Cpa Regualtion - Section 1

Front 1

Single

Back 1

1) Single at end of the year
OR
2) Legally separated

Front 2

Joint returns

Back 2

At December 31 ....
1) Married (regardless of living situation)
2) One spouse dies during the year.

Front 3

Qualifying Widow (er)

Back 3

Joint return for two years following the death of a spouse, unless he or she remarries.

Must maintain household for the whole entire taxable year, was the principle place of adobe of a son, daughter, stepson, stepdaughter, etc.

Widower = Whole year

Front 4

Dependency Exemptions:
Qualifying Child
(CARES)

Back 4

C - Close Relative (includes adopted and foster)
A - Age Limit (18 or 24 full-time student)
R - Residency Requirements (more than half year)
E - Eliminate Gross Income Test (does not apply)
S - Support Test Changes (the child did not contribute more than one-half their support)

Front 5

Dependency Exemptions:
Qualifying Relative
(SUPORT)

Back 5

S - Support Test (more than 50% support; if multiple each more than 10%)
U - Under Exemption Amount of (Taxable) Gross Income ($3,500 in 08) (Not-taxable income = SS at low levels, state/muni interest, exempt scholarships)
P - Precludes Dependent Filing Joint Return (unless solely for a refund. e.i. tax is zero)
O - Only US, Mexico, or Canada
R - Relative (Not Relatives: Kissing cousines and Foster parents/beer) (they could apply for T)
-OR-
T - Taxpayer Lives with Individual (if non-related) for whole year.

Front 6

Head of Household

Back 6

1) Not married, is legally seperated, or is married and have lived apart from spouse for the last 6 months.
2) Not a widower
3) US citizen
4) Maintain same household for more than half the taxable year, is priciple residence of :

Son of Daughter - Single Mom
Mother or Father - Not required to live with (Mother in nursing home)
Dependent Relative - Must live with (Aunt, Uncle. Not friend, kissing cousings or Fosters Beer)

Head of Household = Half a year (more than)

Front 7

Realization

Back 7

Real World

Requires the accrual or receipt of cash, property, or services, or a change in the form or nature of the investment (a sale or exchange)

Front 8

Recognition

Back 8

Record/Report on tax return

The realized gain must be included on the tax return.

Front 9

Taxable Event

Whats the income and Basis?

Back 9

Income is recorded at FMV

Basis is at FMV

Front 10

Non - Taxable Event

Whats the income and Basis?

Back 10

Income is N-0-NE

Basis is at NBV

Front 11

Specific Items of Income:

Salaries and Wages

Back 11

1) Money
2) Property
3) Cancellation of Debt
4) Bargin Purchases - Property less than FMV
5)Taxable Fringe Benefits - i.e Personal use of company car
6)Partially Taxable Fringe Benefits (Life Ins Prem) - Premiums above $50,000 of coverage are taxable to the recipient (W-2)
7) Life Ins Proceed - Interest income element on deferred payout arrangement is taxable.
8) Employer paid Health/Med Ins - Excluded from income, but amonts paid under the plan are included (expect reimbur med expenses, or permanent loss of family or body function)
9) Employer Payment of Education Expense - Up to $5,250 is excludable (under or grad - MBA is OK)
10)Qualified Pension, Profit Sharing, and Stock Bonus Plans - Pymts by Employer (Non-taxable), benefits received (taxable)

Front 12

Taxable Interest

Back 12

1) Fed bonds
2) Industrial/Corp Bonds
3) Prem received from opening savings account (i.e. prizes and awards) (at FMV)
4) Interest paid by federal government or state for LATE PAYMENT of tax refund is taxable.

Front 13

Treatment of
Blind and age 65

Back 13

Increase in standard deduction.

No extra exemption!

Front 14

Accural Method

Back 14

Recognition when earned.

(may have timing issues)

Front 15

Cash Method

Back 15

Recognition occurs in the period actually or constructively received in cash or (FMV) property.

Front 16

Personal and Dependency Exemption Phase-Out

(Take from the rich, give to the poor)

Back 16

Reduces exemption by 2% of each $2,500 (MFJ) ($1,250 for MFS)

AGI 246,600
Threshold (234,600)
12,000
/ 2,500
= 4.8 (5 round up)
5 x 2% = 10%
100% - 10% = 90% will be phased out

Front 17

Taxpayer performs services and receives a car with FMV of $3,000 as compensation.

Back 17

Taxable event:
Income = FMV
Basis = FMV

The $3,000 is income to the taxpayer.

Front 18

Tax Exempt Interest
(Reportable but not taxable)

Back 18

1) State and Local Government BONDS/OBLIGATIONS (interest from late tax refund is taxable)
2) Series EE (US Savings Bond) - Exempt when used to pay for higher education (reduced by scholarships)
(taxpayer must be over 24) (Can phaseout)

Front 19

Interest Income:
Kiddie Tax

Back 19

Net unearned income for dependent child under 19 (24 for full time student) is taxed at his parent's higher tax rate.

Unearned income = income from dividends, interest, rents, royalties (-) $1,800

Unearned Income: $0 - $900 = 0%; $901 - $1,800 = Child's rate; $1,801 and over = Parent's rate

Front 20

Interest Income:
Forfeited Interest (Penalty on withdrawl from savings)

Back 20

Forfeited interest (penalty) is deductable as an adjustment in the year incurred.
Do NOT net with interest income.

Front 21

Dividend Income:
Taxable Dividend

Back 21

1) Taxable amount = (a)Cash at amount received (b) Property at FMV (taxable even)
2)Stock held for a qualified holding period (60 days before ex-dividend date) receive lower tax rates - 15% most taxpayers; 0% low income taxpayers (those in 10% or 15% taxbracket)

Front 22

Dividend Income:
Tax-Free Dividends

Back 22

The following items are exempt from gross income:
1) Return of Capital - Distributes fund w/ no retained earnings or profit
2)Stock Split - allocate basis over total new number of shares
3)Stock Dividend - if option of CASH, the event will be taxable
4) Life Insurance Dividend - Dividends caused by ownership of insurance with a mutual company (Premium Return)

Front 23

Dividend Income:
Capital Gain Distribution

Back 23

Company with no earnings/profits and shareholder has recovered entire basis.
Treated as taxable gross income.

Front 24

State and Local Tax Refunds

(Not Federal)

Back 24

Prior year itemized = taxable state and local refund
Prior year used standard deduction = nontaxable state and local refund

Filed 1040 EZ = Standard deduction

Front 25

Payments Pursuant to Divorce:
Alimony/Spousal Support

Back 25

Income to the spouse receiving the payments.

Deductible to arrive at AGI (adjustment) for contributing spouse

(legally divorces/seperated; cash or payment of bills; ends with death)

Front 26

Payments Pursuant to Divorce:
Child Support

Back 26

Non taxable to receiving spouse

Payments first apply to child support (Deadbeat dad)
(1st support, 2nd alimony)

Front 27

Payments Pursuant to Divorce:
Property Settlement

Back 27

Non-txable

Front 28

Farming Activities

Back 28

Schedule F

Front 29

Self Employement / Sole Proprietor tax

Back 29

Schdule C

Front 30

Sch C:
Gross income

Back 30

1) Cash
2) Property = FMV
3) Cancellation of Debt

Front 31

Sch C:
Deductable Expenses

Back 31

1) COGS - expensed when should
2) Salaries and comissions
3) State and local
4) Meals and entertainment - at 50%
5) Interest expense on business loans - note, must be paid and incurred
6) BD written off for ACCURAL basis taxpayer only.

Front 32

Sch C:
Non-Deductable Expenses

Back 32

1) Salaries paid to the sole proprietor
2) Federal tax
3) Personal portion of expenses
4) BD expense of CASH basis taxpayer.
5) Charitable contributions.

Front 33

Net taxable Income:
(2) Taxes

Back 33

1) Income
2) Federal self-employment

Front 34

Net Taxable Loss

Back 34

A loss may be deducted against other sources of income.

1) 2-year carrybak
2) 20 year carryforward

Front 35

Business Income or Losses:
Uniform Capitalization Rule

Back 35

For inventory, even a sole proprietor will be required to apply the folloeing rules:

Capitalized as Inventory: (expense when sold)
-DM
-DL
-OH

Period Expense:
(Expensed immediately)
-Selling
-General
-Administrative
-R&D

Front 36

Business Income or Losses:
Gains or Losses on Disposition of Property

Back 36

Sale of Property:

Amount Realized
- Adjusted Basis
= Gain or Loss Realized

Front 37

Rental Income (Passive Activity)

Back 37

Sch E is used to compute supplemental income and/or loss from :
1)Rental Real Estate
2)Royalties
3)Partnerships & LLCs (from Sch K-1)
4) S- Corp (from Sch K-1)
5) Estates (from Sch K-1)
6) Trusts (from Sch K-1)

(Flow through entity recorded on schdule k-1)

Front 38

Basic Formula for Ner Rental Income

Back 38

Gross Rental Income
Prepaid Rental Income (Non-Refund depsoits)
Rental Cancellation Payment
Improvement In -Lieu of Rent (Taxable at FMV)
- Rental Expenses
= Net Rental Income/Loss

Front 39

Social Security Income

Back 39

Low Income = No SS benefits are taxable.
High Income = 85% of SS benefits are taxable.

Front 40

Unemployement Compensation

Back 40

Include in gross income the full amount received.

Front 41

Taxable Miscellaneous Income

Back 41

1) Prizes and Awards - The FMV is taxable income
2) Gambling Winnings and Losses
(a)Winnings are included as Gross Income
(b)Losses may only be deducted to the extent of gambling winnings.

Front 42

Partially Taxable Misc. Items:
Degree-Seeking Student

Back 42

Excludible only up to the amt actually spent on tuition, fees, books, and supplies

Not room and board, and services required (these items are taxable)

Front 43

Non-Taxable Miscellaneous Items

Back 43

1) Life Insurance Proceeds - Interest income element on deferred payout arrangement is fully deductible.
2)Gifts and Inheritance
3)Medicare Benefits
4)Workers' Compensation - Unempolyment compensation is taxable
5)Personal (Physical) injury award
6)Accident Incurance - Premiums paid by taxpayer.

Front 44

Real Property
(Land and Building)

Back 44

Land and all items permanently affixed to the land (e.g. building, paving, etc.)

Front 45

Personal Property
(Machinery and Equipment)

Back 45

All property not classified as real property.

Front 46

Capital Assets
(Sch D)

Back 46

1) Personal automobile
2) Furniture and fixtures
3) Stock and sercurities
4) Personal and Real property of taxpayer NOT used in a trade or business.
5) Interest in a partnership
6)Goodwill
7)Copyrights, literary, muscial, or artistic composition PURCHASED
8) Other assets held for investment.

Front 47

Non-Capital Assets

Back 47

1)Property normally included in INVENTORY.
2)Depreciable personal property and real estate use in business - Section 1231 assets
3) Accounts and notes receivables arising from sales
4) Copyrights, literary, muscial, or artistic composition held by ORIGINAL ARTIST (inventory)
5)Treasur stock

Front 48

Basis Formula for Determining Gains and Losses

Back 48

Amount Realized
- Adjusted Basis of Assets Sold
= Gain or Loss

Front 49

Determing Gain or Loss:
Amount Realized

Back 49

1) Cash Received (boot)
2) Cancellation of Debt (boot)
3) Property received at FMV
4) Services received at FMV

Front 50

Purchased Property Basis
(1 of 3)

Back 50

Basis = Costs

Increase Basis for Capital Improvements

Reduce Basis fro Acc. Depreciation ( = NBV)

Front 51

Gift Property Basis
(2 of 3)

Back 51

General Rule: Donor's rollover cost (Rollover/NBV)

Exception: Lower of FMV at date of gift. Basis is determined on future sale price.

Gain
-----------------$1,000 NBV
-0-
-----------------$600 FMV
Loss

Front 52

Inherited Property Basis
(3 of 3)

Back 52

General Rule: Date of death FMV becomes basis/Step up to FMV. (taxale event where the estate pays a tax)

Alternative Valuation Date: Elect FMV at max 6 months after distribution date.

Holding Period: Immediately LT treatments.

Front 53

Gain on Disposition of Asset:

HIDEIT - "If you can HIDE IT from the government , you do not have to pay tax."

Back 53

Gain to the exent of boot/loot ( the part the taxpayer did not "HIDEIT") is taxable.
H - Homeowner's exclusion - $500,000 MFJ/$250,000 S, MFS, HOH. Principle residents for 2 of last 5 years. Both spouses must be owners.
I - Involuntary Conversions - Insurance proceeds. (Loot is taxable)
D - Divorced Property Settlement
E - Exchange of Like-Kind Business - (e.g. Business trade-in or Swapping real-estate). Loot is only taxable. (tangable assets only)
I - Installement Sale
T - Treasury and Capital Stock Transactions

Front 54

Losses from Sales of Asset:

WRaP - " Losses you can WRaP up, and throw away."

Back 54

WRaP up these losses because they are nondeductible.

W - Wash Sale Loss - Security is sold for a loss and is repurchased within 30 days (before or after sale)
R - Related Party/Family Transactions (in-laws are not related parties) -
P - Personal Loss - No deduction is allowed for the loss on a non-business disposal or loss. (Same as Gift Tax to determine basis)

Front 55

Individual Capital Gain Rules

Back 55

Net Capital Gain Rules:

LT - 15% minimum, use 5% if low income. (10% or 15% bracket)
ST - treated as ordinary income. (No special tax breaks)

Front 56

Individual Capital Loss Rules

Back 56

Net Capitla Losse Rules:

1) $3,000 Max deduction
2) Excess Net Capital Loss - Carryforward unlimited until exhausted (No carryback)

"Major mistake, you cannot go BACK"

Front 57

Corporation Capital Gain and Loss Rules
(Applies to C-Corp only)

Back 57

Net Capital Gain (LT & ST) - Original income. No special tax rate.

Net Capital Losses (LT & ST) -May NOT deduct asny capital loss from ordinary income(Deduct from Section 1231 capital gains). Carried back 3 years, forward 5 years.

Front 58

Summary of Ordinary and Capital Losses

Back 58

Operating Losses: Offset Income - Yes ; Carryback 2 years ; Carryforward 20 years

Individual Capital Losses: Offset Income - up to $3,000 ; No Carryback ; Carryforward Forever.

Corp. Capital Losses: No offset against income (Deduct from Section 1231 capital gains); Carryback 3 years ; Carryforward 5 years.