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29 Cards in this Set

  • Front
  • Back

Interest income is full taxable, except for

Interest from state and local government bonds

Guaranteed payments are/are not subject to self-employment tax.


Ordinary income reported from an S corporation is/is not taxable income to the individual or their own individual tax return. It is/is not subject to self-employment tax.

Ordinary income reported from an S corporation is taxable income to the individual or their own individual tax return but is not subject to self-employment tax.

The ordinary income reported from a partnership may/may not be subject to self-employment tax (if to a general partner).

The ordinary income reported from a partnership may/may not be subject to self-employment tax (if to a general partner).

Generally, the fair market value of prizes and awards is taxable income. However, an exclusion from income for certain prizes and awards applies where:

1. Winner is selected for the award without entering into a contest (i.e., without any action on their part)


2. Assigns the award directly to a governmental unit or charitable organization.

Uniform capitalization rules apply to:

1) real or TPP produced by the taxpayer for use in his or her trade or business;

2) real or TPP produced by the taxpayer for sale to his or her customers; and

3) real or TPP acquired by the taxpayer for resale, provided the annual average gross receipts for the preceding three years exceeds $10,000,000

For property acquired for resale, under Uniform Capitalization Rules, what costs are capitalized with respect to inventory?

Direct material, direct labor, and factory overhead (applicable indirect costs).

Applicable indirect costs: depreciation, insurance, supervisor wages, utilities, spoilage, design expense, repair and maint, rental of equipment/facilities, some admin costs, bonus and other incentive plans, indirect supplies (including repackaging costs)

Kiddie tax calculation:

Child's total interest income - child's standard deduction. The next interval of the standard deduction is then taxed at the child's rate, and the balance is taxed at the parents' highest rate.

If a vacation residence is rented for less than ___ days per year, it is treated as a personal residence.

If a vacation residence is rented for less than 15 days per year, it is treated as a personal residence.

Rental income is excluded from income, and mortgage interest/real estate tax are itemized deductions

When are security deposits not included in income in the year received?

If security deposits are held separately and not available to be applied to last month's rent (as in a segregated account)

If an individual taxpayer has elected to amortize the premium on a bond that yields taxable interest, how does the amortization affect the bond?

The bond's basis is reduced by the amortization.

Taxpayers who sell stock or securities on an established securities market must recognize gains and losses on what date?

Trade date

How are passive losses handled generally?

Generally only offset passive income for a tax year. Remaining net loss is generally "suspended" and carried forward to a year when it may be used to offset passive income (or when the final disposition of the property occurs). Remember - there is an exception (the "mom and pop exception"

What is the mom and pop exception for passive losses?

1. Own > 10% of the rental activity,

2. Have MAGI < $100,000, and

3. Active participation (prop. mgnt OK),

Deduct up to $25,000/year of passive losses attributable to real estate. Phase-out for MAGI from $100,000 − $150,000. Deduction completely phased-out MAGI in excess of $150,000.

What are the exceptions to tax on premature distribution from an individual retirement account is subject to a 10% penalty tax?

Mnemonic "HIM DEAD.":

Home buyer (1st time) $10,000 max

Insurance (medical)

Medical expenses in excess of 10% of AGI





The first $______ of group term life insurance is a nontaxable fringe benefit.


How are suspended passive losses treated?

Carried forward, but not back, until utilized.

Income is recognized for qualified stock options until

Sale of the stock

The employee receiving a nonqualified stock option must recognize as ordinary income the value of

The option if traded on an established market.

For an Incentive Stock Option, once exercised, the stock must be held at least

2 years after the grant date and at least one year after the exercise date.

The employer may recognize a deductible expense for a nonqualified stock option in the

Same year that the employee will recognize ordinary income.

For Employee Stock Purchase Plans, the option exercise price may not be less than the lesser of

85% of the FMV of the stock when granted or exercised.

Amount subject to income tax for insurance policy benefits

Amount received in the current year - Return of principal (Total benefit amt ÷ years of payout) = Taxable interest

The rule limiting the allowability of passive activity losses and credits applies to

Personal service corporations.

A cash basis taxpayer should report gross income for the year in which income is

Either actually or constructively received, whether in cash or in property.

Requirements for filing as Surviving Spouse:

1. Not remarried

2. Maintains a principal residence for dependent children for the entire year

Then, may file using the surviving spouse (qualifying widow) status for the two taxable years following death

Limitation for individual taxpayers deduction for the FMV of property donated to charity.

30% of the taxpayer's AGI

Under a nonaccountable plan (i.e., expenses are not reported to the employer), any amounts received by an employee from the employer must be reported by the employer as

Part of wages on the employee's W-2 for the year (and subject to income tax withholding requirements). The gross amount received is reported as income.

Casualty losses are generally computed as

Decline in fair market value, except that the fair market value is limited to the property's basis. Casualty losses are reduced by the amount of any insurance recovery. Next, each individual loss is reduced by $100. Finally, the remaining total amount of all casualty losses are deductible only to the extent that the amount exceeds 10% of AGI