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64 Cards in this Set

  • Front
  • Back
  • 3rd side (hint)
The basic tax rate structure is progressive, with rates ranging from ___ to ___ ?
10% to 35%
In the Tax Formula, "Income (broadly conceived)" includes?
Taxable and Non-Taxable Income
What are Gross Receipts?
The total sales for your business during the year before deductions for returned items, allowances and discounts.
Are Income and Gross Receipts the same?
Gross Income is equal?
Is Income minus exclusions.
Gross Income includes only
Realized Gains
What are the two categories of deductions that apply to the individual taxpayer?
1. Deduction for Adjusted Gross Income
2. Deduction from Adjusted Gross Income
What is another phrase for "Deduction for Adjusted Gross Income"
Above the Line Deductions
Income and Gross Income are likely to be equal. However, list two things the Income will have that Gross Income will not have?
1. Return of Capital
2. Receipt of Borrowed Funds
In the IRC, "except as otherwise provided" refers to?
What is an example of "return of capital?"
When you sell stock at a gain. If you buy stock at 8 and sell it for 12. The 4 is only taxable as a gain, the 8 is a return of capital.
What is an example of "return of borrowed funds."
The return of a security deposit is a receipt of borrowed funds and is not taxable.
What is Global System?
Global system is a tax approach where the government taxes its citizens and residents on their worldwide income regardless of where earned.
Why are above the line deductions called such?
Because on the tax return they are taken before the "line" designating AGI
Why are above the line deductions sometimes referred to as page 1 deductions?
Because they are referred to as page 1 deductions since they are claimed, either directly or indirectly (ie through supporting schedules)
What is AGI the basis for?
AGI is an important subtotal that is the basis for computing percentage limitations on certain itemized deductions, such as medical expenses, charitable contributions, and certain casualty losses.

(For example, Medical expenses are deductible only to the extent they exceed 7.5 of AGI)
Deduction for AGI?

IRA Contributions?
Can Capital Losses be deducted for AGI?
Deductions FOR AGI, are do they reduce or increase your AGI?
What are Itemized Deductions?
Itemized deductions, which generally are personal expenses that can be deducted to reduce your income after your adjusted gross income (AGI) and before your income tax calculation.
Itemized deductions include medical expenses, taxes, deductible interest, charitable contributions, casualty and theft losses, unreimbursed employee expenses and miscellaneous deductions
Taxpayers are allowed itemized deductions for expenses related to:
(3 Answers)
1. The production or collection of income
2. The management of property held for the production of income
3. The determination, collection, or refund of any tax.

Nonbusiness expenses are expenses incurred in connection with an income-producing activity that does not qualify as a trade or business. Such expenses are itemized deductions

I suppose #3 means if you have to pay to get your taxes prepared?
Itemized deduction are sometimes referred to as "nonbusiness expenses."

How do they differ from trade or business expenses? (Referencing the Tax Formula)
Trade or business expenses, are deductions FOR AGI.

Thus, Itemized Deductions are deductions from AGI and Trade and Business expenses, are deductions FOR AGI.
Who sets the standard deduction and what is its role?
The standard deduction, is set by Congress, is used to exempt part of a taxpayer's income from federal income tax liability.
The standard deduction is the sum of two components:
1. Basic Standard Deduction
2. Additional Standard deduction
The standard deduction amounts are adjusted for ___?____ annually?
What is the Standard deduction for year 2008?
What is the Standard Deduction for year 2007?
How should you decide between itemized deductions or standard deductions?
You choose the greater amount, because it is being deducted to reduce your federal income tax liability.
A taxpayer is 66 and blind, what is her standard deduction?
The key thing to remember is that she is eligible for two additional standard deductions. Thus, her standard deduction and 1050+1050 or 1350+1350.
Who are Personal and Dependency Exemptions allowed for?
Exemptions are allowed for the taxpayer, for the taxpayer's spouse, and for each dependent of the taxpayer.
How much is the personal and dependency exemption for 2008?, 2007?
3,500 - 2008
3,400 - 2007
A married individual decides to file separately, is his or her spouse required to itemize deductions if the other spouse does?

A married individual filing a separate return where either spouse itemizes deductions is not eligible for the standard deduction
Are nonresident aliens eligible for the standard deductions? Are they able to itemize?
Nonresident aliens are not eligible for the standard deduction and must always itemize deductions
The individual is filing for a period of less than 12 months, because of a change in the annual accounting period. Can this person file using a standard deduction?
No, this person must itemize deduction, because standard deductions assume a year's period.
You're a dependent, what is your standard deduction?
Your standard deduction as a dependent in 2008 is:

1. $900
2. Earned Income + $300

HINT for Additional Information
Notice, that this coincides with the rule that makes it necessary for you to file.

Because if you have earned and unearned income, this is similar to that test.
Dependents must file under 3 specific rules. If the child has both earned and unearned income. What is the rule?
They are required to file if gross income is

1. >$900
2. Earned Income + $300 + (Plus any Additional Standard Deductions)

Hit the HINT Box for Explanation!
This is essentially saying that if you are not elderly and you have unearned income in excess of $300, you must file. (or I suppose, $900 - Earned Income = Max Unearned) In this scenario you can have at most 899.99 in unearned.

On the other hand, if you are over 65 years old, you're able to add at least $1050 to this amount. Thus you can have up to $1050 + $300 = $1350, in Unearned Revenue and another $900 in earned revenue and not file.

Even more, if you are blind!
Is interest earned or unearned income?
Scenario: Interest in a savings account
Can you claim a spouse claim another spouse as a dependent if they are filing separately?

Why or Why Not? How?
Yes, only in the situation where the other spouse has no GROSS INCOME
When is the determination of Marital Status usually made?

What is the exception to this?
At the end of the year

The exception is when the spouse dies during the year.
You lived for only 3 days in 2008, are you allowed an exemption?
Who is a dependency exemption allowed for?
1. Qualifying Child
2. Qualifying Relative
Define Qualifying Child:
An individual who, as to the taxpayer, satisfies the relationship, abode, and age tests. To be claimed as a dependent, such individual must also meet the citizenship and joint return tests and not be self-supporting. §§ 152(a)(1) and (c).
Does a Brother or Sister pass the Relationship Test for Qualifying Child?

In addition, their descendants as well, nieces, nephews, etc.
Are ancestors of qualifying children pass the relationship test? (Qualifying Child)

So this includes In Laws and aunts and uncles.
What is the Abode Test?
This states that a qualifying child must live with the taxpayer for more than half of the year.
You attend school full time for only one semester, are you eligible to be a dependent (assume you are 23 yrs old)?

You are only required to be in school for one semester throughout the year (more specifically: 5 months) to be eligible.
What is the Support Test for Qualifying Child?
The Child cannot support more than half of his living expenses.
Could your mother ever be a qualifying child?
No, remember, no ancestors
Define who could be a Qualifying Relative
1. Lineal Ascendants (Parents, Grandparents)
2. Collateral Ascendants (e.g. Uncles, Aunts)
3. Certain-in-Law (e.g. Sons, daughters, fathers, etc.)
The Relationship Test for Qualifying Relative includes?
Lineal Ascendants (Parents, Grandparents)
Collateral Ascendants (e.g. Uncles, Aunts)
Certain In Law Relatives
Can you claim an ex-spouse as a dependent?
Yes, however it cannot be int he year that you divorced. If it is the year proceeding, and he/she still lives with you, then it is permissible.
Are cousins qualifying relatives?
Do you have to be related to qualify as a qualifying relative?
The dependent's gross income under qualifying relatives must be less than what?
It must be less than the exemption amount, which is 3,500. Or Else, they are disqualified.
You give your ailing grandmother a television, it costs $600, is this part of support given?

You can add 600 dollars to the amount you claim to support her
Your parents take out a loan for 7000 and you give them 3000 to support them, because they are dying, Do they qualify as qualifying relatives?
No, because the 7000 is defined as support, even though they must pay it back. This represent more than half their support.
What is the Multiple Support Agreement?
To qualify for a dependency exemption, the support test must be satisfied. This requires that over 50 percent of the support of the potential dependent be provided by the taxpayer. Where no one person provides more than 50 percent of the support, a multiple support agreement enables a taxpayer to still qualify for the dependency exemption. Any person who contributed more than 10 percent of the support is entitled to claim the exemption if each person in the group who contributed more than 10 percent files a written consent (Form 2120). Each person who is a party to the multiple support agreement must meet all the other requirements for claiming the dependency exemption. § 152(c).

You must meet the relationship test and actually be in EXCESS of 10 percent
In addition to the test inherent in the Qualifying Relative and Qualifying Child tests, what are two additional additional tests that all dependents must meet?
1. Joint Return Test
2. Citizenship or Residency Test
What's a difference between the two supporting tests?
For a qualifying child category, the child cannot be self-supporting.
Say all that you can about the Joint Return Test
If a dependent is married, in order to meet the joint return test, the individual may not file a joint income tax return with his or her spouse unless he or she is filing a joint income taxt return in order to receive a refund of tax withheld, no tax liability would exist for either spouse on separate income tax returns, and neither spouse is required to file an income tax return.
Explain the Citizenship or Residency test
To be a dependent, the individual must be either a U.S. Citizen, a U.S. resident, or a resident of Canada or Mexico for some part of the calendar year in which the taxpayer's tax year begins.
True or False

The qualifying child category has no gross income limitations
What kinds of reductions in taxable income are phased out as AGI exceeds specified threshold amounts?
Personal and Dependency Exemptions are phased out.

The process is extensive, refer to page 3-19 to see an example. It's important to know when dealing with high AGI clients
What is the Child Tax Credit?
A tax credit based solely on the number of qualifying children under age 17. The maximum credit available is $1,000 per child through 2010. A qualifying child must be claimed as a dependent on a parent's tax return in order to qualify for the credit. Taxpayers who qualify for the child tax credit may also qualify for a supplemental credit. The supplemental credit is treated as a component of the earned income credit and is therefore refundable. The credit is phased out for higher-income taxpayers. § 24.