REG indivual tax
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277 terms
Terms | Definitions |
|---|---|
 interests which can be Itemized deducted | Home mortgage interest Investment interest expenses |
| interest which is an adjustment | educational loan interest (not an itemized deduction) forfeited interest (penalty on early withdrawal of savings) |
| How to recognize prepaid interest and accrual of interest income | expense must be allocated over to be deducted income is taxable upon receipt, no need to allocate |
| how to treat disallowed home mortgage interest | regarded as personal interest and cannot be deductible |
| how to treat disallowed invest interest | carry forward |
| How to compute net investment (taxable) investment income which is a limit for investment interest deduction? | income include: interest rents royalties net long-term and short-term capital gain (only if the taxpayer elects not to claim the reduced capital gains tax rate) income exclude: interest expense used to purchase tax-free bonds is not deductible expense include: investment advice fees, safe deposit box rental after the 2% AGI expense exclude: interest expense from passive activity |
| How to measure the value of contributed property? Any special rules? | General: lower ( basis, FMV) Special: long-term property held over one year, can use FMV |
| If provide free service to charity organization, can it be deducted as standard deduction? | No. But out-of-pocket expense can be deducted. Transportation is deducted at 14 cents per mile plus parking and tolls. |
| How much can be deducted for a qualified student living in taxpayer's home arranged by a charity organisation? | $50/month |
| What is a qualified student arranged by a charity organization to a taxpayer which he can deduct the student's living expense? | 1) <12 grade 2) not a relative or dependent |
| The maximum amount for a cash contribution | $250 |
| To support cash contribution, acknowledgment must be obtained by when? | earlier of the filing date or the due date (15 Apr) |
| What need to do for substantial noncash contribution? | >$500, file form 8283. >$5,000, written appraisal |
| How to treat excess charitable contributions? | carry over in 5 years first-in first-out basis after current year contributions are deducted, subject o the percentage of income limitations |
| how to compute deductible casualty and theft losses | Smaller Loss (Lost Cost/Adjusted Basis, Decreased FMV) <Insurance Recovery> ---------------------------------- Taxpayer's Loss <$500> --------------------------------- Eligible Loss <10% AGI> ---------------------------------- Deductible Loss |
| 2010 Standard Mileage Rates | 50 cents per mile for business miles driven (self-employment business expense) 16.5 cents per mile driven for moving purposes (adjustment) 16.5 cents per mile driven for medical purposes 14 cents per mile driven in service of charitable organizations |
| miscellaneous itemized deductions (2% AGI test) | unreimbursed business expenses educational expenses expenses of investors tax preparation fee special uniforms business gifts business use of home job hunting expense subscriptions to professional journals |
| unreimbursed business expenses (miscellaneous itemized deductions (2% AGI test)) include what? | travel, meals and lodging for overnight business travel transportation expenses 50% deductible meals/entertainment expense |
| statutory presumption to decide whether an activity is engaged in for profit | profitable for >3 taxable years during a period of 5 consecutive taxable years |
| what educational expense is qualified to be itemized deducted? | only for maintain or improve skills needed to do or extend his job; not qualified for meeting minimum job requirements or new job |
| Maximum amt of business gift to be itemized deducted | $25/person |
| what job hunting expense is qualified to be itemized deducted? | only for a job in the same profession not applicable to first job or a job in a new profession |
| investors' expenses which can be itemized deducted include what? | safe deposit box investment advice investment newsletters |
| miscellaneous itemized deductions (no 2% AGI test) | gambling losses (to the extent of gambling winnings) federal estate tax paid on income in respect of a decedent (income is taxable, e.g. interest income) |
| personal tax credits include | child and dependent care credit elderly and permanently disabled credit education credits adoption credit retirement savings contribution credit foreign tax credit general business credit |
| refundable credits | child tax credit earned income credit withholding taxes (W-2) excess social security withheld by 2 or more employers long-term unused minimum tax credit |
| who are qualifying people eligible for child and dependent care credit | a qualifying child under 13, for whom an exemption may be claimed disabled dependent or spouse who is not able to take care of himself |
| limit of child and dependent care credit | lowest of (1) the earned income of the taxpayer or spouse who has the lesser amount (2) the actual childcare expenditure (3) the maximum amount ($3,000 for one, $6,000 for 2 or more) |
| computation of child and dependent care credit | AGI < $15,000 35% AGI > $15,000 decreases by 1% (until 20%) for each $2,000 of AGI over 15,000 |
| Base amount to calculate elderly and/or permanently disabled credit | single $5,000 widow $5,000 married filing jointly and only one spouse is qualified $5,000 married filing jointly and both are qualified $7,500 married filing separately $3,750 limited to disability income for taxpayers under age 65 |
| computation of elderly and/or permanently disabled credit | (base amount - Social security - other excludible pensions - 1/2 x excess AGI) x 15% |
| AGI level of elderly and/or permanently disabled credit | single $7,500 married filing jointly $10,000 married filing separately $5,000 |
| education tax incentives include | the hope scholarship credit (40% refundable for 2009 and 2010) the lifetime learning credit may elect to use only one of these two, but may have different credit for different children of the taxpayer either incentive may be used together with Coverdel education savings account distributions (as excluded income) |
| amount deductible for the Hope Scholarship Credit | max: $2,500 100% of the first $2,000 25% of the second $2,000 |
| eligible expense for the Hope Scholarship Credit | tuition and expenses paid for a student's first two years of post-secondary education (limited time) the student must be at least half-time for at least one academic period during the year |
| phase out for the Hope Scholarship Credit | single ($80k, $90K) MJF ($160K, $180K) |
| phase out of the lifetime learning credit | MAGI: single ($50k, $60K) MJF ($100k, $120k) |
| amount deductible for the lifetime learning credit | 20% of qualified expenses up to $10, 000 for an unlimited number of years for qualified tuition and related expenses (not books) |
| individual tax - gross income includes | wages interest dividends state tax refunds alimony received business income capital gain/loss IRA income pension and annuity rental income/loss K-1 income/loss unemployment compensation social security benefits |
| individual tax - adjustments (standard deductions) include | educator expenses student loan interest expense tuition & fee deduction IRA health savings account moving expenses 50% self-employment FICA health insurance of the sole proprietor in self-employment self-employment retirement interest withdrawal penalty alimony paid Keogh Plan |
| itemized deductions | medical (in excess of 7.5% of AGI, no gross income test, no joint return test) taxes - state / local (income / real estate obligation / tax paid under protest) interest expense - (home & investment) charity (up to 50% of AGI) casualty / theft ( in excess of 10% of AGI) miscellaneous ( in excess of 2% of AGI) |
| personal exemptions | $ 3,650 / person for yourself spouse dependents |
| who must file tax return (general)? | income >= personal exemption + regular standard deduction (except for MFS) + 1,000 for age 65 or over (except for MFS) |
| who must file even their income is lower than the general requirements? | net earnings from self-employment are $400 or more; MFS whose gross income > $3,650; other's dependent and filed on other's return, has unearned income, and gross income of $950 or more; if the dependent is blind or > age 65, must in excess of additional 1,400. |
| extension of tax filing time | 6-month extension automatically granted but required filing form 4868 by Apr 15; taxpayers who are out of the country has 2-month auto extension which does not require filing but need supporting documentation |
| how to be a qualified widower in filing status | 1) 2 years after spouse's death 2) live with his/her children for the whole year |
| how to be a qualified head of household in filing status | 1) is not a nonresident alien 2) live with his/her dependency for more than half year (if the dependent is parents, not necessary to live together) 3) provide more than 50% of the cost of housekeeping. (mortgage interest, property tax, insurance, repairs, and food) |
| who is qualified to dependency exemptions? | qualifying child or qualifying relative |
| what is a qualifying child for dependency exemption | Close relative (cousin & foster parents are not included) Age limit (<age 19 or 24 as a full-time student) Residency requirements (>half year) Support test change (the child does not contribute >50% of his own support, scholarship excluded) |
| what is a qualifying relative for dependency exemption | Support test (over 50%, scholarship excluded, social security and state welfare payments included, but only to the extent that such amounts are actually expended for support purposes) Under exemption amount ($3,650) of taxable gross income (exclude social security, tax exempt interest income, and tax exempt scholarships) Precludes dependent filing a joint tax return test (unless solely for a refund) Only citizen (residents of US/Canada or Mexico) test Relative test (cousins and foster parents must live with the taxpayer the entire year) or Taxpayer lives with individual (in a household) for whole year test |
| If two or more people together contribute more than 50% to the support of a person, but non individually contributes more than 50%, how to decide the dependent? | There must be written agreement among the contributors to decide who to claim the dependency exemption. They also need to file a multiple support declaration. Additionally, he must contribute more than 10% of the support. |
| child of divorced parent, who to claim the exemption? | general rule: custodial parents, regardless of the actual contribution to the child's support exception: custodial parent waives right by written declaration and deliver Form 8332 |
| how to do tax filing on the benefit an employee enjoys from personal use of a company car | regarded as wages in an employee's income. Further, the amount included is subject to employment taxes and withholding. |
| Life insurance | ①. The entire proceeds are excluded if paid by reason of death; otherwise, only first $50,000 is excluded from the income ②. Received in installments, amounts received in excess of pro rata part of face amount are taxable as interest ③. Dividends on unmatured insurance policies are excluded to the extent not in excess of cumulative premiums paid ④. Accelerated death benefits (terminal illness insurance) received under a life insurance policy by a terminally or chronically ill individual are excluded. Even a portion of it is assigned or sold to a viatical settlement provider, proceeds are excluded For a chronically ill individual, the exclusion is limited to the amount paid by the individual for unreimbursed long-term care cost. Payment made on a per diem basis, up to $290 per day for 2010, are excludable regardless of actual long-term care costs incurred. ⑤. If proceeds are left with insurance company under agreement to pay only interest, the interest is taxable. ⑥. Insurance proceeds are paid for reasons other than death or under accelerated death benefits, or if the policy was obtained by the beneficiary in exchange for valuable consideration from a person other than the insurance company, all proceeds in excess of cost are taxable. |
| accident, medical, and health insurance paid by employer | · premium payments are not accounted as wage, so tax exempted · amounts, except the reimbursement and compensation for permanent loss of function of body, received from the insurance is taxable |
| medical, health insurance | if covered by a employer sponsor insurance, (1) the reimbursement of medical expense incurred is tax exempt but cannot be itemized deducted; (2) compensation for the permanent loss or loss of use of a member or function of the body is not taxable except for the above two conditions, amounts paid to the employee, all the other amounts received from the insurance is taxable |
| Meals and lodging | (1) provided for the convenience of the employer on the employer's premises and the lodging is provided as a condition of employment: non-taxable (2) travel, meals and lodging for overnight business travel: unreimbursed business expenses (miscellaneous itemized deductions (2% AGI test)) |
| how much of employer payment of employee's educational expense is excluded from taxable income?" | $5,250 meals, transportation, lodging cannot be included tools or supplies which may be kept when the education finishes are not included |
| how much transportation expense provided by employer can be excluded from income | parking or transit pass $230 |
| non-taxable employer provided fringe benefits include what | 1) premium payments of accident, medical, and health insurance 2) reimbursement of medical expense covered by the insurance 3) compensation for the permanent loss or due to work 4) meals and lodging provided for the convenience of the employer on the employer's premises 5) employee's educational expenses up to $5,250 6) merchandise discounts limited to gross profit 7) service discounts limited to 20% of the fair market value of the services 8) parking or transit passes 9) dependent care assistance $5,000 ($2,500 MSF) 10) adoption expenses up to $12,170 phase out ($182,520, $222,520) 11) moving expense (standard mileage 16.4 cents) 12) airline pass |
| Is interest income from treasury bills taxable? | Yes |
| Is interest income from US government bonds taxable? | Yes |
| Is interest income from municipal bonds taxable? | No |
| Is interest income from NY Port authority taxable? | No |
| Is interest income from Puerto Rico bonds taxable? | No |
| Is interests of Series EE totally non taxable | 1) phase out ($85,100, $135,100) 2) if interest + premium > expenditure incurred, interest is excluded pro rately |
| What is Kiddie Tax? | a dependent child (< age 18 or 24 for full-time student) the child's unearned income (exclude penalty for early withdrawal of savings) 0~ $950 0 $950 ~ $1,900 child's tax rate >$1,900 parent's tax rate |
| Is stock dividends taxable? | Yes, only if the shareholder has the option to receive cash or other property. |
| Is life insurance dividend taxable? | No, to the extent of the premium. |
| Is the receipt of a state or local income tax refund taxable? | Yes, if the taxes paid result in a tax benefit in the prior year. |
| Alimony recapture computation deduction base | $1500 |
| What's the amount reflected on Form 1040 for self-employment? | Net income (=gross business income - business expenses) |
| How to measure the inventory cost of self-employment business? | lower of (cost, FMV) |
| Can self-employment use LIFO to measure inventory? | Yes, but LIFO also has to be adopted in accounting. |
| If an entity is a drug dealer, can he deduct cost of goods in computing net income? | Yes. Other expenses cannot be deducted. |
| Is legal and professional services included in business expenses to calculate business net income? | Yes |
| Is BT paid included in business expenses to calculate business net income? | Yes. Only state and local. Other state and local tax expense are itemized deduction on Schedule A, not here. |
| Is business meal and entertainment expense included in business expenses to calculate business net income? | Yes, up to 50%. |
| Is loan interest expenses included in business expenses to calculate business net income? | Yes, only interest expense of business loans. |
| Is salary paid to the sole proprietor included in business expenses to calculate business net income? | No, it is considered a "draw". |
| Is interest expense deductible? | If for business, can be deducted when computing net business income; If for personal use, mortgage or investment interest expense can be itemized deducted. |
| Where should the charitable contributions by self-employment be deducted? | Use Schedule A rather than deducted as the business expense |
| What is the base to calculate federal self-employed tax? | Net business income - premiums for medical insurance - 50% self-employed tax |
| If self-employed suffer business loss, can it be carried forward or back? | Yes, back 2 years, forward 20 years. The taxpayer may elect to carry forward only. |
| The uniform capitalization rules do not apply to what? | inventory acquired for resale if the taxpayer's average gross receipts for the preceding 3 tax years do not exceed $10 annually |
| Can research expense capitalized? | No |
| Can interest on property purchased qualified? | Yes, if it is for the property: 1) recovery period > 20y 2) produce period > 2y 3) produce period > 1y and its cost > $1 million |
| Generally, under what circumstances withdrawal of IRA is subject to penalty tax? | 10% before age of 70.5 |
| When a person retires, are the funds he received taxable? | Yes. |
| What's the difference between traditional IRA and Roth IRA? | (1) Roth IRA can be contributed after the age of 70.5 while traditional IRA cannot (2) Benefits from Roth IRA are not taxable. |
| What's the exception to early withdrawal penalty tax? | 1) 1st time home buyer (up to $10,000, within 120 days) 2) medical insurance (self-employed or unemployed with 12 consecutive weeks of unemployment compensation) 3) deductible medical expenses (in excess of 7.5% of AGI) 4) disability (not temporary) 5) education 6) death 7) transfer to Roth IRA |
| Is the contributions to IRA deductible? | deducted as an adjustment max $5,000 or 100% compensation (if both of the couples are not covered by employer-sponsored pension) when reach the age of 50, additional $1,000 is deducted. |
| Is annuity taxable? | No, but only to the extent of cost. exclusion ratio = cost / expected return the ratio cannot be amended once it is determined additional payments will be fully taxable |
| How to decide a house is rental or residence? | residence: rented days < 15d share: rented days > 15d and self-use > 14d or self-use days - rented days >10% rented days |
| What do passive activities include? | rental activities; interests in limited partnerships; S corporations; most tax shelters |
| What's the use of passive activities loss? | deducted to the extent of passive activities income |
| Who are subject to passive activity losses? | individual; estates; trusts; personal service corporation; closely held C corporations |
| What is the disallowed passive activity loss? | carry forward indefinitely |
| what's the exception to passive activity loss? | (1) if the individuals are actively participating (>10%) in rental real estate, up to $25,000 may be deducted. The $25,000 is reduced by 50% of the excess of the taxpayer's AGI (without consideration of this loss deduction) over $100,000. The allowance is eliminated completely when AGI > $150,000. (2) a real estate person's rental activity rentals can be fully deducted against other income. If more than 50% of the taxpayer's personal services during the year are performed in real property business and more than 750 hours of services in it. |
| Is unemployment compensation taxable? | Yes. In 2009, $2,400 can be deducted. |
| provisional income includes what | also known as modified adjusted gross income =AGI+ tax-exempt interest + 50% of social security benefits It includes: • Any income you excluded because of the foreign earned income exclusion. • Any exclusion or deduction you claimed for foreign housing. • Any interest income from series EE bonds that you were able to exclude because you paid qualified higher education expenses. • Any deduction you claim for student loan interest or qualified tuition and related expenses. • Any employer-paid adoption expense you excluded. • Any deduction you claimed for an annual (non-rollover) contribution to a regular IRA. |
| Is social security income received taxable? | depends on provisional income lesser of (50% or 85% of social security benefits, 50% or 85% of the excess provisional income over the threshold) 1. 0 % < $25,000/$32,000 2. 50% < $34,000/$44,000 3. 85% > $34,000/$44,000 |
| Is the property received as a gift or inheritance taxable? | No, but any income received from such property is taxable. |
| Is medicare benefits taxable? | No. (for basic medicare benefits received under the social security act) |
| To what extent can foreign-earned income be excluded from income? | if no housing cost, up to $91,500 if there is housing cost, and provided by employer, lessor of (housing cost, revenue) if there is housing cost, but not provided by employer, greater of ($91,500, housing cost) |
| B sold stocks which was included in short-term investment, earned $5,000 and paid $500 as commission to his broker. How much is taxable? | $4,500 broker's commission is considered as selling expenses which should be net against income. |
| How to decide gift property basis? | FMV > donor's cost basis, use donor's basis; FMV < donor's cost basis, tax basis depends on future selling price if selling price > donor's basis, use donor's basis if selling price < FMV, use FMV to determine loss if selling price is in the middle, no gain or loss |
| Does gift tax paid increase the gift property basis? | Yes |
| How to decide the holding period of the gift property? | generally: assume the donor's holding period exception: when the donee suffers loss (FMV is used as basis selling price <FMV < donor's basis), the holding period starts as of the date of the gift |
| What is the basis of purchased property? | cost |
| what is the basis of inherited property? | general: date of death FMV exception: estate property may use alternate valuation date: FMV at the earlier of (1) distribution date of asset (2) 6 months after death |
| How to decide the holding period of the inherited propety? | No need. It is automatically considered to be long-term property. |
| What are the "adjustments" to gains/losses of capital? | Homeowners Exclusion ($250,000/$500,000) Involuntary Conversion Divorce Property Settlement Exchange of Like Kind (Business) Installment Sale Treasury Capital & Stock transaction by corporation Wash Sale Losses Related Party Losses And Personal Losses |
| How much of sales income can be deducted if the house is the taxpayer's personal residence? What requirements need? | up to $250,000/$500,000 fully exclusion requirements 1) either spouse (on a joint filing) has owned the house for 2 years or more out of 5 years 2) both spouses have used the house for 2 years or more out of 5 years |
| Is the proceeds received from an involuntary conversion of property (destruction, theft, condemnation) taxable? | If reinvest all the proceeds, not taxable; If reinvest part of the proceeds, the unreinvested amount is taxable. |
| What is the basis of the new asset resulting from an involuntary conversion of property (destruction, theft, condemnation) ? | gain: new basis = the basis of the old asset + (additional amounts invested - compensation received in excess of basis of old asset) loss: new basis = replacement cost no gain or loss: new basis = the basis of the old asset |
| What's the time regulation of reinvestment of the involuntary conversion of property (destruction, theft, condemnation) ? | personal property: 2 years business property: 3 years principal residences destroyed in a federally declared disaster area, 4 years |
| When the gain from involuntary conversion of property (destruction, theft, condemnation) exceeds what amount, property acquired from the related party and certain close relatives does not qualify as replacement property? | > $100,000 |
| What is the basis of the new asset resulting from exchange of like-kind business/investment assets? | new basis = carryover basis - cash received +gain recognized gain recognized = lower of (realized gain, cash received) |
| What is the taxable revenue from installment sale? | taxable revenue = gross profit ratio x cash receipt only applied to nonmerchant in personal property and nondealer in real estate depreciation recaptured shall be reported in income in the year of sale net proceeds from loans which are secured by the installment obligation shall be reported as amounts received/collected |
| Is the proceeds of loans taxable? | net proceeds from loans which are secured by the installment obligation shall be reported as amounts received/collected |
| What is a Wash Sale Loss? | A wash sale exists when a security (stock or bond) is sold for a loss and is repurchased within 30 days before or after the sale date. |
| Is Wash Sale Loss allowable for tax purposes? | No |
| What is the date of acquisition of the repurchased security in a wash sale? | the date of acquisition of the original security |
| Are in-laws considered related party? | No. |
| How to compute the capital gains or losses from RPT? | Gains, when future sale price > the previous relative's cost Losses, when future sale price < FMV |
| Is the capital gain from RPT taxable? | Capital gains taxes are imposed on all sales of nondepreciable property (e.g., land) except between (a) Husband and wife (where basis is merely transferred), and (b) An individual and a 50% + controlled corporation or partnership (where the gain is taxed as ordinary income). |
| How to decide the holding period of the property from RPT? | starts with the new owner's period of ownership |
| How to tax net capital gains? | long-term: max 15% , 5% for taxpayer in the 10% or 15% income tax bracket short-term: treated as ordinary income |
| What is long-term capital gain? | Holding period is more than one year. |
| Is there limit on net capital loss deductible? | max $3,000 ($1,500 for MSF) |
| how to treat disallowed individual capital loss? | carry forward indefinitely |
| Is non-business bad debt deductible? | Yes, treated as short-term capital loss in the year becomes totally worthless |
| Can corporate capital losses offset income? | No |
| how to treat disallowed corporate capital loss? | carryback 3 years, forward 5 years |
| Farmers who uses cash basis, are inventories considered for tax purposes? | No. |
| Farmers who uses accrual basis, how to compute gross profit? | gross profit = year-end bal @ inventory - opening bal @ inventory + sales - purchases |
| Hierarchy of Authority in the Tax Law and Definitions | I. INTERNAL REVENUE CODE II. IRS REGULATIONS (Federal Tax Regulations) III. TAX COURT DECISIONS IV. IRS AGENTS' REPORTS |
| What kind of educator is eligible to educator expenses? | a kindergarten through grade 12 teacher |
| What is qualified expense to be deducted as educator expenses? | ordinary and necessary expenses paid in connection with books, supplies, equipment, and other materials used in the classroom. But the following amounts must be excluded first: 1) excludable US EE bonds 2) nontaxable qualified state tuition program earnings 3) nontaxable earnings from Coverdell Education Savings Account (up to $2,000) 4) any reimbursements received |
| To make contributions to IRA an adjustment allowed for a year, the contribution must be obtained by when? | by April 15 |
| Is the withdrawals from IRA taxable? | Yes |
| How to compute IRA deduction expense? What's the limit? | 1) covered by employer-sponsored pension single: deduction = (AGI - $56,000) / $10,000 married: deduction = (AGI - $89,000) / $20,000 2) married person whose spouse is covered deduction = (AGI - $167,000) / $20,000 3) not covered, not subject to phase out method deduction = lesser ($5,000, 100% compensation (including alimony)) 4) if AGI < $56,000 or $89,000 , up to $5,000 5) limit for everyone = $5,000 / person 6) reach age of 50, additional $1,000 can be deducted |
| What is the definition of compensation in IRA? | Compensation includes: (a) Salary, (b) Wages, (c) Commissions, (d) Bonuses, and (e) Alimony. Compensation does not include: (a) Interest, (b) Dividends, (c) Annuity income, and (d) Pensions. |
| Is withdrawal of Roth IRA taxable? | No. |
| Is earnings of Roth IRA taxable? | No |
| Is the contribution to Roth IRA deductible? | No |
| Is there limit to make contributions to Roth IRA? | contributions to traditional IRA + Roth IRA is up to $5,000/$10,000 |
| what is a qualified nontaxable distributions of Roth IRA? | made at least 5 years after 1st contribution to a Roth IRA and made: (1) After the taxpayer reaches age 59½. (2) To a beneficiary after the taxpayer's death, or (3) Because the taxpayer is disabled, or (4) For use by a "first time" (taxpayer not owning a principal residence in the two year period before buying this residence) homebuyer to acquire a principal residence. There is a lifetime $10,000 limit on qualified distributions for this purpose. |
| Is Coverdell Education Savings Accounts (Education IRA) an adjustment? | No |
| Is the contribution to Coverdell Education Savings Accounts (Education IRA) deductible? | No |
| Is the earnings of Coverdell Education Savings Accounts (Education IRA) taxable? | No |
| Is there limit to contributions to Coverdell Education Savings Accounts (Education IRA)? | any individual (including the beneficiary) whose MGAI < $110,000 ($220,000 MJF), up to $2,000 annually |
| Is the withdrawal of Coverdell Education Savings Accounts (Education IRA) taxable? | the expense used in education expenses include tuition, fees, tutoring, books, room and board, supplies and equipment. if distribution directly to a beneficiary, it is taxable and subject to penalty tax. |
| Age problem of Coverdell Education Savings Accounts (Education IRA) | 1) the designated beneficiary < age of 19 2) when beneficiary reaches age of 30, the unused money must be either distributed to beneficiary or rollover to another family member. |
| What is the limit of the adjustment for education loan interest? | $2,500. |
| Can married taxpayers claim student loan interest expense adjustment if file separately? | No |
| Can a dependent claim student loan interest expense adjustment? | No |
| What is the limit tuition and fee expense deductible as an adjustment | AGI < $65,000/$130,000 $4,000 AGI < $80,000/$160,000 $2,000 AGI > $80,000/$160,000 0 not allowed for expenses also claimed as Hope Credit, Lifetime Learning Credit or Non-taxable Savings Accounts (Coverdell) |
| Is there restriction on tuition and fees deduction? | A taxpayer is not eligible to claim the deduction if the expenses were applied to either: a. The Hope Credit and/or Lifetime Learning Credit b. Non-Taxable Education Savings Account distributions |
| What is the limitation on contributions to the Archer Medical Savings Account (MSA) ? | 65% (75% if coverage is for the entire family) of the annual (high) deductible amount. |
| Is there employment requirement to a qualified moving expense adjustment? | The employee must work full-time in the new location at least 39 weeks during the 12- month period immediately following his arrival. Self-employed persons must work fulltime at least 78 weeks during the 24-month period after arrival to meet the test. |
| What expenses incurred during moving cannot be deducted as moving expense as an adjustment? | • Meals • Pre-move house hunting • Expense of breaking a lease • Temporary living expenses |
| Is self-employed social security tax an adjustment? | Yes, 50% of self-employed social security tax |
| Is self-employed health insurance an adjustment? | Yes.Self-employed individuals may deduct all of their medical insurance premiums paid for the taxpayer, spouse, and dependents. |
| Is there limitation on the adjustment of self-employed health insurance? | cannot exceed net earnings from trade, the excessive portion can be regarded as itemized deduction |
| What is the limit on contributions to Keogh Plans? | $49,000 |
| What is the limit on deduction to Keogh Plans? | $49,000 |
| How to compute self-employed net earnings? | net earnings = business income - business expenses - 1/2 self employment tax - Keogh deduction |
| Is the attorney fees paid in discrimination cases deductible? | An adjustment is allowed for attorney fees paid in connection with age, sex, or racial discrimination and whistleblower fees cases. The adjustment amount is limited to the amount claimed as income from the judgment. |
| Is jury duty pay deductible? | If it is surrendered to employer in return for compensation, the adjustment is allowed. The compensation is taxable. If not surrendered, the jury duty pay is taxable. |
| What is the amount the elderly and/or blind is entitled to an increased standard deduction? | single $1,400 married $1,100/person if both blind and age 65 $2,800/$2,200 |
| 2009, 2010 adjustment to standard deduction? | 1) federal declared disaster related personal casualty losses 2) state and local sales tax or excise tax on motor vehicles， which were purchased after 2009.2.16 before 2010.1.1, motorcycle, passenger auto, light truck < 8,500 pounds, not second hand, up to $49,500 (phase out) |
| medical expense taxpayer pays on behalf of self, spouse and dependent can be itemized deducted, what is a qualified dependent? | support over 50% citizens relative or live with >1y |
| How to compute deductible medical expense (for itemized deduction)? | medical expense - insurance reimbursement - 7.5% of AGI |
| Are medical and accident insurance paid deductible? | Yes, as medical expense to be deducted in itemized deduction. |
| Is the health club memberships which provides general health care eligible to be medical expense that is allowed as itemized deduction? | No, it would have to be more specifit to make it deductible |
| is diaper service eligible to be medical expense that is allowed as itemized deduction? | no |
| Is maternity clothes eligible to be medical expense that is allowed as itemized deduction? | no |
| is life insurance eligible to be medical expense that is allowed as itemized deduction? | no |
| For itemized deduction, when can taxes be deducted for cash-method payers and accrual-method payers? | For cash-method taxpayers, deductible taxes are generally deductible in the year paid. For accrual-method taxpayers, taxes are generally deductible in the year in which they accrue. |
| What kind of taxes can be deducted as itemized deduction? and what cannot be deducted? | Deductible 1) real estate taxes 2) income taxes 3) personal property taxes 4) sales tax (state and local) Non-Deductible Taxes (1) Federal taxes (including Social Security) (2) Inheritance taxes for states (also called "federal estate pick-up tax") (3) Business (on Schedule C) and rental property taxes (on Schedule E) |
| Is the total of real estate tax deductible in the year of sale/purchase? | need prorate |
| is real estate tax (itemized deduction) paid under protest deductible ? | Yes, but subsequent recovery is included in gross income. |
| What kind of assessment related estate tax (itemized deduction) deductible? | maintenance assessment taxes are deductible, but street, sewer, and sidewalk are not. |
| When real estate tax (itemized deduction) paid through an escrow impound account , is it deductible? | No, only after it is paid to the taxing authority. |
| what kind of foreign real estate taxes (itemized deduction) paid are deductible? | only deductible for real estate held as an investment. |
| How to tax the real estate taxes on land held for appreciation? | may be capitalized or deducted at the option of the taxpayer. |
| For income tax (itemized deduction), is estimated taxes paid during the year deductible? | Yes |
| For income tax (itemized deduction), is withheld taxes during the year deductible ? | Yes |
| For income tax (itemized deduction), is assessments paid during the year for prior year's tax deductible? | yes |
| Is refunds of income taxes tax-exempt? | No. Refunds are an item of gross income (if the tax was deducted in a prior year) and should not be netted against the itemized tax deduction. |
| What are qualified residence interest to be deducted as home mortgage interest (itemized deduction)? What are their deductible limits? | (i) acquisition indebtedness ($1million/$500,000 MFS) (ii) home-equity indebtedness. lesser of ($100,000, FMV - outstanding acquisition indebtedness ) |
| If the debt incurred in buying, constructing, or substantially improving the taxpayer's principal and second home is not secured by home, can the interest expense deducted? | No |
| Is refinancing points incurred in buying, constructing, or substantially improving the taxpayer's principal and second home deducted? | Yes, but it must be amortized over the period of the loan. |
| Are mortgage insurance premiums paid in connection with qualified acquisition debt deductible as home mortgage interest? | Yes, phase-outs apply. |
| Is there limits on the purposes of loans which are eligible to interest deduction? | (i) acquisition indebtedness : Yes (ii) home-equity indebtedness: No. |
| Deductible charitable contributions limitation: | Overall limit = 50% AGI 1) Cash - may be all 50% 2) General property - lesser of (basis, FMV) 3) Long-term appreciated property - lesser of a) 30% of AGI b) The remaining amount to reach 50% after cash contributions |
| An employee takes a cab from his day job to his evening job. Is the expense deductible? | Yes |
| Limitation on adoption credit | $12,170 |
| phase-out for adoption credit | $182,520 - $222,520 |
| What's the phase-out for MFS in adoption credit? | N/A. Married couple must file jointly. |
| Who is an eligible child for adoption credit | < 18 at the time of adoption or, physically or mentally disabled to take care of himself |
| Are court costs related to adoption included in adoption credit? | Yes |
| Are attorney fees related to adoption included in adoption credit? | Yes |
| Are medical expenses included in adoption credit | No |
| Is the expenses related to adopt the child of a spouse included in adoption credit | No |
| Is the expense related to surrogate parents arrangement included in adoption credit? | No |
| Is all the expenses incurred related to adoption through out the adoption period deductible for adoption credit? | No, only those paid after the final point of the adoption. |
| Is all the adoption credit claimed in the year deductible? | No, it is limited to the tax liability - the tentative alternative minimum tax - the elderly and disabled credit- the child care and dependent credit |
| How to treat unused portion of adoption credit? | carried forward up to 5 years. |
| If you paid $10,000 in qualifying adoption expenses for a final adoption, while your employer paid $4,000 of additional qualifying adoption expenses, how much can you claim in tax filing? | you may be able to claim a credit of up to $10,000 and also exclude up to $4,000. |
| Is adoption credit refundable? | No |
| Is retirement savings contributions credit refundable? | No |
| Who are eligible to retirement savings contributions credit? | >= 18 by tax year-end not a full time student not a dependent |
| limitation on retirement savings contributions credit | $2,000 |
| Above what amount level of AGI, taxpayers are not eligible to retirement savings contributions credit? | MFJ: $55,500 single: $27,750 HH: $41,625 |
| Is foreign income taxes paid to a foreign country or US possession tax exempt? | Yes. A taxpayer may claim a credit or deduct the taxes instead as an itemized deduction. |
| How to teat the foreign tax credit over the limit? | carry back 1 year, forward 10 years |
| How to teat the general business credit over the limit? | carry back 1 year, forward 20 years |
| limitation on General Business Credit | = net income tax - the greater of: a. 25% x (net regular tax liability - $25,000), or b. "Tentative minimum tax" for the year. |
| in computing General Business Credit, what is the net income tax? | net income tax = regular tax + alternative minimum tax - nonrefundable tax credits (other than the alternative minimum tax credit). |
| in computing General Business Credit, what is the net regular tax liability? | net regular tax liability = regular tax liability - nonrefundable tax credits (except the alternative minimum tax credit). |
| What is work opportunity credit？ | to employers who hire employees from a targeted group. This credit is part of the general business credit. |
| limit on work opportunity credit？ | a. 40% of first $6,000 of first year's wages. b. 40% of first $3,000 to certain summer youth (May 1 to 15 Sep 90 days period). |
| Is the work opportunity credit used together with employer's wage cost？ | No. employer's deduction for wages is reduced by the amount of credit. |
| What is qualified groups for work opportunity credit？ | a. Handicapped b. 18-24-year-olds from poor families c. Vietnam veterans from economically disadvantaged areas d. Certain food stamp recipients |
| What is a qualifying child for Child tax credit? | The "CARES" rules apply, except that a child must be under the age of 17 (not the 19-year or 24-year age limits that "CARES" implies). |
| Phase out of child tax credit | decrease $50 for each $1,000 (or fraction thereof) by which MAGI exceeds: a. $110,000 for a joint return; b. $75,000 for an unmarried individual; c. $55,000 for married individuals filing a separate return. |
| limitation on child tax credit | $1,000 |
| is child tax credit refundable? | Yes, but there is limit. 15% x (earned income -$3,000) up to $1,000 |
| Is withholding tax treated as a credit? | Yes, if the credit exceeds the tax liability, a refund is generated to the taxpayer |
| To be eligible for the earned income credit, a taxpayer must: | 1) have earned income from employment or from self-employment 2) filing status cannot be MFS 3) cannot be a qualifying child or dependent of another person. 4) If you do not have a qualifying child, you must: be age 25 but under 65 at the end of the year, 5) live in the United States for more than half the year 6) Cannot claim the exclusion for foreign earn income 7) not have disqualified income in excess of $3,100 |
| Is the earned income credit refundable? | Yes, even if the individual had no income tax liability. |
| What is disqualified income in earned income credit? | Disqualified income includes taxable and nontaxable interest, dividends, net rental and royalty income, net capital gains income, and net passive income other than self-employment income. |
| Computation of earned income credit | single taxpayer without qualifying child 7.65 of the first $5,980 of earned income one qualifying child 34% of the first $8,970 two or more qualifying children 40% of the first $12,590 |
| If the taxpayer has excessive social security tax withheld resulted from correct calculation, how is it dealt? | one employ: get refund two or more: claim the excess as a credit against income tax (in the payment section) |
| computation of alternative minimum tax (AMT) | Regular Taxable Income ± Adjustments + Preferences ----------------------------------------------------- Alternative Minimum Taxable Income < Exemption > ------------------------------------------------------ Alternative Minimum Taxable x 26% for the first $175,000/ 28% for the remaining ------------------------------------------------------ Tentative AMT Tax < Tax Credits > ----------------------------------------------------- Tentative Minimum Tax < Regular Income Tax > ----------------------------------------------------- Alternative Minimum Tax |
| exemption amounts in calculating AMT | single: $47,450 - (AMTI - $112,500) x 25% joint: $72,450 - (AMTI - $150,000) x 25% MFS: $36,225 - (AMTI - $75,000) x 25% |
| What do adjustments in calculating AMT include? | PANICTIMME 1. Passive activity losses 2. Accelerated depreciation (post-1986 purchase) 3. Net operating loss of the individual taxpayer 4. Installment income of a dealer (Installment method may not be used by dealer for property sales.) 5. Contracts—(Long-term) The difference between "percentage of completion" and completed contract method or any other method of accounting Below are itemized deductions (always "adds" to regular taxable income) 6.* Tax "deductions" 7.* Interest deductions on some home "equity loans" 8.* Medical deductions (must exceed 10% of AGI rather than 7.5%.) 9.* Miscellaneous deductions not allowed 10.* Exemptions (personal) and standard deduction may not be claimed only 1-5 generate AMT credit for future years 6-10 does not |
| What do preferences in calculating AMT include? | PPP 1.* Private activity bond interest income (tax exempt) 2.* Percentage depletion the excess over adjusted basis of property 3. Pre-1987 accelerated depreciation ALWAYS "ADD-BACKS" |
| Is dependent care credit refundable? | No |
| Is credit for the elderly and disabled refundable? | No |
| Are the Hope and lifetime learning credits refundable? | No |
| Is credit for qualified retirement savings contributions refundable? | No |
| Can AMT credit reduce regular tax and future alternative minimum tax? | It can only reduce regular tax, not future AMT. |
| Can AMT credit be carried forward? | Yes, but the credits from permanent differences cannot. |
| What do AMT credit include? | 1. Foreign tax credit 2. Adoption credit 3. Child tax credit 4. Contributions to retirement plans credit 5. Earned income credit |
| Under what situation, a married individual files a separate return, a personal exemption may still be claimed for his or her spouse? | if the spouse has no gross income and is not claimed as a dependent of another taxpayer. |
| Is interest on federal income tax refund taxable? | Yes |
| Is interest on state income tax refund taxable? | Yes |
| Is interest on federal government obligations taxable? | Yes |
| Is interest on state government obligations taxable? | No |
| Platt owns land that is operated as a parking lot. A shed was erected on the lot for the related transactions with customers. Is the land classified as capital assets or Section 1231 assets? What about the shed? | Both under Section 1231 assets ( Depreciable property and real estate used in business.) |
| In what kind of like-kind exchange, no taxable gain or loss will be recognized? | if both assets are tangible property. |
| Are losses between related parties allowed? | No. But when the capital is then sold to third parties, the loss suffered by the seller of the related party may be disallowed in the tax return of the buyer of the related party (who sells to the third party). |
| How many years may the credit for prior year alternative minimum tax liability be carried forward? | carried forward indefinitely |
| Is Home mortgage interest added back to taxable income to calculate alternative minimum taxable income. | No |
| Is miscellaneous deductions that exceed 2% of AGI added back to taxable income in calculating alternative minimum taxable income? | Yes |
| Is state and local income taxes added back to taxable income in calculating alternative minimum taxable income? | Yes |
| Above what unpaid amount after withholdings, taxpayer is subject to penalty? | $1,000 |
| What is the deadline to pay penalty? | Apr 30 the same year. |
| What is the limit of educator expenses? | $250/per person |
| What is the limit on student loan expense (adjustment)? | up to $2,500 phase out $75,000/$150,000 |
| Does an eligible individual qualify for an Health Savings Accounts if he is not covered under high-deductible health insurance? | No. |
| What is the limit on contributions to Health Savings Accounts? | single $3,050 family $6,150 |
| Are distributions used for qualified tuition program established & maintained by a state (or state agency or eligible educational institution) tax exempt? | Yes, if it is used for qualified education expenses. |
| Can retirement savings contribution credit used as itemized deduction in lieu of credit? | Yes |
| What amount in long-term unused minimum tax credit can be refunded? Is there limit? | through 2012, credits that are at least 3 years old may be refundable. greater ($5,000, 20% of the unused amount) |
| Calculation of AMTI | AMTI = regular taxable income adjust for PANICTIMME and PPP |
| What does social security tax include? | FICA + medicare |
| How long is statute of limitations for additional assessments of tax? | 3 years - later of e years from (due date including extensions, date return is filed) 6 years - when there is 25% or more understatement of gross income without fraud |
| Deadline to file refunds (Form 1040X) | later of (3 years from due date including extensions, 2 years from the date tax was paid) |
| Refund generated from bad debts and/or worthless securities, how far can claim back? | 7 years from the later of (due date including extensions, date return is filed) |
| In what circumstances, taxpayers are not required to make estimated quarterly tax payments? | current withholding is 90% or more of this year's tax or 100% (110% when AGI > $150,000 for MFS $75,000) of last year's tax |
| What does social security tax apply? | all compensation from employment |
| What is Federal Insurance Contributions Act (FICA)? | A payroll (or employment) tax imposed by the federal government on both employees and employers to fund Social Security and Medicare |
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