Reg 1

Front 1

Q001.
Generally, a taxpayer must file a return if his or her income is equal to or greater than:

Back 1

A001.
the personal exemption + the regular standard deduction + additional standard deduction (for taxpayers age 65+ or blind) [except for married persons filling separately]

Front 2

Q002.
which individuals must file income tax returns even if their income is lower than the "general rule" requirement?

Back 2

A002.
1. net earnings from self- employment are $400 or more 2. can be claimed as dependents on another taxpayer's return, have unearned income, and gross income of $950 (2010) or more
3. receive advanced payments of earned income credit

Front 3

Q003.
How can an individual receive an automatic six month extension to file?

Back 3

A003.
File Form 4868

Front 4

Q004.
When do taxpayers who are out of the country file?

Back 4

A004.
Automatic two- month extension just by including documentation, and can request the other extensions under the same rules as for other taxpayers.

Front 5

Q005.
in a _____ state, a husband and wife who elect to file using the married filing separately status must report their own income, exemptions, credits and deductions on their own individual income tax returns.

Back 5

A005.
separate property state

Front 6

Q006.
in a ____ state, most of the income, deductions, credits, etc., are split 50/50.

Back 6

A006.
community property state

Front 7

Q007.
what are the two requirements to have "qualifying widower (surviving spouse)" status?

Back 7

A007.
1. two years after spouse's death
2. principal residence for dependent child

Front 8

Q008.
what are the requirements for the "principal residence for dependent child" requirement for surviving spouse status

Back 8

A008.
the surviving spouse must maintain a household that, for the whole taxable year, was the principal place of abode of a son, stepson, daughter, or stepdaughter (whether by blood or adoption). The surviving spouse must also be entitled to a dependency exemption for such individual.

Front 9

Q009.
what are the four conditions that must be met to be considered head of household?

Back 9

A009.
1. is not married, is legally separated, or is married and has lived apart from spouse for last six months of the year
2. not a "qualifying widower"
3. not a nonresident alien
4. maintains a household that, for more than half the taxable year, is the principal residence of dependent son/father or mother/dependent relatives

Front 10

Q010.
what are conditions to be considered a dependent son or daughter under the head of household requirement?

Back 10

A010.
1. legally adopted children, step children, and descendents qualify
2. working families act: the child must either be a qualifying child or qualify as the taxpayer's qualifying relative
3. divorced: noncustodial parent is head of household if the custodial parent has waived the right to the dependency exemption by completing a Form 8332

Front 11

Q011.
what are conditions to be considered a "father or mother" under the head of household requirement?

Back 11

A011.
not required to live with the taxpayer, provided the taxpayer maintains a home that was the principal residence of the parent for the entire year. maintaining a home means contributing over half the cost of upkeep. This means rent, mortgage interest, property taxes, insurance, utility charges, repairs, and food consumed in the home.

Front 12

Q012.
what are conditions to be considered a "dependent relative" under the head of household requirement?

Back 12

A012.
parents, grandparents, brothers, sisters, aunts, uncles, nephews, and nieces (step and in-laws included) qualify as relatives. must live with taxpayer. cousins, foster parents, and unrelated dependents do not qualify.

Front 13

Q013.
how can a married taxpayer filing separately claim his spouse's personal exemption?

Back 13

A013.
if the spouse has no gross income, and was not claimed as a dependent of another taxpayer

Front 14

Q014.
what is the acronym for the qualifying child dependency exemption?

Back 14

A014.
Close Relative
Age Limit
Residency and Filing Requirements Eliminate Gross Income Test Support Test Changes

Front 15

Q015.
what is the acronym for the qualifying relative exemption?

Back 15

A015.
Support (over 50%) test
Under a specific amount of (taxable) gross income test Precludes dependent filling a joint tax return test
Only citizens (us Canada or Mexico) test
relative test OR
taxpayer lives with individual for whole year test

Front 16

Q016.
if the parents of a child are able to claim the child but do not no one else may claim the child unless

Back 16

A016.
that taxpayer's AGI is higher than the AGI of the highest parent

Front 17

Q017.
what type of relationships qualify under "close relative" requirement of qualifying child status for dependency exemptions?

Back 17

A017.
taxpayer's son, daughter, stepson, stepdaughter, brother, sister, stepbrother, stepsister, or a descendent. adopted children and foster children too.

Front 18

Q018.
what is the age limit to be considered a qualifying child for dependency exemptions?

Back 18

A018.
younger than the taxpayer, under age 19 (or 24 in college), no limit to permanently disabled (school attendance at night does not qualify)

Front 19

Q019.
what are the residency and filing requirements to be considered a qualifying child for dependency exemptions?

Back 19

A019.
child must have the same principal place of abode as the taxpayer for more than one half of the tax year. cannot file joint tax return for the year (unless filed only for a refund claim)

Front 20

Q020.
How much money can a child earn to be considered a qualifying child for dependency exemptions?

Back 20

A020.
any amount

Front 21

Q021.
what is the support test to be considered a qualifying child for dependency exemptions?

Back 21

A021.
child must not contribute more than one- half of his support (doesn't need to be by parents though)

Front 22

Q022.
what is the support test to be considered a qualifying relative for dependency exemptions?

Back 22

A022.
the taxpayer must have supplied more than one half of the support. scholarships are not included. social security and state welfare payments are included to the extent that such amounts are actually expended for support purposes

Front 23

Q023.
how do multiple support agreements work for dependency exemptions?

Back 23

A023.
when two or more taxpayers contribute more than half support, the contributing taxpayers (who must be qualifying relatives or lived the entire year with), one gets it. contributor must have given more than 10% of support and meet other dependency tests.

Front 24

Q024.
what is the multiple support declaration that joint contributors are required to file?

Back 24

A024. form 2120

Front 25

Q025.
a person may not be claimed as a dependent unless the dependent's gross income is _______

Back 25

A025.
less than the exemption amount ($3,650 in 2010/ $3750 in 2011)

Front 26

Q026.
a taxpayer will lose the exemption for a married dependent who files a joint return unless __________

Back 26

A026.
the joint return is filed solely for a refund of all taxes paid or withheld for the taxable year

Front 27

Q027.
what are the citizen/residency requirements of qualifying relatives for dependency exemptions?

Back 27

A027.
only citizens of the U.S. or residents of the U.S., Mexico, or Canada.

Front 28

Q028.
how can kissing cousins or foster beer be counted as an exemption?

Back 28

A028.
if they live with the taxpayer the entire year.

Front 29

Q029.
how are children of divorced parents treated for exemption purposes?

Back 29

A029.
whoever has custody of the child for a greater period of time (financial support irrelevant). if same, parent with higher AGI.

Front 30

Q030.
what is form 8322

Back 30

A030.
written declaration that waives the right of a custodial parent to take the exemption for a child. must be attached to noncustodial parents return. custodial can revoke by giving one years notice and copy form 8322 claiming the revocation on their return.

Front 31

Q031.
what can you get for being 65+ or blind?

Back 31

A031.
additional standard deduction (not an additional exemption)

Front 32

Q032.
if an event is taxable, what is the income and basis?

Back 32

A032.
fair market value

Front 33

Q033.
_____ requires the accrual or receipt of cash, property, or services, or change in the form or the nature of the investment (a sale or exchange)

Back 33

A033. realization

Front 34

Q034.
_____ means that the realized gain must be included on the tax return

Back 34

A034. recognition

Front 35

Q035.
what are the four characterizations of income

Back 35

A035.
ordinary, portfolio, passive, capital

Front 36

Q036.
what falls under ordinary income?

Back 36

A036.
salaries and wages, state and local tax refunds, alimony, IRA and pension income, self employment (schedule C) income, unemployment compensation, social security, prizes, the taxable portion of scholarships and fellowships, gambling income, and anything else.

Front 37

Q037.
what falls under portfolio income?

Back 37

A037.
income a taxpayer would earn on his portfolio of assets, such as interest and dividends.

Front 38

Q038.
what is passive income?

Back 38

A038.
activity in which taxpayer did not actively participate.

Front 39

Q039.
only ______ may offset passive income.

Back 39

A039.
passive losses

Front 40

Q040.
how are net passive losses treated?

Back 40

A040.
not deductible on tax return- - suspended and carried forward until passive income exists to offset it, unless an exception exists.

Front 41

Q041.
what are two types of passive income?

Back 41

A041.
rental income and royalties/ beneficiaries of trusts and investments in Partnerships, LLCs, and S Corporations

Front 42

Q042.
life insurance premiums: under ____ plans only, premiums above the first $______ of coverage are taxable income to the recipient and normally included in W- 2 wages.

Back 42

A042.
non- discriminatory plans only; $50,000

Front 43

Q043.
the proceeds of a life insurance policy paid because of the death of the insured re general excluded from the gross income of the beneficiary....except:

Back 43

A043.
the interest income element on deferred payout arrangements if fully taxable.

Front 44

Q044.
For policies issued after 8/17/06, if a life insurance policy is company- owned (COLI), the beneficiary may exclude from gross income benefits received only up to _____

Back 44

A044.
the total amount of premiums and other amounts paid by the policy holder- - any excess would be taxable. [many exceptions apply - - family]

Front 45

Q045.
accident, medical and health insurance - - premium payments are ______ the employee's income when the employer paid the insurance premiums

Back 45

A045. excludable from

Front 46

Q046.
accident, medical, and health insurance - - amounts paid to the employee under the policy are includable in income unless such amounts are:

Back 46

A046.
1. reimbursement for medical expenses actually incurred by the employee
2. compensation for the permanent loss or loss of use of a member or function of the body

Front 47

Q047.
what are de minimis fringe benefits?

Back 47

A047.
benefits that are so minimal that they are impractical to account for and may be excluded from income

Front 48

Q048.
what are examples of non- taxable fringe benefits?

Back 48

A048.
life insurance proceeds; accident, medical, and health insurance; de minimis fringe benefits; meals and lodging; employer payment of employee's educational expenses; qualified tuition reductions; qualified employee discounts; qualified pension, profit- sharing and stock bonus plans; flexible spending arrangements stems; economic recovery payments

Front 49

Q049.
up to _____ may be excluded from gross income of payments made by employer on behalf of an employee's educational expenses. the exclusion applies to ____ level education.

Back 49

A049.
$5,250; both undergrad and grad level education

Front 50

Q050.
grad students may exclude tuition reduction only if___

Back 50

A050.
they are engaged in teaching or research activities and only if the tuition reduction is in addition to the pay for the teaching or research.

Front 51

Q051.
to be excludable, tuition reductions must be offered on a ____ basis.

Back 51

A051. nondiscriminatory

Front 52

Q052.
to what extent are merchandise discounts excludable?

Back 52

A052.
limited to the employer's gross profit percentage. any excess must be reported as income.

Front 53

Q053.
to what extent are service discounts excludable?

Back 53

A053.
limited to 20% of the FMV of the services. any excess discount must be reported as income.

Front 54

Q054.
the value of employer- provided parking up to ___ (in 2010) per month may be excluded

Back 54

A054.
$230. available even if the parking benefit is taken by the employee in place of taxable cash compensation.

Front 55

Q055.
the value of employer- provided transit passes up to ___ (for 2010) per month may be excluded

Back 55

A055. 230

Front 56

Q056.
generally, payments made by an employer to a qualified pension, profit sharing, or stock bonus plan are ____ to the employee at the time of contribution

Back 56

A056.
not income

Front 57

Q057.
benefits received - - the amount that is exempt from tax (plus any income earned on such amount) is taxable to the employee when?

Back 57

A057.
in the year in which the amount is distributed or made available to the employee

Front 58

Q058.
what is a flexible spending arrangement stem (FSAS)

Back 58

A058.
plan that allows employees to receive a pre- tax reimbursement of certain (specified) incurred expenses

Front 59

Q059.
employees have the ability to elect to have part of their salary (generally up to $____ per year) deposited pre- tax into a flexible spending account. the employee has the option to use the deposited funds to pay for _____ and/or ____ costs and submits claims to the plan admin for reimbursement

Back 59

A059.
$5,000; qualified healthcare and/or qualified dependent care costs

Front 60

Q060.
flex spending arrangement - - funds not used within ____ after the year- end or not claimed within a period of time (usually ____ months) are forfeited.

Back 60

A060.
2.5 months; 6 months

Front 61

Q061.
are economic recovery payments ($250/ person) taxable?

Back 61

A061.
not taxable.

Front 62

Q062.
what is the general rule for interest?

Back 62

A062.
all interest is taxable, unless specifically excluded

Front 63

Q063.
is interest income from federal bonds taxable?

Back 63

A063. yes

Front 64

Q064.
is interest income from industrial development bonds taxable?

Back 64

A064. yes

Front 65

Q065.
are premiums received for opening a savings account (prizes and awards) taxable? at what value?

Back 65

A065.
yes, at FMV

Front 66

Q066.
is interest income from part of the proceeds from an installment sale taxable?

Back 66

A066. yes

Front 67

Q067.
is interest on state and local bonds/obligations taxable?

Back 67

A067. no

Front 68

Q068.
are mutual fund dividends for funds invested in tax- free bonds taxable?

Back 68

A068. no

Front 69

Q069.
is interest on the obligation of a possession of the US taxable?

Back 69

A069. no

Front 70

Q070.
when is interest of series EE bonds tax exempt?

Back 70

A070.
1. used to pay for higher education (reduced by tax- free scholarships, of the taxpayer, spouse or dependents)
2. there is taxpayer or joint ownership (spouse)
3. the taxpayer is over age 24 when issued; and
4. the bonds are acquired after 1989

Front 71

Q071.
is there a phase- our for allowable tax exempt interest income from series EE

Back 71

A071. yes

Front 72

Q072.
is interest on veterans administration insurance taxable?

Back 72

A072. no

Front 73

Q073.
what are the four examples of tax exempt interest income

Back 73

A073.
state and local government bonds/obligations; bonds of a U.S. possession; serious EE; veterans Administration insurance

Front 74

Q074.
what is the purpose of kiddie tax?

Back 74

A074.
prevent people from putting their unearned income to their kids to have a lower tax liability

Front 75

Q075.
how is the kiddie tax calculated?

Back 75

A075.
child's total unearned income (from dividends, interest, rents, royalties, etc.( and subtracting $1,900 (the childs allowable 2010 standard deduction of $950 (or investment expense, if greater) + $950 (which is taxed at the child's rate))

Front 76

Q076.
when can parents elect to include on their own return the unearned income of the applicable child?

Back 76

A076.
provided the income is between $950 and $9,500 and consists only of interest and dividends.

Front 77

Q077.
what happens with forfeited interest? (early withdrawal of savings)

Back 77

A077.
the bank credits the interest to the taxpayer's account and then, in a separate transaction, removes certain interest as a penalty. the interest received is taxable, but the amount forfeited is also deductible as an adjustment in the year the penalty is incurred. (theoretically netted, but not technically)

Front 78

Q078.
what are the four sources of dividend income?

Back 78

A078.
1. e&p/current = distribute by CYE
2. E&P/accumulated = distribution date
3. return of capital = no e&p
4. capital gain distributions = no e&p/no basis

Front 79

Q079.
what are the three categories of dividends?

Back 79

A079.
1. taxable dividends
2. tax- free distributions
3. capital gain distributions

Front 80

Q080.
what is the special (lower) tax rate for those dividends that qualify? (2010 only)

Back 80

A080.
15% most taxpayers, 0% low income taxpayers

Front 81

Q081.
what are the four examples of distributions that are exempt from gross income?

Back 81

A081.
1. return of capital
2. stock split
3. stock dividend (unless cash or other property option/taxable FMV)
4. life insurance dividend

Front 82

Q082.
how to account for a stock dividend of the same stock.

Back 82

A082.
original basis is divided by total shares

Front 83

Q083.
how to account for a stock dividend of a different stock?

Back 83

A083.
original basis is allocated based on the relative FMV of the different stock.

Front 84

Q084.
how are capital gain distributions treated?

Back 84

A084.
distributions by a corp that has no e&p, and for which the shareholder has recovered his entire basis, are treated as taxable gross income

Front 85

Q085.
the receipt of a state or local income tax refund in a subsequent year is not taxable if _______.

Back 85

A085.
the taxes paid did not result in a tax benefit in the prior year (itemize or standard deduction)

Front 86

Q086.
payments for the support of a spouse are ____ to the spouse receiving the payments are ______________ by the contributing spouse

Back 86

A086.
income; deductible to arrive at AGI

Front 87

Q087.
what are the requirements to be deemed alimony?

Back 87

A087.
1. payments must be legally required pursuant to a written divorce (or separation) agreement
2. payments must be in cash (or its equivalent....paying credit cards or college)
3. payments cannot extend beyond the death of the payee- spouse
4. payments cannot be made to members of the same household
5. payments must not be designated as anything other than alimony
6. spouses may not file a joint tax return

Front 88

Q088.
is child support taxable?

Back 88

A088. no

Front 89

Q089.
if the divorce settlement provides for a lump- sum payment or property settlement by a spouse, that spouses gets ____ for payments made, and the payments are _____ of the spouse receiving the payment

Back 89

A089.
no deduction; not includible in the gross income

Front 90

Q090.
for business income, must use ____ method for inventory

Back 90

A090. accrual

Front 91

Q091.
types of business expenses

Back 91

A091.
1. COGS
2. salaries and commissions (paid to others)
3. state and local bus tax paid
4. office expenses
5. actual auto expenses, or standard mileage rate
6. business meal & entertainment at 50%
7. depreciation of business assets
8. interest expense on business loans (when incurred and paid)
9. employee benefits
10. legal and professional services
11. bad debts (accrual tax payer only)

Front 92

Q092.
which salaries and commissions are considered business expenses?

Back 92

A092.
ones paid to others, not to yourself

Front 93

Q093.
when can business meal and entertainment expenses be 100% deductible?

Back 93

A093.
when all proceeds go to benefit a charity

Front 94

Q094.
interest expense paid in advance by a cash basis taxpayer cannot be deducted until ________

Back 94

A094.
the tax year/period to which the interest relates

Front 95

Q095.
what bad debt write off method is used for tax purposes?

Back 95

A095.
direct write off method, rather than allowance method

Front 96

Q096.
what are nondeductible expenses for schedule c?

Back 96

A096.
1. salaries paid to the sole proprietor
2. federal income tax
3. personal portions of stuff
4. bad debt expense of a cash basis taxpayer (who never reported the income)
5. charitable contributions

Front 97

Q097.
where are charitable contributions reported?

Back 97

A097.
itemized deduction on schedule A

Front 98

Q098.
what are the two taxes on net business income?

Back 98

A098.
income tax and fed self- employment (S/E) ax

Front 99

Q099.
an adjustment to income is allowed for _______ of S/E tax (Medicare plus social security) paid

Back 99

A099.
one- half (which is 7.65% of up to 106,800 of self- employment income in 2010 plus 1.45% of self employment income thereafter)

Front 100

Q100.
all self employment is subject to the ______ tax, but only up to $106,800 in 2010 is subject to the ______ tax

Back 100

A100.
2.9% Medicare tax, 12.4% social security tax

Front 101

Q101.
how is a net taxable business loss treated?

Back 101

A101.
a business with a loss may deduct the loss against other sources of income. when the loss exceeds these amounts, the excess net operation loss is permitted as a carryover
2 year carryback, 20 year carryforward

Front 102

Q102.
uniform capitalization rules apply to the following:

Back 102

A102.
1. real or tangible personal property produced by the taxpayer for use in his trade of business (machine tools for use in the production line of a machine tool manufacturer) 2. real or tangible personal property produced by the taxpayer for sale t his or her customers (manufacturer's inventory)
3. real or tangible personal property acquired by the taxpayer for resale (retailer's inventory)

Front 103

Q103.
the uniform capitalization rules do not apply to (inventory) property acquired for resale if _____________________

Back 103

A103.
the taxpayer's average gross receipts for the preceding three tax years do not exceed $10,000,000 annually.

Front 104

Q104.
costs required to be capitalized include:

Back 104

A104.
direct materials, direct labor, and applicable indirect costs

Front 105

Q105.
costs not required to be capitalized include:

Back 105

A105.
selling, advertising, and marketing expenses, certain general and administrative expenses, research, and officer compensation not attributed to production services.

Front 106

Q106.
unless an exemption exists for a taxpayer or a contract, long- term contracts must be accounted for using the ____ method to determine taxable income for a particular contract

Back 106

A106.
percentage- of- completion

Front 107

Q107.
which contracts are exempt from the long- term requirement that they use percentage- of- completion?

Back 107

A107.
1. small contractors (no more than 2 yrs)
2. home construction contractors
3. contract that includes land and where less than 10% of the total contract costs relates to the actual construction of property on the land
4. services performed by architects, engineers, etc (contracted to perform services but are not generally responsible for the final product under contract)
5. services performed under warranty and maintenance agreements related to the long- term contract

Front 108

Q108.
unless an exemption exists for a taxpayer or a contract, those involved in long- term contracts must use _______ to account for their long- term projects in construction.

Back 108

A108.
cost allocation rules (essentially the Uniform Capitalization Rules)

Front 109

Q109.
which contracts are exempt from the cost allocation rules required for tax for long- term construction contracts?

Back 109

A109.
small contractor and home construction.

Front 110

Q110.
Small contractor and home construction contractors are required to allocate _______ related to the contract to the costs of the project

Back 110

A110.
production period interest

Front 111

Q111.
home construction projects that are not also small constructions projects must use ______

Back 111

A111.
uniform capitalization rules

Front 112

Q112.
in cost allocation rules for long- term construction contracts, interest for the production period need not be capitalized if_______________

Back 112

A112.
the total cost of the project is $1 mil or less and the project is estimated to take less than 12 months to complete

Front 113

Q113.
for cash basis taxpayers, the starting date of production is generally the date on which the contractor ____

Back 113

A113.
incurs costs (other than the start- up engineering, design, etc. costs that are excluded from cost allocation) under the contract.

Front 114

Q114.
for accrual basis taxpayers the starting date is _________

Back 114

A114.
the later of the date for cash basis taxpayers or the date the taxpayer has incurred at least 5% of the total costs initially estimated under the contract

Front 115

Q115.
the end date of the production period is generally the date on which _____

Back 115

A115.
the work under the contract is complete (per contract provisions) or on the date the taxpayer has incurred at least 95% of the total costs expected under the contract

Front 116

Q116.
what is the cost- to- cost method of calculating the percentage- of- completion?

Back 116

A116.
ratio of the total cumulative costs incurred to date at the end of the tax year divided by the total expected costs to be incurred under the contract.

Front 117

Q117.
the ______ method is required to be used for Alternative Minimum Taxation, regardless of the method used for regular tax (except for home construction contracts)

Back 117

A117.
percentage- of- completion

Front 118

Q118.
even if the percentage- of- completion method is used for regular tax purposes, there are still likely to be differences in the calculation of taxable income because ___________

Back 118

A118.
the calculation of alternative minimum taxable income must take into account not only the method of income recognition, but also other alternative minimum tax rules (e.g. depreciation methods)

Front 119

Q119.
_________ must be calculated using the percentage of completion method, even if the corporation uses the completed- contract method for regular tax purposes.

Back 119

A119.
corporate earnings and profits.

Front 120

Q120.
in order for the manufacture of personal property to qualify as long- term contract, not only must the contract not be completed within the year it was started, but it also must be ____________

Back 120

A120.
for the manufacture of a "unique" item (i.e., an item that is made specifically for a customer and could not be sold to others, is not generally part of a taxpayer's normal inventory, and requires significant pre- production costs)

Front 121

Q121.
if a taxpayer performs services for a contractor that is required to account for a long- term contract entered into with a related party using the percentage- of- completion method, the taxpayer (even those providing engineering or design services) must also use the percentage of completion method because of _____, unless the exception exists where ______

Back 121

A121.
because of the related party impact. the exception is where over 50% of the 3- year average annual gross receipts of the same items stem from unrelated parties.

Front 122

Q122.
most farmers use the ___ basis of accounting.

Back 122

A122. cash

Front 123

Q123.
how does the cash basis work for calculating farming income?

Back 123

A123.
inventories of produce, livestock, etc., are not considered. gross income includes the cash and the value of all other items received from the sale of produce, livestock that has been raised by the farmer, and for livestock or other items a farmer may have bought, profit is computed by subtracting the purchase price from the sales price.

Front 124

Q124.
which farmers are required to use the accrual method?

Back 124

A124.
certain corporate and partnership farmers as well as all farming tax shelters.

Front 125

Q125.
how does the accrual basis work for calculating farming income?

Back 125

A125.
gross profit = value of inventories at year end + proceeds received from sales - value of inventories at the beginning of the year - cost of inventory purchased during the year

Front 126

Q126.
whether on a cash or accrual method of accounting, taxpayers who sell stock or sell securities on an established securities market must recognized gains and losses as of the ___ date, not the ____ date.

Back 126

A126.
as of the trade date, not the settlement date.

Front 127

Q127.
generally, retirement money cannot be withdrawn until the individual reaches the age of ____ or the individual elects _______________

Back 127

A127.
59.5; elects to receive equal periodic distributions over his life expectancy.

Front 128

Q128.
what is RMD?

Back 128

A128.
required minimum distribution (for IRAs) by age 70.5

Front 129

Q129.
when a person retires the funds will be taxed as ______ when received

Back 129

A129.
ordinary income (regardless of what type of income, such as capital gain, was earned while the funds were invested)

Front 130

Q130.
are qualified benefits received from a roth IRA taxable?

Back 130

A130. no

Front 131

Q131.
what is taxable in a traditional non- deductible IRA?

Back 131

A131.
principal - not taxable. accumulated earnings - taxable when withdrawn

Front 132

Q132.
what is the penalty for withdrawing on an IRA early?

Back 132

A132.
10% penalty tax (on top of any increase in regular income tax) if the individual has not met an exception

Front 133

Q133.
there is no penalty if the premature distribution on an IRA was used to pay for:

Back 133

A133.
H - home buyer (1st time) $10,000 max exclusion (w/in 120 days)
I - insurance (medical) if you're unemployed longer than 12 weeks / self employed
M - medical expenses in excess of 7.5% of AGI
D - disability (permanent/indefinite)
E - Education
D - Death

Front 134

Q134.
excess contribution to an IRA plan are subject to ______________ until the excess is corrected

Back 134

A134.
cumulative 6% excise tax each year

Front 135

Q135.
if an annuitant lives longer than expected, then further payments are _____.

Back 135

A135.
fully taxable

Front 136

Q136.
if an annuitant dies before all the payments are collected, the unrecovered portion is a _______ on the annuitant's final income tax return

Back 136

A136.
miscellaneous itemized deduction not subject to the 2% AGI floor.

Front 137

Q137.
Schedule _ is used to compute supplemental income and/or loss from rental real estate, royalties, partnerships and lLLCs, S corps, estates, trusts

Back 137

A137. Schedule E

Front 138

Q138.
what is the basic formula for the determination of net rental income or loss?

Back 138

A138.
gross rental income + prepaid rental income + rental cancellation payment + improvement in- lieu- of- rent - - - rental expenses

Front 139

Q139.
rental of vacation home - rented less than 15 days - what are the tax implications?

Back 139

A139.
rental income excluded from income. treated as personal residence. mortgage interest and real estate taxes are allowed as itemized deductions. depreciation, utilities, and repairs are not deductible.

Front 140

Q140.
rental of vacation home - rented 15 or more days - what are the tax implications?

Back 140

A140.
treated as personal/rental residences. expenses are pro- rated between personal and rental use. (taxes prorated by annual period, utilities and depreciation by annual usage). rental use expenses are deductible only to the extent of rental income.

Front 141

Q141.
how are nondeductible PALs treated?

Back 141

A141.
passive activity losses can only be offset by passive income! carryforward forever- - if still unused, suspended losses become fully tax deductible in the year the property is disposed of (sold)

Front 142

Q142.
if the taxpayer becomes a material participant in the passive activity, how are unused passive losses treated?

Back 142

A142.
the can be used to offset the taxpayer's active income in the same activity.

Front 143

Q143.
who are the taxpayers subject to passive activity loss rules?

Back 143

A143.
individuals, estates, trusts, personal service corps, and closely held C corps

Front 144

Q144.
an individual may deduct rental activity losses if:

Back 144

A144.
mom and pop exception, real estate professional

Front 145

Q145.
what is the mom and pop exception of the passive activity loss disallowed net loss exception?

Back 145

A145.
taxpayers ay deduct up to $25,000 per year of net passive losses attributable to rental real estate annually if the individuals are actively participating/managing

Front 146

Q146.
for the carryforward after the mom and pop exception, an estate can qualify for the ___ years following the decedent's death if the decedent actively participated in the operation

Back 146

A146. two years

Front 147

Q147.
what is the phaseout for the mom and pop exception?

Back 147

A147.
reduced by 50% of the excess of the taxpayer's AGI (without consideration of this loss deduction) over 100,000. (so up to $150,000)

Front 148

Q148.
what are the conditions to be considered a real estate professional (so that the rental activities are not considered passive and the taxpayer can fully deduct losses from the rental activities against other income)?

Back 148

A148.
1. more than 50% of the taxpayer's personal services during the year are performed in real property businesses 2. the taxpayer performs more than 750 hours of services in real property businesses during the year

Front 149

Q149.
the taxpayer must include in gross income the ___ amount received for unemployment compensation

Back 149

A149.
full amount

Front 150

Q150.
are social security benefits included in income?

Back 150

A150.
maybe, depends on how much you make! (5 levels of provisional income)

Front 151

Q151.
what is provisional income?

Back 151

A151.
AGI + tax- except interest + 50% of social security benefits (MODIFIED ADJUSTED GROSS INCOME)

Front 152

Q152.
if you are low income, how much of your social security benefits are taxable?

Back 152

A152.
zero. provisional income: less than $25,000 single, $32,000 married

Front 153

Q153.
if you are upper income, how much of your social security benefits are taxable?

Back 153

A153.
85%. provisional income: more than $34,000 single, $44,000 married

Front 154

Q154.
what do you need to add to your AGI to end up at MAGI?

Back 154

A154.
1. income excluded for foreign earned income exclusion
2. exclusion or deduction claimed for foreign housing
3. interest income from series EE bonds that you were able to exclude because you paid qualified higher education expenses
4. deduction claimed for student loan interest or qualified tuition and related expenses
5. any employer- paid adoption expense you excluded
6. any deduction you claimed for an annual (non- rollover) contribution to a regular IRA

Front 155

Q155.
an exclusion from income for certain prizes and awards applies where the winner is _________

Back 155

A155.
where the winner is selected for the award without entering into a contest and assigns the award directly to a governmental unit or charity

Front 156

Q156.
when can gambling losses be deducted?

Back 156

A156.
only to the extent of gambling winnings. allowable amount is deductible on schedule A as an itemized deduction, but the amount is not subject to the 2% floor.

Front 157

Q157.
to decide whether a business recovery is excludible, one must determine _______

Back 157

A157.
what the damages were paid in lieu of. (if for lost profit, then it's income)

Front 158

Q158.
when are punitive damages taxable?

Back 158

A158.
fully taxable as ordinary income if received in a business context or for loss of personal reputation. also if personal injury case, except in wrongful death cases

Front 159

Q159.
scholarships and fellowship grants are excludable only up to amounts actually spent on tuition, fees, books and supplies (not room and board) provided:

Back 159

A159.
1. the grant is made to a degree- seeking student
2. no services are performed as a condition to receiving the grant
3. the grant is not made in consideration for past, present, or future services of the grantee

Front 160

Q160.
how are graduate teaching assistants and research assistants who receive tuition reductions taxed?

Back 160

A160.
they are taxed on the reduction if it is their only compensation, but not if the reduction is in addition to other taxable compensation.

Front 161

Q161.
does gross income include property received from a gift or inheritance?

Back 161

A161. no

Front 162

Q162.
what is the taxable portion of a gift?

Back 162

A162.
any income received from such property (interest income, rental income, etc)

Front 163

Q163.
are Medicare benefits included in gross income?

Back 163

A163. no

Front 164

Q164.
when can you exclude from gross income payments received (even with multiple recoveries) from accident insurance?

Back 164

A164.
if the individual paid all premiums for the insurance

Front 165

Q165.
taxpayers working abroad may exclude from gross income up to $____ of their foreign- earned income. in order to qualify for the exclusion, the taxpayer must satisfy one of the two tests:

Back 165

A165.
$91,500. bona- fide residence test (for an entire taxable year), physical presence test (present for 330 full days our of any 12- consecutive - month period.

Front 166

Q166.
is treasury stock a capital asset?

Back 166

A166. no

Front 167

Q167.
are copyrights, literary music or artistic compositions that have been purchased capital assets?

Back 167

A167. yes

Front 168

Q168.
is section 1231 assets capital?

Back 168

A168. no

Front 169

Q169.
how is the gain/loss calculated when you sell property that was gifted to you?

Back 169

A169.
if the FMV is higher, then selling price - basis. if FMV value is lower, then gain = selling price - basis and loss = FMV - selling price. anything in between is no gain or loss.

Front 170

Q170.
how do you calculate gifted property depreciation?

Back 170

A170.
lesser of the donor's adjusted basis at the date of the gift or the FMV at the date of gift.

Front 171

Q171.
what is the holding period when you receive property as a gift?

Back 171

A171.
normally assume the donor's holding period. unless the FMV is used (as a loss basis) as the basis of the fit, the holding period starts as of the date of the gift.

Front 172

Q172.
what is the alternative valuation date for inherited property?

Back 172

A172.
the earlier of 6 months after death or the date of distribution/sale

Front 173

Q173.
what is the general rule for inherited property basis?

Back 173

A173.
for years after 2010, property acquired by the bequest or inheritance generally takes as its basis the step- up (or down) to FMV at the date of the decedent's death

Front 174

Q174.
how is the holding period determined for property acquired from a decedent?

Back 174

A174.
automatically considered to be long- term property regardless of how long it has actually been held.

Front 175

Q175.
a gain is not taxed for the following:

Back 175

A175.
H - Homeowner's exclusion
I - Involuntary Conversions
D - Divorced Property Settlement
E - exchange of Like- Kind Business/Investment assets I - Installment Sale
T - Treasury and capital Stock Transactions

Front 176

Q176.
What is the dollar amount of the homeowner's exclusion from gross income for gain?

Back 176

A176.
$500,000 for married couples filing a joint return and certain surviving spouses; $250,000 for single, married filling separately, and head of household

Front 177

Q177.
who qualifies for the homeowner's exclusion from gross income for gain?

Back 177

A177.
taxpayer owns and used the property as a principal residence for two years or more during the 5 year ending period ending on the date of the sale or exchange. either spouse for a joint return must meet the ownership requirement, but both spouses must meet the use requirement with respect for the property. may not use exclusion more than once every 2 yrs (could get partial if other reasons though)

Front 178

Q178.
how are involuntary conversions treated for gains?

Back 178

A178.
nonrecognition treatment is given because the reinvestment of proceeds restores him to the position he held prior to the conversion. if the taxpayer does not reinvest all the proceeds, his gain on the transaction will be recognized to the extent of the unreinvested amount.

Front 179

Q179.
in an involuntary conversion, when must property be reinvested by?

Back 179

A179.
personal property = 2 years from year end, business property = 3 years

Front 180

Q180.
in an involuntary conversion, when the gain exceeds $100,000, __________

Back 180

A180.
property acquired from related parties and certain close relatives don't qualify as replacement property

Front 181

Q181.
how are losses dealt with in an involuntary conversion?

Back 181

A181.
losses are recognized!

Front 182

Q182.
nonrecognition treatment is accorded to "like kind" exchange of property used in the trade or business or held for investment, EXCEPT:

Back 182

A182.
inventory, stock, securities, partnership interests, and real property in different countries

Front 183

Q183.
how do you determine the amount of income to report in an installment sale for the year?

Back 183

A183.
earned revenue = cash collections x gross profit percentage

Front 184

Q184.
how are treasury and capital stock transactions by a corporation treated for tax purposes?

Back 184

A184.
sales of stock by corporation, repurchase of stock by corp, and reissue of stock are exempt from gain and losses are disallowed. essentially corporations are precluded from tax benefits or income taxes resulting from dealing in their own stock.

Front 185

Q185.
which losses on sales of property are nondeductible?

Back 185

A185.
W - wash sale loss
R - related party transactions P - Personal loss

Front 186

Q186.
what is a wash sale?

Back 186

A186.
when a security is sold for a loss and is repurchased within 30 days before or after the sale date

Front 187

Q187.
who falls under a related party?

Back 187

A187.
brothers and sisters, husband and wife, lineal descendants, entities that are more than 50% owned by individuals, corps, trusts, and/or partnerships

Front 188

Q188.
capital gains taxes are imposed on all sales of nondepreciable property between all related parties except:

Back 188

A188.
1. husband and wife (basis is merely transferred)
2. individual and a 50% controlled corp or partnership (where the gain is taxed as ordinary income

Front 189

Q189.
what are the basis rules for selling property under related party transactions?

Back 189

A189.
same as gift- basis rules

Front 190

Q190.
no deduction is allowed for the loss on a non- business disposal or loss. an itemized deduction may be available in the category of ______

Back 190

A190.
casualty and theft

Front 191

Q191.
what is the holding period and tax rate for long term capital gains?

Back 191

A191.
more than one year, 15% max, 0% if in the 10% or 15% income tax bracket (increase by 5% in 2013)

Front 192

Q192.
what is the holding period and tax rate for short term capital gains?

Back 192

A192.
one year or less, tax rate is treated as ordinary income.

Front 193

Q193.
any unrecaptured section 1250 gain from depreciation that is not treated as ordinary income is taxed at ___% for taxpayers not in the 10 or 15% income tax bracket

Back 193

A193. 0.25

Front 194

Q194.
long term gains on ________ are taxed at 28% (for taxpayers not in the 10%, 15% or 25% tax brackets)

Back 194

A194.
collectibles, antiques, and small company (section 1202) stock

Front 195

Q195.
individual taxpayers realizing a net long- or short- term capital loss may only recognize (deduct) a max of ___ of the amount realized from other types of gross income (ordinary income, passive income, or portfolio income)

Back 195

A195. 3000

Front 196

Q196.
for individuals, what is the carryback of a net capital loss?

Back 196

A196.
no carryback. but you can carry forward an unlimited time until exhausted.

Front 197

Q197.
how is a personal (non- business) bad debt treated?

Back 197

A197.
a short- term capital loss in the year debt becomes totally worthless

Front 198

Q198.
how are worthless stock and securities treated under net capital losses?

Back 198

A198.
the cost (or other basis) of worthless stock or securities is treated as a capital loss, as if they were sold on the last day of the taxable year in which they became totally worthless

Front 199

Q199.
what are the netting procedures for capital gains and losses for individuals?

Back 199

A199.
gains and losses are netted within each tax rate group, creating net short- term and long- term gains or losses by rate group. resulting short- term and long- term loses are then offset against short term and long- term gains (respectively) beginning with the highest tax rate group and continuing to the lower rates

Front 200

Q200.
how are net capital gains for c corps treated?

Back 200

A200.
added to ordinary income and taxed at the regular rate (do not get the benefit of lower capital gains rates). section 1231 gains are entitled to capital gain treatment

Front 201

Q201.
how are net capital losses for c corps treated?

Back 201

A201.
corporations may not deduct any capital loss from ordinary income. only use capital losses against capital gains. net capital losses are carried back 3 years and forward 5 years as a short term capital loss.

Front 202

Q202.
how are section 1231 assets treated in a business in terms of gains and losses?

Back 202

A202.
gains treated as "capital" assets used in the business while losses are treated as ordinary losses.

Front 203

Q203.
If you are an eligible educator, you can deduct ____________________ as an adjustment to income.

Back 203

A203.
$250 qualified expenses you paid. ($500 for married teachers)

Front 204

Q204.
who is considered an eligible educator for the adjustment?

Back 204

A204.
k- 12 teacher, instructor, counselor, principal, or aide in a school for at least 900 hours during a school year

Front 205

Q205.
what are qualified expenses for educator expenses?

Back 205

A205.
ordinary and necessary expenses paid in connection with books, supplies, equipment (including comp equip, software, and services) and other materials used in the classroom.

Front 206

Q206.
what are qualified educator expenses reduced by?

Back 206

A206.
1. excludable U.S. series EE and I savings bond interest from Form 8815
2. nontaxable qualified state tuition program earnings
3. nontaxable earnings from Coverdell Education Savings accounts
4. any reimbursements you received for these expenses that were not reported to you in box 1 of your form W- 2

Front 207

Q207.
what are the four types of individual retirement accounts?

Back 207

A207.
1. deductible IRA
2. nondeductible IRA
3. Roth IRA
4. coverdell education savings accounts (IRA)

Front 208

Q208.
when must the contribution be made for the adjustment for a deductible IRA to be allowed?

Back 208

A208.
by the due date of the tax return for individuals: April 15

Front 209

Q209.
when will a taxpayer not be permitted to deduct a contribution to an IRA?

Back 209

A209.
1. excessive AGI ($56+ , 89+ ) and active participation in another qualified plan

Front 210

Q210.
what is the phase- out for the deductible IRA contribution for an individual who is not an active participant, but whose spouse is?

Back 210

A210.
MAGI between $167,000 and $177,000

Front 211

Q211.
a taxpayer generally may deduct from income the amount of a regular IRA contribution. the max deduction is limited to:

Back 211

A211.
the lesser of $5,000 or the individual's compensation

Front 212

Q212.
what is included in compensation?

Back 212

A212.
salary, wages, commissions, bonuses, and alimony

Front 213

Q213.
what is not included in compensation?

Back 213

A213.
interest, dividends, annuity income, and pensions

Front 214

Q214.
what is the additional catch- up contribution?

Back 214

A214.
if over 50 yrs old by December 31st, allowed an additional contribution ("adjustment") of $1000

Front 215

Q215.
which phaseout limits are higher, deductible IRAs or roth iRas?

Back 215

A215. roth iras

Front 216

Q216.
qualified nontaxable distributions of roth iras are those made at least five years after the taxpayer's first contribution to a roth ira and made:

Back 216

A216.
1. after the taxpayer reaches age 59.5
2. to a beneficiary after the taxpayer's death
3. because the taxpayer is disabled
4. for use by a "first time" homebuyer to acquire a principal residence. there is a lifetime $10,000 limit on qualified distributions for this purpose.

Front 217

Q217.
what are the tax effects of a coverdell education savings account?

Back 217

A217.
non- deductible contributions, but tax- free accumulation of earnings and tax- free distributions

Front 218

Q218.
what are the tie limits associated with coverdell education savings accounts?

Back 218

A218.
contribute up to 18 years, and the beneficiary must use it by age 30

Front 219

Q219.
ay amounts remaining when the beneficiary reaches 30 years of age must be distributed (except in the case of a special needs beneficiary). distribution may take one of two forms:

Back 219

A219.
1. distributed to beneficiary, taxable and assessed a 10% penalty
2. rollover to another family member of the taxpayer

Front 220

Q220.
what is the maximum contribution per year for a coverdell education savings account?

Back 220

A220. 2000

Front 221

Q221.
what is the adjustment for education loan interest?

Back 221

A221.
limited to $2500. any excess or disallowed is personal interest and not deductible. phaseout at $60k- $75k

Front 222

Q222.
what are the tuition and fees above the line deduction?

Back 222

A222.
applies regardless of whether the education was work- related. expenses above the maximum of $4,000 are only deducible as education expenses (itemized deductions subject to 2% of AGI limitation). [$4,000 if <$65k, $2.000 if 65k- 80k, nothing if >80k]

Front 223

Q223.
what is a health savings account and how does it work?

Back 223

A223.
HSAs enable workers with high- deductible health insurance to make pre- tax contributions of up to $3,050 to cover health care costs. these amounts are increased by $1,000 for those who reach age 55 within the year. excludable withdrawals if used for qualified medical expense of any account beneficiary.
no contributions allowed once a taxpayer becomes covered by Medicare parts A or B.

Front 224

Q224.
what is an archer medical savings account?

Back 224

A224.
similar to IRAs, but they are used for health care. typically used only if HSA is unavailable.

Front 225

Q225.
when are moving expenses deductible to arrive at AGI?

Back 225

A225.
work related. new workplace is 50 miles further. 39 weeks (75%) of the next year. only direct moving costs are allowable. employer reimbursements are excludable from income to the extent the amounts qualify as deductions.

Front 226

Q226.
which moving costs are deductible to arrive at AGI?

Back 226

A226.
travel and lodging of the taxpayer and his family. transportation expenses are deductible at actual out- of- pocket amounts of 16.5% per mile. tolls and parking fees, but not other amounts, can be added to the mileage rate if it is used. transporting household goods and personal effect to the new location.

Front 227

Q227.
which moving expenses are non- deductible?

Back 227

A227.
meals, pre- move house hunting, expense of breaking a lease, temporary living expenses.

Front 228

Q228.
what is a keogh (profit sharing) plan?

Back 228

A228.
self employed taxpayer subject to the self- employment tax is generally allowed to set up.

Front 229

Q229.
what is the max annual deductible amount of a keogh plan?

Back 229

A229.
49,000, or 25% net (keogh/self- employed) earnings

Front 230

Q230.
how much of self- employment tax can be an adjustment?

Back 230

A230.
50% of social security/medicare tax

Front 231

Q231.
how much of self- employed health insurance can be an adjustment?

Back 231

A231.
all of it, provided the plan is set up in the name of the self- employed individual or the individual's business

Front 232

Q232.
how is the penalty on early withdrawal of savings (interest income) treated?

Back 232

A232.
adjustment to income. do not net against interest income

Front 233

Q233.
what tax break is there for attorney fees paid in discrimination cases?

Back 233

A233.
in certain cases, an adjustment is allowed for attorney fees paid in connection w/ age, sex, or racial discrimination and whistleblower fees cases. limited to the amount claimed as income from the judgment.

Front 234

Q234.
what tax break is given for domestic production activities?

Back 234

A234.
taxpayers will receive an adjustment for a percentage (9%) of qualified production activities income or the taxpayer's taxable income without considering the deduction (whichever is less). form 8903 will be filed.

Front 235

Q235.
when can married filing separately use the standard deduction?

Back 235

A235.
available only if both taxpayer and spouse do not itemize.

Front 236

Q236.
what is the standard deduction for dependent of another?

Back 236

A236.
amount is the greater of 950 or his earned income plus 300. may claim the same additional standard deduction as other taxpayers for blindness and/or age 65 or over status.

Front 237

Q237.
what is the limitation on itemized deductions?

Back 237

A237.
none. there used to be one with AGI exceeding certain thresholds, not anymore though.

Front 238

Q238.
payments on behalf of these individuals qualify for the itemized deduction for medical expenses:

Back 238

A238.
1. yourself
2. spouse
3. dependent who received over half his or her support from you (under $ taxable income and precludes joint return do not matter)

Front 239

Q239.
what is the formula to calculate how much medical expenses are deductible?

Back 239

A239.
qualified med expenses - insurance reimbursement = qualified medical expense "paid".
subtract 7.5% AGI = deductible medical expenses

Front 240

Q240.
types of deductible medical expenses

Back 240

A240.
medicine and drugs, doctors, medical and accident insurance, required surgery, transportation to medical facility, physically handicapped costs

Front 241

Q241.
types of non- deductible medical expenses

Back 241

A241.
elective surgery, the part of social security tax paid for basic Medicare, funerals, life insurance, capital expenditures up to the increase in FMV of the property because of the expenditure, health club memberships, personal hygiene

Front 242

Q242.
what happens to reimbursement of expenses by an employer that exceed the total of medical or dental expenses paid by a taxpayer?

Back 242

A242.
included in gross income

Front 243

Q243.
what happens to reimbursement of medical expenses received in the current year that was deducted in a year prior?

Back 243

A243.
included as part of gross income in year received

Front 244

Q244.
are federal income taxes taken as an itemized deduction?

Back 244

A244. no

Front 245

Q245.
when are foreign real estate taxes paid deductible?

Back 245

A245.
only for real estate held as an investment

Front 246

Q246.
how are real estate taxes on land held for appreciation treated?

Back 246

A246.
may be capitalized or deducted at the option of the taxpayer

Front 247

Q247.
what are the types of taxes that can be used in itemized deductions?

Back 247

A247.
1. real estate tax
2. state and local foreign income tax 3. personal property tax
4. sales tax

Front 248

Q248.
when can you deduct sales tax?

Back 248

A248.
taxpayer may elect to deduct either state and local income taxes or state and local general sales taxes

Front 249

Q249.
how is sales tax deducted?

Back 249

A249.
the amount is either
1. the total of actual general sales tax paid
2. IRS table, plus any amount of sales tax paid for a motor vehicle, boat, or other IRS approved items

Front 250

Q250.
what are taxes that are not deductible?

Back 250

A250.
federal taxes (including social security), inheritance taxes for states, business and rental property

Front 251

Q251.
what are the two categories of qualified residence interest for home mortgages?

Back 251

A251.
acquisition indebtedness and home equity indebtedness

Front 252

Q252.
acquisition indebtedness is debt that is:

Back 252

A252.
1. incurred in buying, constructing, or substantially improving the taxpayer's principal and second home, and 2. secured by home
3. points related to acquisition indebtedness are deductible immediately
4. refinancing points must be amortized over the period of the loan

Front 253

Q253.
what is the limit on acquisition indebtedness?

Back 253

A253.
interest on up to 1,000,000 of principal of acquisition indebtedness is deductible as qualified residence interest. excess is treated as personal interest, and not deductible.

Front 254

Q254.
what is home equity indebtedness?

Back 254

A254.
debt that is secured by the taxpayer's principal or second residence, but is not "acquisition indebtedness" (i.e. not used to acquire, build, or improve the home) used for anything

Front 255

Q255.
the maximum that can be treated as home equity indebtedness is the lesser of:

Back 255

A255.
1) $100,000
2) FMV of the property reduced by the amount of outstanding acquisition indebtedness (aka the equity in home)

Front 256

Q256.
is personal (consumer) interest deductible?

Back 256

A256. no

Front 257

Q257.
how is education loan interest treated?

Back 257

A257.
adjustment, not an itemized deduction. up to $2500

Front 258

Q258.
are gifts given to organizations tax deductible?

Back 258

A258. yes

Front 259

Q259.
are gifts given to needy families tax deductible?

Back 259

A259. no

Front 260

Q260.
are political contributions tax deductible?

Back 260

A260. no

Front 261

Q261.
what is the maximum allowable deduction for charitable contributions?

Back 261

A261.
overall limit = 50% of AGI

Front 262

Q262.
what are the limitation rules for charitable contributions?

Back 262

A262.
overall limit = 50% AGI
1. cash may be all 50 %.
2. general property - lesser of basis of FMV
3. long- term appreciated property is limited to the lesser of - 30% of AGI
- the remaining amount to reach 50% after cash contributions

Front 263

Q263.
how much of AGI can be deducted for gifts to a non- operating private foundation?

Back 263

A263. 0.2

Front 264

Q264.
what is the deduction for contribution of services?

Back 264

A264.
none for value and time, but can deduct out- of- pocket expenses incurred. 14 cents per mile, or cost of gas and oil. parking and tolls.

Front 265

Q265.
what is the deduction for hosting a foreign exchange student?

Back 265

A265.
$50 for each full month

Front 266

Q266.
for contributions of more than $___ of noncash property, the taxpayer must file form _____

Back 266

A266.
$500. form 8283

Front 267

Q267.
when is a written appraisal needed for charitable contributions?

Back 267

A267.
if more than $5,000 for any one item or group of similar items, except that no appraisal is needed for publicly traded securities

Front 268

Q268.
what is the calculation for casualty and theft losses?

Back 268

A268.
loss (smaller of basis and decreased FMV) - insurance recovery
= taxpayers loss
- $100
= eligible loss
- 10% of AGI
= deductible loss

Front 269

Q269.
when are miscellaneous itemized deductions allowed?

Back 269

A269.
only to the extent that the miscellaneous deductions combined exceed 2% of AGI and were not taken as part of an allowable adjustment

Front 270

Q270.
what are the types of miscellaneous itemized deductions?

Back 270

A270.
1. unreimbursed business expenses
2. educational expenses
3. uniforms
4. business gifts
5. business use of home
6. employment agency fees
7. expenses of investors - safe deposit box and investment advice
8. subscriptions of professional journals
9. tax preparation fee
10. debit card convenience fees incurred to pay income tax

Front 271

Q271.
what are the types of unreimbursed business expenses that can be used as itemized deductions?

Back 271

A271.
travel, meals and lodging (overnight), transportation expenses, meals and entertainment expenses (50%)

Front 272

Q272.
what are examples of refundable credits?

Back 272

A272.
1. child tax credit (refund is limited)
2. earned income credit
3. withholding taxes
4. excess social security paid
5. long- term unused minimum tax credit
6. American opportunity credit (40% refundable) 7. making work pay credit
8. adoption credit

Front 273

Q273.
what is the child and dependent care credit?

Back 273

A273.
a tax credit of 20% to 35% of eligible expenditures. one dependent = 3,000 max expenditures, 2 or more dependents = $6000 max expenditures

Front 274

Q274.
who is eligible for the child and dependent care credit?

Back 274

A274.
qualifying child, under age 13, who can be claimed as a dependent; disabled dependent who meets support test; spouse who is disabled and not able to take care of himself

Front 275

Q275.
for the child and dependent care credit, how is the amount that is multiplied by the applicable percentage computed?

Back 275

A275.
using the lowest of:
1. the earned income of the spouse with the lesser amount 2. the actual childcare expenditure
3. the maximum amount (3000 or 6000)

Front 276

Q276.
what are eligible expenditures for the child and dependent care credit?

Back 276

A276.
babysitter, nursery school, day care. NOT grammar school.

Front 277

Q277.
how do you determine the credit computation for the child and dependent care credit?

Back 277

A277.
under $15k AGI = 35% phaseout = 35- 20% over 43k = 20%

Front 278

Q278.
what is the credit for the elderly and/or permanently disabled?

Back 278

A278.
credit of 15% of eligible income to individuals who are 65 years of age or older or under 65 and retired due to permanent disability

Front 279

Q279.
what are the base amounts for each filling status for the credit for elderly/permanently disabled?

Back 279

A279.
$5000 for a single person
$7500 if MFJ and BOTH are qualifying individuals $3750 for married filing separately

Front 280

Q280.
what are the AGI limits for each filling status for the credit for elderly/permanently disabled

Back 280

A280. single 7,500 mfj 10,000 mfs 5,000

Front 281

Q281.
what is the calculation for the credit for the elderly/disabled?

Back 281

A281.
base amount - all social security - 1/2 excess AGI = balance.
balance x .15 = credit

Front 282

Q282.
what is the American opportunity credit for?

Back 282

A282.
education expenses for a student's first four years of college education. can have multiple students.

Front 283

Q283.
how is the American opportunity credit calculated

Back 283

A283.
100% of the first $2000 expenses, 25% of the next $2000 expenses. (max = $2500)

Front 284

Q284.
what are the qualifications of the student to receive the American opportunity credit?

Back 284

A284.
- half time in one academic period during the year
- not convicted of federal or state felony drug offense in calendar year for which expenses are incurred

Front 285

Q285.
is there a phaseout for the American opportunity credit?

Back 285

A285. yes

Front 286

Q286.
what part of the American opportunity credit can be refunded?

Back 286

A286.
40% of it is refundable, and the nonrefundable portion may offset both regular and amt

Front 287

Q287.
what is the lifetime learning credit?

Back 287

A287.
20% of qualified expenses up to $10k. available for unlimited number of years for qualified tuition and related expenses (EXCEPT BOOKS). only one kid per year

Front 288

Q288.
is there a phaseout for the lifetime learning credit?

Back 288

A288. yes

Front 289

Q289.
how can you use coverdell education savings account distributions in conjunction with education credits?

Back 289

A289.
distribution cannot be used for the same educational expenses for which either the American opportunity credit or lifetime learning credit was claimed

Front 290

Q290.
what is the limit for the adoption credit?

Back 290

A290.
$13,170 per child

Front 291

Q291.
what is the timing for the adoption credit?

Back 291

A291.
credit is claimed for years after the payment is made until the adoption is final, at which point expenses paid in the year it becomes final are claimed in that year. for foreign children adopted, no credit can be claimed until the year it becomes final. in either case, expenses paid in later years can be claimed in the year paid

Front 292

Q292.
what is the purpose of the retirement savings contributions credit?

Back 292

A292.
be nice to people with low income who contribute to a traditional IRA or Roth IRA.

Front 293

Q293.
what is the limitation of the retirement savings contributions credit?

Back 293

A293.
limited to the excess of the regular income tax liability and AMT liability over the taxpayer's nonrefundable personal credits. no carryover allowed.

Front 294

Q294.
who is eligible for the retirement savings contributions credit?

Back 294

A294.
over 18, not a dependent, not a full- time student

Front 295

Q295.
is a foreign tax credit an itemized deduction or a credit?

Back 295

A295.
it could be either. there is a limit on the credit, so an individual might find it better to deduct the taxes as an itemized deduction instead.

Front 296

Q296.
what is the allowable amount of foreign tax credit?

Back 296

A296.
limited to the lesser of
1. foreign taxes paid or
2. foreign taxable income/(taxable income + exceptions) x U.S. tax = foreign tax credit limit

Front 297

Q297.
what is the carryover of disallowed foreign tax credit?

Back 297

A297.
carry back one year, carry forward ten years

Front 298

Q298.
what is the limit for the general business credit?

Back 298

A298.
can't exceed "net income tax" (regular income tax + amt - nonrefundable tax credits), less the greater of:
1. 25% of regular tax liability above 25,000, or 2. tentative minimum tax for the year

Front 299

Q299.
what is the carryover for unused general business credits?

Back 299

A299.
generally carried back one year and forward 20 years

Front 300

Q300.
what is the work opportunity credit

Back 300

A300.
available to employers who hire employees from a targeted group. part of the gen business credit.
a. 40% of first $6,000 of first year's wages
b. 40% of firs $3,000 to certain summer youth

Front 301

Q326.
when can you file a refund claim?

Back 301

A326.
three years after you filed it, or two years after the time the tax was paid if you didn't pay when filling.

Front 302

Q327.
when can you file for a refund for bad debts and worthless securities?

Back 302

A327.
seven years later of: due date of return or when it is filed

Front 303

Q328.
what is form 1139 for?

Back 303

A328.
to claim a refund of corporate income taxes.

Front 304

Q329.
what is form 1045 for?

Back 304

A329.
to request a quick refund of individual income taxes due to the carry back of a net operating loss

Front 305

Q330.
what is form 843 for?

Back 305

A330.
to request a refund of taxes other than income tax

Front 306

Q331.
a taxpayer is required to make estimated quarterly tax payments if both of the following conditions are met:

Back 306

A331.
1. $1000 or more tax liability
2. Inadequate Tax estimates (less than 90% of current year's tax or 100% of last years tax)

Front 307

Q301.
what is the child tax credit?

Back 307

A301.
taxpayers ma claim a $1,000 tax credit for each "qualifying child"

Front 308

Q302.
what is the age limit for the child tax credit?

Back 308

A302.
must be under the age of 17

Front 309

Q303.
is there a phase- out for the child tax credit?

Back 309

A303. yes

Front 310

Q304.
what is the refundable limit for the child tax credit?

Back 310

A304.
lesser of:
a. excess child tax credit (over tax liability) b. earned income less 3,000 times 15%

Front 311

Q305.
what is the eligibility of the earned income credit?

Back 311

A305.
1. live in the U.S. for more than half the taxable year,
2. meet low- income thresholds
3. not have more than a specified amount of disqualified income
4. between the ages of 25 and 65 if there are no qualifying children
5. file a joint return with spouse with certain exceptions

Front 312

Q306.
what is defined as earned income

Back 312

A306.
wages, salaries, tips, other employee compensation, and earnings from self employment. does not include pension and annuity income. AMT liability will not affect the credit

Front 313

Q307.
an individual cannot claim the earned income credit if the individual has "disqualified income" exceeding $____. disqualified income includes:

Back 313

A307.
$3,100. disqualified income includes taxable and nontaxable interest, dividends, net rental and royalty income, net cap gains income, and net passive income other than self- employment income

Front 314

Q308.
if there is excess FICA with two or more employers:

Back 314

A308.
taxpayer may claim the excess as a credit against income tax

Front 315

Q309.
if there is excess FICA with one employer:

Back 315

A309.
employer must refund the excess to the employee

Front 316

Q310.
what is the small employer pension plan start- up costs credit?

Back 316

A310.
small businesses (those with 100 or less employees who earned at least $5,000 in the preceding tax year), a credit is allowed for 50% of the first $1,000 (up to $500 per year) of qualified start- up costs for establishing a new qualified pension plan for three years

Front 317

Q311.
what is the small business healthcare tax credit?

Back 317

A311.
a credit of up to 35% of the employer's costs of the plan premiums, provided the employer contributes at least 50% of the costs of health coverage. allowed as an offset to AMT. not refundable.

Front 318

Q312.
how long can the small business healthcare tax credit be carried forward?

Back 318

A312. 20 years

Front 319

Q313.
which costs are excluded from the small business healthcare tax credit?

Back 319

A313.
the costs for family members, sole- proprietors, partners, S corp owners with greater than 2% ownership, and shareholders owning more than 5% of corps are excluded

Front 320

Q314.
what is the health coverage tax credit?

Back 320

A314.
for eligible individual taxpayers, a credit of 80% of healthcare premiums for qualified health insurance paid by certain taxpayers for the taxpayer and qualifying fam is allowed

Front 321

Q315.
what is the residential energy credit?

Back 321

A315.
max credit of 30% of qualifying nonbusiness energy property or improvements, up to a max credit of $1500 (solar electric property, water heaters, small wind energy prop and geothermal pumps have no limit)

Front 322

Q316.
what are the exemption amounts for AMT?

Back 322

A316.
single - $33,750 - 0.25 ( amti - $112,500)
MFJ - $45,000 - 0.25 (amti - $150,000) MFS - $22,500 - 0.25 (amti - $75,000)

Front 323

Q317.
what are the adjustments to amt?

Back 323

A317.
P - passive activity losses
A - accelerated depreciation (post 1986)
N - net operating loss
I - Installment income of a dealer
C - Contracts - % completion vs. completed contract
T - tax "deductions"
I - interest deductions on some home equity loans
M - medical deductions (limited to excess over 10% AGI) M - miscellaneous deductions not allowed
E - exemptions (personal) and standard deduction

Front 324

Q318.
what are the tax preference items?

Back 324

Q318.
what are the tax preference items?
A318.
1 - Private activity bond interest income (on certain bonds) 2 - percentage depletion the excess over adjusted basis of property
3 - pre- 1987 acc depreciation

Front 325

Q319.
what is the credit for prior year minimum tax?

Back 325

A319.
certain allowable AMT paid in a taxable year may be carried over as a credit to subsequent taxable years. it may only reduce regular tax, not future amt.

Front 326

Q320.
what is the carry- forward for the credit for prior year minimum tax?

Back 326

A320. forever

Front 327

Q321.
what is the limitation on the credit for prior year minimum tax?

Back 327

A321.
AMT created from certain permanent differences cannot be carried forward as part of the credit.

Front 328

Q322.
what is the general statute of limitations for when the government can assess an additional tax?

Back 328

A322.
three years from the later of the due date of the return or the date the return is filed (including amended returns)

Front 329

Q323.
what is the statute of limitations if there is a 25% understatement of gross income?

Back 329

A323.
6 years from the later of the due date of return or date return is filed

Front 330

Q324.
what is the statute of limitations for fraudulent and false returns?

Back 330

A324.
no statue. forever!

Front 331

Q325.
what is the form for a refund?

Back 331

A325.
form 1040x

Front 332

Q530.
Taxability of life insurance dividends

Back 332

A530.
Not taxable to the extent they do no exceed premiums.

Front 333

Q531.
When to use mid- quarter convention?

Back 333

A531.
Is used if more than 40% of all personal property is placed in service in the last quarter of the taxpayer's tax year.

Front 334

Q532.
When to use mid- month convention?

Back 334

A532.
Is used to depreciate real property.

Front 335

Q533.
271/2 Year depreciation life used?

Back 335

A533.
Residential rental real property

Front 336

Q534.
Alimony Requirements

Back 336

A534.
1. Payments must be made in cash
2. Payments must be to or for the benefit of the spouse 3. Lump- sum property settlements are not taxable

Front 337

Q535.
Deductions for business gifts are limited to?

Back 337

A535.
$25 per recipient each year

Front 338

Q536.
Passive activity

Back 338

A536.
Any activity that involves the conduct of a trade or business in which the taxpayer does "not materially participate," any rental activity, and any limited partnership interest.

Front 339

Q537.
Dependent's Standard Deduction

Back 339

A537.
Limited to the lesser of (1) the basis standard deduction for single taxpayers of $5,700 or (2) the greater of (a) $950 or (b) the dependent's earned income plus $300

Front 340

Q538.
Corporate Gain/Loss Property Distributed in a non liquidating distribution

Back 340

A538.
The distributing corporation recognizes gain on the distribution of appreciated property as if such property were sold for its FMV. However, no loss can be recognized on the nonliquidating distribution of property to shareholders.

Front 341

Q539. Current E&P

Back 341

A539.
(1) Add: Tax- exempt income, dividend received deduction, excess of MACRS depreciation over depreciation computed under ADS, etc.
(2) Deduct: Federal income taxes, net capital losses, excess charitable contributions, expenses related to tax- exempt income, penalties, etc.

Front 342

Q540. E&P

Back 342

A540.
- Is increased by gains on distribution of appreciated property
- Reduced by the adjusted basis or FMV of property, whichever is greater
- Increased by liabilities distributed

Front 343

Q541.
Personal Holding Company

Back 343

A541.
1. During anytime in the last half of the tax year five or fewer individuals own more than 50% of the value of the outstanding stock directly or indirectly
2. The corporation receives at least 60% of its adjusted gross income as "personal holding company income" (ex. dividends, interest, rents, royalties, and other passive income)

Front 344

Q542.
Termination of S- Corp

Back 344

A542.
(A) Shareholders owning more than 50% of the shares of stock of the corporation consent to revocation of the election
(B) The corporation's failing to satisfy any of the eligibility requirements. If this occurs termination is effective on the date an eligibility requirement is failed
(C) Passive investment income exceeding 25% of gross receipts for three consecutive taxable years if the corporation had subchapter C earnings and profits at the end of those years

Front 345

Q543.
"Above the Line" Deductions

Back 345

A543.
1. One- half of self- employment tax
2. Moving expenses
3. Self- employed health insurance deduction 4. IRA deduction
5. Payment to a Keogh retirement plan
6. Penalty on early withdrawal of savings
7. Student loan interest deduction
8. Alimony paid
9. Tuition and fees deduction
10. Health savings account deduction