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Reg 1- Individual Tax- Income
Terms in this set (110)
Individual Taxation Formula=
- Standard OR Itemized Deductions
= Taxable Income
Federal Income Tax
- Tax Credits
+ Other Taxes
= Tax DUE or REFUND
Examples of Gross Income:
State Tax Refunds
Pension & Annuity
Social Security Benefits
Examples of Adjustments - to arrive @ AGI:
Student Loan Interest Expenses
Tuition & Fee Deduction
Health Savings Account
Self-Employed Health Insurance
Interest Withdrawal Penalty
Example of ITEMIZED Deductions:
Miscellaneous (in excess of 2% of AGI)
Medical (in excess of 10% of AGI)
Casualty/Theft (in excess of 10% of AGI)
Charity (up to 50% of AGI)
Taxes - State/Local (Income/Sales & Property)
Interest Expense (Home & Investment)
Single or MFS = $____
MFJ or Qualifying Widower = $____
Head of Household = $_____
Single or MFS = $6,200
MFJ or Qualifying Widower = $12,400
Head of Household = $9,100
Exemptions for 2015= $_____ x Taxpayer Spouse Dependents
A taxpayer must file a return if his or her income is = or greater than the sum of:
- Personal Exemption +
- Standard Deduction +
- Additional Standard Deduction for the blind/if over 65
*Except for MFS
Exceptions, who also must file even if income is below that:
- Self Employment Net Earnings are $400 or more
- If can be claimed as a dependent on another's return with:
*More than $1,050 of UNEARNED income
*More than $6,300 of EARNED income
*Total income which exceeds the larger of $1,000 or earned income up to $5,950 + $350)
Taxpayers must file on or before ____
What if you cannot file by April 15th? When is tax payment due? What form must be filed for the extension?
Automatic 6 Month Extension - October 15th
Payment of Taxes is STILL due on April 15th, just an extension for the paperwork
Filing Status - Use the ________ Test
END OF YEAR
Dec 31st @ Midnight decides status!
Any taxpayer who does not qualify for one of the other filing classes must use the ____ status by default.
Single or Legally Separated
In order to file a JOINT RETURN, the parties must be: (3)
- Living together in a recognized common law marriage
- Married & Living Apart
If one spouse dies during the year, can you still file a joint return? What about divorce?
Dies - Yes
Divorce - NO
A taxpayer that files MFS must separately report their ____, ____, ____ and ____ on their own individual income tax return.
*Can file MFS even if only 1 spouse has income for the year
A taxpayer may file as a Qualifying Widower for each of the ___ taxable years following the year of death of his/her spouse, unless they ____.
2 FOLLOWING YEARS
*Unless they remarry
Qualifying Widower status uses the ____ ____ standard deduction and rates.
JOINT TAX RETURN
*However, cannot use the exemption for the dead spouse
Qualifying Widower/Surviving Spouse must:
Maintain a household for a son, stepson, daughter, stepdaughter - whether blood or adoption - for WHOLE taxable year
Head of Household entitles the taxpayer to ___ taxes. To qualify, what conditions must be met:
1) Not married, IS legally separated or is married and has lived apart from spouse last 6 months of year
2) Not a qualifying widower
3) Not a non-resident alien
4) Maintains household for MORE than HALF taxable year for either: (3)
Head of Household must maintain household for MORE than HALF taxable year for one of the three:
1) A dependent son or daughter (or descendant- can be adopted, must be qualifying child or relative)
2) Father or Mother (NOT REQUIRED TO LIVE WITH TAXPAYER)
3) Dependent Relatives - parents, grandparents, sisters, brothers, aunts, uncles, nephews and nieces, step parents, parent-in-laws (MUST LIVE WITH TAXPAYER)
PERSONAL Exemptions =___ for 2015
Taxpayers must reduce their PERSONAL Exemptions by __ % for every $___ or $___ (MFS) by which AGI exceeds:
2% for every $2,500 ($1,250 MFS) AGI exceeds:
Joint/SS = $309,900
HH = $284,050
Single = $258,250
MFS = $154,950
*Subtract Threshold from Actual AGI - then divide difference by 2500 - always round up - that # x 2% = % of personal exemptions that cannot be claimed
Can you claim your PERSONAL exemption on your own tax return if you are eligible to be claimed as a dependent on anothers (your parents)?
When filing MFS, you can only claim your spouse's PERSONAL exemption if what 2 tests are met:
- spouse has no gross income, and
- spouse was not claimed as a dependent on another's return
A taxpayer is entitled to a DEPENDENCY Exemption for each Qualifying ___ or ____.
DEPENDENCY Exemptions = ___ for 2015
Qualifying Child (CARES)
C - Close Relative
A - Age Limit - Under 19 or 24 & full-time student
*At least part of each of 5 months of taxable year
R- Maintain Residency/Household for more than HALF of year
E- Eliminated Gross Income Test
S - ?
Qualifying Relative (SUPORT)
S - Supplied MORE than HALF support
*Multiple Support - must contributed more than 10%
U - Under $4,000 of TAXABLE Gross Income
* SS, Tax - exempt interest income & scholarships are not taxable income
P - Prevents dependents who are married filing joint returns
O - Only citizens of US or residents of US, Mexico or Canada
R - Relative
T - OR, if non-relative must live with taxpayer for WHOLE year (foster parents & cousins)
If divorced parents, the parent who has ____ will claim the dependency exemption for the child. If equal custody, parent with the higher ____.
*if equal, highest AGI
*if custodial parent waives right using Form 8332- OK
In cases of non-cash income, the amount of income is the _____ of the property or services received.
4 Characterizations of Income:
Salary and wages, state and local tax refunds, alimony, IRA and pension income, self-employment income, unemployment compensation, SS, prizes and taxable portion of scholarships and fellowships, gambling income and anything not following in other 3 baskets
Income earned on INTEREST and DIVIDENDS
Passive = A taxpayer who did NOT ____ ____.
Only ___ ___ may offset passive income.
Is a net passive loss deductible on a tax return?
*Unless an exception exists
Examples of Passive Income:
- Rental Income & Royalties a taxpayer receives
- Income from an investment in a company that is LIMITED
- Income from Partnerships - rental activity
Sale of capital assets which create capital G/L
Specific Items of Income & Exclusions
Salaries & Wages:
- Property (FMV)
- Cancellation of Debt
- Bargain Purchases
- Guaranteed Payments to a Partner
*also subject to self-employment tax
- Taxable Fringe Benefits (FMV)
*Ex: employee's personal use of company car= wages in an employee's income
- PARTIALLY Taxable Fringe Benefit
*Excess of $50,000 LIFE Insurance Premium paid by employer = taxable income/wages to employee
Example of NON-taxable Fringe Benefits:
- Life Insurance proceeds paid to beneficiary
- Accident, Medical and Health Insurance premium paid by Employer
- De Minimus
- Meals & Lodging
- Up to $5,250 of Employer's payment of Employee Education Expenses may be excluded
- Qualified Tuition Reductions
- Qualified Employee Discounts
- Qualified Pension, Profit-Sharing & Stock Bonus Plans
*@ time employer makes contribution to account = non-taxable
*@ distribution/once employee actually receives the $ = taxable
- Flexible Spending Arrangements
*Employees may elect to have part of their salary deposited into a pre-tax FSA & employee is not taxed on that income for future qualified expenses
*If funds are not used within 2 1/2 months after year end = forfeited
INTEREST Income: All interest income is ____, unless it is specifically excluded.
Tax-EXEMPT Interest Income (reportable, but not taxable)
- State & Local Government bonds/obligations
- Bonds of US Possession (Guam or Puerto Rico)
- Series EE - Educational expenses *phase-out does apply
- Veterans Administration Insurance
Series EE - Educational Expenses are tax-exempt when it is used to pay for higher education, phase out starts when modified AGI exceeds:
Single & HH: $77,200
Kiddie Tax: Parents may elect to include on their own return the unearned income of the applicable child provided the income is between ___ and ___ and consists solely of interest, dividends and capital G distributions.
$1,050 and $10,000
0-$1,050 = 0% tax
$1,050 - $2,100 = Child's %
Over $2,101 = Parent's %
If you withdraw money early from your savings, you will receive a penalty - forfeited interest - the bank will remove certain interest as a penalty. The taxpayer then only pays taxes on the amount of interest ___
*Amount of forfeited/removed interest is separately reported and not netted with interest income on the tax return
All dividends that represent distributions of a corporation's earnings & profits (similar to RE) are ____ and ____ in gross income.
TAXABLE & INCLUDED
Certain Qualified Div are eligible for a lower tax rate given the stock is held for more than ____ days during the 120 day period that begins 50 days before the ex-dividend date.
Tax Rates for Div Income-->
Most taxpayers - 15%
Low income taxpayers - 0%
High income taxpayers (39.6% ordinary income tax bracket) - 20%
Tax EXEMPT Dividend Income:
- Return of Capital - company distributes funds but has no earnings or profits
- Stock Split
- Stock Div - unless cash or other property option/taxable FMV
- Life Insurance Dividend
Capital Gain Distribution - Distributions by a corporation that has no earnings or profit, but the shareholder has recovered their entire basis are ___ gross income.
If taxpayer ITEMIZED in the prior year, the state or local refund is ____ this year.
If taxpayer used the STANDARD deduction in the prior year - Form 1040 EZ, the state or local refund is ___ this year.
Alimony is ___, while Child Support is ____.
Alimony = Taxable
Child Support = NOT taxable
*Payments received first apply to child support, any excess is then considered Alimony and taxable
If divorced and received property, it is ____
NON-taxable by the receiving spouse
NO deduction payment for providing spouse
Business Income/loss is on Schedule ___ or ___
Schedule C or C-EZ
NI from self-employment is computed on Schedule ____ and is then transferred to Form ____ as one amount.
C --> Form 1040
When calculating COGS / Inv on Schedule C, you must use the ___ method.
Do you include YOUR salary and commission in expenses on Schedule C- self employment NI?
NO - only salary & commission paid to others
What % of business meals and entertainment expenses are expensed on Schedule C?
*Unless for a charity - 100% itemized deduction
Can interest paid in advance be deducted on Schedule C?
NO - must be incurred and paid *matched
What method is used for bad debts on Schedule C for tax purposes?
DIRECT WRITE OFF
Example of NON-deductible expenses on Schedule C:
-Salary paid to yourself/sole proprietor
-Federal income tax
-Personal expenses (car, travel, vacation, meals, entertainment, interest - mortgage or investment, state and local tax expense, health insurance)
-Bad debt expense of a cash basis tax payer
2 Types of Taxes on Net Business Income:
1) Income Tax
2) Federal self-employment tax
A business with a loss may deduct the loss against other sources of income. If loss exceeds these amounts, may only be carried ____ only.
FORWARD (20 years)
If a married couple operates a business together, instead of filing a partnership income tax return - Form 1065, what can they do?
Report it on their jointly filed personal income tax return
What method is required for Tax for Non-exempt LT contracts?
% of completion
Exception- the following contracts can use the completed contract method:
- Small contractors (less than 2 years, average gross receipts not exceeding 10 m for 3 years that precede the tax year in question)
- Home construction contractors
- LT contract that includes land and where less than 10% of the total contracts costs relate to the actual construction of property on the land
- Services performed by architects, engineers, designers, construction management advisors and software implementation personnel
- Services performed under warranty and maintenance agreements
What method is required to be used for alternative minimum taxation?
% of completion
Self-Employment Tax is calculated on Schedule ___
Social Security Tax
Farming Income is calculated on Schedule ___
Most farmers use the ___ basis; however, certain corporate and partnership farmers and tax shelters are required to use the ___ basis.
CASH - Expense Inv
ACCRUAL - Use Inv
IRA Income: Generally, retirement money cannot be withdrawn until the individual reaches the age of ___, if before - ___% additional penalty tax
10% penalty tax
When are benefits taxable?
Not until the taxpayer actually receives the distribution
Traditional DEDUCTIBLE IRA distribution - When a person retires, the funds will be taxes as _____ income when received
NON-deductible IRS- All benefits received from a Roth IRA are _____ where as benefits received from a Traditional Non-deductible IRA: (2)
Roth IRA = NON-taxable
Traditional Non-deductible IRA:
Principal = NON-taxable
*Accumulated earnings= taxable when withdrawn
Exceptions to 10% Penalty Tax - When it is OK to withdraw retirement funds early: HIM DEAD
H - 1st time home buyer - $10,000 if used within 120 days of distribution
I - Insurance medical
M - Medical expenses in 10% of AGI
D - Disability, permanent or indefinite - not temp
E - Education - tuition, books, fees
D - Death
Annuity investment for retirement formula:
Investment amount / Monthly Factor = $ excludable from each of the first "Monthly factor #" payments
*Amounts of each payment beyond this $ amount are taxable
Rental Income (Passive Activity) is calculated on Schedule __
*Rental Estate, Royalties, Partnerships & Limited Liability Companies (K-1), S Corp (K-1), Estates (K-1), Trusts (K-1)
Rental Income - Schedule E - Formula:
Gross Rental Income
+ Prepaid Rental Income
+ Rent Cancellation Payment
+ Improvement in Lieu of Rent @ FMV
- Rental Expenses
= Net Rental Income/Loss
If rented less than 15 days per year, it is treated as a ____ residence and ___ from income.
PERSONAL - excluded
If rented for more than 15 days per year, it is treated as a personal/____ residence and expenses must be ____ between both.
Personal/Rental - prorated
Rental use expenses are deductible only to the extent of rental ____; thus, rental losses are ___ allowed.
*Rental losses are NOT allowed
Net passive activity losses may not be deducted against ____ income or against portfolio (int and div) or capital gains income.
*Only can be deducted from PASSIVE income
Non-deductible PALS can be carried ____ be offset against passive income in future years.
If still unused, suspended PALS become fully tax deductible in the year the property is ____.
Mom & Pop Exception: Taxpayers may deduct up to ____ per year of net passive losses attributable to rental real estate every year if the individuals are ____ participating/managing.
*Any excess is carried forward indefinitely
Mom & Pop Phase Out: $25,000 allowance is reduced by 50% of the excess of the taxpayer's AGI over ____ and completely phased out/cant be used if AG is over ____.
If the taxpayer is a ___ ___ professional, it is considered material participation and the taxpayer can fully deduct the losses from the rental activities against other income.
Real Estate Professional
*More than 50% of taxpayer's personal services
*More than 750 hours during yr
Unemployment Compensation =
Social Security Income:
FMV of prizes and awards =
*Unless the winner didn't enter themselves in the contest and gives the award to a gov't unit or charity
Gambling winnings =
Gambling losses may only be deductible to the extent of ____ ____.
*Schedule A as an ITEMIZED Deduction
Punitive damages =
Degree Seeking Student- Scholarship/Grant received and used for 1) Room & Board = ____ 2) Services were required to receive the scholarship/grant = ____
If a NON-degree seeking student receives a scholarship/grant, is it considered taxable income?
NON-taxable Misc Items:
- Life insurance proceeds given to beneficiary
- Gift or inheritances received
*Any income received - rental or interest - received the property is in the hands of the recipient is taxable
- Medicare benefits
- Workers' Compensation
- Income damages from Persona/Physical Injury or Illness
- Accident Insurance - if taxpayer paid all premiums
- Up to $100,800 of foreign-earned income if working abroad
Employee Stock Options
Corporations may grant their employees the option to purchase stock in the corporation
2 types of Employee Stock Options:
Employee: A NON-qualified stock option is taxed/recognized as income when _____ if the option has a readily ascertainable value, if not - taxed @ ____ date.
If not - EXERCISE
The Employer should deduct the value of the stock option as a business expense in the same year that the employee reports ____.
Adjusted Basis =
Exercise price + Recognized Ordinary Income
*Use adjusted basis for LT capital G/L
Qualified Stock Option - 2 types:
1) ISO - granted to key employee @ discount
Qualified Stock Options (ISO & ESPP) are ____ ____ as compensation income and therefore the employer does not receive a tax deduction.
When a Qualified Stock Option is sold, it is a considered a ____ G/L.
Adjusted Basis =
Exercise price + any amount paid for the option
Exception for ESPP - If the option price is less than FMV of the stock on the grant date, then ordinary income is recognized as the lesser of the difference of the 1) ____ or 2) ____
- Exercise price - FMV when sold
- Exercise price - FMV on grant
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