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99 Cards in this Set
- Front
- Back
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head of household qualification
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have qualifying dependent
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surviving spouse qualification
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in year spouse dies
gets 2 additional years if maintaining household with qualifying child |
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individual tax formula
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total income - for AGI deductions = AGI - greater of standard deduction or itemized deductions - exemptions = taxable income * tax rates = income tax liability + other taxes (AMT & SE tax) = total tax liability - credits and prepayments = taxes due or (refund)
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aged requirement for additional deduction
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>=65 years
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bunching
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if itemized deductions are about equal to standard deduction each year, the taxpayer should bunch deductions on alternate years and claim standard deduction on other years
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floor limits
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deduction provides no benefit until it exceeds a certain minimum amount
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ceiling limits
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a maximum amount that can be deducted in any year
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phase-out limits
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deduction is reduced after reaching a trigger
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dependents
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may not file a joint return
must be US citizen or resident of US, Mexico, or Canada either qualifying child or qualifying relative |
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Qualifying child
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relationship: sibling or child or children of those people
residence: live in your house > half the year; exempt if full time college or nursing home age: < 19 or < 24 if full time college student; waived if disabled support: child provides less than half of own support |
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qualifying relative
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familial relationship or member of household (>6months)
support: you provide more than half of their support gross income: must be less than personal exemption |
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child credit
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1000 per child under age of 17 as of dec 31
phases out for high-income taxpayers phases out completely |
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dependent care credit
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children < 13 or dependent who is physically or mentally incapable of caring for themselves
credit amount is between 20-30% of child care costs depending on income range does not phase out |
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earned income credit
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refundable
a transfer payment to working poor that increases progressivity of tax rates credit is higher for taxpayers with children phases out as income increases maximum credit 5666 for households with 3+ children |
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AMT formula (individual)
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Taxable income +/- adjustments + preferences = tentative AMTI - exemption = AMTI * AMT rate (26-28%) = tentative minimum tax
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when are estimated taxes on SE income due?
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15th of the 1st, 4th, 6th, and 9th months
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how to avoid underpayment penalty
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AGI<150000 - pay 90% of current year tax or 100% of prior year
AGI>150000 - pay 100% of current year or 110% of prior year |
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when are filing of tax return due? extension?
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4/15
can extend to 10/15 |
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scholarships
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nontaxable to the extent spent on tuition, books, fees, equipment required by and paid to institution
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gifts, inheritances, and life insurance death benefits
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nontaxable
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legal settlements and government payments
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if must demonstrate need or injury: nontaxable
otherwise, taxable |
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examples of need based government/legal payments
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welfare and food stamps
workers' compensation portion of legal settlement that represents compensation for physical injury or illness if low-income, social security |
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examples of no need/injury demonstrated for government/legal payments
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remainder of legal settlements
unemployment compensation if high-income, social security is partially taxable (up to 85%) |
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divorce property settlements
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nontaxable
transferred property gets carryover basis |
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divorce alimony
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taxable to recipient
deductible by payer for AGI deduction |
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divorce child support
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not taxable or deductible
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personal use assets
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not depreciated
sale usually results in losses which are not deductible gains from sale are capital |
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personal expenses: medical
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can deduct the excess of unreimbursed expenses over 7.5% of AGI as itemized deduction
doctors, dentists, chiropractors clinics, hospitals, long-term care facilities medical aid (e.g., hearing aids, crutches) prescription drugs medical insurance premiums |
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personal expenses: SE taxes
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deduction for half of SE tax
for AGI |
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personal expenses: real or personal property taxes on personal assets
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from AGI
deduct as itemized |
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personal expense: state and local sales/income taxes
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elect to deduct either state & local sales taxes OR state & local income taxes
from AGI |
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personal expenses: tax compliance fees
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from AGI
miscellaneous expenses deductible if > 2% AGI in aggregate |
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non deductible personal expenses: taxes
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gift and estate taxes
employee payroll taxes employment taxes paid for household employees |
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personal expenses: charitable contributions
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deduct up to 50% of AGI for cash donation
itemized deduction carryover excess for 5 years LT capital assets = FMV of property other property = lesser of FMV or basis |
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home ownership deductions
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itemized deduction
interest on up to 1 million of acquisition debt interest on up to 100000 of home equity debt available for principal residence and one other personal residence (not a primary rental property) property taxes |
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vacation home rental activity
loss, carryforward |
house is treated as vacation if personal use exceeds the greater of 14 days or 10% of rental days
deductions (based on number of days of rental usage) are limited to gross rents less any mortgage interest or property taxes allocable to the rental period cannot generate net rental loss carry forward excess rental deductions |
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gain on sale of principal residence
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exclude 250000 of gain on sale if home is principal residence 2 years out of 5 years ending on date of sale
exclude only one gain every 2 years maximum exclusion is doubled for MFJ if either spouse meets the 2 of 5 year ownership requirement and both spouses meet the 2 of 5 year use requirement |
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american opportunity credit
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available for first 4 years of college
max 2500 per year per student based on tuition/fees phase out for higher income levels |
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lifetime learning credit
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equal to 20% of tuition/fees
2000 credit max per year per tax return phase out for higher income |
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qualified tuition and fees tax subsidy
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deduct 4000 of expenses
phase out for high income individuals |
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education savings account
coverdell plan or sec 529 state-sponsored plan |
withdrawals spent on education are tax-free
coverdell: income and contribution limits but deduction for contributions sec 529: no limits but no deduction |
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qualified educational loan interest
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deduct interest paid (not principal)
max 2500/year phase out for high income for AGI deduction |
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EE savings bonds
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interest nontaxable if used for tuition/fees
phase out for higher-income individuals age requirement-your parents must own them and use them for you while you are a dependent (must be 24 on day bond is issued) |
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casualty and theft personal losses
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loss=lesser of (adjusted basis or decline in FMV) - insurance proceeds
deduction = loss - 500 per casualty - 10% AGI itemized deduction |
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hobby income and expenses
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income taxable
deductions are misc 2% itemized deduction and limited to amount of hobby income if activity generates profit in 3 of 5 years, IRS presumes it is a business and occasional losses are fully deductible (must pay SE taxes) |
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gambling losses
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treated like hobbies except not subject to 2% AGI limitation
can only use loss to offset gains/income |
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AMT adjustments
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medical deductions allowed only to extent they exceed 10% AGI
state and local tax payment deductions are disallowed miscellaneous itemized deductions (including investment and employment-related deductions) are disallowed interest on home equity debt is disallowed |
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employee salaries
employer deductions; exception |
employers may deduct wages if ordinary business expenses
factory direct labor is capitalized (COGS) exception: cash compensation > 1000000 to top-5 officer is not deductible unless performance based per officer wages taxable to employees at ordinary rates |
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5 factors relevant to reasonableness of employee compensation
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shareholder/employee's role in business
external comparisons with other companies financial condition of corporate employer employee's degree of control over dividend policy in capacity as shareholder internal consistency of corp's compensation system throughout employee ranks constructive dividend treatment if not reasonable |
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foreign earned income exclusion
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expatriates are US citizens or perm residents who reside and work overseas on an extended basis
can exclude 91500 from taxation in US cannot claim foreign tax credit on excluded income (taxes paid to foreign jurisdiction are normally credited against US tax liability) |
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fringe benefits
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taxable
exclusion: provides a social welfare benefit and non-discriminatory OR necessary for job |
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cost of premiums to provide group term life insurance
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> 50000 is taxable
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dependent care assistance
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up to 5000 is excluded
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self employed medical insurance costs
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deduct 100%
for AGI deduction |
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reimbursed employment-related expenses
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reimbursement is not income to employee
expense is not deductible by employee employer may deduct reimbursement |
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unreimbursed employment-related expenses
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misc. 2% deduction
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unreimbursed moving expenses
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for AGI deduction
costs to transport household goods and personal belongings including automobiles travel costs except meals new job meeting certain mileage and time of work requirements |
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qualified plan attributes
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plan cannot be discriminatory; set $ limits
salary contributed to plan is not currently taxed employer generally gets a deduction for contribution to plan the plan itself is tax exempt, so earnings are not taxed as they accumulate retiree is taxed on withdrawals of all amounts premature withdrawals are subject to 10% excise tax |
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exceptions to 10% withdrawal penalty
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owner becomes disabled
owner reaches age 55 and becomes unemployed amounts withdrawn upon owner's death |
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defined benefit plan
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employer assumes risk and promises a certain retirement income stream
annual pension limited to the lesser of 100% of average three highest years' wages or 195000 employer gets deduction when fund the trust |
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defined contribution plan
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employer sets aside a certain defined amount each year
employee bears the risk of what return the investment provides yearly employer contribution limited to the lesser of 100% of annual compensation or 49000 can deduct when fund plan |
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keogh
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contribute up to lesser of 20% of earned income from SE or 49000
must not discriminate; if owner has employees then he/she must provide retirement benefits to them business earnings invested in keogh plans are not taxable to employee and earnings are tax-exempt |
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nonqualified plan attributes
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employee delays taxable income until she receives money
employer delays salary expense deduction until it pays money employer accrues a liability but does not set aside any cash or property often used by top executives since nonqualified, these plans can discriminate employer cannot deduct until employee takes out have control when they want to take out the money must be employed to take out |
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individual retirement accounts
how much can contribute? deduction? |
5000 or 100% of compensation (anything subject to FICA or SE tax)
taxpayer reaching age 50 by year-end may make additional 1000 catch-up contribution deduction of contribution phases out at 90000 MFJ AGI |
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IRA withdrawals
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withdrawal is ordinary income if all contributions were deductible
if some contributions were nondeductible: nontaxable withdrawal % = unrecovered investment/current year IRA value forced to withdrawal at 70 1/2 early withdrawals (before 59 1/2) subject to 10% penalty exceptions: 10000 for first time homebuyer funds to pay higher education expenses for self, spouse, or dependents |
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Roth IRA
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no deduction when contributed but no tax when distributed
better than traditional if you expect tax rates to increase not available for high-income individuals >169000 MFJ early withdrawal only penalized if take out of earnings; can take out basis (contribution) without penalty |
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incentive stock options (ISOs) attributes
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granted by an employer to employee
exercise price must be >= FMV at grant life of option <= 10 years value exercised in any year <= 100000 option must be held 2 years from grant; stock must be held 1 year from purchase |
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incentive stock options (ISOs) tax
Grant, Exercise, Sale |
employee-no taxable income at grant or at exercise
employer-compensation expense but no salary deduction ever exception-early disposition of stock = NQSO employee basis in stock = exercise price employee generates capital gain/loss on sale only taxed at sale date of stock received = date of grant |
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nonqualified stock option tax
grant, exercise, sale |
employee-no income at grant; salary income equal to difference in FMV of stock and exercise price at date of exercise
employee's basis in stock = FMV at exercise date employer-compensation expense at grant; deduction equal to employee income at date of exercise employee generates capital gain on sale no tax at grant must recognize compensation income on exercise equal to amount of discount employer gets deduction for compensation income compensation income ordinary income and subject to FICA employer must pay FICA too (get deduction) date used = date of exercise |
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advantage of ISO to employee
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extension of tax deferral period until the year of sale
the conversion of the option's bargain element from ordinary income to capital gain |
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advantage of NQSO to employer
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deduction at time of exercise
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interest income from investments
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municipal bond interest income is tax-free at federal level for regular tax
if the bond is a private activity bond, the interest is an AMT preference US debt interest is taxable at federal level (often exempt at state) - most pay interest every six months; taxable on receipt |
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reinvested dividends
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taxable (constructive receipt); increase basis
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gains/losses on securities
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mutual funds report 'distributed' capital gains; taxable, increase basis even if no cash distribution
realization requires sale or exchange gain/loss = proceeds - selling expenses - adjusted basis capital sale uses specific ID or FIFO method of matching basis with sales mutual funds typically use average basis |
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losses on worthless securities and bad debts
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capital losses
worthless securities are deemed sold on the last day of the tax year for $0 nonbusiness bad debts are treated as short-term capital loss person who has debt forgiven must recognize ordinary income |
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exchanging securities
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nontaxable if the stocks are similar stocks in the same corporation or part of a nontaxable reorganization, such as merger
basis of original stock becomes basis of new stock = deferral of gain/loss |
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net capital loss
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deduct 3000 against ordinary income
carryforward remainder indefinitely |
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Net capital gain
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any net ST gain is taxed at regular rates
very few specific net LT gains that are taxed at lower of 28% or regular rate section 1231 gain treated as capital which is attributed to unrecaptured realty depreciation any other net LT is taxed at 15% (or 0%) |
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Life insurance deferrals
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proceeds not taxable after death
policies excluding term policy build up cash surrender value (basis) for every year that the policy remains in effect CSV increase is not taxed unless liquidated (excess of CSV over premiums paid is taxable) |
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annuity contracts
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not taxed until annuity payments are made
like installment sale rules portion of annuity excluded = payment * (investment in annuity/expected return on annuity) nondeductible cost (basis) |
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investment interest expenses
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deductible up to net taxable investment income (investment income less investment expense other than interest)
includes interest, dividend, annuities, STCG plus LTCG in investment income if elect to be taxed at ordinary rates carryforward any excess interest expense indefinitely and deduct in future tax years itemized deduction |
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other investment expenses
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miscellaneous 2% deduction
investment fees, publications, seminars |
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real estate investments
mortgage interest payments; taxes |
taxes paid deductible in determining income from real estate investment
mortgage interest payments are investment interest expense |
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rental real estate
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reported on schedule e
passive activities |
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passive activity
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an interest in a business where the owner does not materially participate
affects deductibility of losses |
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material participation
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requires involvement in day-to-day operations on a regular, continuous and substantial basis
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passive loss limitation
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loss only deductible to extent of other passive income
excludes active income and portfolio income excess loss is carried forward indefinitely can deduct unused losses at disposition of the business interest |
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rental activities
what is not passive? |
all passive except hotels, automobile rentals, tuxedo rentals, videocassette or dvd rentals
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passive activity exception for rental real estate
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passive rental losses up to 25000 can be deducted against ordinary income if the taxpayer actively manages the property and has MFJ AGI less than 100000
phases out at 150000 |
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kiddie tax
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unearned income of dependent children < 19 and FT students < 24 in excess of 1900 is taxed at the parent's marginal tax rate
child's standard deduction is limited to greater of 950 or earned income +300; can't be over single standard deduction |
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gift tax- annual exclusion
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13000 for each unique person to person transfer
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NEVER HAS GIFT TAX
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gifts to spouse or charities
payment of tuition or medical costs of another individual |
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lifetime exclusion
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5 million
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gifts other than cash
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new basis: lesser of donor's basis or FMV
income derived from property belongs to donee and is taxable |
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estate tax
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includes FMV of all assets owned by the decedent and transferred under a valid will and other property transferred because of death
allowed to give any amount to spouse without being taxed reduce estate by taxes, charitable contributions, administrative expenses, and decedent's debts exclusion not used passed on to spouse |
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income tax effect of bequests
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receipt of a bequest is not taxable income to heir
basis = FMV at date of death |
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2010 estate tax
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no estate tax but no step-up in basis
estate gets 1.3 million of additional basis to allocate to estate (cannot exceed FMV) 2010 estates can elect whether to follow 2010 or 2011 rules |
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Miscellaneous 2% deductions
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tax compliance fees
hobby expenses unreimbursed employment-related expenses other investment expenses |
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FOR AGI deductions
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divorce alimony
SE tax qualified educational loan interest tax subsidy self employed medical insurance costs unreimbursed moving expenses |
