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REG R1 & R2: Individual Taxation
Terms in this set (80)
what is the requirement to file a join return?
the parties must be MARRIED at the end of the year
***and NO legally separated under the laws of the state in which they reside
The requirements of a "qualifying widow/er:"
-taxpayer's spouse died in one of the two previous years and taxpayer did not remarry in the current tax year
-taxpayer has child who can be claimed as dependent
-child lived in taxpayer's home all of current tax year
-taxpayer paid over half cost of keeping up a home for the child
-taxpayer could have filed a joint return in the year the spouse died
can the surviving spouse file "Married Filing Jointly" the year that the taxpayer's spouse dies?
yes, because they are considered to be married
when is head of household filing status available?
when they are a single taxpayer who maintains a separate home for a dependent.
-mst be unmarried as of the last day of the tax year, and maintain a home that is the principal residence of a qualifying person for more than half of the tax year
what is a qualifying person?
dependent child, parent, or relative
when is marital status for the tax year determined?
as of the last day of the year
who must file for taxes?
their income is equal or greater to the sum of:
-the regular standard deduction amount EXCEPT for married filing separately
-the additional standard deduction amount for taxpayers age 65 or older or blind EXCEPT for married persons filing separately
when are taxes due/filed?
what is the extension date for paperwork of taxes?
when should a cash basis taxpayer report gross income?
in the year which income is actually or constructively received, whether in cash or in property
when do you fill a schedule C out?
when you are self-employed
basis deduction calculation for the QBI deduction:
20 percent * QBI
basic tax formula
EQUALS adjusted gross income AGI
MINUS standard or itemized deductions
EQUALS taxable income before QBI deduction
MINUS QBI deduction
EQUALS taxable income
FED income tax
MINUS tax credits
PLUS other taxes
EQUALS tax due or refund
what are all the filing statuses?
married filing jointly
married filing separately
head of household
qualified widow/widower WITH dependent child
what are the criteria for filing single?
-unmarried/legally separated from spouse at the end of the tax year
-does NOT qualify for another filing status
what are the criteria for filing married filing jointly?
-married and living together as spouses; or
-living together in a recognized common law marriage; or
-married and living apart but NOT legally separated or divorced
what are the criteria for filing married filing separately?
at year-end of tax year:
-if one spouse wants to be responsible only for own tax; or
-if both spouses do not agree to file a joint return
what are the criteria for filing head of household?
-individual is not married, legally separated, or is married and has lived apart from his/her spouse for the last six months of the year
-NOT qualifying widow/er
-NOT nonresident alien
-maintained a home that, for more than half the taxable year, is the principal residence of a : qualifying child/qualifies as taxpayer's dependent aka qualifying relative, qualifying relatives who reside w taxpayer, dependent father or mother, regardless if live w taxpayer or not
what are the criteria for filing qualifying widow/er aka surviving spouse?
-unmarried at end of tax year AND
-surviving spouse must maintain a household, which for the whole taxable year was the principal place of abode of a son, stepson, daughter, or stepdaughter AND
-that child qualifies as a dependent of the taxpayer
TWO YEARS AFTER DEATH OF SPOUSE IS WHEN THEY QUALIFY
what are the requirements for an individual to meet the definition for a "qualifying child?"
Age limit is 19 or 24 for full time student and younger than taxpayer
Residency and filing req
Eliminate gross income test
Support test is over 50 percent provided
what are the requirements for an individual to meet the definition for a "qualifying relative?"
Support over 50 percent test
Under a specific amount of taxable gross income test
Precludes dependent filing a joint tax return test
Only citizens / residents of US, Canada, or Mexico test
Relative test OR
Taxpayer lives w individual for the whole year test
EITHER R or T met, both can be, only one is required
what are the requirements for a multiple support agreement?
-two or more people together provide more than 50 percent of support, but no one contributes MORE than 50 percent
-to claim as a dependent, a person must provide more than 10 percent of support/meet other dependency tests
-multiple support declaration FORM 212, must be filed
when should a cash basis taxpayer report income?
in the year in which income is either actually or constructively received, whether in CASH or PROPERTY
what is the definition of gross income?
includes ALL income from whatever source derived, unless specifically excluded
what are some nontaxable fringe benefits/exclusions?
-de minimis fringe benefit
-qualified tuition reduction
-qualified employee discounts
-employer-paid accident, medical, and health insurance
UNLESS specifically excluded by law, the fringe is includable in gross income
are life insurance premiums paid by an employer taxable to an employee?
premiums on the first 50,000 aka face amount of group term life insurance are NOT includable in gross income, premiums paid ABOVE that amount should be included in gross income
CALC FROM IRS TABLE, not entire amount of premium over 50,000
what are some examples of exempt interest?
-state and local gov bonds
-bonds of a U.S. possession
-Seriess EE/U.S. savings bond if used for higher education
what is the tax treatment of property settlements in a divorce?
the transferring spouse gets no deduction for payments made/or property transferred, and the payments are not includable in the gross income of the spouse receiving the payment or property
still true even if divorce was finalized on or before Dec. 31st, 2018
what are the reqs for alimony to be deductible by the paying former spouse and includable by the recipient?
-divorce/sep agreement executed on or before Dec. 31st, 2018
-pay legal req pursuant to a written decree
-cash or cash equivalent
-payments not extend beyond death of payee
-payments not made to members same household
-no joint tax return filed
BEFORE ALIMONY TAXABLE any child support due must be paid
when are funds in a nondeductible traditional IRA taxable?
-withdrawals from non deduct traditional IRAs are partially taxable
-when withdrawn, amounts previously contributed/principal are nontaxable. any earnings on those contributions are taxable when withdrawn
-pro rata allocation is generally applied to the distribution to determine the taxable amount
what is the formula to determine the excludable portion of an annuity?
excludable amount in current year = investment in contract / age factor in months
IF live longer than the factor in months, further payments = fully taxable
IF die before factor payments are collected, unrecovered portion of investments = deducted on the taxpayer's final income tax return
in premature distributions of an IRA, what are the exceptions to the penalty tax?
Homebuyer first time, 10,000 max if used toward first home within 120 days
Insurance medical, unemployed w 12 consecutive weeks of unemploy comp, self-employed who are otherwise eligible for unemploy comp
Medical expenses in excess of percentage of AGI floor
Education: college tuition, books, fees, etc.
Adoption or birth of a child made within one year from the date of birth or adoption, 5,000 max
what are the rules to determine taxable Social Security benefits?
taxpayers are classified into five categories depending on the level of provisional income, which is defined as AGI plus tax-exempt interest plus 50 percent of Social Security benefits
LOW = no SSN taxable
lower/mid = less than 50 percent
mid = 50 percent tax
upper mid = 50-85 SSN tax
upper = 85 SSN tax
are scholarships and fellowships includable in gross income?
for degree-seeking student, scholarships, fellowships, are excludable up to the amounts spent on tuition, fees, books, supplies ALL REMAINING = INCLUDE IN GROSS INCOME
***non-degree seeking student, all amounts are includable in gross income
what are the tests for foreign-earned income exclusion?
-bona fide residence test, an entire taxable year
-physical presence test, 330 full days out of 12 consecutive months, aka over 11 months
what are some nontaxable miscellaneous income items/exclusions?
-life insurance proceeds
-personal/physical injury or illness award
-accident insurance - premiums paid by taxpayer
-foreign-earned income exclusion
what is the self-employment tax?
-all net self-employment income is subject to the 2.9 percent medicare tax, but only self-employment income up to 142,800 in 2021 is subject to 12.4 percent SSN tax
-an adjustment to income for one-half of self-employment tax - Medicare plus SSN paid
on what property do the uniform capitalization rules apply?
-real/tangible personal prop produced by the taxpayer for use in the taxpayer's trade/bus
-real/tangible personal prop produced by the taxpayer for sale to customers/manufacturer's inventory
-real/tangible personal prop produced by the taxpayer for resale/retailer's inventory
EXCEPTION: the uniform capitalization rules do NOT apply to retailer's inventory / prop purchased for resale if the taxpayer's gross receipts for the preceding three tax years do not exceed 26,000,000 annually.
how is rental income from a vacation house treated?
1. if rented fewer than 15 days: treat as personal residence
2. if rented more than 15 days and personal use is the greater of 14 days or 10 percent of days rented: allocate rental expenses to extent of rental income
3. if rented 15 or more days and personal use is not more than 14 days or 10 percent of days rented, if greater: treat as rental property
if treated as personal, income is excluded and deductions for mortgage interest and taxes are reported on Schedule A. Other expenses are not deductible.
if vacation property is treated as a rental property, the taxpayer reports income and deductions on Schedule E
what are the four categories of business entities?
the tax system in the US recognizes FOUR categories of bus entities:
2. s corp
3. sole proprietorship
4. c corp
what is the tax treatment of guaranteed payments?
distributive deductions to the partners via the partnership K-1 and also taxable income to the partner receiving the payments
what is meant by fiduciary accounting?
trusts use fiduciary accounting. all receipts and disbursements are classified as either principal/corpus or income
what is the qualified business income/QBI deduction?
a deduction for AGI available for individuals. the deduction is 20 percent of business income from sole proprietorships and flow-through entities from business conducted in the US. AGI and other limitations apply.
what are the three categories of individual income?
1. active: wages, salaries, active business income/loss
2. portfolio: dividends, interest, capital gains/losses
3. passive: business income/loss when taxpayer does not actively participate; rental real estate and limited partnership interest automatically passive
what is passive activity/give some examples of passive activities:
any activity in which the taxpayer does not materially participate
-rental activities, interests in limited partnerships, and S corps are examples of passive activities
NOTE: rental activities are passive by definition, even if the taxpayer does materially participate
what is the tax treatment of nondeductible passive activity losses?
-nondeductible passive activity losses are unused passive activity losses that are held in suspension
-used to offset passive income in future years / indefinitely
-fully tax deductible against all categories of income: active, passive, portfolio, in the year the property is disposed: e.g. sold
what are the deductions for AGI?
-student loan interest
-health savings account
-moving expenses (for military orders only)
-1/2 self-employment tax
-self-employed health insurance
-interest withdrawal penalty
-alimony paid (only for divorce or separation agreements executed on or before December 31, 2018)
-attorney fees paid in certain discrimination & whistle-blower cases
-qualified charitable contributions by non-itemizers
which is a deduction for AGI: child support or alimony?
deduction FOR/to arrive at AGI = Alimony paid if a divorce/separation agreement executed on or before December 31, 2018
(child support is NEVER a deduction to arrive at AGI. child support is not deductible by the payor or taxable to the recipient)
what are the limits on traditional IRA deductions?
-traditional IRAs in 2021, the deduction is the lesser of $6,000 or individual's earned income ($12,000 if married or earned income of the married couple). an additional $1,000 deductible contribution is allowed for each taxpayer over age 50.
-if the taxpayer or spouse participates in an employer-sponsored retirement plan, the taxpayer's allowable deductible contribution phases out proportionately
-if married taxpayer is not an active participant in an employer's retirement plan but the spouse is, the deduction for the spouse who is not an active participant is phased out proportionately
what are the limits on nondeductible traditional IRAs?
the lesser of:
1. $6,000, plus an additional $1,000 if age 50 or older, for 2021
2. individual's compensation
3. limit not contributed to other regular and Roth IRAs
earnings on such contributions will accumulate tax-free (deferred) until withdrawn. when withdrawn, only the accumulated untaxed earnings are taxable.
what are the limits on deductions to SEP IRA plans?
SEP IRA plans are for self-employed taxpayers and their employees.
deductible amount is the lesser of 20% of net earnings from self-employment (after SEP IRA deduction and deduction for portion of self-employment tax) or $58,000 (2021).
what are the self-employed deductions ("adjustments") for AGI?
self-employment tax: 50%
self-employment health insurance: 100%
self-employed retirement plan contributions: 100% may be deducted
what are the requirements for moving expenses to be deductible?
moving expenses are only deductible for members of the U.S. Armed Forces moving pursuant to military order.
what is the additional deduction for elderly and/or blind?
for 2021, if 65 or older, add $1,700 (single or HOH), or $1,350 (MFJ/Sep, or Q widow[er])
-if blind, add same amounts as above.
-if both are over 65 and blind, amounts are $3,400 (single or HOH) and $2,700 (MFJ, MFS, or Q widow[er])
what is the standard deduction for a taxpayer who is the dependent of another taxpayer?
the standard deduction is limited, if a taxpayer can be claimed on another person's return, to the greater of $1,100 (2021) or the earned income of the dependent plus $350.
what are the major classes of itemized deductions?
-medical and dental expenses
-gifts to charity
-casualty and theft losses
-gambling losses to the extent of winnings
what are the limitations on medical expenses?
-medical expenses are deductible to the extent they exceed 7.5% of AGI.
-cost of surgery for elective cosmetic reasons is not deductible.
-self-employed individuals may deduct 100% of medical insurance premiums as an adjustment toward AGI.
-a dependent for medical expenses must meet only the support, relationship, and citizenship or residency tests.
what are the taxes that are deductible as itemized deductions?
LIMITED TO $10,000 TOTAL:
-state and local income tax
-state and local property tax
***foreign real property taxes are only deductible if incurred in a trade or business.
what are the types of interest that are deductible and nondeductible?
-qualified residence interest on principal and second residence is subdivided into:
qualified indebtedness ($750,000 debt limitation), points paid on principal residence mortgage loan are fully deductible, points paid to refinance a home (or for a home equity loan) must be capitalized and deduction spread out over life of a loan)
-interest on loans for investment purposes, limited to net investment income, can be carried forward.
-prepaid interest (use accrual basis for determining deductible amount).
-educational loan interest is an adjustment and not an itemized deduction.
-consumer interest is NOT deductible
what are the limitations on charitable contribution deductions?
cash = 60% of AGI (100% in 2021)
ordinary income = 50% of AGI
long-term capital gain (LTCG) property = 30% of AGI
-excess contributions can be carried forward 5 years
-cash contributions must be substantiated by a bank record or a written communication by the charitable organization
what is the limit on nonbusiness casualty and theft losses?
for tax years 2018-2025, the deduction for casualty and theft loss is limited to losses incorrect in a federally declared disaster area.
*if partial loss: deduction is based on decrease in FMV not to exceed adjusted basis
*if total loss: deduction is adjusted basis
aggregate losses are reduced by:
-$100 per casualty/theft event
-10% of AGI
what are some refundable individual tax credits?
-child tax credit
-earned income credit
-excess SSN tax withheld
-American opportunity credit (40% refundable)
what are some nonrefundable individual tax credits?
-child & dependent care credit
-elderly or disabled credit
-American opportunity credit (60% nonrefundable)
-Lifetime learning credit
-retirement savings contribution credit
-foreign tax credit
-general business credit
-work opportunity credit
what are the child/dependent care credit limitations?
-up to 35% of eligible expenditures or $3,000 maximum ($6,000 for two or more dependents).
-maximum child care credit of 35% for AGI of $15,000 or less.
-the credit decreases by 1% for each $2,000 (or fraction thereof) of AGI over $15,000.
-minimum child care credit is 20%
-a qualifying child is one under age 13 who qualifies as a dependent, any disabled dependent who is unable to care for self, or a spouse who is disabled and unable to care for self.
what is the tax credit for the elderly or disabled?
available to individuals who are:
-65 years of age or older; or
-under 65 and retired due to permanent disability and received taxable disability income.
Base amount for the credit as follows is subject to AGI limitations:
-$5,000 if single
-$5,000 if MFJ and one qualified individual
-$7,500 if MFJ and both are qualified individuals
-$3,750 if MFS and qualified individual
what are the limitations of the American opportunity tax credit?
the credit for the first four years of postsecondary education is limited to $2,500 as follows:
-100% of the first $2,000 in tuition costs and 25% of the second is $2,000.
*credit phase-out begins w modified AGI of $80,000 ($160,000 MFJ), with full phase-out at $90,000 ($180,000 MFJ)
what are the limitations of the lifetime learning credit?
the credit for an unlimited number of years for tuition and fees at eligible educational institutions is limited to 20% of tuition and fees up to $10,000.
credit phase-out begins w modified AGI of $80,000 ($160,000 MFJ), with full phase-out at $90,000 ($180,000 MFJ).
what is the time limit on Coverdell education savings accounts?
any amounts remaining when the beneficiary reaches the age of 30 must be distributed.
- must be distributed to a beneficiary, are taxable, and a 10% penalty is assessed;
-rollover to another family member is permitted with no 10% penalty.
what are the eligibility requirements for the retirement savings contribution credit?
-at least 18 by close of the tax year
-not a full-time student
-not a dependent
-income limits apply
what is the formula to determine the amount of the foreign tax credit?
-there is no limitation to the amount of foreign taxes paid that are claimed as deductions.
-overall limitation for the credit:
(taxable income from all foreign operations / total taxable worldwide income * U.S. tax)
-credit is lesser of foreign taxes paid or overall limit. any unused credit can be carried back one year and forward 10 years.
what is the limitation of the work opportunity credit?
- 40% of the first $6,000 of wages per employee paid during the first year of employment
-40% of the first $3,000 paid to certain summer youth
what is the child tax credit?
-$2,000 tax credit for each qualifying child
QUALIFYING CHILD: CARES rules apply, except that a child must be under the age of 17
-higher-income taxpayers must reduce credit by $50 for each $1,000 by which modified AGI exceeds:
*$400,000 for a joint return
*$200,000 for an unmarried individual
*$200,000 for MFS
what are the eligibility requirements for the earned income tax credit?
-live in the U.S. (main home) for more than half the taxable year;
-meet certain low earned income thresholds;
-not have more than a specified amount of disqualified income;
-be over 25 and under 65 if there is no qualifying children; and
-file a joint return with spouse (if married).
who must make estimated tax payments?
1. $1,000 or more tax liability and the taxpayer's withholding is less than the lesser of 90% of current year's tax; or
2. 100% of last year's tax [110% if AGI is> $150,000 ($75,000 for MFS)]
what is the IRS requirement to make estimated quarterly tax payments?
-amount of taxes owed is expected to be $1,000 or more ("owed" is the excess of tax liability over withholding)
-the taxpayer's withholding is less than the lesser of:
*90% of the current year's tax;
*100% of the prior year's tax
(if estimated payments have been insufficient to avoid a penalty, a taxpayer can increase withholding from wages before year-end, and the withholding will be considered to have been paid evenly throughout the year.
what is the net investment income tax?
the net investment income tax applies a rate of 3.8% to certain net investment income of individuals who have income above the statutory threshold amounts ($250,000 for MFJ $200,000 for single or HOH filing status)
what is the tax treatment of unearned income of a child who falls under the "kiddie tax" rules?
-net unearned income of a dependent child who falls under the "kiddie tax" rules is taxed at the parent's marginal rate.
-net unearned income = child's total unearned income less $2,200 (the child's standard deduction of $1,100 plus an additional $1,100 taxed at the child's tax rate).
what is the employee and employer taxation of non qualified employee stock options?
-if there is a readily ascertainable value, the employee recognizes ordinary income in that amount in the year granted
-if there is NOT, employee recognizes ordinary income based on the FV of the stock purchased less any amount paid for the option on the exercise date
-may deduct the value of the stock option as a business expense in the same year the employee recognizes ordinary income
what is the employee and employer taxation of incentive stock options (ISOs)?
generally, ISOs are not taxed as compensation. basis of the stock is the exercise price plus any amount paid for the option. generally, any g or l on the subsequent sale is capital
generally, employers do not receive a tax deduction for ISOs.
what is the employee and employer taxation of employee stock purchase plans (ESPPs)?
generally, ESPPs are not taxed as compensation. basis of the stock is the exercise price plus any amount paid for the option. generally, any g or l on the subsequent sale is capital
generally, employers do not receive a tax deduction for ESPPs.
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