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340 Cards in this Set

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Advanced rent

Any rent that's received before period that it covers. Income is included during year/period that the taxpayer receives it regardless of the time frame it actually covers.

True

T/F Any day rental is available but not rented, its no considered part of days rental use when trying to determine if its a rental or not.

True

T/F If rental is rented at fair rental value (even for personal use) its considered a rental and must be included in income.

less than fair value

Personal use for rental is considered if rented to anyone for ____ ____ ____ ____.

False - should be included if it's non refundable

T/F A security deposit shouldn't be included as income until tenant moves out and only the part that was kept should be included.

True

T/F If the tenant pays any of the taxpayers expenses, the taxpayer must report payments as income and the taxpayer can deduct certain deductions as rental expenses.

True

T/F If landlord pays insurance premium more than 1 year in advance, part of premium payment that applies to future year isn't deducted until that year.

True

T/F If renting out property (equipment) money received only needs to be reported if primary purpose is to make money and should be reported on sch C. If not it'll be reported as other income and any expense as an adjustment to income.

False - must report FMV/agreed price

T/F The landlord doesn't have to report property/services that are given in place of money for rent.

fewer, 15 days,

If house is rented ____ than ___ ____ of the year, don't treat as rental and don't include on return.

False - can be a loss

T/F Rental losses can't exceed income (can't be a loss).

Non dividend

This distribution (return of capital) is a distribution thats not a payment from earnings and profits of a corporation, but its a return on investment on the stock of the company and reduces the basis of the stock.

Form 2439

Shareholders will receive this form which reflects their share of undistributed long term capital gains. Even if they don't receive a distribution they must report amount on Sch D.

long terms

A taxpayer must report capital gain distributions as ___ _____ capital gains regardless of how long they owned the shares.

Capital gains

These distributions reflect income paid to taxpayers accounts by mutual funds/real estate trusts.

True

T/F Non-dividend distributions are not taxable until the taxpayer fully recovers basis of the stock when the basis reaches 0, additional distributions should be reported as capital gain.

False - aren't taxable

T/F Stock options are taxable and must be reported on return.

greater, 14 days, 10%, total days rented to others

The IRS will treat rental as a home unless used for personal purposes more than the ____ of ____ ____ or ___ of the ___ ___ ___ __ ____.

Schedule E

This form is used to report rental income on the tax return.

1. there's a choice to receive cash instead 2. the distribution gives cash to some shareholders and increases % interest in the corporations assets/earnings/profits to other shareholders 3. its in convertible preferred stock (results in change of ownership) 4. its preferred stock for some and common to others 5. Distribution is on preferred stock.

Stock options/dividends are only taxable if:

Depreciation

The method used to recover cost of income producing property through yearly tax deductions.

27.5, 39, 0

The recovery period for residential real property is ____ years and non residential is _____ years and Land is ______ years.

True

T/F Conversions are taxed as ordinary distributions.

False - 60 days

T/F You have 30 days to complete a qualified rollover.

True
T/F Distributions from a qualified plan are normally taxable because there is usually no basis.

False - the basis = amount contributed after tax

T/F Basis in an IRA or qualified plan equals the amount of pre-tax contributions.

Annuitization

This is the process of converting an annuity into a series of periodic payments.

Accumulation phase

This phase of annuitizing prior to annuitizing and withdrawals are removed earnings first and the IRS treats amount of excess of basis as income.

1035 Exchange

This can happen during an accumulation phase with out recognition o taxes and includes policy changes from 1 provider to another.

dividing, cost, total # of anticipated payments, annuitants age, starting date, monthly payments under the contract

Under the simplified method, the exclusion ration is figured by the tax fee part of each payment by _____ the _____ by the ____ ____ ___ _____ ____. For an annuity thats payable for lvies of the annuitants this number is based on the ____ ____ on the annuity _____ _____ and determined by a table. For any other annuity, this number is the number of ____ ____ ___ ___ ____.

Distribution phase

This phase of annuitizing happens after annuitization. Allocate periodic payments to income basis according to an exclusion ration (the basis portion of each payment)

Step 1: 1/2 SS benes + all other income including tax exempt interest minus all deductions for AGI except for tuition and fees, student loan interest of domestic prod accounts.


Step 2: Identify lowest of max benes subject to tax (if less than $25k for S, HH, QW or less than $32k for MFJ = zero tax; if up to $34k for S, HH, QW or up $44k for MFJ = 50% tax; $34k+ for S, HH, QW or $44k+ for MFJ = 85% max tax) or the amount of income between brackets x 50% or amount above upper base amount x 85% (these amounts added together)

How to determine taxable amount of SS (the two steps)

1. at riks rules (applied 1st if there's investment in the taxpayers rental/real estate activity for which the taxpayer isn't at risk and only if the property was in service after 1986 and you can only take loss to extent of income. the loss can be carried to the next year) 2. Passive Act Limits (can't deduct loss unless there's income to offset it. Can be carried to next year but may offset ordinary income if real estate professional (1/2+ of work is involving property or 750+ hours of material participation in property trades) or if losses are less than $25k and taxpayer/spouse actively participates in rental activity)

The following rules limit the loss on rental proper. In order they are:

False - can't deduct; they must be added to basis of the property

T/F You can deduct costs for local benefits such as street, sidewalks, water, and sewer systems as expenses.

HVAC, plumbing, electrical, escalators, elevators, fire protection, alarms, security, and gas distribution

All costs to improve 8 specific building systems must be treated as capital expenditures. They are:

repairs, improvements, improvements

A taxpayer may deduct _____ expenses but not _____ but they can depreciate _____.

True

T/F If rental is vacant, ordinary and nescessary expenses may be deducted except for the income loss.

don't deduct, report income, bad business debt.

Cash basis taxpayer ____ ____ uncollected rent, because it was never sondiered as income. Under the accrual method, taxpayers ____ ____ when its earned. If taxpayer is unable to collect rent they may deduct it as a ____ _____ _____.

True

T/F If property is used for both personal use and rental, it's as if theres 2 separate properties when trying to determine the expense part of the rental.

Taxpayer must divide yearly expense between rental and personal property and only the portion allocated for the rental is deductible and no theres no deduction for the personal use part.

If a personal property is converted to a rental during the year how would the taxpayer decide what is deductible or not?

False - only up to amount of income & can't carry loss to next year

T/F If the taxpayer rents property but not for income, they still can take a loss on the property and it will carry forward to the next year.

Money Market Funds

These are a type of mutual fund, not to be confused with bank money market accounts that pay interest.

True

T/F Taxpayers must report amounts received from money market funds as dividend income.

True

T/F Sick pay benefits from welfare fund, state sickness/disability fund, an association of employer/employees, insurance co. must be included in income unless employee paid premiums on accident/health insurance policy if both employee/employer paid only amount employer paid is taxable.

False

T/F Sick pay or payment while injured doesn't need to be reported.

True

T/F Severance pay and any payment received due to cancellation of an employment contract must be re-portable in income amounts includes any payment received for accrued leave and monies with held from severance pay for outplacement services.

False

T/F Bonuses/awards from employer don't need to be reported and if goods/services the FMV needs to be reported.

False

T/F The value of accident/health coverage provided by employer is included in income.

False

T/F Fringe benefits received in connection with performance of services are not included in income unless employee paid FMV.

83(b) election

When restricted stock vests (no longer restricted) this must be made 30 days of grant date and reported as income.

True

T/F You can exclude certain transportation expenses such as transit pass (if over $250 per month), parking ($250+ per month), bicycle ($20 per month cost of bike, repair, or storage).

True

T/F The cost up to $50k of group term life insurance provided by employer isn't included in income if amount goes over its reduced by any amount employee paid towards it.

True

T/F Cost of living allowances are included in income except if you get allowance from federal civilian/federal court employee stationed in Alaska/Hawaii or outside US are exempt.

True

T/F Certain flow through entities such as partnerships/S corps don't pay tax on income but will file informative return and distribute Sch K-1 to each partner/shareholder.

Form 8832

Non custodial parent can claim child if the custodial parent agrees & files this form.

1. relationship test (son,daughter, stepchild, foster, brother, sister, half sibling, or descendant of any of them) 2. Age test (must be younger & younger than than 19 at end of the year or younger than 24 at the end of year & full time student, or permanently disabled) 3. Residency test (must live with taxpayer 1/2+ of the year) 4. Support test (child can't provide 1/2+ of support for themselves)

The 4 tests to be qualifying child:

False - More than half

T/F A taxpayer can claim a dependent if they provide less than half the total annual support and the person must qualify as a child/relative.

Dependent taxpayer test, joint return test, citizenship/resident test

To claim exemption the taxpayer must meet all three of these tests...

False - any age

T/F A qualifying relative must be older than taxpayer.

1. not qualifying child 2. support test (taxpayer provides more than 1/2 support) 3. Gross income (person's gross income must be less than $3,950) 4. Member of household/relationship (must live with taxpayer all year or must be related)

The 4 tests of qualifying relative.

15.3%

The tax rate on self employment.

Form 2120

Person claiming qualifying relative msut file this form to attest to agreement with other taxpayers and they must (if they paid over 10% of cost for dependent) provide taxpayer that will be claiming dependent with signed statement.

False - only one can claim

T/F If more than 1 person provided support they can both claim dependent, but person claiming exemption must provide more than 10% of total support for individual.

True

T/F If a non-statutory stock option has a determinable FMV at time granted its reported. Otherwise its reported when employee exercises option (by selling/buying the stock) or sells/disposes.

True

T/F Statutory stock option will not have income until its sold.

OID

A debt instrument has this when the debtor issues the instrument for a price that's less than the stated redemption price at maturity. The difference between state redemption price at maturity and the issue price.

True

T/F With OID taxpayers must include a portion of the discount as income as it accrues over term of debt instrument, even if no payment are received from the issuer.

Form 1099-INT, Form 1096, 3/1, 3/31, 1099-INT, 1/31

A taxpayer who receives interest as a nominee must file ______ for the interest with the IRS with _______ annual summary and transmittal of US info returns by _____ or ____ if filing electronically. In addition the taxpayer must furnish the actual owner of the interest with a copy B of ______ by _______.

Report amount of interest on Sch B below 'subtotal of all interest income' enter 'nominee distribution' and the amount that belongs to someon else. Subtract amount from interest total

What must you do if you receive 1099-INT with interest for someone else?

Deminimis OID

OID with interest less than 1/4 of stated redemption price at maturity multiplied by # of full years from date of original issue to maturity is known as.....

Ordinary (taxable) dividends

This is the most common type of distribution from a corporation and paid from earnings/profits.

False - report at FMV

T/F Taxpayers with dividend reinvestment plans don't have to report dividend income unless its repurchases at price less than FMV on dividend payment date.

Dividends must be paid by US corporation & taxpayer must hold stock 60+ days during 121 day period that begins 60 days before ex-dividend date (include the date of disposal but not day acquired) Ex dividend date and the 1st date following declaration of dividend on which the buyer of stock wont receive next dividend payment. Instead seller will get the dividend.

To qualify for max rate, what must be true?

0%, 15%, 20%

Qualified dividends are subject to same ____ ____ ____ max rate that applies to net capital gains EX. If the regular rate = 39.6% the rate would be ___ and if the regular rate is less than 39.6% but greater than 15% the rate = ____

Form 8815

This form is used to figure exclusion of bond interest from I, E, EE bonds that was used for educational purposes (education savings bond program) not available to MFS.

Series I, E, & EE

With these types of bonds, interest is credited at maturity, and may be tax free if used for education expenses.

6652(b), 50%

A taxpayer can be subject to a _____ penalty equal to _____ of unpaid SS and medicare taxes due on unreported tips. This penalty can be avoided.

Form 4137

This form is used to calculate SS and medicare tax on tips that aren't reported to employer

False - $20+

T/F Tips must be reported if $40+ per month.

True

T/F Members of the clergy must included any salary/fees received for masses, marriages, baptisms, funerals, etc. unless payment is paid to the institution (not taxable).

Only the rental value and utilities is excluded from income

How is ministers allowances treated?

Series H & HH

With this type of bond, report semi annual payments received in the year received.

False - They're not subject to SS or medicare

T/F A US citizen who works for a foreign employer must included their salary in income and w/hold SS and medicare. They must also pay SE taxes on earnings from services performed in US (even if they're not self employed)

If they performed services as an agent of the order should not be included. If performed outside the order and they're the kind of services that are ordinarily the duties of the members of the order or are part of the duties that the member must exercise for the religious order as its agent they're excluded

What is the treatment of the renounced earnings of a priest?

1. Made after person reaches age 59.5 2. disabled 3. rule 72T (part of a series of substantially equal periodic payments) 4. made to bene/estate 5. used to purchase 1st home (up to $10k lifetime limit)

5 qualified distributions are:

True

T/F Required being date of RMD is at age 70.5. The 1st distribution id due by the following April 1st of year they turn 70.5. Future RMDs must occur by 12/31 each year.

$14k

The annual exclusion for gifting is _______ (2014).

it's cost is decreased by the gain, not recognized on the conversion

If a taxpayer receives money/property not similar or related in service/use to the converted property and buys replacement property similar /related in service/use to the converted property, the basis of the replacement property will be _________.

Same, conversion, decreased, loss recognized, involuntary conversion, money received, similar property, increased, cost

If the taxpayer receives replacement property that is similar/related to converted property, the basis is the _____ as the converted property on date of _____ unless basis is _______ by ____ _____ ____ on the _____ _____ or any ______ ____ that the taxpayer doesn't spend on _____ _____. The basis is ________ by any gain recognized on the involuntary conversion and by any ______ of acquiring the replacement property.

False - if for compensation for services it must be reported (difference between FMV and purchase price)

T/F Bargain purchases never have to be included as income.

-IRS considers taxpayers holding period to have started on the same day the donors period began.


-holding period starts on day after the date of gift

If the taxpayer receives gift of property and donors adjusted basis determines basis, _______________. If the FMV determines the basis, ________________.

Dual basis rules

These rules are summarized as.....Basis for figuring gain is the same as the donors adjusted basis and basis for figuring loss is its FMV when taxpayer received gift.

The basis is increased by part of gift tax that's due to the net increase in value of the gift.




gift tax pd x (FMV-donors basis) / amt of gift (after annual exclusion)

If donor paid gift tax on the basis then....

The basis is the donors adjusted basis at time the taxpayer received the gift

If FMV is equal to or greater than donors adjusted basis then.....

Basis depends on whether gain/loss occurs when the property is disposed of

If FMV is less than donors adjusted basis then.....

Bargain Purchase

A purchase of an item for less than its FMV.

True

T/F If property is received in place of services, its FMV or any agreed upon price becomes the basis.

Capital improvements

These are the costs of improvements that have a useful life of more than one year and increase the value of the property, lengthens its life or adapts it to a different use. EX: addition to house, fence, finishing the basement

True

T/F Points paid by taxpayer on loans secured by 2nd home can be deducted only over life of the loan.

True

T/F Points paid by seller of home can't be deducted on sellers return, but will reduce amount of realized gain. They can also be deducted by the buyer if they subtract amount from basis.

False - not considered interest and can't be deducted

T/ F Points paid for specific services (prep costs for mortgage, appraisal fee/notary fees) can be deducted.

False - they should be added to basis

T/F Property assessments for improvements that increase values of the property should be deducted as taxes EX; assessments for roads, sidewalks, water connections

Non-taxable corporation distributions

These are also known as non-dividend distributions and reflects return on capital which is a decrease to the basis.

True

T/F Easements and certain tax credits may reduce basis amount.

False - 179 deductions decrease basis

T/F The basis will be increase by any section 179 deductions and depreciation deductions or could have deductions on taxpayers return under the method of depreciation selected.

True

T/F Insurance proceeds decrease basis. Any repairs to restore property to pre-casualty condition will increase the basis.

False - they can't recognize any gain/loss

T/F The basis/holding period of property that was transferred by spouse/form spouse (divorce) is the same as the spouse's. The taxpayer can recognize any gain/loss of property when it was transferred by former spouse.

long term, FMV, the date of death, an alternate valuation date, personal representative

With exception of 2010 transfer electing mod carryover basis, a gain on inherited property is always _____. Basis of an inherited capital asset is generally the _____ of the property on the __________ or an __________ if elected by the _______.

call buyer

This adds the cost of the call to basis of stock purchase.

Put buyer

This reduced amount realized on sale of stock by the cost of the put.

Call option

This is the right to buy from the writer of the option at any time before a specified date, any number of shares at a specified price.

Put option

This is the right to sell to the writer (seller) at any time before the specified date, a state number of shares at a specified price.

Put writer

This reduces the basis of the stock purchase by any amount received for the put.

Call writer

This increases the amount realized on the sale of stock by the amount received for call.

Form 8949, 'w', 'B', 'g'

On form ______, taxpayer should report entire loss of wash sale, enter ____ in column ____; enter as positive number in column _____ the amount of loss not allowed.

True

T/F A loss form a wash sale can't be deducted, but losses can be added to basis of any new securities.

Wash Sales

This occurs when the taxpayer sells securities at a loss and within 30 days before/after sale, taxpayer obtains the same securities or rights to acquire identical securities (date of sale isn't included in 30 days)

the events occur, sold/traded on option expiration date, modifies the basis

Gain/loss from expiration of options is reported in year _______ and if option to buy/sell is not used, the IRS considers them _______. The option is not reported separately, instead the options cost/proceeds ________on the underlying stock.

Average cost

This is the easiest method of figuring cost basis and it uses the average basis of all shares.

1. FMV of property as of date of change or


2. adjusted basis on date of change


-the FMV on date of conversion (w/adjusted basis) is the cost for determining basis


-original basis basis (w/adjusted basis) is used


-prevents taxpayers from shifting non-deductible losses on personal property to deductible losses onto business property

When you convert a personal property to use for business/rental, you can depreciate by 1._____ 2._____. If property is sold for a loss ______. If the property is sold for a gain _______. Why is this?

one half, only the portion included in the estate, percentage of total consideration, gift, 75%, 75%, total value.

Any joint account with husband & wife as owners, _____ of the value of the property receives a step-up in basis to FMV. JTWROS share an equal interest and if 1 owner dies, __________ receives step-up in basis. The amount is dependent upon the ____ of ________ for the property provided by the decedent & whether it was a ____. Where the capital contribution was ____ & decedent didn't gift property, ____ of the property receives step up. With community property, when either of the spouse dies, _____ of property, even portion belonging to surviving spouse, can receive step-up.

Step-up

This occurs to the basis when the FMV is greater than the decedents basis.

Purchase price + any costs of purchasing (commission & transfer fees)

The basis for stocks/bonds is....

Percentage of ownership won't change. Adjust the basis by allocating current basis to all shares and the basis of existing shares should be reduced by amount of new basis allocated to new shares. EX: 100 shares at $10 per share now 200 shares at $5 per share

How to figure basis for on taxable dividend/stock split when receiving exact shares.

FIFO, specific identification, or average costs

What ways can you figure basis on mutual funds?

Use FIFO unless taxpayer can report specific shares sold (either or)

What should you do to figure basis if a transfer occurs at various times and taxpayer can't identify shares sold?

Return of capital

This is also known as non-dividend distribution and reflects a return of capital and reduces basis.

Points

This term is used to describe certain charges paid to obtain a home mortgage. They're pre-paid interest and maybe deductible as home mortgage interest (if certain requirements are meet). They could also be deducted year in which they are paid, but any paid for refinancing must be depreciated with life of new loan. They do not increase basis.

casualty insurance, rent for occupancy of the property before the closing, charges for utilities/services to property before closing, charges connected to loan, fees for refinancing mortgage (points will be deducted over term of loan & basis must be reduced by any seller paid points), amounts placed in escrow

Taxpayer can add these settlement charges to basis (6)

True

T/F A taxpayer can take a loss on gambling on Sch A but only to extent of winnings and can't have net loss for gambling.

1099-G

This form is used to report the amount of unemployment received.

True

T/F Them amount received for unemployment is considered income.

1. Bankruptcy (title 11) 2. Insolvency (immediately before cancellation, liabilities must exceed assets) 3. student loans (if canceled for performance of services) 4. Qualified real property business indebtedness (debt used to acquire, construct, or substantially improve new business real property or to refinance business property acquired before 1993) 5. Qualified principle residence indebtedness (debt incurred in acquiring, constructing, or substantially improving principle residence and secured by principal residence also any debt from refinance except cash taken during refinancing) 6. Qualified farm indebtedness (debt directly related to farming business and 50%+ of gross receipts for past 3 years are from farm)

6 situations canceled debt isn't considered income:

True

T/F Taxpayer needs to include jury duty pay as income but if the taxpayer needs to give the money to employer, they can deduct amount given as an adjustment to income.

1. Interest on award 2. Compensation for lost wages/lost profits 3. punitive damages (punishment; doesn't matter if from physical injury/sickness) 4. amounts received in settlement of pension rights (if taxpayer didn't contribute to plan) 5. damages from patent/copyright infringement/breach of contract/interference with business operations 6. back pay and damages from emotional distress under title VII of the civil rights acts of 1964 7. attorney fees and costs where underlying recovery is included in income.

Name 7 settlements that are included in income:

Expenses

Expenditures that doesn't have a useful life beyond one year.

Tanigible prop (physical; land, structures, etc.) Real & personal prop


Intangible (no physical presence; software, patents, goodwill, etc.)

2 types of basic property

True

T/F You should not include compensatory damages for personal or physical injury, physical sickness, or emotional distress as income.

False - if gift they don't need to report

T/F If a creditor cancels/forgives debt the debtor must report amount as income. If the creditor cancels debt as gift/bequest the debtor still must report it.

True

T/F The taxpayer must report FMV (determined at time of exchange) of property/services from bartering.

False - 50%

T/F Failure to take RMD results in a penalty of 40% of the required distribution amount.

False - 70.5

T/F Once the taxpayer reaches age 70 they can no longer contribute to their IRA and they must begin their RMD.

dividing IRA account balance, 12/31, applicable distribution period, life expectancy

RMD is figured by ____ ___ ___ ___ (as close of business ____) of the preceding year by the ____ ___ ___ or ___ ___.

True

T/F The surviving spouse can elect to treat inherited IRA as their own by rolling plan over to their name. All other benes must withdrawal entire balance of retirement account over a specified period depending on several factors (age of decedent/bene, type of bene, etc).

Income in respect to decedent

This type of income is taxable to benes resulting because the decedent of the account didn't take money out while alive (they didn't take portion of IRA that was never taxed while original owner was alive).

False - child support is never included as income

T/F Child support that is court ordered is re portable on recipients return until the child turns 18.

True

T/F Payments made to former spouse (alimony) is re-portable on recipients return.

No tax deductions

All are true of roth IRAs except: there is a tax deduction on contributions, mandatory distribution not required when 70.5, and earnings of roths are tax deferred and qualified distributions are tax free when removed (only if made after the 5 year anniversary of establishing an funding the account).

Capital Expenditures

Property that is acquired with a useful life that's greater than one year or improvements that increase value of property, lengthen its life, or adapt it to a different use.

capitalized, recovered, type of property

A cap expenditure is ______ (added to capital) and the cost is systematically ______ (or written off) each year in various ways, depending on the ____ _____ _____.

FMV, multiplied, lump sum, FMV, whole property, time of purchase

If a taxpayer buys land with buildings on it, they must allocate cost basis by the _____ at the time of purchase. The basis of each asset is calculated by ________ the ___ ____ by a fraction. The numerator is the _____ of that asset and the denominator is the ____ of the ____ ____ at the ____ ____ ______.

Real property

This is also called real estate, land and anything built/growing/attached on it.

improvements - increase


deduction for depreciation/casualty losses/claiming certain credits - reduce

Original basis can be adjusted by:

Commission, sales tax, freight, installation, testing, legal/accting fees (when they must be capitalized/depreciated), excise tax, revenue stamps, recording fees, real estate taxes (if assuming sellers liability)

A taxpayers basis can also include amounts paid for (10 examples)

False - land is never depriciated

T/F Land should be depreciated if cost is $1k+.

True

T/F A taxpayer must allocate a portion of the purchase price to land before taking depreciation deduction on the building. Any improvements that increase the value of the structure apply only to the structure, can't increase the basis of the land.

Abstract fees, charges for installing utilities/services, legal fees, recording fees, survey fees, transfer fees, owners title insurance, any amounts buyer agrees to pay for seller

Taxpayer an add these fees to their basis when buying property (8 examples)

True

T/F Basis can include _____ _____ and _____ _____ paid for buying property, but doesn't include fee for getting loan on property into basis.

Basis includes amounts for paid for property and amount to be paid on the mortgage.

What is the basis for property taxpayer acquires that they also assume an existing mortgage.

Basis

This is the amount of the taxpayers investment in property for tax purposes (the cost).

False - $100 or less

T/F A unit of proper with acquisition costs of $300 or less is not required to be depreciated and can be treated as material or supplies.

Amoritizaiton

This meth is used when trying to recover cost of an asset that is intangible.

Depletion

This method is used when trying to recover the cost of an asset that diminish over time such as oil, gas, etc.

Depreciation

This method of recovering costs of an asset is used for tangible income producing property other than natural resources.

1. basis of property


2. recovery period of property


3. depreciation method used

3 factors to help determine amount of depreciation that can be deducted per year.

True

T/F Depreciation reduces basis for figuring gain/loss on later sale/exchange of property.

False - Depreciation can begin whenever property is ready for use even if not being used

T/F Depreciation can begin on rental only when its being rented.

either recovered full cost or property is retired from service (whichever happens 1st)

When will depreciation end?

1. taxpayer owns property


2. they use property in business income producing activity
3. has a determinable useful life


4. they expect property to last 1+ years
Taxpayer can depreciate if property meets following 4....

Citizenship/resident test

Dependent must be a US citizen, US resident alien, US national/resident of Canada/Mexico for some part of the year.

Joint return test

A taxpayer can't claim a married person who files MFJ as a dependent unless only filing for a refund.
Effectively Connected Income

All income from US sources connected with the conduct of trade or business by a foreign individual even if there is/isn't a connections between the income and the trade/business being carried on in the US during the tax year is considered this type of income...
False - They will both be liable for the tax and any penalties/interest accrued.

T/F If the withholding agent fails to withhold taxes and the foreign person fails to satisfy the liability, then the foreign person will have to pay a penalty.
withholding agent
The term for someone who is personally liable for any tax required to be w/held from wages subject to NRA withholding.

Business Activities test (applies when income, gain, or loss comes directly from the active conduct of the trade/business. If the conduct of the US trade/business was a material factor in producing the income its effectively connected.)


Asset Use Test - The income must be associated with US assets used in or held for use in the conduct of a US trade/business
Certain kinds of investment income are treated as Effectively connected income if they pass either of the two following tests and give an the definition of each:
False - even if they now live in a state that does not recognize same sex marriage they can still file MFJ on federal return

T/F Individuals of the same sex are considered married if they were lawfully married in a state (or foreign country) whose laws authorize the marriage of same sex couples, except if they now live in state that does not allow same sex marriage.

-unmarried/considered unmarried (spouse can't live in same home for last 6 months of tax yr)


-They must pay more than half the cost of keeping up a home for the year.


-A qualifying person MUST live with the taxpayer more than half the year (exception: mother/father & they must pay more than half the cost of maintaining the parent's home) (qualifying person must be child or relative- must be part of the taxpayers family)
What are the qualifications to be able to file HOH?
True

T/F Filing HOH results in lower tax rates than those that file Single, or MFS.

NRA Withholding

This term refers to withholding required under sections 1441, 1442, 1443 of the Internal Revenue Code and it describes the w/holding regime that requires w/holding on a payment of US source income.
True

T/F There can be a reduced tax rate for a nonresident if there is a tax treaty between the foreign person's country or residence and the US.
1. had no tax liability the previous year & a right to a refund of all tax withheld 2. this year they expect a refund of all tax withheld

Two ways an employee can be exempt from tax withholding.
Form W-4

Employee's withholding allowance certificate. This indicates the number of personal allowances and is given to the employer.
Form W-4P

Withholding certificate for Pension or Annuity Payments. Tells a payer correct amount of withholding to withhold from pension/annuity.
True

T/F Income from dividends, interest, capital gains, rent, royalties, and self-employment is NOT subject to withholding. A taxpayer with income from these sources MUST make estimated quarterly payments.
30%

Most types of US source income received by a foreign person are subject to US tax rate of....
1040-ES

Form used to make estimated tax payments
True

T/F When a court decree of annulment reverses a marriage, the taxpayers that filed MFJ must amend previous joint returns.

1. An individual owes at least $1k in tax after subtracting withholding and credits


2. Withholding and credits will be less than the smaller of 90% of the tax to e shown on this years return or 100% of the tax shown on last years return
Estimated tax liability exists when both of the following conditions exists:
True

T/F When filing MFS you can't take the credit for child and dependent care expenses in most cases, and the limit on income excluded under an employer's dependent care assistance program is $2,500.
False - half the amount of joint filers

T/F The exemption amount for the alternative minimum tax is double that allowed to MFJ filers.

1. Must be entitled to file a joint return with spouse for the year the spouse died


2. Must not remarry before the end of the tax yr


3. Must have a child/stepchild for whom he can claim an exemption


4. A child lived in the person's home all year, except for temporary absences


5. The taxpayer and the deceased spouse pd more than half of he cost of maintain a home

To file as a qualifying widower with dependent child, the taxpayer must meet ALL of the following tests:


Dependent Taxpyr test

Taxpayer can't qualify as a dependent of another person.
True

T/F The standard deduction is half that allowed to joint filers. If one spouse itemizes deductions, the other can't claim the standard deduction and must itemize even if the amount is lower than the standard deduction.
2 tax years

Qualifying widower with depended child is the filing status that can only be used for how many years following the year the spouse died?
$1,500

The deduction limit for a capital loss for MFS filers is ..... (instead o $3,000 for joint returns)
False - no earned income credit
T/F When filing MFS you can claim the earned income credit but you can't take an exclusion/credit for adoption expenses.
False - there isn't an exclusion on interest

T/F When filing MFS there is an exclusion on interest income from US savings bonds when used for education expenses.
True

T/F When filing MFS yu can't take education credits, the deduction for students loan interest, or the tuition and fees deduction.

one half of the amount allowable to MFJ

When filing MFS the child tax credit and retirement savings contribution credit reduce at a level of income equal to......

1. Can't claim the credit for the elderly or the disabled


2. must include in income more (up to 85%) of SS the taxpayer received.

If the taxpayer wanting to file MFS lived with the spouse anytime during the year, the following conditions apply:

ATIN

Adoption taxpayer identification number

ITIN

Individual taxpayer identification number

attach birth certificate, death certificate, or hospital records the show child was born alive

What to do in order to claim a child that was born and died during a tax year.

W-2

Form used to obtain ITIN

ITIN

Individuals must have filing requirement & file federal income taxes to receive________ regardless of immigration status.

9 digits, 9

How many digits is an ITIN number and what digit does it start with?

72 months, Not valid unless IRS accepts

Installment agreements generally provide up to ______ _______ to pay tax liability. (could be longer or less)

$10,000 or less, 1. for pas 5 yrs taxpyr timely filed & pd all tax due & hasn't entered into installment agreement before 2. the IRS determines the taxpyr cant pay tax owed in full when its due & taxpyr gives IRS info to make this determination 3. taxpyr agrees to pay full amt w/in 3 yrs & to comply w/tax laws while in installment agreement

If the taxpayer owes ______ & meets other criteria the IRS must accept. List the other criteria....

Installment agreement

This requires equal monthly payments & taxpayer must fully pay all the tax owed w/in the time left in 10 yr period during which IRS can collect the tax.

Partial Payment agreement

If the taxpayer can't pay at the end of the period of original installment agreement they may qualify for this....

form 9465

Used to request installment agreement and should be attached to the front of the return or mailed to IRS if return was already filed.

$120 ($52 if paid through ACH) $43 for low income

Installment fees

Will send letter, mail letter, must pay the amt originally agreed on

How do you know if the IRS accepted installment agreement? How do you modify the agreement? What must you do until the IRS accepts the modifications?

120 days,

You should call or go online if you can pay tax liability with in ________ to avoid installment fees.

9465-FS

Used to file streamlined installment agreements & doesn't require financial statements to prove hardships.

$50,000 or less, pay down to $50,000, 72 months

What is the maximum tax liability taxpayer can have in order to qualify for streamlined agreement? If over limit what must they do? How long do they have to pay off liability?

Form 9465 part II

If the amount of liability is between $25k-50k use ______ ______ _______ ______.

Direct Debit Installment Agreement (DDIA)

What must the taxpayer agree to in order to qualify for a streamlined agreement?

1. while installment request is being made 2. while agreement is in effect 3. for 30 days after request is rejected 4. for 30 days after termination of agreement due to taxpayer defaulting on terms 5. while IRS office of Appeals is evaluating appeal of rejection or termination

IRS can't levy against property if:

Notice of federal tax liens

The IRS can't put a lien against property but they can file a ___ ___ ____ ____ ____ to protect the governments money against other creditors due to the termination of an installment agreement.

Fals

T/F The taxpayer can't have a refund directly deposited into an IRA account?

Form 8888

If the taxpayer wants a refund in more than one bank account or to request up to $5k in paper series I bonds they must file what form?

3 years from date of filing original return or 2 yrs after paying tax (the later)

What is the deadline for filing a claim to refund or credit?

7 years after due date of return for tax year debt/security became worthless

What is the exception to the 3 year rule?

20% of amount of the dis-allowance

A taxpayer who files erroneous claim may be subject to .....

Injured spouse

When one spouse may be held responsible for all the tax due, even if the other spouse earned all the income or claimed improper deductions or credits.

Form 8379

The injured spouse must file which form w/their joint return when over payment is/was expected to be applied to a past obligation. Can be filled with an amended or by itself.

Form 4868

Form used to request extension.

6 months, due date of the return, Oct. 15th

How long does an extension give a taxpayer? When must form 4868 be filed? When is the final due date after form 4868 filed?

False...they must estimate the amount owed and can send it in with the request.

T/F An extension gives the taxpayer more time to pay their tax liability.

180 days, or last day of continuous hospitalization due from injury from serving, 3 1/2 months based on the # of days remaining to file upon entering the combat zone.

The amount of time service men serving in combat zones is increased by? They can receive an extension of up to.... & it's based on?

in the military/naval service on duty outside the US and Puerto Rico, or lives and maintains a main place of business outside the US & PR, they have to attach a statement to their return explaining which situation applies to them.

A taxpayer who is a US citizen may receive an automatic 2 month extension to file & PAY any federal tax due if..... What must they do to get this?

calendar year

The typical period covered by personal income tax returns is the 12 month period from Jan 1 through Dec 31 also known as a?

Fiscal year

Another typical accounting period which is a 12 month period that ends on the last day of ANY month except Dec.

cash method

If this method is used the taxpayer must report income in the year of constructive receipt or when the income is available for the taxpayers unrestricted withdrawal.

True

T/F Physical possession is not a requirement for constructive receipt.

1. Garnished wages 2. cancellation of debt 3. income payments paid directly to a third party from property owned by a taxpayer 4. income paid in advance 5. check received and available to the taxpayer without restriction




Do not include interest on Series E & EE US bonds until final maturity date

Examples of constructive receipt are & one exception is:

accrual method

When using this method you report income when earned whether it is received or not.

gross income threshold

This determines whether the taxpayer must file a return.

Sum of the standard deduction and personal exemption

How is the gross income threshold calculated?

Earned Income

This includes salaries, wages, tips, professional fees, taxable scholarships, and fellowship grants.

marital status, age, income, and blindness

What determines whether a dependent must file a return?

Unearned Income

This includes unemployment comp, taxable social security benefits, taxable pensions, annuity income, canceled debt, unearned income from a trust, taxable interest, dividends, and capital gains.

Gross income

This is the total of earned and unearned income

Interest, dividends, or capital gain distributions

Parents can elect to include a child's income on their return when a child's only income is what?

Form 8814

Form used to report child's income on parents return?

1. under 19 or full time student under 24 2. gross income less than $10k 3. must be required to file a return unless this election is made 4. must not file a joint return for the year 5. must not have made estimated tax payments & no over payment from the previous year can apply to the tax year under his name and SS # 6. Must not have any federal income tax taken out of his income under the backup withholding rules

What are the conditions that kids have to met in order for parents to include their income on their joint return?

1. special taxes are owed or certain credits must be recaptured 2. net earnings from self-employment are at least $400 3. wages are $108.28+ from a church or qualified church-controlled org that is exempt from employer SS & Medicare taxes

A taxpayer is required to file if any of these conditions apply even if their income is less than the annual amt for their filling status:

30%

Must US source income an alien receives is subject to withholding with a tax rate of?

Form 1040-NR

A nonresident who receives US income must file which form if additional taxes are due or if conducting a business in the US?

False

T/F A non-resident aleien who is married to a US citizen or resident at the end of the year does not have a choice on their tax treatment as a US resident.

True

T/F Resident aliens msut file a tax return following the same rules that apply to US citizens & non-resident aliens must file special forms and adhere to different rules.

green card test or substantial presence test

What are the two tests that have to be met in order to be considered a resident alien?

Green Card Test

A lawful permanent resident of the US at any time during the year & took no steps to be treated as a resident of a foreign country under an income tax treaty. Will be issued an alien registration card.

1. 31 days during the tax year 2. 183 days during the 3 year period that includes the tax years and the two prior years (for 2014: 2014, 2013, 2012), counting: a) all of the days in 2014 b) one-third of the days in 2013 c) one-sixth of the days in 2012

In order to pass the substantial presence test you must have been physically present in the US for at least:

True

T/F A taxpayer may still qualify as a nonresident alien if he is a resident of a treaty country within the meaning of an income tax treaty between the US & that country.

False

T/F A nonresident alien that is married to a resident of the US can elect to file a joint return if they were married by at least the last day of the tax year. The nonresident, however, doesn't have to include income from outside the US, and they don't have to keep their proper records.

True

T/F A nonresident alien who made the election to file a joint return in a previous tax year can file a joint or separate return for the next year.

Dual-status year

A tax year in which you change status between nonresident and resident alien.

1040-EZ

The easiest return to file, and only single and joint filers with no dependents are able to file. A taxpayer does not attach any forms to this return.

False - under $100,000

T/F Taxable income must be $150,000 or less in order to file 1040-EZ?

False

T/F You can claim dependents on 1040-EZ?

False

T/F You can file Singe, MFJ, MFS, or HOH on 1040-EZ?

True

T/F If a taxpayer was a nonresident alien at any time during the tax year their filing status must be MFJ.

True

T/F The taxpayers filing 1040-EZ must be under 65 and not blind at the end of the tax year.

True

T/F The only income when filing 1040-EZ can be from wages, salaries, tips, unemployment, Alaska Permanent Funds, dividends, taxable scholarships and fellowship grants, and taxable interest of $1,500 or less.

False

T/F A taxpayer filing form 1040-EZ can claim adjustments to income, such as a deduction for IRA contributions or student loan interest.

True

T/F There are no credits allowed other than the earned income credit on form 1040-EZ.

False - they can't owe the taxes

T/F The taxpayer can owe household employment taxes on wages for a household employee when they file 1040-EZ.

False

T/F A taxpayer filing form 1040-EZ can claim the additional standard deduction.

Form 1040-A

Most taxpayers can file this return, unless you have itemized deductions or business income to report.

True

T/F Taxable income must be $100,000 or less in order to file 1040-A.

False - they can't have anything after SS/railroad benefits

T/F In addition to the income available to file form 1040-EZ, filers of 1040-A can have income from IRA distributions, pensions, annuities, interest, ordinary dividends, capital gain distributions, taxable SS/railroad benefits, unrecaptured section 1250 gains, section 1202 gains, or collectibles gains.
True

T/F Adjustments to income can't be from anything except: IRA deductions, student loan interest, educator expenses, tuition/fees

False

T/F The taxpayer filling form 1040-A can itemize.

True

T/F Taxes can only come from the following items: tax table, alternative min tax, recapture of an ed credit, form 8615 (tax for certain children who have invst inc of $2k+), qualified dividends & cap gain tax worksheet

True

T/F The taxpayer filling form 1040-A can only claim the following credits: child and dependent care expenses, elderly or the disabled, child tax, additional child tax, education credits, retirement savings/contributions, earned income credit.

False - they can't

T/F The taxpayer can have an alternative min tax adjustment on stock acquired form the exercise of an incentive stock option.

1040

Use this form to report ALL types of income, deductions, or credits.

True

T/F The tax calculations are the same from one tax form to the next, however, it is possible to pay less with the 1040 since you can claim itemized deductions, credits, and additional adjustments to income on it.

True

T/F Use form 1040 if you have income over $100,000.

True

T/F The taxpayer can only itemize deductions on form 1040.

True

T/F If the taxpayer has tax exempt interest from private activity bonds issued after August 7, 1986 they should file 1040.

True

T/F If the taxpayer has a W-2 that has either of the following they should file form 1040: uncollected employee tax (SS/medicare) on tips or group-term life insurance or income from nonqualified deferred compensation plans (box 12 w/code Z)

False - $20

T/F The taxpayer needs to use form 1040 if they received $45+ in unreported tips in any 1 month.

True

T/F A bona fide resident of Puerto Rico & excludes income from Puerto Rico sources needs to file 1040.

False - they need to report it and file 1040

T/F If the taxpayer owes excise tax on insider stock compensation from an expatriated corp they do not need to report it and can file 1040-A/1040-EZ.

True

T/F If the taxpayer has a qualified health savings account that is funded by distributions from their IRA they should file form 1040.

False - they need to file form 1040

T/F If the taxpayer's employer did not withhold SS or Medicare tax they can file form 1040-A.

True

T/F With form 1040 it is necessary to file other forms with the return to report certain exclusions, taxes, or transactions.

False - after Oct. 16, 2005

T/F The taxpayer must file form 1040 if they are a debtor in a bankruptcy case filed before Oct. 16, 2005.

True

T/F If the taxpayer has a net disaster loss attributable to a federally declared disaster they should file form 1040.

False - form 1040

T/F If the taxpayer must recapture the first time homebuyer credit they should file form 1040-A.

True

T/F If the taxpayer received a refund or credit of certain taxes or net disaster loss claimed as part of their standard deduction they must file form 1040.

Attachment Sequence No.

Any forms/schedules needed to be filed with the tax return should be behind the 1040 in order of the ______ ______ ______ which is shown in the upper right hand corner of the form.

Schedule B

Reports the interest and ordinary dividends earned for the tax year.

False - over $1,500

T/F The taxpayer must file schedule B if they have $1,500 or less of taxable interest or ordinary dividends.

True

T/F The taxpayer needs to file schedule B if they received interest from a seller financed mortgage & the buyer used the property as a personal residence.

True

T/F Schedule B should be filed if the taxpayer has accrued interest from a bond, he reports original issue discount less than the amount shown on form 1099-OID, he reduces interest income on a bond by the amount of amortizable bond premium, or he claims an exclusion of interest from series II or I US savings bonds issued after 1989.

False - does need to file sch B

T/F If the taxpayer received interest or ordinary dividends as a nominee he doesn't have to report on schedule B.

False - it needs to be reported on sch b

T/F A taxpayer does not need to report interest earned on a foreign account on schedule B.

Schedule EIC

A taxpayer with one or more qualifying children can file this schedule to claim the earned income credit.

Schedule R - credit for the elderly or disabled

This schedule is filed by a US citizen with limited income who is age 65+ at the end of the year.

Schedule A

Used to claim itemized deductions and only used when filing form 1040.

Schedule C

Used by a self-employed taxpayer that files 1040 to report income/deductions from their trade/business. They must be the sole proprietor or disregarded entity, qualified joint venture, or a statutory employee.

Schedule C-EZ

A simplified version of schedule C, and only available if the taxpayer has a small business that doesn't have a loss.

True

T/F Business expenses must be $5k or less in order to file Sch C-EZ.

False - they can't have an inventory or employees

T/F Taxpayer must use the cash method of accting, they are able to have an inventory at any time during the year, they are allowed to have employees, but they can't deduct expenses for the business use of home on sch C-EZ.

True

T/F Taxpayer filing sch C-EZ must have only one business as a sole proprietor, qualified joint venture, or statutory employee.

True

T/F The taxpayer filling sch C-EZ can't have prior year disallowed passive activity losses from the business, and they can't be required to file form 4562 (depreciation/amortization for the business)

Schedule D

A taxpayer uses this form to report the sale or exchange of capital assets.

capital assets

Most property held for personal purposes, pleasure, or investments are considered to be....

Form 8949

Replaces schedule D-1 & reports all capital gains, and loss transactions and subtotals are carried over to schedule D where gains and losses are calculated in aggregate.

Ture

T/F Transactions that are reportable on Schedule D include the following: sales, exchanges or involuntary conversions of capital assets, capital gain distributions not reported directly on the 1040, and non business bad debts.

Schedule E

This schedule reports income or loss from rental real estate, royalties, partnerships, S corps, estates, trusts, and residual interests in REMICs.

Schedule F

This schedule is used to figure net profit or loss from regular farming operations and includes farm products raised for sale or products bought for resale.

Schedule J

This schedule figures the income tax by averaging over the previous 3 years (base years), all or part of current year taxable income from farming or fishing. This election doesn't apply when figuring alternative min tax.

Schedule SE

A self employed taxpayer uses this schedule to figure the tax due on net earning from self employment. They must include their share of certain partnership income and guaranteed payment as income from self employment.

Form 1040NR

A nonresident alien who receives US source income must file this type of return if additional taxes are due or if conducting a business in the US.

True

T/F A nonresidnet alien engaged in a trade/business in the US must file even if they don't receive income from the trade/business, has, no US source income, or receives income exempt from US tax. They don't have to attach the schedules for form 1040NR, but they should attach a list of the kinds of exclusions claimed with the amount of each.

False - they have to file the form 1040NR for the deceased person

T/F The taxpayer must file form 1040 if they represent a deceased person who would have had to file form 1040NR.

True

T/F A nonresident alien must file form 1040NR even it they are not engaged in a trade/business in the US during the tax year, but they received income from sources re-portable on Schedule NEC (tax on income not effectively connected with a US trade/business) and not all the US tax owed was withheld from that income.

False - they must file form 1040NR

T/F A taxpayer that represents an estate/trust that has to file form 1040NR can report their share of income on form 1040.

True

T/F A nonresident alien must file form 1040NR if they any special taxes such as: alternative min tax, additional tax on a qualified plan (if this is the only tax they can file form 5329 by itself), household employment taxes (if only tax file sch H by itself), SS & Medicare tax on tips not reported to employer, recapture of first time home buyer credit, writ in taxes or recapture taxes, net earnings from self employment of at least $400 & is resident of a country that the US has an international SS agreement.

True

T/F If a nonresident alien worked only by way of personal services and their wages were less than $3,950 and they had no other need to file a return to claim a refund of over withheld taxes they do not need to file form 1040NF

False - the visas are "F" "J" "M" or "Q"

T/F If the nonresident alien was a student/teacher/trainee temporatily in the US under an "F", "J" or "B" visa and had no income that was subject to tax under section 871 they do not need to file 1040NR

False - they won't need to file 1040NR

T/F If the taxpayer is a partner in a US partnership that wasn't engaged in a trade/business in the US during the tax year & schedule K-1 includes only income from US sources that is re portable on schedule NEC they will need to also file form 1040NR

Single (more favorable than MFS) or Married nonresident aliens filing separately

The only filing status available for nonresidents from most countries are.....

True

T/F Resident aliens can claim personal exemptions for themselves and their dependents the same way a US citizen can. However, nonresident aliens can only claim one personal exemption for themselves.

False - Mexico or Canada citizens qualify for this rule

T/F Only nonresident aliens from Mexico may be able to claim an exemption for their spouse/dependent if the spouse had no gross income for US tax purposes & can't be claimed as the dependent on another US return and they must use the same rules as US citizens to determine who is a qualified dependent.

True

T/F A nonresident alien may itemize if they have income effectively connected with his US trade or business. the deductions include: state/local taxes, charitable contributions to US orgs, casualty/theft losses, and misc deductions. Use sch A of form 1040NR to report these.

True

T/F If the taxpayer is filing 1040NR-EZ they can only claim a deduction for state and local taxes paid.

Single nonresident alien or Married nonresident alien

A taxpayer filing form 1040NR-EZ can only claim which status?

no

Can you file 1040NR-EZ if you are claimed as a dependent on someone else's return?

yes

Can you file 1040NR-EZ if the only income you have is from wages, salaries, tips, or refunds of state/local inc taxes, or scholarships/fellowships grants?

less than $100,000

The taxable income to file 1040NR-EZ must be?

Yes

Can a taxpayer can file form 1040NR-EZ if they do not owe any other taxes, and can't claim the following: dependent, exemption for a spouse, tax credits, itemized deductions (other than state/local), adjustments to income other than exclusions for scholarship/fellowship grants.

False - can't claim exemption even if the person doesn't claim them

T/F if another taxpayer can claim an indvidual as a dependent that individual can claim themselves as a personal exemption.

True

T/F an individual without gross income who remarried after death of their spouse can be claimed on both the final seperate return of deceased spouse and seperate return of new spouse. if filing mfj taxpayer can only be claimed on personal return.