Individual Income Taxes - Cpa

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Qualifying widow/widower: requirements

Back 1

1) Dependent
2) Child (not qualifying child)
3) Lives in taxpayer's home for full year

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Head of household: how to qualify

Back 2

One of three ways:

1) Unmarried qualifying child lives in taxpayer's household for full year
2) Dependent lives in taxpayer's household for full year
3) Dependent parent lives in home at least 50% maintained by taxpayer

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Qualifying child: rules (list)

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Relationship
Residence
Age
Support

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Qualifying child: rules under "relationship"

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One of the following:

1) Child by blood, marriage, or adoption
2) Foster child
3) Sibling or stepsibling
4) Descendent of one of the above

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Qualifying child: rules under "residence"

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Same as taxpayer for at least half of year

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Qualifying child: rules under "age"

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Under 19

Or under 24 if full-time student for 5 months of year

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Qualifying child: rules under "support"

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At least half of support must be provided by taxpayer

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Dependent: rules

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1) Income: dependent's income subject to taxation must not exceed exemption amount (exception: does not apply if dependent is under 19, or 24 if full-time student for 5 months of year)
2) Support: Dependent must not provide over half of support
3) Joint return: Dependent must not file a joint return
4) Citizenship: Dependent must be U.S. citizen (or resident of U.S., Mexico, or Canada)
5) Residence/Relative: Dependent must live in taxpayer's home for full year OR must be a relative

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Relative: rules

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1) Linear ancestor (including parents-in-law)
2) Linear descendent (including children-in-law)
3) Siblings (including in-laws)
4) Siblings of a parent
5) Children of a sibling

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Exemptions are allowed for:

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1) Taxpayer
2) Spouse, if married filing jointly
3) Spouse, if separate return filed AND spouse has no gross income AND spouse is not dependent of another taxpayer
4) Dependents

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Social Security benefits: how much are taxable?

Back 11

Take half of SS benefits and add to AGI. If result is

1) Less than $32K ==> SS tax-free
2) Between $32K and $44K ==> SS 50% taxable
3) Over $44K ==> SS 85% taxable

Note for other than married filing jointly, limits are $25K and $34K

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Cases where dividend or interest revenue is NOT taxable

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1) Dividends on life insurance policies
2) Common stock dividends (unless recipient had a choice of receiving cash instead of stock)
3) State and municipal bond interest
4) Some interest on U.S. Series EE bonds

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EE bond interest not taxable: requirements

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1) Bonds were bought by taxpayer (not a gift)
2) Taxpayer was 24 or older when bonds were bought
3) Proceeds used to pay college costs for taxpayer, spouse, or dependent

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Passive activity gains and losses: examples

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1) Income from partnership or sole propietorship where owner was not actively involved
2) Income from rental activities regardless of involvement
3) Income from limited partnerships regardless of involvement

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Carryback/forward: passive activity losses

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Carried forward indefinitely to net against future passive gains

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Scholarships are taxable income if:

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Any of the following:

1) Amount received in excess of tuition and other educational costs
2) If recipient is not a degree candidate
3) If student must work in order to receive the scholarship

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Group term life insurance premiums (paid by employer) are taxable income if:

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If beneficiary is someone other than the employer AND

Coverage is in excess of $50K, THEN

Premium for coverage in excess of $50K is taxable income

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Alimony: requirements

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1) Must be divorced or legally separated
2) Payments must be in cash
3) Payments must be made to or on behalf of spouse
4) Payments must cease at spouse's death

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Carryback/forward: self-employment losses (in excess of other ordinary income)

Back 19

Carried back 2 years
Carried forward 20 years

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Self-employment costs:
What type of deduction?
What can be deducted?

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Deduction for AGI

1) Half of any self-employment tax
2) Health insurance costs for taxpayer and family if business has a net profit

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Education costs:
What type of deduction?
What can be deducted?

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Deduction for AGI

1) Up to $4K per year for taxpayer, spouse, dependent
2) Cannot be taken if education credit is taken for same student

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Student loan interest:
What type of deduction?
What can be deducted?

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Deduction for AGI

1) Up to $2,500 per year
2) Loan must be taken out for education of self, spouse, or dependent

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Moving expenses:
What type of deduction?
What can be deducted?

Back 23

Deduction for AGI

1) Move must be employment-related
2) New job must be 50 miles farther from previous residence than previous job
3) Deduction limited to amount spent on moving possessions and people

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All itemized deductions are subject to phaseout for high income EXCEPT:

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1) Medical expenses
2) Nonbusiness casualty losses
3) Investment interest expense
4) Gambling losses

Front 25

Medical expenses:
What type of deduction?
What can be deducted?
Who is eligible?

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Itemized deduction

1) Amount paid in excess of 7.5% of AGI
2) Costs to improve/maintain health; medical insurance; prescription drugs and insulin

Taxpayer, spouse, dependents; also anyone who would have been a dependent except for the income requirement

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Taxes:
What type of deduction?
What can be deducted?

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Itemized deduction

1) State/local/foreign income taxes (if sales taxes not deducted)
2) State/local sales taxes (if income taxes not deducted)
3) Real estate/personal property taxes if assessed based on value AND taxpayer owns property AND property is not used in business

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Interest:
What type of deduction?
What can be deducted (in general)?

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Itemized deduction

1) Debt in connection with 1st or 2nd home
2) Debt to finance investments

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Mortgage interest deduction: requirements

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1) Must be 1st or 2nd home
2) Taxpayer must own home
3) Acquisition debt deductible for principal up to $1 million
4) Home equity debt (if NOT used to improve home) deductible for principal up to $100K
5) Points are deductible over life of the loan (not up front)

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Charitable contributions:
What type of deduction?
What can be deducted (general limitations)?

Back 29

Itemized deduction

1) Long-term capital assets: limited to 30% of AGI
2) All gifts including long-term capital assets: limited to 50% of AGI

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Charitable contributions: amount of deduction

1) Contribution of services
2) Purchase from a charity above fair value
3) Contribution of property

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1) Not deductible, but out-of-pocket expenses associated with contribution of services are deductible
2) Excess payment is deductible
3) Deductible at lower of cost or market value (exception: long-term capital assets always deductible at FMV)

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Carryback/forward: charitable contributions deduction

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Carried forward up to 5 years

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Casualty and theft losses:
What type of deduction?
What can be deducted?

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Itemized deduction

1) Deduct lower of tax basis or drop in value
2) Deduction is decreased by insurance reimbursement AND $100 for each incident AND 10% of AGI

Front 33

Child tax credit:
Amount?
Who qualifies?

Back 33

$1K per dependent child under 17 that is a U.S. citizen

Includes children by blood, marriage, adoption

Also includes siblings/nephews/nieces if you care for them as your own child

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Child/dependent care credit:
Requirements?
Who qualifies?
Amount?

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Care must be necessary for taxpayer to be able to work

For children under 13 or dependents who cannot care for themselves

1) Calculate cost of care up to $3K for one child or $6K for two or more children
2) Percentage of that cost is amount of credit: 35% if AGI is $15K or less, 20% if AGI is over $43K, other range of percentages in between

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Hope scholarship credit:
Requirements?
Amount?

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Student must be half-time AND in first 2 years of post-secondary education AND must not take Lifetime Learning credit

Credit is 100% of first $1100 and 50% of next $1100

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Lifetime learning credit:
Requirements?
Amount?

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Student must be half-time OR education must improve job skills; also must NOT take Hope scholarship credit

20% of costs up to maximum credit of $2K

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Capital assets: definition

Back 37

Personal assets: furniture, house, cars, etc.

Investment stocks and bonds

Front 38

Non-like-kind exchange:
New tax basis?
Calculation of gain/loss?

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New basis = FMV of new property

Gain/loss = new basis - old basis

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Like-kind exchange: taxable gain when boot received

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First, calculate realized gain: (FMV of items received) - (basis of asset surrendered)

Second, calculate taxable gain: lesser of realized gain or boot received

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Tax basis of inherited property

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FMV on date of decedent's death

Alternative valuation: the earlier of 1) six months after death or 2) date property received from estate

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Gain/loss on involuntary conversion: calculate tax

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Loss: handled as itemized deduction or capital loss

Gain:
1) Calculate gain: amount received - tax basis
2) Calculate leftover settlement: amount received - cost of replacement property
3) Taxable gain is lesser of gain or leftover settlement

Front 42

Tax basis of gift

Back 42

Determined only when gift is sold to another party

1) If property sold for more than previous owner's tax basis, then basis of gift is same as previous owner's basis

2) If gift is sold for less than previous owner's tax basis, basis of gift is the lesser of the previous owner's basis OR FMV at date of gift

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Capital gains/losses are reported on:

Back 43

Schedule D

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Reporting of nonbusiness bad debts and losses

Back 44

Short-term capital loss, regardless of time involved

Front 45

Gain on sale of personal residence: requirements for exclusion of gain

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All three:

1) Gain can be excluded only once every two years
2) Property must be principal residence of taxpayer AND spouse for at least two of previous five years
3) Property must have been owned by taxpayer OR spouse for the previous five years

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Traditional IRA: contribution limit

Back 46

Up to $4K ($8K for joint return) contribution is deductible

Limited to taxpayer's earned income (includes alimony; does not include interest)

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Traditional IRA:
Are distributions taxable?
Penalties?

Back 47

Distributions are taxable

10% penalty for withdrawal before age 59-1/2 unless used for certain education or home-buying costs

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Roth IRA: contribution limit

Back 48

Up to $4K less any contributions to traditional IRA

Up to $5K for taxpayers over 50

Front 49

Roth IRA:
Are distributions taxable?
Conditions?

Back 49

Distributions are not taxable:
After 5 years
If taxpayer is over age 59-1/2

Front 50

Education IRA: contribution limit

Back 50

Up to $2K per beneficiary

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Education IRA: condition for beneficiary

Back 51

Must be under 18

Front 52

Education IRA: are distributions taxable?

Back 52

Distributions are not taxable if used for K-12 education of beneficiary

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Keogh plan: tax status of contributions/distributions?

Back 53

Contributions are deductible and distributions are taxable

Front 54

Itemized deductions: where reported?

Back 54

Schedule A

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Constructively received income

Back 55

1) Income is made available to taxpayer

AND

2) Taxpayer is entitled to receive income

Front 56

Capital gain/loss: date used?

Back 56

Date of trade (not necessarily date of cash transfer)

Front 57

Credit for over-withholding of Social Security taxes is available if:

Back 57

Over-withholding arose from 2+ employers both correctly withholding taxes

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Rental income is reported on:

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Schedule E