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38 Cards in this Set

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What is the formula for computing individual tax liability?
TOTAL INCOME
Less: Exclusions
= GROSS INCOME
Less: Deductions for AGI
= ADJUSTED GROSS INCOME (AGI)
Less: Deductions from AGI
Less: Personal Exemptions
= TAXABLE INCOME
x Tax Rate
= INCOME TAX BEFORE CREDITS
Less: Credits
= TAX LIABILITY
Less: Prepayments
= BALANCE DUE OR REFUND
What is the formula for computing gift tax?
Fair Market Value (FMV) of all gifts in current year
Less: Annual donee exclusions ($13,000) each
Less: Marital deduction (unlimited)
Less: Charitable contribution deduction (unlimited)
Add: Taxable gifts for all prior years
= CUMULATIVE TAXABLE GIFTS (TAX BASE)
x Unified transfer tax rate
= TENTATIVE GIFT TAX
Less: Unified transfer taxes paid in prior years
Less: Unified credit
= UNIFIED TRANSFER TAX CURRENT YEAR
Who is the gift tax imposed upon?
The donor for transfers of property considered taxable
Who is responsible for the gift tax if the donor does not pay?
The donee is responsible in the event of non-payment of tax by the donor
What is the annual exclusion amount for gifts or present interest in 2010?
$13,000 per donee
What is the tax basis of a gift?
What is the tax basis of a gift in the event that the donee sells the property at a loss?
Generally, the tax basis of a gift is the donor's cost.
In the event of a sale at a loss by the donee, the basis is the lesser of the donor's cost or FMV on the date of transfer.
What is the unified credit amount in 2010?
$330,800, equivalent to a $1,000,000 deduction
What is the formula for computing the federal estate tax?
Gross estate (FMV of all property owned by decedent upon death)
Less: Deductions for funeral and admin expenses, debt of decedent, charitable contributions, marital deduction
= TAXABLE ESTATE
Plus: Taxable gifts made after 1976
= TAX BASE
x Unified transfer tax rate
= TENTATIVE TAX ON ESTATE TAX BASE
Less: Tax credits
Less: Gift taxes paid after 1976
= UNIFIED TRANSFER TAX DUE
How is a decedent's property valued?
Either:
FMV on date of death
Or:
Alternative valuation date (6 months after date of death)
- only applicable if the aggregate value of gross estate decreases during the 6 months following death
Name 6 types of gifts that are not taxable.
1. Present interest gifts worth less than $13,000
2. Tuition paid directly to an educational institution
3. Medical expenses paid directly to a medical institution
4. Gifts made to a spouse
5. Political contributions
6. Charitable contributions
What is meant by the term "gift-splitting"?
When a married couple gives a gift that is valued more than $13,000, they may elect to split the cost down the middle. Each spouse is then permitted to exclude $13,000 from their share of the gift.
Tax rate table used in computing 2010 gift tax
Taxable amount....tax rate
0 - 10,000....18%
10,000-20,000....20%
20,000-40,000....22%
40,000-60,000....24%
60,000-80,000....26%
80,000-100,000..28%
100,000-150,000....30%
150,000-250,000....32%
250,000-500,000....34%
500,000+.....35%
Is there a limit on the marital deduction for gift and estate taxes?
The deduction is unlimited for a US citizen but is limited to 134,000 for a non-US citizen
Name 21 major exclusions from income.
1. Gifts and inheritances
2. Life insurance proceeds
3. Welfare and other transfer payments
4. Certain scholarships & fellowships
5. Injury and sickness payments
6. Personal injury settlements
7. Worker's compensation
8. Medical reimbursements
9. Certain fringe benefits
10. Health plan premiums
11. Group term life insurance proceeds
12. Meals & lodging
13. Employee discounts
14. Dependent care
15. Certain foreign earned income
16. Interest on state/local govt. bonds
17. Certain interest of Series EE bonds
18. Certain improvements by lessee to lessor's property
19. Child support payments
20. Property settlements from a divorce
21. Gains from the sale of a personal residence (limited)
Name 15 items included in gross income.
1. Compensation for services, fees, commissions, fringe benefits
2. Business income
3. Gains from the sale of property
4. Interest
5. Rents
6. Royalties
7. Dividends
8. Alimony/Separate Maint. Payments
9. Annuities
10. Income from life insurance and endowment contracts
11. Pensions
12. Income from debt forgiveness
13. Distributive share of partnership gross income
14. Income in respect of a decedent
15. Income from an interest in an estate or trust
Name 9 refundable tax credits.
1. Withholding from wages/back-up withholding
2. Estimated tax payments
3. Overpayment of prior year's taxes
4. Excess Social Security taxes paid
5. Non-highway use gasoline tax
6. Earned income credit
7. Regulated investment company credit
8. Payments made with extension request
9. Child credit (in some cases)
Name 10 non-refundable credits.
1. Adoption expense credit
2. Credit for elderly & disabled
3. Foreign tax credit
4. Child/dependent care credit
5. Business energy credit
6. Qualified electric vehicle credit
7. Research & experimentation credit
8. Low-income housing credit
9. Building rehab credit
10. Hope and lifetime learning credit
Name 10 itemized deductions.
1. Medical expenses over 7.5% AGI
2. Certain taxes
3. Residential & investment interest (limited)
4. Charitable contributions (limited)
5. Casualty/theft losses over 10% AGI
6. Miscellaneous expenses over 2%AGI
-employee expenses
-expenses for producing investment income
-tax advice/return preparation costs
7. Estate tax in respect to decedent income
8. Gambling losses to the extent of winnings
9. Amortization of bond premium
10. Amounts restored under claim of right
What are the 2010 tax rates for married filing jointly and surviving spouse returns?
Taxable income....tax rate
0-16,750....10%
16,750-68,000....15%
68,000-137,300....25%
137,300-209,250....28%
209,250-373,650....33%
373.650+....35%
What are the 2010 tax rates for single tax returns?
Taxable income...Tax rate
0-8375....10%
8375-34000...15%
34,000-82,400...25%
82,400-171,850...28%
171,850-373,650....33%
373,650+....35%
What are the 2010 tax rates for married filing separately returns?
Taxable income....tax rate
0-8,375......10%
8,375-34,000......15%
34,000-68,650......25%
68,650-104,625......28%
104,625-186,825......33%
186,825+......35%
What are the 2010 tax rates for head of household returns?
Taxable income....tax rate
0-11,950......10%
11,950-45,550.....15%
45,550-117,650......25%
117,650-190,550......28%
190,550-373,650......33%
373,650+......35%
When must a Schedule B be filed with a 1040?
1. You earned over $1,500 in ordinary dividends or taxable interest
2. You received interest from a seller-financed mortgage and buyer used property as their main residence
3. You have accrued interest from a bond
4. You are reporting original issue discount less than amount shown on 1099-OID
5. You are reducing interest income on a bond by the amount of amortizable bond premium
6. You are claiming an exclusion of interest from Series EE or I US savings bonds issued after 1989
7. You received interest or ordinary dividends as a nominee (on behalf of someone else)
8. You have a financial involvement with foreign accounts or trusts
What is the standard deduction for 2010?
$5,700
What is the personal exemption amount for 2010?
$3,650
What is the purpose of a Form 4868 and what are the major points of importance?
A Form 4868 is an application for extension of time to file a return. It allows a taxpayer an additional six months to file a return, but the tax is due on the regular due date. Penalty and interest will accrue on unpaid amounts. If a taxpayer is out of the country when their return is due, they automatically have an additional 2 months to file. They do not have to file a Form 4868 unless they need more than 2 months time.
What individuals must pay estimated taxes?
1. An individual expects to pay $1,000 or more in tax liability for 2011
and
2. The individual expects their withholding and credits to be the lesser of:
90% of the expected tax on 2011 return
or 100% of the tax due on 2010 return
What special rule applies to the estimated taxes for fisherman and farmers?
1. Tax liability is expected to be at least $1,000 in 2011
and
2. Withholding and credits for 2011 are expected to be less than 66 2/3% of expected 2011 liability or less than 100% of 2010 tax due
What special rules apply to the estimated taxes of higher income taxpayers?
If your AGI for 2010 was $150,000+ (75,000+ if filing married filing separately in 2011), then you must pay estimated taxes if:
1. Your estimated tax liability is $1,000 or more for 2011
and
2. Your expected withholding and credits in 2011 will be less than 90% of expected tax liability or less than 110% of your 2010 tax liability
What are the due dates for estimated taxes?
April 15
June 15
September 15
January 15, 2011 (unless tax return is filed and balance paid by January 31, 2011)
What is FICA?
What is SECA?
FICA is Federal Insurance Contributions Act - the employer and the employee each pay 1/2 of the tax due
SECA is Self Employment Contribution Act - the self-employed person pays all the taxes
Are the ministerial earnings of a minister subject to FICA or SECA?
Minister income is exempt from FICA and exempt from SECA if the minister has an approved exemption. Without the approved exemption, wages are subject to SECA.
Are the ministerial earnings of a member of a religious order that has not taken a vow of poverty subject to FICA or SECA?
Earnings are exempt from FICA.
Earnings are exempt from SECA if the member has an approved exemption. If there is no approved exemption, the member's earnings are subject to SECA.
Are the ministerial earnings of a member of a religious order that has taken a vow of poverty subject to FICA or SECA?
Earnings are subject to FICA if the order elected FICA coverage for its members or the member worked outside the order and the work was not required by, or done on behalf of the order. Earnings are exempt from FICA if neither condition exists.
Earnings are exempt from SECA.
Are the ministerial earnings of a Christian Science practitioner or reader subject to FICA or SECA?
Earnings are exempt from FICA.
Earnings are exempt from SECA if the taxpayer has an approved exemption. Otherwise the earnings are subject to SECA.
Are the ministerial earnings of a religious worker (church employee) subject to FICA or SECA?
Earnings are subject to FICA if employer did not elect to exclude worker. Earnings are exempt from FICA if the employer elected to exclude the worker.
If the employer elected to exclude the worker from FICA, then the earnings are subject to SECA. If the employer did not elect to exclude worker from FICA, then earnings are not subject to SECA.
Are the ministerial earnings of a member of a recognized religious sect subject to FICA or SECA?
If an employee and have an approved exemption, then not subject to FICA. If an employee without an approved exemption, then subject to FICA. If self-employed with an approved exemption, then earnings are exempt from SECA. If self-employed without an approved exemption, then earnings are subject to SECA.
How are the rental allowances of ministers handled?
1. The amount must be officially designated as a rental allowance and used to provide or rent a home. Amount can be excluded from gross income up to the fair rental value of home.
2. Fair rental value of parsonage can be excluded unless it is unreasonable pay for your services. Utility payments can be excluded up to the actual cost.
3. If home is owned by minister, then amount excluded is lesser of: amount actually used to provide a home, amount officially designated as a rental allowance, or fair rental value of home including furnishings and utilities.
3. Amounts in excess of the lesser of: reasonable salary amount, fair rental value of home plus utilities, or amount actually used to provide a home must be included in gross income.
4. For homeowners, mortgage interest and real estate taxes are still deductible on Schedule A.