Study sets, textbooks, questions
Upgrade to remove ads
Tax Exam 1
Terms in this set (138)
Form 1040 =
typical tax return for all
1040 Line 1 =
wages from W-2
1040 Line 2 =
interest from 1099-INT
1040 Line 3 =
dividends from 1099-DIV
1040 Line 5 =
social security benefits (SSA-1099)
1040 Line 6 =
1040 Line 7a =
amount from schedule 1 lines 1-9
1040 Line 8 =
1040 Line 8b =
1040 Line 9 =
standard deduction if taken
1040 Line 11b =
taxable income (wages, interest, and other items)
1040 Line 12 =
amount of tax
1040 Line 12a =
total tax liability
- from tax tables/rate schedules
1040 Line 13 =
child tax credit amount
1040 Line 16 =
total tax liability from line 14 + line 15
1040 Line 17 =
tax payments withheld from box 2 Form W-2
1040 LIne 18 =
tax withheld from interest, dividends, rents, royalties, pension plan distributions, and similar payments (from various 1099s)
1040 Line 21 =
REFUND - comparison of line 16 and 19
1040 Line 23 =
remaining tax liability (to be owed)
1040 Line 24 =
tax penalty from amount owed
Schedule 1 =
Schedule 1 Line 1
state/local tax refund form prior year form box 2 Form 1099-G
Schedule 1 Line 2a =
alimony paid (as deductible)
Schedule 1 Line 7 =
federal/state unemployment compensation benefits (TAXABLE from box 1 Form 1099-G)
Schedule 1 Line 8 =
other TAXABLE gross income
- jury duty
- forgiveness of debt
- certain insurance proceeds (NOT life/health)
Schedule 1 Line 12 =
HSA tax-exempt savings account for QUALIFIED medical expenses
Schedule 1 Line 13 =
military moving expenses (attach Form 3903)
Schedule 1 Line 14 =
deduction for HALF of self-employment tax
Schedule 1 Line 16 =
self-employed health insurance deduction
Schedule 1 Line 17 =
penalty on EARLY withdrawal of savings (CDS/savings accounts)
Schedule 1 Line 20 =
student loan interest (limited to 2,500)
Schedule A =
- FROM AGI
Schedule A Line 4 =
medical and dental expenses
Schedule A Taxes You Paid =
- personal real estate and property
Schedule A Interest You Paid =
- home mortgage interest and points form Form 1098 (line 8a)
- home mortgage interest NOT reported on Form 1098 (owner financing)
- Down PMT of at least 20% must have mortgage insurance (line 9)
Schedule A Gifts to Charity =
- gifts of cash/check
- other than cash/check and if over 500, attach Form 8283
Schedule A Casualty and Loss =
ONLY if FEDERALLY declared disaster occurs (attach Form 4684)
Schedule A Other Itemized Deductions =
gambling losses UP TO gambling winnings
Schedule A Total Itemized Deductions =
Line 17 MUST be GREATER than standard deduction to take the itemized deduction
Schedule B =
interest and ordinary dividends
- used when OVER 1,500
Schedule B Part 1 =
Schedule B Part 2 =
Schedule B Part 3 =
no for 7a and 8
Form 3903 =
military moving expenses
- ONLY Armed Forces members
Form 4684 =
casualties and theft
Form 4868 =
request for 6 month extensions if form is filed by April 15 (ONLY to tax return NOT tax amount due)
Form 4952 =
investment interest expense deduction
- can take up to investment income amount
What are the criteria to be met for investment interest expense deduction?
- investments interest expenses does not exceed investment income from interest and ordinary dividends minus qualified dividends
- taxpayer has no other deductible investment expenses
- taxpayer has no disallowed investment interest expense from 2018
Form 8283 =
noncash charitable donations
Form 8867 =
paid preparer's due diligence check list
Form 8867 Part 1 =
- complete ALL of part 1 IF CTC or HOH is check
- everything is yes EXCEPT #4 (no answer for 7a)
Form 8867 Part 3, 5, 6 =
answer is YES
Form 8889 =
Health Savings Account (HSA)
Form 8889 Part 1 =
HSA contribution from Form 5498-SA and/or W-2
- HSA deduction here AND on Schedule 1 line 12
Form 8889 Part 2 =
total distributions received form 1099-SA
- if line 14a is GREATER than 15 it will go to taxable income
Form 8917 =
tuition and fees deduciton
wages and tax statement
- box 1 = 1040 line 1
- box 2 = 1040 ine 17
mortgage interest statement
- box 1 = schedule A line 8a
student loan interest
- box 1 = schedule 1 line 20
cancellation of debt
- box 1a/1b = 1040 line 3a/3b
- box 1 = schedule 1 line 7
- box 4 = 1040 line 17 (add to W-2 box 2)
- box 1 = line 2b
- box 2 = line 17
social security benefits
FOR AGI =
1040 lines 1-8a
- schedule 1
FROM AGI =
1040 after line 8b
What is the additional standard deduction for blind/over 65 or older Single/HOH?
What is the additional standard deduction for blind/over 65 or older MFJ/MFS/QW?
What is the standard deductions for Single/MFS?
What is the standard deductions for MFJ/QW?
What is the standard deduction for HOH?
What is included on Schedule 1?
- taxable refunds, credits, or offsets of state/local income taxes
- alimony received
- unemployment compensation
- other income: jury duty, prize money, gamblings, canceled debts, and dividends on insurance policies if amount more than total of all premiums you paid
When is marital status determined for tax purposes?
at the end of the calendar year (last day of tax year (on or before 12/31)
What types of income are included in gross income?
everything ABOVE the line
- all wages
- interest PMTs
- other forms of earnings (BEFORE deductions/taxes)
What is child support?
fixed PMT payable for support of children of the payer spouse (no income or tax deduction)
What is property settlement?
division of property of the marital community incident to a divorce (no income or tax deduction)
What is qualified alimony?
PMT must be cash and required under the decree of divorce or separate maintenance or the provisions of a written separation agreement or other decreed requiring one spouse to make PMTs to support the other spouse
What is the 16th amendment from 1913?
congress has power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several states, and without regard to any census or enumeration
What is the progressive rate structure?
tax rate increases as the tax base increases (tax rate applied to the tax base to determine the amount of tax
- federal income tax
What is the proportional tax rate structure?
- tax rate remains same regardless of the tax base
- state/local tax levied on property or sales
What is the regressive tax structure?
tax rate DECREASES as the tax base increases
- social security tax
When must you file taxes by?
no later than April 15
- Monday if 15 is on the weekend
What is a tax authority?
guidelines that give the taxpayer not only guidance to report taxable income correctly but also guidelines and precedent for judicial decisions concerning conflicts between the IRS and the taxpayer
What are statutory sources?
- most commonly relied on statutory authority is the IRS
- changes MUST pass through the entire legislative process to become a law
What are administrative sources?
the IRS's interpretation of the IRS
- rulings or interpretations of the IRS at the national level
What are treasury regulations under administrative sources?
strongest administrative authority
What is the order of strength of the treasury regulations?
High to Low Strength
- legislative regulation
- general/final regulations
- temporary regulations
- proposed regulations
What are judicial osources?
judges travel throughout nation to hear tax cases between taxpayer and IRS
What are the qualifications of HOH?
- unmarried at the END of the tax year
- U.S. citizen/resident throughout the year
- NOT a qualifying widow(er)
- maintain a household that is the principal place of abode of a qualifying person for MORE than half of the year
- MUST pay for MORE than half the cost of keeping up a home for the year
What are the qualifications for a qualifying widow(er) with dependent child?
- taxpayer eligible to file a joint return in the year the spouse died
- taxpayer did not remarry before the end of the tax year in the question
- taxpayer paid more than half the cost of keeping up a household
- household was the principal place of abode for the ENTIRE year of both the taxpayer and child, stepchild, or adopted child who can be claimed as a dependent by the taxpayer
When can a taxpayer claim a dependent if the person is a qualifying child/relative?
- dependent taxpayer test
- joint return test
- citizen or resident test
What is the dependent taxpayer test?
if an individual can be claimed as a dependent by someone else, then the taxpayer cannot claim that person as a dependent
What is the joint return test?
taxpayer cannot claim as a dependent someone who files a joint return with his/her spouse; IF the dependent files a joint return simply to claim a refund (i.e. no tax liability on return and there'd be NO tax liability on separate tax returns) then a dependent claim IS allowed
What is the citizen/resident test?
a U.S. citizen, resident, or national, resident of Canada/Mexico, OR adopted child of the taxpayer if the child is a member of the taxpayer's household all year and the taxpayer is a U.S. citizen or national
What makes you a qualifying child?
- relationship test
- age test
- residency test
- support test
- special test for qualifying child of more than one taxpayer
What is the relationship test?
- child or descendent of child (grandchild or great-grandchild
- eligible foster child
- brother/sister, half-brother/sister, stepbrother/sister, or a descendent of them
- adopted child, child placed for adoption in taxpayer home by authorized adoption agency (even if NOT finalized)
- NOT COUSINS
What is the age test?
- under 19
- under 24 AND a full-time student (any part of each of 5 calendar months during the calendar year)
- total and permanently disabled regardless of age
What is the residency test?
- must live with taxpayer for MORE than half the year
What is the support test for qualifying child?
- not provide more than half of his/her support
What is the special test for qualifying child of more than one taxpayer?
- can only be claimed by ONE taxpayer
- if undecided, IRS will use tiebreaker rules
When can a child be claimed by the noncustodial parent?
- child has been in custody of either or both parents for more than half of the year
- either or both parents provided more than half the child's support
- the parents are...divorced or legally separated; separated under a written separation agreement; living apart at all times during the last 6 months of the year
Decree or separation agreement for 2019 states that the noncustodial parent can claim the child or the custodial parent signs a written document specifying that the child not be claimed as a dependent
What makes you a qualifying relative?
- not a qualifying child test
- relationship or member of household test
- gross income test
- support test
What is the relationship or member of household test?
Must live with taxpayer for the entire year OR:
- child or descendent of child (grand-child or great great-child)
- eligible foster child
- brother/sister, half-brother/sister, or a decedents of them
- father or mother
- brother/sister of parents
- son-in-law, daughter-in-law, father-in-law, mother-in-law, brother-in-law, or sister-in-law
What is the gross income test?
Must NOT have gross income equal to OR great than 4,200
- NOT including: tax-exempt interest, nontaxable portion of social security benefits, and nontaxable portion of a scholarship or fellowship
What is the support test for qualifying relative?
taxpayer provides OVER 50% of dependent's support
What are the two exceptions to the qualifying relative support test?
- when several persons provide for more than half the support of someone but no one person meet the 50% threshold absent the support test
- if child NOT qualifying child, can be treated as qualifying relative of noncustodial parent
When can a not qualifying child be treated as a qualifying relative of noncustodial parent?
- child has been in custody of either or both parents for more than half the year
- either or both parents provided more than half the child's support
- the parents are: divorced or legally separated; separated under a written separation agreement; living apart at all time during the last 6 months of the year
- decree or separation agreement for 2019 states that the noncustodial parent can claim the child as a dependent, or the custodial parent relinquishes the dependent claim to the noncustodial parent by signing a written agreement to that effect (not binding for future years)
When would the standard deduction be 0?
- married couple files separate returns and one spouse itemizes deductions (both must itemize now)
- taxpayer is a nonresident alien
- taxpayer files a return for a period of less than 12 months because of a change in accounting period
What are the types of interest and tax penalties?
- interest charged on assessments
- failure to file a tax return, pay tax, and pay estimated taxes
- substantial understatement of tax liability (accuracy-related penalties)
- fraud penalties
- erroneous claim for refund or credit penalty
What is the interest charged on assessments penalty?
- assess interest amount based on the remained amount owed - federal short-term rate PLUS 3 percentage points
What is the failure to file a tax return penalty?
- less Than 1 Month: 5% of the amount of tax due on the return
- for EACH Additional Month or Fraction of Month: additional 5% penalty up to a maximum of 25%
- any NOT filed within 60 days of due date is subject to minimum penalty of the less of $215 OR amount of tax required on the return
- failure to File Due to Fraud: penalty is 15% per month, up to a max of 75%
- proof of Reasonable Failure: IRS could decide to forgive penalty
What is the failure to pay tax penalty?
- failure to Pay Tax Penalty: 0.5% of the tax shown on the return for each month (or fraction of a month) the tax is unpaid, up to a max of 25%
- when both penalties apply = max monthly penalty is 5%
What is the failure to pay estimated taxes?
To Avoid this penalty, the taxpayer must pay during the year, either through withholding or estimated payments, a minimum of:
- 90% of current year's tax liability
- 100% of the prior year's tax liability if the taxpayer's AGI in the prior-year is LESS than 150,000 (more than = 110%)
No tax penalty IF tax due after withholding or estimated payments is less than 1,000
What is the substantial understatement of tax liability (accuracy-related penalties)?
Penalty = to 20% of the tax due
- may be reduced if taxpayers has substantial tax authority for his/her tax treatment
When does substantial understatement occur?
- more than 10% of the tax required to be shown on the return
- 5,000 or more
What is the fraud penalty?
IRS can impose a 75% penalty on ANY portion of understatement of tax that is attributable to fraud
What are the possible criminal penalties for fraud penalty?
- person who willfully attempts to evade or defeat any tax
- person who fails to collect, account for, and pay over any tax
- person who willfully fails to pay estimated tax or other tax and file a return
What is the erroneous claim for refund or credit penalty?
20% penalty could be assessed by IRS on the disallowed amount of the claim if the claim for refund or credit of income filed is found to be excessive
- amount exceeds the amount of the allowable claim
- not applicable if the fraud or accuracy-related penalty has been assessed
What. is the cash method?
taxpayer reports income in the year he/she receives or constructively receives the income rather than the year in which the taxpayer earns the income
When can military moving expenses be taken as a deduction?
unreimbursed amounts on permanent change of station
- move from their home to their first post of active duty
- move from one permanent post of duty to another
- move from their last post of duty to their home or to a nearer point in the US (move MUST occur within 1 year of ending their active duty or within the period allowed under the Joint Travel Regulations)
Deductibles INCLUDED in military moving expenses =
- expenses of moving their household goods and personal effects (hauling trailer, packing, crating, in-transit storage, insurance
- cost of storing and insuring their household goods and personal effects within any period of 30 consecutive days AFTER the days these goods and effects are moved from their former home and before they are delivered to their new home
- lodging, car expenses, and air fare from old to new home
- actual out-of-pocket expenses for gas/oil using standard mileage rate for moving expenses
- parking fees and tolls
Deductibles NOT included in military moving expenses =
- moving/storage services provided by government
- dislocation allowance
- temporary lodging expense and allowance
- move-in housing allowance
- moving furniture or other goods that were purchased ON THE WAY from their old home to their new home
- unnecessary trips
What are the qualifications for IF an individual qualifies as a dependent of medical expenses?
- dependent child is treated as a dependent by BOTH parents. Parent that pays the medical expense may deduct the expenses even if the parent is not permitted to claim the child's dependency exemption
- gross income and joint return tests for dependency exemption are waived. Taxpayer that pays the expenses of an individual that satisfies the relationship, citizenship, and support tests for the dependency exemption may deduct the medical expenses paid for that person
What are the deductible medical expenses?
- diagnosis, cure, mitigation, treatment, or prevention of disease, or for the purpose of affecting any structure or function of the body
- transportation primarily for and essential to medical care
- qualified long-term care services
- insurance for medical care or qualified lang-term care services
- birth defect repairs
- prescribed medications
What tests must the state/local property taxes meet?
- tax must be levied on personal property
- tax must be an ad valorem tax (must be based on the value of the property)
- tax must be imposed, at a minimum, on an annual basis with respect to personal property
Property Taxes on Property Owned Jointly =
if one person is part owner of a property and other owner does NOT pay the property taxes, THEN that person is liable for the full payment. For this, the owner who pays the tax may deduct the tax amount
What is the tax benefit rule?
if a taxpayer receives a federal tax benefit from an expense when the expense is paid, that taxpayer is taxed on a refund of that expense when the refund is received
What are some types of investment income?
- ordinary dividends
- short-term capital gains
What are some types of charitable organizations?
- any governmental or subdivision of the US or its possessions as long as the gift is for exclusively PUBLIC organizations
- nonprofit organization that is organized and operated exclusively for religious, charitable, scientific, literary, or educational purposes or to foster international amateur sports competition and is not disqualified from tax-exempt status under IRS 501(c)(3)
- port or organization of war veterans for which no part of the net earnings benefits any private shareholder or individual
- domestic fraternal society or association that uses the contribution only for religious, charitable, scientific, or educational purposes
- a cemetery company owned and operated exclusively for the benefit of its members
Capital Property Donations =
- other investments
Ordinary Income Property Donations =
- accounts receivable
What are the 3 limitations on charitable donations?
- 60% is the general limitation
- 30% limitation applies to contribution of long-term tangible capital gain property
- 20% limitation refers to the donation of capital gain property to a private foundation
What is the 60% limitation for charitable donations?
all charitable contributions to public charities are limited to 60% of the individual taxpayer's AGI
What is the 30% limitation for charitable donations?
When long-term tangible capital gain property is contributed to a public charity, and the property is put to a related use by the charity, the taxpayer can take a deduction for the asset's FMV. However the deduction is limited to 30% of the taxpayer's AGI
- if taxpayer elects to reduce the FMS of the contributed property by the amount of long-term capital gain that would have been recognized if the property had been sold at its FMV at the time of the contribution, the 60% limitation would apply to the contribution, rather than 30% of AGI limitation
- another exception is a donation of long-term tangible capital gain property to a charity that the charity uses for purposes unrelated to the organization's function
- 30% also applies to any contribution (cash/property) to charities that are not 60% limitation charities such as war veterans' organizations, fraternal orders, cemetery companies, and certain nonoperating private foundations
What is the 20% limitation for charitable donations?
the deduction for cash given to a private foundation is limited to 30% of AGI, whereas capital gain property given to the same organization is limited to 20% of AGI
What must go on a written acknowledgement from recipient organization?
- data and amount
- if any goods/services from charity were received from contribution
- description and good-faith estimate of the value of any goods/services that the taxpayer received
What are the most common other itemized deductions?
- gambling losses (gambling losses include but are limited to cost of nonwinning bingo, lottery, and raffle tickets) but only to the extent of gambling winnings reported on schedule 1 of Form 1040, line 8
- casualty and theft losses of income-producing property from Form 4684, lines 32 and 38b, or Form 4797, line 18a
Sets with similar terms
Ch3 Computing the tax
Ch. 4 Exemptions and the Standard Deduction
Federal Taxation -- Chapter 2
ACC115 - Ch. 1 & 2
Other sets by this creator
ACCT 3301 - Exam 1 Review
ACC 231 - Exam 1
Other Quizlet sets
Vision for Final
Ch 24 & 25 terms
studies for the final