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198 Cards in this Set
- Front
- Back
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How are child support payments treated by the payor? The recipient?
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Taxable. Excluded.
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What is the formula for determining how much of an annuity payment is a return of capital? How is this amount treated? If circumstances change, is it altered?
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Net cost of annuity / expected return x payment received. Excluded. No.
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How are life insurance proceeds on one's own life treated by the recipient?
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Excluded, unless represents interest, non-death benefit
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How are life insurance proceeds on the life of an employee treated by the recipient?
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Excluded, but limited to the amount paid unless certain requirements met
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How are life insurance premiums as an employee benefit treated by the employee? What is the dollar limit?
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Excluded. Up to $50,000 of COVERAGE (not premiums)
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How are accident and health benefits paid by the employer treated by the employee? From insurance paid for by the employee?
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Excluded. Excluded as long as related expenses not deducted
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Are earnings within an MSA subject to tax? Distributions used to pay medical expenses? Other distributions?
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No. No. Yes.
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How are meals and lodging provided for the employer's convenience treated by the employee?
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Excluded
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How are education expenses paid by an employer treated by the employee?
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Excluded
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How are qualified adoption expenses paid by an employer taxed by an employee?
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Excluded, but phased out above 180k
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How are fringe benefits treated by the employee?
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Excluded
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How are workers compensation payments treated?
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Excluded
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How are punitive damages received treated?
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Taxable
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How are compensatory damages received treated?
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Excluded, except for emotional damages
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How are stock dividends of common stock treated? Preferred stock?
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Splits up investment among more units. Like a cash dividend at fair value.
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What are the 2 ways for a state-issued bond to be determined "private activity"? How is the income on this investment treated?
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1. More than 10% used in private business (certain exceptions) and 10% of interest payments come from this activity.
2. Lesser of 5% or 5 million used to finance loans to individuals or private businesses, except student loans Fully taxable |
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How is interest on T-bonds and other federal obligations treated?
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Taxable
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How are proceeds from a Series EE bond treated?
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Excluded if used for higher education (for anyone in immediate family), interest taxable otherwise. Subject to phaseout.
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How are bond premium or discount amortizations treated?
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Interest taxable is net of premium or discount
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How is interest on a state income tax refund treated? Federal?
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Both are taxable
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Can you put a Series EE bond in the name of your new baby? In the name of your spouse?
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No (under 24). Yes (exception to no-joint-ownership rule)
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How are penalties for early withdrawal of interest treated?
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As a deduction FROM gross income
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Are scholarships tax-free for non-degree students? Degree students?
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No. Yes as long as it is used to pay for tuition or books.
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How are political contributions treated by the recipient?
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Excluded as long as put to campaign use
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How are discharges of indebtedness treated?
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Taxable except for:
1. Clause written into student loan 2. Shareholder (capital contribution) 3. Gift 4. Bankruptcy |
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What 2 categories of people qualify for the foreign earned income exclusion?
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1. US citizen is a resident of another country for a full taxable year
2. Physically present 330 days in 1 calendar year |
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A loan is made at unusually low rates. How is it treated?
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If under 10k, ignored. Otherwise, as a payment of interest at fed rate, compounded semi-annually and a gift/salary/dividend to return it.
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How is alimony treated by the payor? The recipient?
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Deductible FOR. Taxable.
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How much is alimony recapture in the second year? The first year?
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Y2 - Y3 - 15,000. Y1 - (average after-recapture Y2 and Y3) - 15,000.
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Does alimony recapture apply to variable amounts that are not under the control of the payor?
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No
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When can 50% of social security be taxed?
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When AGI + tax-exempt income + 50% of SS exceeds 32k joint, 25k single.
Taxable amount = Lesser{50% benefits, 50% amount over base} |
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When can 85% of social security be taxed?
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When AGI + tax-exempt income + 50% of SS exceeds 44k joint, 34k single.
Taxable amount = Lesser{85% benefits, 85% excess + Lesser{50% taxable amount, 4.5kS/6kJ}} |
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When can 100% of social security be taxed?
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Never
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What is income in respect of a decedent?
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When someone dies, recipient must account for income in the same way as the decedent
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How is income from an incentive stock option treated by the employee upon grant? Exercise? Immediate sale? Sale after 2 years? The employer?
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Excluded. Excluded. Ordinary income. LTCG.
Excluded. Excluded. Deduction = amt claimed by employee. Taxable |
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When is a nonqualified stock option taxable to the recipient?
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Upon receipt if it has a determinable FMV, otherwise, when exercised
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What 3 conditions are required for a prize to be tax-free?
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1. Winner selected without action
2. Not required to render material future services 3. Donated to government or charity (but no charitable deduction) |
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How are employee achievement awards treated by the recipient? Employer?
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Excluded up to an amount and with some restrictions. Deductible
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You paid medical expenses in a previous year and took the standard deduction. How is the recovery of that expense treated in the current year?
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Excluded under the tax benefit rule. Taxable.
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At what time point are tips taxed?
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When reported to the employer (10 days after end of month)
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What 3 cases do not require IRS approval to change year-end?
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1. Newly-weds
2. Non-S-Corp (with restrictions) 3. Newly-acquired subsidiary |
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What is the business purpose requirement with respect to a change in taxable year?
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25% of total receipts occurred in last 2 months for 3 previous years
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A person was born mid-year. Is the tax pro-rated? What if they died? Voluntary change in taxable year?
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No. No. Yes.
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Under the cash method, when is a capital expenditure immediately recognized?
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If it lasts less than 12 months
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Under the cash method, when is prepaid interest recognized?
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Over the life of the loan
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What 3 categories may not use the cash method?
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1. C corps
2. Anyone with >$5 million in receipts 3. Small business with >$10 million |
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When are rents received in advance recognized under the cash method? The accrual method?
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When received for both.
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Can the installment method be used for losses? For ordinary business? For stocks?
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No to all.
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When are dividends recognized?
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When paid/received
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How is the amount reported under the installment method calculated?
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Gross Profit / Contract Price x Amount Received
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When using percent completion, for what periods can the calculation be ignored?
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When <10% of total costs have been incurred
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Can LCM be used with LIFO? FIFO?
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No. Yes.
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Can the 1st phone line to a house be a business expense?
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No
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How is interest on long-term projects treated?
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Capitalized if one of the following:
1. Recovery > 20 years 2. Work > 2 years 3. Combo 1 year/$1million |
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Do UNICAP rules apply to artists? To research?
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No. No.
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What is the dollar limit for claiming a business expense without a receipt?
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$75
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How is a business meal treated if the taxpayer is present? Absent?
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50% deductible. Not deductible
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What 2 things can be deducted in addition to the standard mileage?
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1. Parking
2. Tolls |
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How are advertising gifts treated?
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If costs < $4, unlimited. Otherwise, standard
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How much could you give an employee for an achievement award and deduct it all?
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$1600 if written and nondiscriminating.
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How is business bad debt treated under the cash method? The accrual method?
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No deduction because not taxed yet. Deducted in the year it becomes completely or partially worthless.
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How is a nonbusiness bad debt treated?
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Deducted as STCL (subject to $3k cap) only if totally worthless.
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Are hobby expenses subject to the 2% miscellaneous itemized deduction floor?
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Yes
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How long is NOL carried back/forward?
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2. 20.
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When is a 3-year carryback allowed?
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1. Individual casualty/theft
2. Small business (<$5 million) or farm subject to Presidentially-declared disaster |
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What is the limit on business use of home deductions? Can the excess be carried back? Forward?
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Gross income from from business home is used for. No. Yes.
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How long may passive loss be carried forward?
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Indefinitely, or until item is fully disposed of in a taxable transaction
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What is a closely held C corporation?
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A C corporation with 5 or fewer owners holding > 50% of outstanding shares
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What 3 things are specifically excluded from the passive income determination?
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1. Oil or gas property that is owned directly or through an entity that does not limit liability
2. Hotel, as long as significant services provided 3. Short-term equipment rental business |
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How much active rental income can be offset against nonpassive sources?
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$25k, but there's a phaseout from 100k-150k AGI
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What is recovery property?
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All property except land, intangible assets, and property that the taxpayer chooses to depreciate using the unit-production method
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How are deductions for recovery property calculated?
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Higher of declining-balance (usually 200%, sometimes 150%), or straight-line in a given year
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What property is included in the 3-year class?
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Horses and ADR midpoint of <4 years, except for cars
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What property is included in the 5-year class?
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ADR midpoint of 4-10 years, including cars, computers and office machinery
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What property is included in the 7-year class?
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ADR midpoint of 10-16 years, including no ADR midpoint and office furniture and fixtures
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What property is included in the 10-year class? The 15-year class? The 20-year class?
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ADR midpoint of 16-20 years. 20-25. 25 or more. All not counting real property
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For what property is the 27 1/2 year class used? What method of depreciation is specified?
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Residential real property. Straight-line.
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For what property is the 39-year class used? What method of depreciation is specified?
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Anything that isn't residential real property and has a life of more than 27.5 years.
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What 4 elections are permitted with regards to depreciable property?
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1. Use units-produced method (one-time)
2. Use straight line (annually) 3. Use 150% if 200% is the norm (annually) 4. Use ADS (one-time) |
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For what property is the mid-year convention used? The mid-quarter? The mid-month?
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Most personal property. If 40% of all personal property placed in service within last quarter. Real property.
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What are the 3 conditions for when bonus depreciation can be taken?
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1. Acquired between 2008-2013.
2. Recovery of <20 years 3. New and original user |
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How are leasehold improvements treated?
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Depreciated over the term of the underlying property (NOT lease term), with some exceptions
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What is the s179 election?
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The choice to treat an item as an expense rather than a capitalization. It is subject to limitations.
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What property qualifies for s179 treatment?
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New or purchased used tangible personal property for use in active trade or business.
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What is the dollar limit for s179 treatment? What happens to the remainder?
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$139k phased out dollar-for-dollar over $560k placed in service
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How much may be depreciated if a car is used 70% for business use? 50%? 40%, but an additional 10% for income-producing activities? 40%?
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70% of MACRS depreciation. 50% of MACRS depreciation. Straight-line over 5 years. Straight-line over 5 years. (For MACRS, $3k limit, prorated)
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What is the bonus depreciation cap for automobiles?
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$8k in deductions
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When are start-up costs immediately expensed? Amortized? Not deducted?
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If taxpayer is in same line of business. If not in the same line of business but acquired. If neither of the above are true.
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How are start-up expenses amortized?
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$5k immediate deduction, with phaseout from 50-55k expenses. Remainder amortized over 180 months
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Over what period are patents amortized? Copyrights?
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17 years. Life of author plus 50.
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Over what period are research expenses amortized? Can they be immediately expensed?
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60 months. Yes, if elected.
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Can goodwill be amortized for tax purposes? If so, how long?
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Yes, if it is purchased. 15 years
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What amount is the domestic production activities deduction?
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9% of the lesser of the qualified activities' income, or taxable income/AGI, and limited to 50% of W-2 wages
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What activities are qualified under the domestic production activities deduction?
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Anything done wholly (or in the case of film, primarily) in the US, except restaurants and utilities
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How are moving expenses treated?
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Deductible FOR AGI
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How are IRA contributions treated?
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Deductible FOR AGI
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How are penalties for premature withdrawals treated?
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Deductible FOR AGI
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How is student loan interest treated?
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Deductible FOR AGI
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When is a vacation home considered a residence? What is the impact on the allowable deduction?
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Used greater of 14 days or 10% of days rented. Amount normally allowed up to rental income, unless rented <15 days (no deduction allowed)
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If a vacation home is NOT used as a residence, what is the allowable deduction?
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Days rented / Total days in use x Total expenses
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How far do you have to move to deduct moving expenses?
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50 miles
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What is the maximum deductible contribution to an IRA?
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$5,000 or 100% of compensation (includes alimony)
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Assuming at least one of the couple is covered by an employer's plan, what is the regular IRA phaseout for single people? For the covered spouse when married filing jointly? For the uncovered spouse?
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Single: 58-68k.
Married covered: 92-112k. Married not covered: 173-183k (Except always allowed $200) |
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At what age is an additional deductible contribution allowed to an IRA? At what age does the 10% penalty tax stop applying?
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50. 59 1/2.
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How much may be saved in a Coverdell account? What is the purpose of that money? Is it measured by donor or by recipient?
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$2k. Education. Recipient
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What is the maximum contribution to a Keogh plan?
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Lesser of $50k or 100% of earned income
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What is the maximum employer contribution to a SEP?
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Lesser of 25% of compensation, or $50k
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Which is exempt from nondiscrimination rules: a 401k, a SEP, or a SIMPLE?
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SIMPLE
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What are the restrictions to using a SIMPLE?
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1. <100 employees
2. Use of one of two contribution formulas (matching dollar-for-dollar or % of compensation) 3. Immediate vesting |
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What is the cap on deductions for student loan interest?
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$2500, phaseout for single AGI 60-75k, joint AGI 120-150k
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How is "earned income" defined for a Keogh?
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Earnings less the contribution and 1/2 of self-employment tax
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What is the Roth IRA phaseout for single people? Married filing jointly?
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110-125k. 173-183k.
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How is the standard deduction for dependents calculated?
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Lesser of single standard deduction or the greater of 950 or earned income plus 300
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What is the additional standard deduction bonuses for being blind or over 65 if you are an individual? Married?
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1450. 1150.
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What percent must be deducted from medical expenses to calculate the deduction?
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7.5%
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How are capital expenditures for medical reasons (e.g. a ramp) treated?
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First, increase value of property. Second, medical expense.
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When medical expenses are reimbursed by an insurer, is the amount received taxed? If so, when?
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Yes. In the period received, regardless of the period the expense occurred.
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When are medical expenses that are paid after death treated?
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Recognized when paid. (NOT incurred)
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When may medical expenses paid for non-dependents be counted as a medical expense deduction?
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If they would be dependents except for the gross income or joint filing requirements
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Who bears the responsibility of real estate tax when a property is sold midyear?
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Prorated on daily basis. If agreed otherwise, considered part of sale price.
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How are gift and estate taxes treated?
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Included
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What is the only exception to the rule on prepaid interest being recognized ratably?
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Mortgage points.
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What is the limit on the deductibility of acquisition indebtedness? Home equity?
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$1m. $100k.
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How is mortgage insurance treated?
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Deductible FROM AGI, but phased out for AGI greater than $100k
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Is interest subject to the 2% floor as an investment expense?
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No.
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Is the limitation on the deductibility of investment interest gross or net of other expenses?
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Net.
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How are contributions to a university athletics program treated if it secures the right to buy tickets?
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80% deductible FROM AGI
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At what dollar limit is written confirmation required to deduct a charitable contribution? Get an appraisal?
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$250 (and canceled checks don't count). $5000
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If a vehicle is donated, what is the cap on the deduction?
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Proceeds from sale (unless written evidence of use)
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What is the cap on deducting intellectual property donated to a charitable organization?
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Lesser of basis and FMV
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What 3 types of contributions are subject to 50% of AGI limitation?
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1. Public charities
2. Private operating foundations 3. Foundations that distribute funds directly to operating foundations |
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What contributions are subject to 30% of AGI limitation?
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LTCG property, unless elects to give up gain. Must be to a 50% limitation organization.
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What type of contribution is subject to 20% of AGI limitation?
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Capital gain property to nonqualified charities.
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Review the chart on p452.
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Ok.
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How long may disallowed deductions for charitable contributions be carried forward?
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5 years
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When are charitable contributions done via promissory note recognized?
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Under accrual, when issued. Under cash, when paid
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What is the dollar limitation on contributions for the care of an exchange student?
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$50 per month the child is a student.
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How is the amount of a casualty loss calculated?
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Lesser of decrease in FMV and adjusted basis, reduced by reimbursement and $100 floor if nonbusiness.
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How are casualty losses in excess of gains and after the floor treated?
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Deducted FROM AGI, less 10% of AGI
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How is estate tax related to income in respect of a decedent treated?
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Deductible FROM AGI
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Is income-producing property that suffers a casualty loss subject to the 2% floor?
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No.
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How are professional accreditation expenses treated? Skill improvement classes?
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Not deductible. Deductible FOR AGI, subject to 2% floor
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How are will preparation expenses treated? Divorce expenses? Personal legal expenses?
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1. Deductible FROM AGI, subject to 2%
2. Ditto 3. Not deductible |
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How is it determined whether you are married or not?
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Whether you are married on the last day of the year.
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What are the 5 requirements to be a qualifying child?
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1. Child or descendant
2. Younger & under 19 (or 24 if student) 3. Lived with taxpayer for at least 1/2 year 4. Did not provide more than 1/2 of own support 5. No joint returns |
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How do you decide who can claim a dependent?
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1. If both parents, whoever lived with longer
2. If neither parents, higher AGI 3. If one parent, that parent |
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What are the 5 requirements to be a qualifying relative?
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1. Not qualifying child
2. No joint returns 3. Lived with whole year OR relative closer than cousin 4. AGI < exemption amount (3800) 5. Taxpayer pays 1/2 of support OR multiple support arrangement |
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Can a former in-law of a divorcee still be claimed as a qualifying relative?
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Yes, if other conditions met.
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Are social security benefits included in the qualifying relative test? Dividends?
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No. Yes.
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What are the 3 requirements to be a qualified widower?
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1. Could have filed joint return when spouse died
2. Not remarried 3. Maintains home for dependent |
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What are the year-by-year filing statuses for someone whose spouse died?
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1. Married filing joint/separate
2. Qualified widow 3. Qualified widow 4. Single |
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Can joint returns have different taxable years? Different accounting methods?
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No. yes.
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When does the kiddie tax apply?
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1900 < Unearned income < taxable income
<19 (24 if student) |
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How can a parent elect to include child's income?
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1. Child only has interest and dividends
2. Amount over 1900 is included 100%, amount 950-1900 is included 10% |
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What are the 2 tiers for AMT?
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26%: <175k AMTI
28%: >175k AMTI In excess of exemption of 50k single, 75k joint |
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How does AMTI adjust depreciation?
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For personal property, difference between 200% and 150%
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Is AMTI adjusted for home mortgage interest? Incentive stock options? 2% misc. itemized?
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Yes, if used for home itself. Yes. Yes.
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How is AMTI adjusted for medical expense deduction?
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Difference between 7.5% (usual) and 10%
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Does AMTI allow personal exemption? Standard deduction?
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No. No.
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How is tax-exempt interest treated for AMTI?
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Preference item - IF private activity, added back
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How is the AMT carryforward calculated?
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AMT - AMT calculated using only exclusions and adjustments
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What is the social security tax rate for 2012? 2013?
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2012: 1.45/4.2% for employees (employers use 2013 rate)
2013: 1.45/6.2% |
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What is the OASDI cap? The Medicare cap?
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~113k AGI. None
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What is the FUTA tax rate? Who pays it?
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6.2% of first $7k of wages. Employer
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What is the self-employment tax rate in 2012? 2013? How is the amount paid treated?
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2012: 13.3%
2013: 15.3% Half is deductible FOR |
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Is self-employment tax computed before or after Social Security tax?
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After.
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Is a guaranteed partnership distribution considered self-employment?
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Yes.
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How is overpayment of social security treated?
|
As a credit
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What is the cap on the general business credit? Can it be carried back? Forward?
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Tax - 25% (Tax - 25k). 1 year. 20 years.
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How is work opportunity credit calculated?
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40% of first $6k ($3k for summer youth) of wages paid to new qualified employees
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Who is eligible for disabled access credit?
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Small business: Either
1. <$1m gross receipts 2. <30 full-time employees |
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How much is the base amount for the elderly/disabled credit reduced by?
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Social security benefits and 50% of AGI > 10k
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How much is the child care credit?
|
20% of expenses if AGI > 45k
35% if < 15k Phased out in between Cap of 3k expenses (6k for 2+ children) |
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How is foreign tax treated?
|
Deduction/credit at taxpayer's election
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What is the foreign tax credit amount?
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Actual payments with cap of (Foreign / Worldwide) x US Tax
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Can the foreign tax credit be carried back? Forward?
|
1 year. 10 years
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What is the phaseout range for EITC?
|
~17k single
~22k joint |
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What are the 6 requirements to claim the EITC?
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1. Earned income
2. Have qualifying children (if this test failed, reduces amount) 3. No married filing separately 4. Not qualifying children themselves 5. No foreign income 6. <3200 unearned income |
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Is the general business credit refundable? The EITC? Adoption expenses credit?
|
No. Yes. No.
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What is the cap for adoption expenses to be counted for the credit? The phaseout?
|
~13k. ~190k-230k
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An adoption expense was incurred 2 years before finalization. When is it recognized? 1 year? Year following?
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1. Next year
2. Year of finalization 3. When incurred |
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What is the amount f the child tax credit? The phaseout?
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1k/child under 17. >75k single, 110 joint
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Is the child tax credit refundable?
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Yes, partially.
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Which person may claim the American Opportunity Credit?
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If student is a dependent, the taxpayer. If eligible as dependent but not claimed, student. Otherwise, self.
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Is AOC refundable? The lifetime learning credit?
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Yes, partially. No.
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Can the American opportunity credit and the lifetime learning credit be taken together?
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No
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What is the cap on the American Opportunity Credit? Lifetime learning? Are each per student or per taxpayer?
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AOC: $4k, student
LLC: $10k, taxpayer |
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Who is eligible for the qualified retirement savings credit?
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1. AGI < 29k single, 57k joint
2. >18 years old 3. Not full-time student or dependent |
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How much of retirement savings is eligible for the credit?
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$2k
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What is the percent and cap on the first-time homebuyer credit?
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10%, $8k
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How much are estimated payments on a prior-year basis for regular people? High-income? Who is high-income?
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100% prior year taxes. 110% prior year taxes. >150k AGI
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When determining whether it is necessary to file, is the personal exemption counted? Basic standard deduction? Age? Blindness? Dependent exemption?
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Yes. Yes. Yes. No. No.
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At what income level must a dependent file?
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Either:
1. Unearned income > 950 + bonus standard deductions 2. Total income > All standard deductions |
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What are the 3 court choices? What is the advantage of each?
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1. Tax Court - do not have to pay disputed tax
2. U.S. District Court - jury trial 3. U.S. Court of Federal Claims |
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What is the normal statute of limitations for IRS audits? If omissions >25%? If no return? If fraud?
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1. 3
2. 6 3. Unlimited 4. Unlimited |
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How many years do you have to file an amended return?
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3 from filing or 2 from payment, whichever is later. (7 years for bad debt or securities?)
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What is the interest rate on underpayments? Overpayments?
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3-month T-bill + 3%
Federal short-term rate + 2% |
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To what 5 events does the accuracy-related penalty apply?
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1. Negligence
2. Understated income tax 3. Overstated valuation 4. Overstated pension liabilities 5. Gift/estate tax understated |
