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54 Cards in this Set
- Front
- Back
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What is filing status?
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Reflects an individuals marital and family situation, affects the calculation of taxable income and determines the rates at which that income is taxed.
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Joint return?
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An individual who is married on the last day of the taxable year.
-Reflects the combined activities of both individuals |
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What is joint and several liability?
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Each spouse is responsible for paying the entire tax (not just one-half)
-Any reference to the taxpayer is a reference to two people. |
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How can someone qualify as a surviving spouse?
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Filing status that permits a widow or widower to use the married filing jointly rate schedule for two taxable years following the death of a spouse.
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What is a separate return?
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A return filed by a married individual reflecting his or her independent activity and tax liability for the year. The tax liability is based on the married filing separately rate schedule.
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What is a head of household?
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Filing status for an unmarried individual who maintains a home for a child or dependent family member.
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What is a single taxpayer?
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An unmarried individual who is neither a surviving spouse nor a head of household.
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What is Total Income?
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The sum of the income items recognized by an individual during the year and listed on page 1, form 1040.
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What is Adjusted Gross Income (AGI)?
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Total income less specific deductions.
An intermediate step in the calculation of taxable income. |
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What is an above-the-line deduction?
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An allowable deduction for an individual taxpayer that can be subtracted from total income to compute AGI.
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What is standard deduction?
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A deduction from AGI based on filing status.
-Indexed annually for inflation. E.g. Single - 5,700, Head of Household - 8,400 |
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What is an itemized deduction?
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Any deduction that can be subtracted from the calculation of AGI (Only if the calculable amount exceeds the standard deduction)
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What is bunching?
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By controlling the timing of their deductible expenses, they can concentrate the deductions in one year.
-Create a critical mass of itemized deducions. |
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What is the exemption amount?
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A dollar amount allowed as a deduction from AGI for each taxpayer and dependent. The dollar amount is indexed annually for inflation.
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What conditions are necessary for someone to be a qualifying child?
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Must have the same principal residence as the taxpayer for more than one-half of the year.
Must be younger than the taxpayer and less than 19 years old or a student less than 24 years old. Must not have provided more than one-half of his or her own financial support for the year. Must not have filed a joint tax return with a spouse unless such return was filed only as a refund claim. |
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What is a qualifying relative?
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Includes specific members of the taxpayer's family or stepfamily who do not meet the definition of qualifying child.
Must receive more than one-half of his or her financial support for the year from the taxpayer. Must not have gross income for the year in excess of the exemption amount. |
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What is the Taxable Income Formula?
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Total Income
(Above-the-line deductions) --------------------------------- Adjusted Gross Income (Standard or Itemized Deductions) (Exemption Amount) --------------------------------- Taxable Income |
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What is the closest gauge of a taxpayers disposable income?
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Adjusted Gross Income
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What is a kiddie tax?
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The tax on a child's unearned income based on the child's parent's marginal rate.
Investment income (1,900 in 2010) |
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What is a child credit?
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Dependent - who is a qualifying child under age 17 at the close of the year.
-Phased out for high income taxpayers -Total reduced by $50 for every $1,000 increment of AGI in excess of $110,000 Singles- begins to phase out when AGI exceeds $75,000 |
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What is a dependent care credit?
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A credit based on the taxpayer's cost of caring for dependents either under age 13 or physically or mentally incapable of caring for themselves.
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What is an earned income credit?
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A refundable income tax credit that offsets the impact of the payroll tax on low-income workers.
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What is a making work pay credit?
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An individual tax credit equaling the lesser of 6.2 percent of earned income or 400 ($800 on a joint return)
The maximum $400 credit for an unmarried individual is reduced to zero when AGi exceeds $95,000, and the maximum $800 credit for a married couple is reduced to zero when AGI exceeds $190,000 |
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What is an excess payroll tax withholding?
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An overpayment of employee payroll tax allowed as a credit against income tax.
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What is the formula for AMT?
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Taxable income for regular tax purposes
+ or - AMT adjustments + AMT tax preferences --------------------------------- Alternative minimum taxable income |
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What are estimated tax payments?
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Quarterly installment payments of estimated current year tax liability required of both corporate and individual taxpayers.
(Due on April 15, June 15 and September 15 of the current year, fourth due on Jan 15 the following year) |
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What is a safe-harbor estimate?
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Estimated current year tax payments based on the preceding year's tax liability that protect the taxpayer from the underpayment penalty.
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What is an employee?
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An individual who performs services for compensation and who works under the direction and control of an employer.
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What is an independent contractor?
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A self-employed individual who performs services for compensation and who retains control over the manner in which the services are performed.
-Only accept or reject the final project |
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What is performance based compensation?
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Compensation paid solely because the recipient employee attained a performance goal established by a compensation committee of outside members of the corporate board of directors.
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Only reasonable compensation for services is deductible as a business expense.
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Example: Can't deduct more than 1 million of the annual compensation paid to their principle executive officer.
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What are the five factors relevant to the reasonableness of employee compensation?
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1. The shareholder/ employee's role in the corporate business, including the number of hours worked and the duties performed.
2. External comparisons with other companies: specifically, compensation paid to the employee relative to compensation paid to comparable employees by unrelated employers in a similar business. 3. The financial condition of the corporate employer, including sales, net income, capital value, and general economic fitness. 4. The employee's degree of control over dividend policy in his or her capacity as shareholder. 5. The internal consistency of the corporation's compensation system throughout the employee ranks. |
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What are expatriates?
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An individual who is a US citizen and resides and works for an extended period of time in a foreign country.
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What is a foreign earned income exclusion?
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An annual amount of foreign source earned income on which expatriates are not required to pay federal income tax.
(In 2010 it was $91,500) |
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What is a fringe benefit?
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Any economic benefit subject to valuation received by an employee as additional compensation.
-Escape income tax/payroll tax Nontaxable Health and accident insurance Group term life insurance (If exceeds 50,000, employee is taxed on cost of excess) Dependent Care Assistance Programs |
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What is a cafeteria plan?
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A compensation plan under which employees may choose among two or more benefits, including both cash and noncash items.
-May select noncash benefits from a menu of benefit choices |
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What is a stock option?
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The right to purchase corporate stock for a stated price (the strike price) for a given period of time.
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What is a bargain element?
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The excess of fair market value over cost of stock acquired on exercise of a stock option.
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What is an incentive stock option (ISO)?
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A qualified stock option for federal tax purposes. Individuals do not recognize the bargain element as income on the exercise of an ISO.
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What are miscellaneous itemized deductions?
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Itemized deductions that are deductible only to the extent their total exceeds 2 percent of AGI.
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What are moving expenses?
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The cost of transporting household goods and personal belongings from the individual's former residence to a new residence.
-The cost of traveling to the new residence (with the exception of the cost of meals en route) also qualify as a moving expense. -Moving expense deduction is an above-the-line deduction in the AGI computation. |
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What is a qualified retirement plan?
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Retirement plans that meet certain statutory requirements and that allow participants to save for retirement on a tax-deferred basis.
Two benefits --------------------------- Dollars of earned income contributed to the plan (or contributed by an employer on an employee's behalf) are not taxed currently. THe plan itself is tax exempt, so that the earnings generated by the contributed dollars are not taxed currently. |
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What is minimum distribution?
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The annual withdrawal an individual must make from a qualified retirement plan beginning no later than April 1 of the year following the year in which he reaches age 70.5
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What is a premature withdrawal?
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A withdrawal from a qualified retirement plan made before the individual reaches age 59.5
10% penalty |
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What is a rollover contribution?
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A distribution from one qualified plan contributed to another qualified plan within 60 days.
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What are the 3 categories of qualified retirement plans?
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1. Plans that employers provide for their employees
2. Plans available to self-employed individuals (Keogh plans) 3. Individual retirement accounts (IRAs) available to any person who recognizes compensation or earned income. |
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What is an employer provided plan?
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A retirement plan sponsored and maintained by an employer for the benefit of the employees.
Must satisfy two objectives 1) Employer-provided plans should carry minimum risk for participating employees. 2) Employer-provided plans should offer benefits in an equitable manner to all participating employees. |
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What is a defined benefit plan?
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A qualified plan under which participants are promised a target benefit, usually in the form of a pension, when they retire.
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What is a defined-contribution plan?
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A qualified plan under which an annual contribution is made to each participant's retirement account.
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What is a section 401 (k) plan?
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salary reduction plans or cash-or-deferred arrangements have become the most popular qualified plan.
-Each participating employee defines his or her own contribution by electing to divert some amount of currently salary or wage to the employee's retirement account. |
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What is deferred compensation?
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A non-qualified plan under which an employer promises to pay a portion of an employee's current compensation in a future year.
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What is a Traditional ira?
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An investment account through which individuals with compensation or earned income can save for retirement on a tax-deferred basis.
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What is a Roth ira?
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An investment account through which individuals with compensation or earned income can save for retirement on a tax-exempt basis.
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What is a rollover IRA?
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An IRA created to receive a distribution from another qualified retirement plan.
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