Tax Chapter 4

Front 1

Whats included in Gross income?

Back 1

Everything. All income from whatever source unless the code specifically says its not. LIke Gifts.

Front 2

Adjusted Gross income=

Back 2

Gross income - For AGI deductions

You use it as a floor for many other deductions. you want to get as many as you can at that floor.

Front 3

Taxable income=

Back 3

AGI-From AGI deductions

Front 4

From AGI deductions=

Back 4

1. Greater of Standard deduction or Itemized deductions

and

2. Personal and dependency exemptions

Front 5

Income Tax Liability=

Back 5

Taxable income
x
Tax rates

Front 6

Total Tax=

Back 6

Income tax liability
+
Other Taxes

Front 7

Taxes due (refund) =

Back 7

Total tax
-
Credits
-
Prepayments

Front 8

What do you attach for Taxable interest and Dividends?

Back 8

Schedual B

Front 9

What do attach to report business income?

Back 9

Scheudal C

Front 10

What do you attach to report Gains/losses

Back 10

Schedual D

Front 11

what do you attach to report Rental income?

Back 11

Schedual E

Front 12

What do you attach to report Farm income?

Back 12

Schedual F

Front 13

Educator Expenses

Back 13

When you are a teacher and you buy supplies for school. You can deduct 250

Front 14

Health Savings Account

Back 14

When you put money aside (ex 2000/yr) to take care of your health care not covered by your own policy. They only thing about it is if you dont use it you lose it.

Front 15

Moving Expenses

Back 15

can deduct if you are moving away and relocating to be closer to a new job.

Front 16

Why do you get to deduct one half of self employment tax?

Back 16

Self employment tax is when you have a business and earn a come you have to pay social security as an employer and employee. half of it is like a business expense.

Front 17

Deducting self employed Helath insurance deuction

Back 17

It is to put the self employed on the same playing field as an employed person. It is not taxable.

Front 18

Alimony

Back 18

If you pay it you get to deduct it. If you recieve it its part of your gross income.

Front 19

Who is exempt from social security?

Back 19

The Amish.

Front 20

What does letting you deduct Student loans and tuition/fees?

Back 20

The government promotes education.

Front 21

Domestic production is a deduction for

Back 21

Entreprenuership

Front 22

Itemized Deductions

Back 22

items Which allows you to deduct before you get taxable income.

Front 23

Exemption

Back 23

A flat deductions allowed for the taxpayer, the taxpayers spouse and each person who qualiefies as a dependent.

Front 24

if you are a senior (65) or blind

Back 24

you get an additional deduction

Front 25

if you and your spouse are both blind

Back 25

you get 4 additional deductions

Front 26

Itemized deductions are included on..

Back 26

schedule A

Front 27

How much is each Exemptions

Back 27

$3700 subtracted for each exemption.

Front 28

Realized income =

Back 28

Everything

all income that you can have in your hands. Includes gifts

Front 29

Gross income =

Back 29

Realized income - Exclusions

All income that you realized minus exlucsions that the irs code says you can exclude.

Front 30

Taxable income =

Back 30

Gross income
-
Deductions For AGI
-
Deductions From AGI

Front 31

Is it easier to describe what a capital asset is or is not? Why?

Back 31

What it is not because...

Front 32

For Agi Deductions vs From AgI

Back 32

For is Above the line. From is Below line.
For is more important because you want to minimize your AGI as it is a reference point

Front 33

Tax Deduction Vs Tax Credit

Back 33

Tax deductions are deducted from your income but before tax is calculated.

Credits are a dollar for dollar deduction after your total tax has been calculated

Front 34

Three ways taxpayers can pay their income taxes to the government.

Back 34

1. Withheld by employee.
2. Advanced
3. Refund deffered.

Front 35

If a person is considered to be a qualifying child or qualifying relative. is taxpayer automatically entitiled to claim a dependency exemption to that person?

Back 35

There are cases where the court will grant custody to others.
If the dependent earns more money than the exemption amount.
There are different rules for your kids in college.
Residency requirement (6months or more)
U.S. Citizenship requirement for parents but child can be living in US/CAN/MEX

Front 36

deferral vs. exclusion
Interest income from municipal bonds

Back 36

Exclusion

Front 37

deferral vs. exclusion
Gifts and Inheritance

Back 37

Exclusion

Front 38

deferral vs. exclusion
Gain on sale of Personal Residence

Back 38

Exclusion

Front 39

deferral vs. exclusion
LIfe insurance proceeds

Back 39

Exclusion

Front 40

deferral vs. exclusion
Installment sale

Back 40

Deferral

Front 41

deferral vs. exclusion
Like-Kind Exchange

Back 41

Defferal

Front 42

Character of income

Back 42

Determines rate at which income will be taxed for the year

Front 43

Character of income
Tax-exempt

Back 43

income realized during the year that is excluded from gross income and is never taxed

Front 44

Character of income
Tax Deferred

Back 44

Income realized during the year that is not included in gross income until a later year. That is, the income is not taxed in the current year but will be taxed in a subsequent year or years when certain events take place

Front 45

Character of income
Ordinary

Back 45

This is income that is included in gross income in the current year and taxed at the ordinary rates provided in the tax rate schedules.

Front 46

Character of income
Qualified dividend

Back 46

dividends from corporations included the dividend in come in gross income. If it meets requirements, its taxed at a max of 15%.
its Preferentally taxed.

Front 47

Character of income
Capital

Back 47

Gains and losses on the disposition of capital assets.

Front 48

Capital assets are all assets other than..

Back 48

1. A/R from the sale of goods or services
2. Inventory and other asssets held for sale in the ordinary course of business
3. Assets used in a trade or business, including supplies.

Front 49

Long term capital gain

Back 49

(a) Generally taxed at 0% or 15% (net long term gains in excess of net short term losses)

Front 50

Short-term capital gains

Back 50

Generally taxed at ordinary rates

Front 51

Net capital losses

Back 51

1.Deduct $3,000 against ordinary income

2.Carryover excess loss to future years (indefinite carryover)

Front 52

Deductions

Back 52

Reduce a Taxpayers Taxable income
Not allowed to duduct anything unless a specific tax provision allows them to do so.

Front 53

For/From
Alimony paid

Back 53

For

Front 54

For/From
Health insurance deduction for self-employed taxpayers

Back 54

For

Front 55

For/From
Moving Expenses

Back 55

For

Front 56

For/From
Rental and royalty expnese

Back 56

For

Front 57

For/From
One-Half of self employement taxes paid

Back 57

For

Front 58

For/From
Business Expenses

Back 58

For

Front 59

For/From
Losses on dispositions of assets used in a trade or business

Back 59

For

Front 60

For/From
Capital Loses

Back 60

For

Front 61

For/From
Contributions to qualified retirement accounts

Back 61

For

Front 62

For/From
Medical/Dental expenses

Back 62

From

Front 63

For/From
State and local income taxes

Back 63

From

Front 64

For/From
Interest expense: Mortgage, equity, investment

Back 64

From

Front 65

For/From
Gifts to Charity

Back 65

From

Front 66

For/From
Casuailty and theft losses

Back 66

From

Front 67

For/From
Job expenses and certain miscellaneous deductions

Back 67

From

Front 68

For/From
Other Miscellaneous deductions: Gambling loss and such.

Back 68

From

Front 69

How is income Tax Calculated

Back 69

Using a tax table or tax rate schedule

Front 70

How do taxpayers with taxable income under 100,000 calculate income tax?

Back 70

They must use the tax tables.

Front 71

Other Taxes

Back 71

Alternative minimum tax and the self employment tax

Front 72

Tax credits

Back 72

Directly reduce taxes payable. Thus a $1 deduction reduces taxes payable by $1 times the marginal tax rate while a $1 CREDIT reduces taxes payable by $1.

Front 73

Tax Prepayments

Back 73

1. withholdings from salary
2. Estimated tax payments the taxpayer makes in the year to the irs.
3. taxes the taxpayer overpaid on the prior year tax return that was not refunded rather applied.

Front 74

Personal and Dependency Exemptions

Back 74

3700 for each
Individuals can claim one for themselves
Married couples can claim 2 personal exemptions
Additional exemptions for qualified dependents
Dependents cannot claim themselves.

Front 75

Dependency requirements

Back 75

1. citizen of the united states or resident of US/CAN/MEX
2. Must not file a joint return w/spouse unless there is no tax liability on their return or there would not have been if they filed seperately
3. Must be qualifying child or qualifiying relative

Front 76

Qualifying child

Back 76

(1) Relationship test
(2) Age test
(3) Residence test
(4) Support test
(5) Tiebreaking rules

Front 77

Relationship Test for Qualifying Child

Back 77

child or descendent of child. (adopted stepchild and foster child)

Sibling or descendent of sibling (half siblings and step siblings)

Front 78

Age Test for Qualifying Child

Back 78

either
1. under age 19 at the end of year

or

2. under age 24 at the end of year and full-time student

or an individual who is permanently disabled

Front 79

Residence test for Qualifying Child

Back 79

Have the same residence as the taxpayer for more than half the year.

only exeptions are
1. being ill
2. Pursuing education
3. Special circumstances

Front 80

Support test for Qualifying Child

Back 80

Must not have provided more than half of their own support during the year. Scholarships excluded.

Front 81

Tiebreaking rules for Qualifying Child

Back 81

1.Parents have priority over grandparents...etc
2.the parents whom the child has resided for the longest period of time has priority.
3. The custodial parent has priority if the child has lived with both for more than half a year unless they release exemption via written declaration
4. if child lives with both for even period or lives separately Taxpayer with the highest AGI gets the exemption

Front 82

Qualifying relative

Back 82

Relationship test
Support Test
Gross income test

Front 83

Relationship Test for Qualifiying relative

Back 83

Descendent or Ancestor
1.Adopted child step or foster child
2.Parent stepmother/father
SIblings
Son or daughter of siblings
Sibling of mother/father
IN-Laws
Anybody living with taxpayer for entire year.

Front 84

Support Test for Qualifying Relative

Back 84

Generally requires that taxpayer pay more than half of the qualifying relative's living expenses.

Front 85

Multiple support agreement

Back 85

1. No one taxpayer paid over one-half of the individuals support.
2. Taxpayer and at least one other person provided more than hlaf of the support of the individual
3. the taxpayer contributed over 10% of the individuals support for the year.
4. Each other perosn who provided over 10% provides a signed statement to thetaxpayer agreeing not to claim the individual as a dependent. Taxpayer includes these names/address/ssn on form 2120

Front 86

Gross Income Test for Qualifying Relative

Back 86

The gross income test requres the relatives gross income to be less than $3700

Front 87

Married filing jointly

Back 87

Taxpayers must be legally married as of the last day of the year
ii) When one spouse dies during the year the surviving spouse is still considered to be married for tax purposes during the year of the spouse’s death
iii) Both spouses are ultimately responsible for paying the joint tax

Front 88

Married filing tax returns separately

Back 88

i) Each spouse files his or her own tax return
ii) Generally, there is no tax advantage for to filing separately
iii) Each spouse is ultimately responsible for paying own tax
iv) Generally for nontax reasons, couples may choose to file separately
(1) Limit liability for other spouse’s taxes

Front 89

Qualifying widow or widower

Back 89

) Generally treated as married filing jointly
ii) When the taxpayer’s spouse dies, the surviving spouse can file as qualifying widow or widower for two years after the year of the spouse’s death if the surviving spouse remains unmarried and maintains a household for a dependent child

Front 90

Single

Back 90

) Unmarried taxpayers who do not qualify for head of household status file as single taxpayers

Front 91

Head of household

Back 91

i) Unmarried or considered to be unmarried at year end
(1) See abandoned spouse rules
ii) Not a qualifying widow or widower
iii) Pay more than half the costs of maintaining home during year
iv) Lived in taxpayer’s home with a qualifying person for more than half the year
(1) See exception for parents who qualify as taxpayer’s dependents
(2) Qualifying person
(a) Qualifying child
(b) Qualifying relative
(c) Parent even if parent doesn’t live with taxpayer if parent qualifies as taxpayer’s dependent

Front 92

Abandoned spouse

Back 92

(1) Treated as unmarried so can qualify for head of household filing status
(2) Qualifies if
(a) Spouse has not lived in taxpayer’s home at all during last six months of year
(b) Taxpayer pays more than half the costs of maintaining a home that is principal place of abode for qualifying child