Unit 1 - exclusions/inclusions income Flashcards
Basic tax formula on IRS form 1040
Income (broadly conceived) less exclusions from gross income and then subtract adjustments for adjusted gross income, the greater of the standard deduction or the itemized deduction, and the personal and dependency exemptions equal taxable income
Who can use 1040EZ
Income only from Wages, salaries or tips
Taxable income less than $100,000 annually
No dependents are claimed
No adjustments are claimed
When can 1040A be used
Only adjustments are to income are deductible IRA contributions and student loan interest
Deductions are not itemized AND only certain tax credits are claimed
Head of household filing status
Unmarried individuals who maintain a household for a qualifying child or relative. Can pay tax with rates somewhere between MFJ and single
Qualifying widow or widower
Tax payer with a dependent child and whose spouse has died within the last 3 years. This status allows the taxpayer to use joint income return rates but with only one personal exemption
Qualifying child
Under age 19 Under age 24 - student Lived with you for half the year Child may not provide more than half of his own support Child not filing a joint return
Qualifying relative
Not a qualifying child of you or another taxpayer
Relative’s gross income less than $4,000 (SS benefits excluded)
You must provide more than half of their support
Schedules : C, F and K-1
Self-employment income
Schedule C for self-employed
Schedule F for Farming
Schedule K-1 partnership (K-1 from S corporation not self employment income)
Imputed interest rules - Gift loans
Gift loans - between individuals with interest income
Exceptions - less than $10,000 in loans, if greater than 10K but less than 100K imputed interest for either party cannot exceed borrowers net investment income for the year or if total investment income is less than $1,000 than no imputed interest on loans less than 100K
Imputed interest - compensation related loans
employer makes below market loan - there is interested income for employer at current rate and compensation for difference between current rate and what was actually paid in interest - exception for less than 10K - but not over because not one party is not an individual
Constructive receipt income rule
Delaying receipt of income does not change the fact that the taxpayer had a right to it ex : not picking up a paycheck, interest, dividends
Exclusions from Gross Income (Non-investment)
Love, Affection or assistance ex - Gifts, scholarships, life insurance proceeds
Personal and Welfare ex - injury or sickness payments,
Employer provided benefits
Benefits for elderly - SS partial
Other - Gain from sale of primary residence 250K single 500K MFJ
Exclusions from Gross Income (Investments)
Interest from State and Local government obligations Gain exclusion (50%) for small business stock. (75% if acquired after 2/17/09 and before 9/27/10 and 100% of gain from QSBS for both regular and AMT if acquired after 9/27/10 and before 01/01/14
Deductions for AGI (Above the Line)
excluding moving expenses
Ordinary and necessary business expenses - not employee
Capital losses - to offset gains and up to $3K Vs. ordinary income
Employer portion of self-employment taxes
Alimony to an ex-spouse
Payments made to SEP, SIMPLE and Keogh
Deductible IRA contributions - phase out 61-71K single and 98-118K MFJ
Penalty on early withdrawal of savings
Self employed health insurance
Contributions to HSAs
Student Loan interest - phase out 65-80K single and 130-160k MFJ
Deductions to AGI for moving expenses
Moving expenses not reimbursed by employer - moving of stuff is without limit. exceptions - No meals, house-hunting expenses, temporary living expenses,
Distance test - must be at least 50 miles greater from old residence to new job than old residence to old job
