine the gain in a given year?
Gross Profit / Contract Price
283
What is the contract price in an installment sale for income tax purposes?
Contract Price = Sales Price - Liability assumed by buyer
284
On an individual return, regular mortgage interest on what loan amount is deductible?
$1,000,000
285
Interest on home equity loans up to what amount are deductible on an individual tax return?
$100,000
286
What business gift amounts are deductible on Schedule C of form 1040? What amount for service awards?
$25 per person for gifts Service awards up to $400
287
What income can business losses offset on a 1040?
They may only offset active business income. Note: W2 wages are considered active business income.
288
What income can passive losses offset on a 1040?
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)
289
Are interest and dividends active or passive income?
Neither. They are portfolio income.
290
What is (are) the depreciation convention(s) for personal property?
Mid-year/Mid-quarter
291
When is the mid-quarter convention used?
For depreciation when 40% or more of all purchases occur in 4th quarter.
292
What depreciation convention is used for real property?
Mid-month
293
What depreciation life and convention are used for leasehold improvements?
15 year straight line (S/L)
294
What amount of business start-up costs can be deducted? How is it expensed?
Up to $5,000 Amortized over 180 months Reduced dollar-for-dollar by amount over $50,000
295
How are medical expenses deducted on a 1040?
On Schedule A: Amounts in excess of 10% of AGI may be deducted
296
Which personal insurance premiums are not deductible as medical expenses on Schedule A?
Accident or disability insurance premiums are not deductible.
297
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.
298
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.
299
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.
300
What investment interest is never deductible?
Investment interest expense on tax-free securities is not deductible.
301
When are mortgage points deductible and how are they deducted?
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.
302
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
303
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.
304
Does a casualty loss affect the basis of property?
No. It decreases the fair market value (FMV) of the property.
305
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
306
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
307
Which itemized deductions are not subject to phaseout based on income or other factors?
Medical Casualty Gambling Investment Interest Expense
308
Define qualifying child for most individual tax factors.
Must be resident of North America Under age 19, or under age 24 if a student
309
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
310
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
311
Can spouses married filing jointly use different accounting methods?
Yes, if they each own a small business. All non-business income is cash basis.
312
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)
313
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.
314
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.
315
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)
316
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)
317
Which depreciation table is used for personal tangible property related to farming?
MACRS 150
318
How long does the taxpayer have to petition the court for appeal after an audit?
90 days
319
If no petition to appeal is filed, how long does a taxpayer have to pay tax due after an audit?
10 days
320
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.
321
How is non-business bad debt deducted on a 1040?
It is treated as a STCL
322
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.
323
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.
324
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.
325
What interest income is tax free?
State & municipal bond interest US EE Savings Bond interest (note: HH bond interest is taxable)
326
Which dividend income is tax free?
S-corporation (actually distributions) Life insurance
327
How much social security income can be taxed for individuals in higher income brackets?
Up to 85%
328
Is unemployment compensation taxable?
Yes.
329
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.
330
Are workman's compensation insurance benefits taxable?
No - similar to an award for damage to make a person whole.
331
Which of the following are taxable: Child Support, Divorce Property Settlements, Alimony
Alimony IS taxable. Child support and divorce property settlements are NOT taxable.
332
Adoption expenses - Are they deductible?
NO, they are not deductible. However tax benefits are available through the adoption CREDIT.
333
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
334
How are Net Operating Losses (NOLs) utilized?
Can be carried back 2 years If any left, can be carried forward 20 years.
335
Which IRA contributions are deductible?
Traditional IRA = deductible Roth IRA = not deductible
336
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.
337
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
338
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

REG (2 decks)

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