Use LEFT and RIGHT arrow keys to navigate between flashcards;
Use UP and DOWN arrow keys to flip the card;
H to show hint;
A reads text to speech;
117 Cards in this Set
- Front
- Back
Individuals are subject to Federal Income Tax based on
|
income
|
|
The basic rate structure is ____ with rates varying from __ to ___%
|
progressive
10-35% |
|
The highest taxes rates were in ____ with rates varying from ____ to __ %
|
1944;23-94%
|
|
Income (broadly conceived) includes
|
all the taxayer's income, both taxable and non-taxable
|
|
Income (broadly concieved) does not include
|
return of capital
or receipt of borrowed funds |
|
gross income is defined by the IRS as
|
except as otherwise provided... all income from whatever source derived
|
|
gross income does not include
|
unrealized gains
|
|
Individual taxpayers have two categories of deductions
|
deductions FOR adjusted gross income
deductions FROM adjusted gross income |
|
examples of deductions FOR adjusted gross income include
|
ordinary and necessary expenses incurred in a trade or businsss, one half of self employment tax paid, alimony paid, certain payments to an IRA and Health savings accounts, moving expenses, forfeited interest penalty for premature withdrawl of time deposits, captial loss deductions
|
|
deductions for AGI are sometimes known as
|
above the line deductions
|
|
the basis for computing percentage limitations on certain itemized deductions
|
Adjusted Gross Income
|
|
The AGI is used for computing % on certain itemized deductions such as
|
medical expenses
charitable contributions casualty losses |
|
medical expenses are deductible if they exceed ?% of AGI
|
7.5%
|
|
Charitable contributions deductions may not exceed ?% of AGA
|
50%
|
|
tHe standard deduction is the sum of two components
|
the basic standard deduction
the additional standard deduction |
|
The following individual taxpayers are NOT allowed to use the standard deduction and must itemize
|
A married individual filing a separate return where either spouse itemizes deductions
a nonresident alien an individual filing a return for a period of less than 12 months because of a change in the annual accounting period |
|
When filing his or her own tax return, a dependents basic standard deduction in 2006 is limited to the greater of _____ or the sum of the individual's earned income plus ___; but if the amount exceeds the _____ the standard deduction is limited to $5150 in 2006 for a Single person.
|
$850, $300 normal standard deduction
|
|
exemptions that are allowed for the taxpayer and spouse are called
|
personal exemptions
|
|
An individual cannont claim a personal exemption if
|
he is claimed as a dependant by another
|
|
When a husband and wife file a separate return, a married taxpayer cannot claim an exemption for his or her spouse unless
|
the spouse has no gross income and is not claimed as the dependant of another taxpayer
|
|
a ___ is available for either a qualifiying child or qualifying relative
|
dependency exemption
|
|
The qualifying child definition applies to the following tax benefits
|
dependency exemption
head-of-household exemption earned income tax credit child tax credit credit for child and dependent care expenses |
|
a qualifying child must meet the __,__... tests
|
relationship
abode age support |
|
the relationship test for qualifying child includes a taxpayer's..
|
child, adopted child, stepchild, eligible foster child, brother, sister, half brother, half sister, stepbrother, step sister, or a DESCENDANT of any of these parties
|
|
Abode test requires
|
that qualifying child must live with the taxpayer for more than half of the year
|
|
the age test requries that a qualifying child must be under the age of ___ or ___ in the case of a student
|
19 or 24
|
|
the age test does not apply to
|
any child who is disabled during any part of the year
|
|
the support test requires
|
that the child must not provide more than one-half of his or her own support
|
|
TAX FORMULA
begins with |
Income (broadly conceived)
|
|
TAX FORMULA
next line after income |
Less:Exclusions
|
|
TAX FORMULA
next line after Less:Exclusions |
Gross Income
|
|
TAX FORMULA
next line after Gross income |
Less: Deductions for adjusted gross income
|
|
TAX FORMULA
next line after Less: Deductions for adjusted gross income |
Adjusted gross income
|
|
TAX FORMULA
next line after Less: The greater of total itemized deductions or the standard deduction |
Personal and dependency exemptions
|
|
TAX FORMULA
next line after Adjusted gross income |
Less: The greater of total itemized deductions or the standard deduction
|
|
TAX FORMULA
next line after Personal and dependency exemptions |
Taxable income
|
|
TAX FORMULA
next line after taxable income |
Tax on taxable income (see tax tables)
|
|
TAX FORMULA
next line after Tax on taxable income (see tax tables) |
Less: Tax credits (including income taxes withheld and prepaid)
|
|
TAX FORMULA
next line after Less: Tax credits (including income taxes withheld and prepaid) |
Tax due (or refund)
|
|
In order for the dependent to be a qualifying child the taxpayer must meet these characteristics for the support test
|
provide more than one-half of his or her own support
|
|
in the case of a fulltime student, ____ are not considered to be support
|
scholarships
|
|
the tiebreaker rules state that when both people are the parents and the child lives ith each the same period of time...
|
the parent with the higher AGI claims the qualifying child
|
|
Resorting to the tiebreaker rules for claiming a qualified child is not necessar if ...
|
the person who would prevail does not claim the exemption
|
|
a qualifying relative must meet the following test
|
relationship
gross income support |
|
an ex spouse can qulify as a member of the household..
|
in the year following that of the divorce
|
|
a qualifying relative relationship test includes...
|
Lineal ascendants (parents, grandparents)
Collateral ascendants (uncles, aunts) Certain in-laws (child, parent, sibling in-law) and unrelated parties who LIVE WITH the taxpayer, except for spouses in year of divorce. |
|
a dependent's gross income must be less than the ___ which is __
|
exemption amount $3300
|
|
In the case of scholarships when determining wheter the dependent meets the gross income test include ___ and exclude___
|
taxable portion(amounts for room and board)
nontaxable portion(amounts for books and tuition) |
|
In the case of the qualifying relative support test, over one half the support of the qualifying relative must be supplied....
|
furnished by the taxpayer
|
|
For the purpose of the support test, recieved funds do not have to be claimed when
|
funds that have been received from any source do not have to be counted if they are not spent
|
|
When a group of people provides support for one person the following determinations must be made
|
the group together must provide 50 percent of the support
any person who contributed more than 10% of the suppport may claim the deduction providing everyone else who claimed more than 10 files written consent (form 2120) each person in that group must meet all the other requirements for claiming the exemption-except support |
|
A special exception to the support test that applies to parents with children who are separated, the parents must meet these conditions
|
provide more than half of the support
have custody of the child for more than half the year |
|
The special rule grants the dependecy exemptions to the noncustodial parent if
|
the divorce decree specifies or
the custodial parent issues a waiver |
|
If the special rule granting dependency does not apply to the situation and support may have to be determined the following rules as to source govern
|
alimony received by the custodial parent does not count as support by the payor parent
If a parent has remarried, amounts received from the parents spouse are considered to be provided by that parent |
|
In addition to fitting into either the qualifying child or the qualifying relative category a dependent must meet the
|
joint return and citizenship or residency tests
|
|
If a person is married, the supporting taxpayer is generally not permitted a dependency exemptions if the married individual files a joint return with his spouse, but this does not apply unless
|
the reason for filing is to claim a refund for tax withheld
no tax liability would exist for either spouse on separate returns neither spouse is required to file a return |
|
To be a dependent the individual must be __ except for the following situation
|
either a US citizen, a US resident, or a resident of Canada or Mexico; an adopted child need not be a citizen or resident of the US as long as her principal residence is with a US citizen.
|
|
In testing for dependency exemption, in the case of a qualifying child ____ is not necessary; What is required is that
|
support; the child not be self supporting
|
|
In testing for dependency exemption, the qualifying child category has no____ limitation, where the qualifying relative category has no____
|
gross income limitation; age restriction
|
|
The repeal of the exepmtion phaseout was postponed until; and will not be complete until;
|
2006;2010
|
|
Exemptions are phased out by ___ for each ____ by which the taxpayers AGI exceeds the threshold amounts
|
2%;2500
|
|
For married taxpayers filing separately Exemptions are phased out by ___ for each ____ by which the taxpayers AGI exceeds the threshold amounts
|
2,1250
|
|
Steps for calculating the exemption percentage phaseout
|
1 AGI-Threshold=excess
2 Excess/2500(or 1250MFS)*.02 3 Phaseout percentage*exemption amount= amount of exemptions phased out 4 Amount of exeptions phased out*reduction of phaseout fraction=phaseout amount 5 Exemption amount-phaseout amount=allowable exemtption deduction |
|
The child tax credit is___ through ___ for each dependent child under the age of ___
|
$1000;2009;17
|
|
The following taxpayers may not use the tax table method
|
Individual who files a short period return
Individuals whose taxable income exceeds the max amount in the tax table An estate or trust |
|
Prior to 2001 tax legislation, the tax rate schedules were ___; The rates were reduced to __
|
15,28,31,36, and 39.6%; 10,15,25,28,33,and 35%
|
|
The average rate of tax is equal to the ___
|
tax liability/ taxable income
|
|
Some of the common tax credits
|
earned income credit
credit for child and dependent care expenses credit for the elderly foreign tax credit Child tax credit |
|
Unearned income includes
|
taxable interest
dividends capital gains rents royalties pension and annuity income income received as the beneficairy of a trust |
|
the kiddie tax applies when
|
child has not yet reached age 14 by the close of the year
has at least one living parent unearned income of more than 1700 |
|
net unearned income of a dependent child is computed as follows
|
Unearned income
Less 850 Less The greater of -850 of the standard deduction or -the amount of allowable itemized deductions directly connected with the production of the unearned income Equals: Net unearned income |
|
To reduce the tax savings that result from shifting income from parents to children the ____ of certain minor children is taxed as if it were the parents' income .
|
Net unearned income
|
|
If the net unearned income is zero, (or negative)the..
|
tax is computed without using the parents' rate. If the amount is positive, the NET unearned income is taxed at the parents' rate.
|
|
What are the options for filing a return when a child under the age of 14 has net unearned income
|
a separate return may be filed for the child
the parents may elect to report the child's income on their own return |
|
If a separate return is filed for a child subject to the kiddie tax, the tax on net unearned income (referred to as____) is computed..Form___ is used to compute the tax
|
allocable parental tax; as though the income had been included on the parents return; 8615
|
|
The requirements for reporting the childs unearned imcome on the parents own tax return
|
gross income is from interetst and dividends only
gross income is more than 850 but lses than 8500 no estimated tax has been paid in the same name and social security number as the child the child is not subject to backup withholding |
|
If the parental election is made in regards to kiddie tax
|
the child is treated as having no gross income and is not required to file a tax return
|
|
If the parents are divorced, the taxable income of__ is used to determine the allocable parental tax
|
custodial
|
|
For the purpose of kiddie tax, when parents are filing separate returns, the individual with the___ is the parent who may elect to report the childs unearned income
|
greater taxabe income
|
|
Under the category of filing considerations, the following questions need to be resolved
|
is the taxpayer required to file an income tax return
Which form should be used When and how should the form be filed In computing the tax liablity, which column of the tax table or which tax rate schedule should be used |
|
An individual should file a tax return if
|
he has gross income that exceeds or equals the sum of the exemption amount plus the applicable standard deduction
|
|
THe additional standard for being age 65 or older is/isn't considered when determining the gross income filing requirements,
|
is
|
|
the additional standard deduction for blindness is/isn't considered when determining the gross income filing requirments
|
isn't
|
|
A ___ must file a tax return regardless of the amount of gross income
|
self-employed individual with net earnings of $400 or more
|
|
Computation of the gross income filing requirement for an individual who can be claimed on another person's tax return involves determining if they have any
|
earned income only and gross income that is more than the total statndard deduction (including any additional standard deduction)
Unearned income only and gross income of more than 850 plus any additional standard deduction that the individual is allowed Both earned and unearned income and gross income for more than the larger of the 850 or the sum of earned income pluse $300(but limited to the applicable basic standard deduction) plus any additional standard deduction allowed |
|
The filing requirment for a dependent who has no unearned income is the total of the basic standard deduction plus any additional standard deduction which includes
|
both the additional deduction for blindness and being 65 or older
|
|
THe 1040 EZ cannot be used if
|
taxpayer claims any dependents
taxpayer (or spouse) is 65 or older or blind taxable income is 100,000 or more |
|
The 1040a cannot be used if
|
taxpers decide to itemized deductions from AGI
|
|
ERO are
|
tax professionals who have been accepted into the electric filing program by the IRS (electronic return organizers)
|
|
If a US military family is outside the US but not in a combat zone, the filing date is extended to -- if taxes are due then interest starts to accrue
|
June 15;april 15
|
|
If a US military member is in a combat zone, the filing date is ___ after___. Interest starts to accrue
|
180 days after teh last day of combat service, interest never accrues. THIS APPLIES TO MARRIED FILING JOINTLY AS WELL
|
|
When the due date falls on a __ the last day for filing is__
|
Saturday, sunday or legal holiday; the next legal business day
|
|
If an individual taxpayer needs to file an amended return form ___ is used. It must generally be filed within __ of the filing date of the original return, or __ from when the tax was paid, whichever was later
|
1040 x; three years, two years
|
|
Marital status is determined when__ except when the spouse dies, then the marital status is decided when__
|
at the last oday of the tax year; at the date of death
|
|
What are some examples of limitations the code places on married persons who file separate returns
|
if either spouse must itemize, the other spouse must also itemize
the earned income credit and the credit for child and dependent care expenses cannot be claimed no deduction is allowed for interest paid on qualified education loans only 1500 of excesss captial losses can be claimed |
|
the__ rates also applies for __ years following the death of one spouse, if the surviving spouse__
|
joint return; two; maintains a household for a dependent child, who must be a SON, STEPSON, who qualifies as a dependent
|
|
In the year of death the surviving spouse is
|
treated as if married
|
|
to qualify for HOH rates a taxpayer must
|
pay more than 1/2 the cost of maintaining a household, and must be the principal home of the dependent(except for school and hosptiatlization)
Must live in the taxpayers household for over 1/2 the year Must satisfy either the qualifying child or qualifying relative category (the qualifying relative MUST meet the relationship test) |
|
For head of household purposes, a QR must meet
|
the relationship test
|
|
HOH may still be claimed if the taxpayer maintains a separate home for his or her ____ if ___
|
parent or parents, at least one parent qualifies as a dependent of the taxpayer
|
|
HOH is/is not changed by the death of the dependent as long as
|
is not; the taxpayer provided more than half of the cost of maintaining the household prior to the dependents death
|
|
The abandoned spouse rules allow a married taxpayer to file as a ___ if the following conditions are met
|
the taxpayer does not file a joint return
the taxpayer paid more than 1/2 the cost of maintaining his or her own home for the tax year the taxpayers spouse did not live in the home during the last six months of the tax year the home was the principal residenc of the taxpayers son, steps, foster, or adopted child AND can be claimed as a dependent |
|
THe a concept of realized gain or loss is calculated
|
amount realized from sale-adjusted basis of the property=realized gain(or loss)
|
|
The amount of realized from the sale
|
selling price-any costs of disposal
|
|
the adjusted basis of the property is determined by
|
cost at acquisition+captial additions-depriciation and other captial recoveries=adjusted basis
|
|
__% of realized gains are recognized, __% of ralized losses are recognized for tax purposes
|
all; some- generally losses realized from the disposition of personal use property are NOT recognized
|
|
The principal capital assets held for personal (rather than business) use such as
|
personal residence or an automobile and assets held for investment purposes
|
|
capital assets include
|
collectibles such as art, antiques, gems metals stamps and some coins and bullion and alcohol held for investment
|
|
short term gains are taxed at
(net captial gains) |
35%
|
|
long term gains are taxed at
Collectibles___ Certain depricable property used in trade or business___ All other long term captial gains (net capital gains) |
28%;
25%; 15%or5%(regular tax bracket 15% or less) |
|
In order to arrive at a net captial gains, captial losses must be taken into account, the captial losses are ___ and appliede against the gains in that category. if there are excess losses in that category then they are __ a net capital gain will occur if the net long term captial gain exceeds the net short term captial loss
|
aggregated by holding period (short term and long term; shifted to category carying the HIGHEST tax rate.
|
|
For individual taxpayers
net capital loss can be used to offset ordinary income of up to___ |
3000 (1500 for married filing separtate returns)
|
|
If a taxpayer has both ST and LT capital losses, the ST category is used first to arrive at the $3000, and any remaining capital loss is__ and retains__
|
carried over indefinatly until exhausted and retains its classification as short or long term
|
|
A married person can be claimed as a dependent only if
|
that individual does not file a joint return with his or her spouse
|
|
the support of ta qualifiying child is relevant only if
|
the child is self supporting
|
|
to be claimed as a dependent the QR's taxable income has to be less than
|
$3,300
|
|
Several ways to reduce tax burden on unearned income of children under 14
|
assets that defer taxable income until after the child reaches age 14
growth stocks that pay little dividends emplying children in parent's business |