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46 Cards in this Set

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Filing Status - Order of preference (most favorable to least favorable)
MFJ
QW
HH
Single
MFS
Filing Status - Order of preference (most favorable to least favorable)
MFJ
QW
HH
Single
MFS
Head of Household
o Taxpayer is unmarried or considered unmarried on the last day of the tax year
o Taxpayer paid over half the cost of running the house
o Taxpayer has either a qualifying child (or any other dependent) for more than 6 months OR parent for the entire year
Requirements for Qualifying Child
o Support – child does not provide more than 50% of their own support
o Age – child must be less than 19 or less than 24 if FT student
o Residency – child must live with taxpayer for more than 6 months
o Relationship – must be a child or descendent of family member.

• AND the following must be true
o The taxpayer is not a dependent
o Joint return – dependent cannot generally file a join return with spouse.
o Citizenship – US citizen or resident of Mexico, US or Canada
Qualifying Widow
o The taxpayer’s spouse died in either of the 2 tax years immediately preceding the current tax year
o Taxpayer paid over half the cost of maintaining his or her household which is the home of a dependent
Requirements for Qualifying Relative
o Support – taxpayer must provide more than 50% of support
o Relationship – must be relative or live with you for an entire year
o Not a qualifying child
o Gross Income – must have gross income of less than 3200

• AND the following must be true
o The taxpayer is not a dependent
o Joint return – dependent cannot generally file a join return with spouse.
o Citizenship – US citizen or resident of Mexico, US or Canada
Standard Deduction for Single & Married Filing Separately
5,000
Standard Deduction for Married Filing Jointly & Qualifying Widower
10,000
Standard Deduction for Head of Household
7,300
What is the personal exemption amount?
3,200
What is the dependent exemption amount?
3,200
What are the additional Standard Deductions for Seniors and Blind?
If 65 or greater, 1000 if married, 1250 if not married

If blind, 1000 if married, 1250 if not married (only not used to determine if you need to file)
What is the Social Security tax?
6.2%
But, on no more than 90K of wages or $5,580 (90K * 6.2%)
What is the Medicare tax?
1.45% with no limit
How do you determine whether you should file?
Calculate Standard deduction and personal exemption
If greater than income earned, do not file
May want to file to get money back that was withheld throughout the year
How is personal exemption treated differently for Fed and state?
Fed: Deduction against income
State: Credit against tax (calculate the tax first)
What is the date used to determine marital status?
If married at midnight December 31st, considered married.

Must file MFJ or MFS if married.

CA does not recognize common law marriage unless it is from another state
What are the community propoerty states?
As a Texan, I’d never call a man wishy washy

AZ TX ID NV CA LA NM WI WA
If you are a dependent on another persons return, can you take a personal exemption?
NO
What is the Standard deduction for someone that can be claimed as a dependent on someone else’s return?
Choose the greater of the two:
1) Earned Income + 250
2) 800

Cannot exceed the maximum for your filing status
Single & Married Filing Separately – 5,000
Married Filing Jointly & Qualifying Widower – 10,000
Head of Household – 7,300
What are the three pieces of information that you need to know to determine if someone needs to file?
Age
Filing status
Gross income – worldwide income that is not specifically exempt from tax
Overpaid Social Security Tax
o If two employers, and social security tax adds up to > 5580, enter in line 67 of 1040
o If one employer, and social security tax is > 5580, return to employer
Overpaid state disability insurance (local taxes)
o 857.71 is the maximum CA SDI
o If more than 1 employer, and CA SDI adds up to > 857.71, enter in line 41 of 1040
What are the 3 things on a W-2 that you can change?
o Name
o Address
o Social security number
When are tips not subject to SS or Medicare?
If they are less than $20 in any single month
Tie-breaker Rules
o The parent
o The parent who had the child for more time in the year
o If time is equal, the parent with the higher AGI
o If no parents, the taxpayer with the higher AGI
Child Tax Credit
o Taxpayer must be a qualifying child
o Qualifying child must be under the age of 17 at the end of the year
o Qualifying child must be a US Citizen or US resident
What is the date used to determine marital status?
If married at midnight December 31st, considered married.

Must file MFJ or MFS if married.

CA does not recognize common law marriage unless it is from another state
What are the community propoerty states?
As a Texan, I’d never call a man wishy washy

AZ TX ID NV CA LA NM WI WA
If you are a dependent on another persons return, can you take a personal exemption?
NO
What is the Standard deduction for someone that can be claimed as a dependent on someone else’s return?
Choose the greater of the two:
1) Earned Income + 250
2) 800

Cannot exceed the maximum for your filing status
Single & Married Filing Separately – 5,000
Married Filing Jointly & Qualifying Widower – 10,000
Head of Household – 7,300
Taxable by FED, but not by CA
o Direct US Obligations – treasury bills, savings bonds, other bonds and obligations of the U.S.)
Taxable by CA
o Interest from Fannie Mae bonds, Ginnie Mae bonds, FHLMC
How does CA tax muni bond interest?
CA does not tax interest received from muni bonds issued by CA. However, CA does tax muni bond interest from sources outside CA.
Requirements for Educator Expenses
• Position: Must be an educator, teacher, administrator, teacher’s aid, counselor
• K-12, not college level
• Hours: At least 900 hours per year (basically half-time)
o Doesn’t include home schooling
o $250 deduction/person
o Married educators can both take it, $500 total
o Only expenses that help/benefit the kids qualify for deduction
o CA does not recognize this deduction, must make adjustment on CA 540
Limitations on itemized deductions and exemptions
Itemized Deduction Limitiation

Line 28 – itemized deduction worksheet

If AGI exceeds 145,950 for MFJ or 72,975 for MFS, itemized deductions may be limited
o Exemption limitation
 Reduced by 2% for every 2500 above limit
 Single 145,950
 MFJ 218,950
 MFS 109,475
 HH 12,450
 Deduction for exemptions worksheet – line 42
When do you use the Tax computation worksheet?
o Taxable income of 100K or more
Recovery of prior year’s itemized deduction
o If itemized state income taxes as deduction in the previous year and received refund, refund is taxable ad treated as icome in the next year.
o If it was not a deduction in the prior year - taxpayer used standard deduction or used sales tax as itemized – refund is not taxable
o Partial deduction – if they deducted state income taxes. If 5015 was itemized, only 15 is what pushes it over standard deduction, if received 1K refund, 15 is considered taxable.
Ordinary and Qualified Dividends
o 1099 DIV
o if you didn’t receive, ask client did you ask to reinvest
o 1A – dividends
o 1B – qualified dividends
 stocks owned for at least 60 days
 preferred stock owned for 90 days
 preferential tax treatment – taxed as capital gain – 5% or 15% maximum
o taxed at a maximum of 15% for taxpayers in the 25% tax bracket or above
o taxed at 5% for taxpayers in the 10% and 15% tax bracket
capital gain distributions
o in a mutual fund, every time manager sells a position there is a profit or loss
o end of the year, mush push out all of the gains to shareholders
o if you own an individual stock, there is no capital gain until you sell the stock
o the gains on mutual funds are always long-term, unless you buy and sell the fund in less than one year.
o If all gains came from mutual fund, check box 13 – don’t need schedule D
When to use Qualified dividends and capital gain tax worksheet?
must use if entry on 1040 9b or 13, cannot use regular tax table to calculate tax
Residency
o CA
o 540 NR
o apportion the income that incomes between CA and non-CA
o in CA for any reason other than temporary or transitory purpose
o 2 part year residents
o pay tax on the money earned while in CA must file 540 NR
o definition of domicile – can have only one domicile at a time
o CA resident taxed on all worldwide income
o Nonresident of CA, CA course income is taxed
o Prorate standard deduction, exemptions
Difference between Nonrefundable and refundable credit
• Nonrefundable credit cannot reduce taxes below 0
• Child and Dependent Care Credit
nonrefundable
o What are the conditions you have to meet?
 Lower income levels
 If married, have to file joint
 Must have earned income, line 7 or 12
 If married, both parents must have earned income unless
• 1 spouse is disabled or
• 1 spouse going to school
• cannot have two students, one has to have earned income
o 250/month
o the person providing services can not be a dependent of the taxpayer
o qualifying persons:
 must be under 13 years old. As soon as they turn 13 expenses stop qualifying
 physically or mentally incapable of taking care of themselves
 must live in your home
 spouse in same house
o exception: sign away dependency to spouse can still take expenses
o student for at least 5 months out of the year $250/month/child
o on W-2, box 10 is the amount of dependent care $ given by employer, box 10 not included in box 1
o schedule H – nanny comes to the house. If pay them >1400/yr must pay the employers amount of social security and medicare, line 62
o can’t be eliminated by income level, only down to 20%
o In CA:
 Refundable credit
• Adoption Credit
o $10,630 tax relief credit
o add up all qualified expenses up to 10,630
o can roll excess to next year, up to 5 times or years
o includes fees to adoption agency, court and legal fees, transportation, medical
o In CA: legal fees not included
• Special Needs Child
o State helps certain children to get adopted
o Get 10,630 credit automatically, regardless of what you spent