When to file?Due date April 15
Can extend 6 months to October 15
Still must make estimated payment by April 15
Filing Status optionsSingle
Married Filing Jointly
Married Filing Separately
Qualifying Widow(er) (Surviving Spouse)
Head of Household
Single Filing RequirementsSingle or legally separated as of
12/31
Status as of 12/31 decides status
Married Filing Jointly RequirementsIf married during year can
file MFJ,
If divorced during year CANNOT file MFJ
(status at 12/31 decides)
If one spouse dies during year, a joint return is allowed
Qualifying Widow(er) (Surviving Spouse) RequirementsAvailable 2
years subsequent to spouse death provided a dependent child is
involved, and no remarriage
Must maintain household for whole taxable year was principal
residence of child (inc. step; blood or adoption)
Widower = Whole Year
Head of Household Filing Requirements1) Individual is not
married, is legally separated, or lived apart for >6 months at
end of year
2) Not a Qualifying Widow(er)
3) Not a Nonresident Alien
4) Maintains a residence for > half the year, that is
principal residence of
a) Dependent son or daughter (Divorced Mom)
b) Father or Mother (not required to live with TP) (Nursing
Home)
c) Dependent Relative (must live with TP) (Not Freeloading
Friends)
Head of Household = Half Year
Personal ExemptionsIf you are claimed on another persons return,
not allowed the personal exemption
Folks use it, you lose it
Married Taxpayers (MFJ and MFS)Each spouse gets an exemption in
MFJ
If MFS, to get both on one, spouse must meet two tests:
1) spouse has no gross income
2) spouse not claimed by another taxpayer
Birth or death during the year exemption?If someone dies or is
born, get the exemption for the whole year, no proration
Phaseout of ExemptionsReduces Exemptions by 2% for every $2,500
or portion of for GI exceeding
MFJ = 305,050
HoH= 276,650
Single = 254,200
MFS= 152,525
MFJ makes 317,050: 317,050305,050=12/2.5=4.8 round to 5 (always
up). 5x2%=10%, 100%10%=90% of exemptions
Dependency ExemptionsPeople not Pets
CARES = Qualifying Child
SUPORT = Qualifying Relative
CARES Method for Qualifying ChildClose Relative
Age Limit = 19 or 24 (college)
Residency = must have same principal residence > half
year
Eliminate Gross income test = does not apply to a child
Support Test Changes = can not contribute more than half their
own support.
SUPORT Method for Qualifying RelativeSupport Test = supply more
than 50% of the support for year
Under Exemptions amt of Taxable GI = less than $3,950 taxable,
not (Soc. Sec, Tax Exempt int, tax exempt scholarship)
Precludes Dependent filing Joint Return
Only citizens of USA, Mexico, or Canada
Relative
Taxpayer lives with individual for whole year
Gross IncomeEvent
Realization vs RecognitionRealized Real World
Recognition Record
4 types of income characterization1. Ordinary
2. Portfolio
3. Passive (Rental Activity)
4. Capital
8 items included in Salaries and Wages1. Money
2. Property (FMV)
3. Cancellation of Debt
4. Bargain Purchases
5. Guaranteed Payments to a Partner
6. Taxable Fringe Benefits
7. Partially Taxable Fringe Benefits (Portion of Life Ins.
Premiums above $50K in coverage)
8. Nontaxable Fringe Benefits
Nontaxable Fringe Benefits IncludeLife Insurance Proceeds,
Accident, Medical, and Health Insurance (employer paid), De Minimis
Fringe Benefits, Meals and Lodging, Employer Payment of Employee's
Education Expenses, Qualified Tuition Reductions, Qualified
Employee Discounts, Qualified Pension, Profit Sharing, and stock
bonus plans, and Flexible spending arrangements
Qualified Pension, Profit Sharing, and Stock Bonus Plan
PartsPayments made by employer (nontaxable)
Benefits Received (taxable)
Interest Income (4 types)1. Taxable Int. Income (GR All Interest
income is taxable unless specifically excluded)
2. Tax Exempt interest income
3. Unearned Income of a Child under 18 (kiddie tax)
4. Forfeited Interest Adjustment
Taxable interest incomeFederal, industrial development, and
corporate bonds,
Premiums for opening a savings account, Interest paid by fed,
state, or local gov't for late payment of a refund
Tax Exempt interestState and local government
bonds/obligations,
Bonds of a US possession,
Series EE Bonds (Educational Expenses),
VA Insurance
Unearned Income of a child under 18Kiddie Tax
under 18 (or 24 if parent provides > half support)
taxed at parents higher rate
01000
Dividend income (sources and
taxability)E&P/Current=Distribute at CY End
E&P/Accumulated=Distribution Date
Return of Capital=No E&P
Capital Gain Distribution=No E&P and No Basis
Three categories of Dividend income1. Taxable Dividends
2. Tax Free Distributions
3. Capital Gain distributions
Taxable Dividends (Amount and Rates)Cash=Amount Received
Property=FMV
Qualified Dividend Holding Period: must be held more than 60
days during the 120 period that begins 60 days before dividend
date
Tax Rates: 0% (low income 10 or 15 ordinary), 15% (most), 20%
(high 39.6 ordinary bracket)
Tax Free Distributions (4 types)Return of Capital
Stock Split
Stock Dividend (unless option for cash or property)
Life Insurance Dividend
State and Local Tax Refunds (taxable vs nontaxable)If itemized
prior year=state and local refund is taxable
If standard deduction (1040EZ) in prior year=nontaxable state
and local refund
Payments from a divorce (spouse receiving)Alimony is Income, and
must be:
legally required
in cash or equivalent (pay cc bills or college fees)
must end at death
Child Support is:
Nontaxable and taken first if Deadbeat dad"
Property Settlements are:
nontaxable"
Business income or loss (location/Formula)On the Schedule C
Gross Business Income
Business Expenses
=Profit or Loss
Expenses Included in Schedule CCOGS, Salaries Paid to Others
(not yourself), State and Local Business Taxes Paid,
Office Expenses, Actual Auto expenses,
Business Meals and Entertainment (50%), Deprec. of business
assets,
Interest on business loans (incurred and paid"), Employee
Benefits,
Legal and prof. fees,
debts under accrual"
Nondeductible on Schedule CSalaries to the sole proprietor,
federal income tax,
personal portion of: auto, travel, vacation, personal meals,
interest expense, state and local tax expense,
health insurance of sole proprietor,
charitable contributions
Two taxes on Net Business Income (Schedule C)
What about loss?Income Tax, and
Federal SelfEmployment Tax
Loss has 2 year carryback and 20 year carry forward
Uniform Capitalization Rules
1) Types of Property?
2) Capitalized Vs. Period Expense3 Types of Property:
1) Produced for Use (Tangible)
2) Produced for Sale (Tangible)
3) Acquired for Resale (Tangible) preceding 3 years average
gross receipts less than 10 million
Capitalize: Direct Materials, Direct Labor, OH
Expense: Selling, General, and Admin, R&D
IRA Income TaxationMust be 59.5 years old to withdraw (if not
10% penalty Tax, unless exception)
Traditional Deductible IRA Distributions are ordinary income
Nondeductible (Traditional, Roth)
Traditional Principal (non tax), accum earnings (taxed)
Roth nothing taxed
IRA Income Penalty ExceptionsHIMDEAD
Home Buyer (1st time, up to 10K)
Insurance (medical
Medical Expenses (excess of 10% AGI)
Disability
Education
And
Death
Rental of Vacation HomeIf rented less than 15 days: rental
income is excluded
If rented 15 days or more, & used for personal for greater
of 14 days or 10% of rental days: expenses are prorated and
deductible to the extent of income
Taxable Miscellaneous Income (4 types)1) Prizes and Awards FMV
is included unless, won without entering and given to charity
2) Gambling: Winning included in GI, Losses only to extent of
winnings
3) Business Recoveries
4) Punitive Damages
Partially Taxable Miscellaneous Items (3 items)1) Degree seeking
Student: Scholarships excludable unless used for room and board or
service required
2) Scholarships rewarded to nondegree seeking candidates
3) Tuition Reduction
Nontaxable Miscellaneous Items (7)1) Life Insurance Proceeds
2) Gifts and Inheritance
3) Medicare Benefits
4) Workers Compensation (Unemployment Comp is taxable)
5) Personal Injury or Illness Award
6) Accident Insurance
7) Foreign Earned Income Exclusion
When is a Nonqualified option taxed?At the grant date when there
is a readily ascertainable value, otherwise, taxed when
exercised
Generally, a taxpayer must file a return if his or her income is
equal to or greater than:the personal exemption + the regular
standard deduction + additional standard deduction (for taxpayers
age 65+ or blind) [except for married persons filling
separately]
which individuals must file income tax returns even if their
income is lower than the general rule" requirement?"1. net earnings
from selfemployment are $400 or more
2. can be claimed as dependents on another taxpayer's return,
have unearned income, and gross income of $1000(2014) or more
3. receive advanced payments of earned income credit
How can an individual receive an automatic six month extension
to file?File Form 4868 by April 15
When do taxpayers who are out of the country file?Automatic
twomonth extension just by including documentation, and can request
the other extensions under the same rules as for other
taxpayers.
in a _____ state, a husband and wife who elect to file using the
married filing separately status must report their own income,
exemptions, credits and deductions on their own individual income
tax returns.separate property state
in a ____ state, most of the income, deductions, credits, etc.,
are split 50/50.community property state
what are the two requirements to have qualifying widower
(surviving spouse)" status?"1. two years after spouse's death
2. principal residence for dependent child
what are the requirements for the principal residence for
dependent child" requirement for surviving spouse status"the
surviving spouse must maintain a household that, for the whole
taxable year, was the principal place of abode of a son, stepson,
daughter, or stepdaughter (whether by blood or adoption). The
surviving spouse must also be entitled to a dependency exemption
for such individual.
what are conditions to be considered a father or mother" under
the head of household requirement?"not required to live with the
taxpayer, provided the taxpayer maintains a home that was the
principal residence of the parent for the entire year. maintaining
a home means contributing over half the cost of upkeep. This means
rent, mortgage interest, property taxes, insurance, utility
charges, repairs, and food consumed in the home.
what are conditions to be considered a dependent relative" under
the head of household requirement?"parents, grandparents, brothers,
sisters, aunts, uncles, nephews, and nieces (step and inlaws
included) qualify as relatives.
must live with taxpayer.
cousins, foster parents, and unrelated dependents do not
qualify.
how can a married taxpayer filing separately claim his spouse's
personal exemption?if the spouse has no gross income,
not claimed as a dependent of another taxpayer
if the parents of a child are able to claim the child but do not
no one else may claim the child unless __________________that
taxpayer's AGI is higher than the AGI of the highest parent
what type of relationships qualify under close relative"
requirement of qualifying child status for dependency
exemptions?"taxpayer's son, daughter, stepson, stepdaughter,
brother, sister, stepbrother, stepsister, or a descendent. adopted
children and foster children too.
what is the age limit to be considered a qualifying child for
dependency exemptions?younger than the taxpayer, under age 19 (or
24 in college), no limit to permanently disabled (school attendance
at night does not qualify)
what are the residency and filing requirements to be considered
a qualifying child for dependency exemptions?child must have the
same principal place of abode as the taxpayer for more than one
half of the tax year.
cannot file joint tax return for the year (unless filed only for
a refund claim)
How much money can a child earn to be considered a qualifying
child for dependency exemptions?any amount
what is the support test to be considered a qualifying child for
dependency exemptions?child must not contribute more than onehalf
of his support (doesn't need to be by parents though)
what is the support test to be considered a qualifying relative
for dependency exemptions?the taxpayer must have supplied more than
one half of the support. scholarships are not included. social
security and state welfare payments are included to the extent that
such amounts are actually expended for support purposes
how do multiple support agreements work for dependency
exemptions?when two or more taxpayers contribute more than half
support, the contributing taxpayers (who must be qualifying
relatives or lived the entire year with), one gets it. contributor
must have given more than 10% of support and meet other dependency
tests.
what is the multiple support declaration that joint contributors
are required to file?form 2120
a person may not be claimed as a dependent unless the
dependent's gross income is _______less than the exemption amount
($3950 in 2014)
a taxpayer will lose the exemption for a married dependent who
files a joint return unless __________the joint return is filed
solely for a refund of all taxes paid or withheld for the taxable
year
what are the citizen/residency requirements of qualifying
relatives for dependency exemptions?only citizens of the u.s. or
residents of the u.s., mexico, or canada.
how can kissing cousins or foster beer be counted as an
exemption?if they live with the taxpayer the entire year.
how are children of divorced parents treated for exemption
purposes?whoever has custody of the child for a greater period of
time (financial support irrelevant). if same, parent with higher
AGI.
what is form 8322written declaration that waives the right of a
custodial parent to take the exemption for a child. must be
attached to noncustodial parents return. custodial can revoke by
giving one years notice and copy form 8322 claiming the revocation
on their return.
what can you get for being 65+ or blind?additional standard
deduction (not an additional exemption)
if an event is taxable, what is the income and basis?fair market
value
_____ requires the accrual or receipt of cash, property, or
services, or change in the form or the nature of the investment (a
sale or exchange)realization
_____ means that the realized gain must be included on the tax
returnrecognition
what are the four characterizations of incomeordinary,
portfolio, passive, capital
what falls under ordinary income?salaries and wages, state and
local tax refunds, alimony, IRA and pension income, self employment
(schedule C) income, unemployment compensation, social security,
prizes, the taxable portion of scholarships and fellowships,
gambling income, and anything else.
what falls under portfolio income?income a taxpayer would earn
on his portfolio of assets, such as interest and dividends.
what is passive income?activity in which taxpayer did not
actively participate.
only ______ may offset passive income.passive losses
how are net passive losses treated?not deductible on tax
returnsuspended and carried forward until passive income exists to
offset it, unless an exception exists.
what can you get for being 65+ or blind?additional standard
deduction (not an additional exemption)
if an event is taxable, what is the income and basis?fair market
value
_____ requires the accrual or receipt of cash, property, or
services, or change in the form or the nature of the investment (a
sale or exchange)realization
_____ means that the realized gain must be included on the tax
returnrecognition
what is passive income?activity in which taxpayer did not
actively participate.
only ______ may offset passive income.passive losses
how are net passive losses treated?not deductible on tax
returnsuspended and carried forward until passive income exists to
offset it, unless an exception exists.
what are two types of passive income?rental income and
royalties/ beneficiaries of trusts and investments in Partnerships,
LLCs, and S Corporations
life insurance premiums: under ____ plans only, premiums above
the first $______ of coverage are taxable income to the recipient
and normally included in W2 wages.nondiscriminatory plans only;
$50,000
the proceeds of a life insurance policy paid because of the
death of the insured re general excluded from the gross income of
the beneficiary....except:the interest income element on deferred
payout arrangements if fully taxable.
For policies issued after 8/17/06, if a life insurance policy is
companyowned (COLI), the beneficiary may exclude from gross income
benefits received only up to _____the total amount of premiums and
other amounts paid by the policy holderany excess would be taxable.
[many exceptions apply family]
accident, medical and health insurance premium payments are
______ the employee's income when the employer paid the insurance
premiumsexcludable from
accident, medical, and health insurance amounts paid to the
employee under the policy are includable in income unless such
amounts are:1. reimbursement for medical expenses actually incurred
by the employee
2. compensation for the permanent loss or loss of use of a
member or function of the body
what are de minimis fringe benefits?benefits that are so minimal
that they are impractical to account for and may be excluded from
income
what are examples of nontaxable fringe benefits?life insurance
proceeds; accident, medical, and health insurance; de minimis
fringe benefits; meals and lodging; employer payment of employee's
educational expenses; qualified tuition reductions; qualified
employee discounts; qualified pension, profitsharing and stock
bonus plans; flexible spending arrangements stems; economic
recovery payments
up to _____ may be excluded from gross income of payments made
by employer on behalf of an employee's educational expenses. the
exclusion applies to ____ level education.$5,250; both undergrad
and grad level education
grad students may exclude tuition reduction only if___they are
engaged in teaching or research activities and only if the tuition
reduction is in addition to the pay for the teaching or
research.
to be excludable, tuition reductions must be offered on a ____
basis.nondiscriminatory
to what extent are merchandise discounts excludable?limited to
the employer's gross profit percentage. any excess must be reported
as income.
to what extent are service discounts excludable?limited to 20%
of the FMV of the services. any excess discount must be reported as
income.
the value of employerprovided parking up to ___ (in 2014) per
month may be excluded$250. available even if the parking benefit is
taken by the employee in place of taxable cash compensation.
the value of employerprovided transit passes up to ___ (for
2014) per month may be excluded$130
generally, payments made by an employer to a qualified pension,
profit sharing, or stock bonus plan are ____ to the employee at the
time of contributionnot income
benefits received the amount that is exempt from tax (plus any
income earned on such amount) is taxable to the employee when?in
the year in which the amount is distributed or made available to
the employee
what is a flexible spending arrangement stem (FSAS)plan that
allows employees to receive a pretax reimbursement of certain
(specified) incurred expenses
employees have the ability to elect to have part of their salary
(generally up to $____ per year) deposited pretax into a flexible
spending account. the employee has the option to use the deposited
funds to pay for _____ and/or ____ costs and submits claims to the
plan admin for reimbursement$2500;
qualified healthcare and/or qualified dependent care costs
flex spending arrangement funds not used within ____ after the
yearend or not claimed within a period of time (usually ____
months) are forfeited.2.5 months; 6 months
are economic recovery payments taxable?not taxable.
what is the general rule for interest?all interest is taxable,
unless specifically excluded
is interest income from federal bonds taxable?yes
is interest income from industrial development bonds
taxable?yes
are premiums received for opening a savings account (prizes and
awards) taxable? at what value?yes, at FMV
is interest income from part of the proceeds from an installment
sale taxable?yes
is interest on state and local bonds/obligations taxable?no
are mutual fund dividends for funds invested in taxfree bonds
taxable?no
is interest on the obligation of a possession of the US
taxable?no
when is interest of series EE bonds tax exempt?1. used to pay
for higher education (reduced by taxfree scholarships, of the
taxpayer, spouse or dependents)
2. there is taxpayer or joint ownership (spouse)
3. the taxpayer is over age 24 when issued; and
4. the bonds are acquired after 1989
is there a phaseour for allowable tax exempt interest income
from series EEyes
is interest on veterans administration insurance taxable?no
what are the four examples of tax exempt interest incomestate
and local gov bonds/obligations; bonds of a u.s. possession;
serious EE; veterans Administration insurance
what is the purpose of kiddie tax?prevent people from putting
their unearned income to their kids to have a lower tax
liability
how is the kiddie tax calculated?child's total unearned income
(from dividends, interest, rents, royalties, etc.( and subtracting
$2000 (the childs allowable 2014 standard deduction of $1000 (or
investment expense, if greater) + $1000 (which is taxed at the
child's rate))
when can parents elect to include on their own return the
unearned income of the applicable child?provided the income is
between $1000 and $10,000 and consists only of interest and
dividends.
what happens with forfeited interest? (early withdrawal of
savings)the bank credits the interest to the taxpayer's account and
then, in a separate transaction, removes certain interest as a
penalty. the interest received is taxable, but the amount forfeited
is also deductible as an adjustment in the year the penalty is
incurred. (theoretically netted, but not technically)
what are the four examples of distributions that are exempt from
gross income?1. return of capital
2. stock split
3. stock dividend (unless cash or other property option/taxable
FMV)
4. life insurance dividend
how to account for a stock dividend of the same stock.original
basis is divided by total shares
how to account for a stock dividend of a different
stock?original basis is allocated based on the relative FMV of the
different stock.
how are capital gain distributions treated?distributions by a
corp that has no e&p, and for which the shareholder has
recovered his entire basis, are treated as taxable gross income
the receipt of a state or local income tax refund in a
subsequent year is not taxable if _______.the taxes paid did not
result in a tax benefit in the prior year (itemize or standard
deduction)
payments for the support of a spouse are ____ to the spouse
receiving the payments are are ______________ by the contributing
spouseincome; deductible to arrive at agi
is child support taxable?no
if the divorce settlement provides for a lumpsum payment or
property settlement by a spouse, that spouses gets ____ for
payments made, and the payments are _____ of the spouse receiving
the paymentno deduction; not includible in the gross income
for business income, must use ____ method for
inventoryaccrual
types of business expenses1. COGS
2. salaries and commissions (paid to others)
3. state and local bus tax paid
4. office expenses
5. actual auto expenses, or standard mileage rate
6. business meal & entertainment at 50%
7. depreciation of business assets
8. interest expense on business loans (when incurred and
paid)
9. employee benefits
10. legal and professional services
11. bad debts (accrual tax payer only)
which salaries and commissions are considered business
expenses?ones paid to others, not to yourself
when can business meal and entertainment expenses be 100%
deductible?when all proceeds go to benefit a charity
interest expense paid in advance by a cash basis taxpayer cannot
be deducted until ________the tax year/period to which the interest
relates
what bad debt write off method is used for tax purposes?direct
write off method, rather than allowance method
what are nondeductible expenses for schedule c?1. salaries paid
to the sole proprietor
2. federal income tax
3. personal portions of stuff
4. bad debt expense of a cash basis taxpayer (who never reported
the income)
5. charitable contributions
where are charitable contributions reported?itemized deduction
on schedule A
what are the two taxes on net business income?income tax and fed
selfempoyment (S/E) ax
an adjustment to income is allowed for _______ of S/E tax
(medicare plus social security) paidonehalf (which is 7.65% of up
to 115,500 of selfemplyment income in 2014 plus 1.45% of self
employment income thereafter)
all self employment is subject to the ______ tax, but only up to
$115,500 in 2014 is subject to the ______ tax2.9% medicare tax,
12.4% social security tax; Total 15.3%
how is a net taxable business loss treated?a business with a
loss may deduct the loss against other sources of income. when the
loss exceeds these amounts, the excess net operation loss is
permitted as a carryover
2 year carryback, 20 year carryforward
unless an exemption exists for a taxpayer or a contract,
longterm contracts must be accounted for using the ____ method to
determine taxable income for a particular
contractpercentageofcompletion
which contracts are exempt from the longterm requirement that
they use percentageofcompletion?1. small contractors (no more than
2 yrs)
2. home construction contractors
3. contract that includes land and where less than 10% of the
total contract costs relates to the actual construction of property
on the land
4. services performed by architects, engineers, etc (contracted
to perform services but are not generally responsible for the final
product under contract)
5. services performed under warranty and maintenance agreements
related to the longterm contract
unless an exemption exists for a taxpayer or a contract, those
involved in longterm contracts must use _______ to account for
their longterm projects in construction.cost allocation rules
(essentially the Uniform Capitalization Rules)
which contracts are exempt from the cost allocation rules
required for tax for longterm construction contracts?small
contractor and home construction.
Small contractor and home construction contractors are required
to allocate _______ related to the contract to the costs of the
projectproduction period interest
home construction projects that are not also small constructions
projects must use ______uniform capitalization rules
in cost allocation rules for longterm construction contracts,
interest for the production period need not be capitalized
if_______________the total cost of the project is $1 mil or less
and the project is estimated to take less than 12 months to
complete
for cash basis taxpayers, the starting date of production is
generally the date on which the contractor ____incurs costs (other
than the startup engineering, design, etc. costs that are excluded
from cost allocation) under the contract.
for accrual basis taxpayers the starting date is _________the
later of the date for cash basis taxpayers or the date the taxpayer
has incurred at least 5% of the total costs initially estimated
under the contract
the end date of the production period is generally the date on
which _____the work under the contract is complete (per contract
provisions) or on the date the taxpayer has incurred at least 95%
of the total costs expected under the contract
what is the costtocost method of calculating the
percentageofcompletion?ratio of the total cumulative costs incurred
to date at the end of the tax year divided by the total expected
costs to be incurred under the contract.
the ______ method is required to be used for Alternative Minimum
Taxation, regardless of the method used for regular tax (except for
home construction contracts)percentageofcompletion
even if the percentageofcompletion method is used for regular
tax purposes, there are still likely to be differences in the
calculation of taxable income because ___________the calculation of
alternative minimum taxable income must take into account not only
the method of income recognition, but also other alternative
minimum tax rules (e.g. depreciation methods)
_________ must be calculated using the percentage of completion
method, even if the corporation uses the completedcontract method
for regular tax purposes.corporate earnings and profits.
in order for the manufacture of personal property to qualify as
longterm contract, not only must the contract not be completed
within the year it was started, but it also must be ____________for
the manufacture of a unique" item (i.e., an item that is made
specifically for a customer and could not be sold to others, is not
generally part of a taxpayer's normal inventory, and requires
significant preproduction costs)"
if a taxpayer performs services for a contractor that is
required to account for a longterm contract entered into with a
related party using the percentageofcompletion method, the taxpayer
(even those providing engineering or design services) must also use
the percentage of completion method because of _____, unless the
exception exists where ______because of the related party impact.
the exception is where over 50% of the 3year average annual gross
receipts of the same items stem from unrelated parties.
most farmers use the ___ basis of accounting.cash
how does the cash basis work for calculating farming
income?inventories of produce, livestock, etc., are not considered.
gross income includes the cash and the value of all other items
received from the sale of produce, livestock that has been raised
by the farmer, and for livestock or other items a farmer may have
bought, profit is computed by subtracting the purchase price from
the sales price.
which farmers are required to use the accrual method?certain
corporate and partnership farmers as well as all farming tax
shelters.
how does the accrual basis work for calculating farming
income?value of inventories at year end
+ proceeds received from sales
value of inventories at the beginning of the year
cost of inventory purchased during the year
= gross profit
whether on a cash or accrual method of accounting, taxpayers who
sell stock or sell securities on an established securities market
must recognized gains and losses as of the ___ date, not the ____
date.as of the trade date, not the settlement date.
generally, retirement money cannot be withdrawn until the
individual reaches the age of ____ or the individual elects
_______________59.5; elects to receive equal periodic distributions
over his life expectancy.
what is RMD?required minimum distribution (for IRAs) by age
70.5
when a person retires the funds will be taxed as ______ when
receivedordinary income (regardless of what type of income, such as
capital gain, was earned while the funds were invested)
are qualified benefits received from a roth IRA taxable?no
what is taxable in a traditional nondeductible IRA?principal not
taxable. accumulated earnings taxable when withdrawn
what is the penalty for withdrawing on an IRA early?10% penalty
tax (on top of any increase in regular income tax) if the
individual has not met an exception
there is no penalty if the premature distribution on an IRA was
used to pay for:H home buyer (1st time) $10,000 max exclusion (w/in
120 days)
I insurance (medical) if you're unemployed longer than 12 weeks
/ self employed
M medical expenses in excess of 7.5% of AGI
D disability (permanent/indefinite)
E Education
D Death
excess contribution to an IRA plan are subject to ______________
until the excess is correctedcumulative 6% excise tax each year
if an annuitant lives longer than expected, then further
payments are _____.fully taxable
if an annuitant dies before all the payments are collected, the
unrecovered portion is a _______ on the annuitant's final income
tax returnmiscellaneous itemized deduction not subject to the 2%
AGI floor.
Schedule _ is used to compute supplemental income and/or loss
from rental real estate, royalties, partnerships and lLLCs, S
corps, estates, trustsSchedule E
what is the basic formula for the determination of net rental
income or loss?gross rental income
+ prepaid rental income
+ rental cancellation payment
+ improvement inlieuofrent
rental expenses
= Net rental income / loss
rental of vacation home rented less than 15 days what are the
tax implications?rental income excluded from income. treated as
personal residence. mortgage interest and real estate taxes are
allowed as itemized deductions. depreciation, utilities, and
repairs are not deductible.
rental of vacation home rented 15 or more days what are the tax
implications?treated as personal/rental residences. expenses are
prorated between personal and rental use. (taxes prorated by annual
period, utilities and depreciation by annual usage). rental use
expenses are deductible only to the extent of rental income.
how are nondeductible PALs treated?passive activity losses can
only be offset by passive income! carryforward foreverif still
unused, suspended losses become fully tax deductible in the year
the property is disposed of (sold)
if the taxpayer becomes a material participant in the passive
activity, how are unused passive losses treated?the can be used to
offset the taxpayer's active income in the same activity.
who are the taxpayers subject to passive activity loss
rules?individuals, estates, trusts, personal service corps, and
closely held C corps
an individual may deduct rental activity losses if:mom and pop
exception, real estate professional
what is the mom and pop exception of the passive activity loss
disallowed net loss exception?taxpayers ay deduct up to $25,000 per
year of net passive losses attributable to rental real estate
annually if the individuals are actively participating/managing
for the carryforward after the mom and pop exception, an estate
can qualify for the ___ years following the decedent's death if the
decedent actively participated in the operation2 years
what is the phaseout for the mom and pop exception?reduced by
50% of the excess of the taxpayer's AGI (without consideration of
this loss deduction) over 100,000. (so up to $150,000)
what are the conditions to be considered a real estate
professional (so that the rental activities are not considered
passive and the taxpayer can fully deduct losses from the rental
activities against other income)?1. more than 50% of the taxpayer's
personal services during the year are performed in real property
businesses
2. the taxpayer performs more than 750 hours of services in real
property businesses during the year
the taxpayer must include in gross income the ___ amount
received for unemployment compensationfull amount
are social security benefits included in income?mayyyybe,
depends on how much you make! (5 levels of provisional income)
what is provisional income?AGI + taxexept interest + 50% of
social security benefits (MODIFIED ADJUSTED GROSS INCOME)
if you are low income, how much of your social security benefits
are taxable?zero. provisional income: less than $25,000 single,
$32,000 MFJ
if you are upper income, how much of your social security
benefits are taxable?85%. provisional income: more than $34,000
single, $44,000 married
what do you need to add to your AGI to end up at MAGI?1. income
excluded for foreign earned income exclusion
2. exclusion or deduction claimed for foreign housing
3. interest income from series EE bonds that you were able to
exclude bc you paid qualified higher education expenses
4. deduction claimed for student loan interest or qualified
tuition and related expenses
5. any employerpaid adoption expense you excluded
6. any deduction you claimed for an annual (nonrollover)
contribution to a regular IRA
an exclusion from income for certain prizes and awards applies
where the winner is _________where the winner is selected for the
award without entering into a contest and assigns the award
directly to a gov'tal unit or charity
when can gambling losses be deducted?only to the extent of
gambling winnings. allowable amount is deductible on schedule A as
an itemized deduction, but the amount is not subject to the 2%
floor.
to decide whether a business recovery is excludible, one must
determine _______what the damages were paid in lieu of. (if for
lost profit, then it's income)
when are punitive damages taxable?fully taxable as ordinary
income if received in a business context or for loss of personal
reputation. also if personal injury case, except in wrongful death
cases
how are graduate teaching assistants and research assistants who
receive tuition reductions taxed?they are taxed on the reduction if
it is their only compensation, but not if the reduction is in
addition to other taxable compensation.
does gross income include property received from a gift or
inheritance?no
what is the taxable portion of a gift?any income received from
such property (interest income, rental income, etc)
are medicare benefits included in gross income?no
when can you exclude from gross income payments received (even
with multiple recoveries) from accident insurance?if the individual
paid all premiums for the insurance
taxpayers working abroad may exclude from gross income up to
$____ of their foreignearned income. in order to qualify for the
exclusion, the taxpayer must satisfy one of the two tests:$99,200.
bonafide residence test (for an entire taxable year), physical
presence test (present for 330 full days our of any 12consecutive
month period.
is treasury stock a capital asset?no
are copyrights, literary music or artistic compositions that
have been purchased capital assets?yes
is section 1231 assets capital?no
how is the gain/loss calculated when you sell property that was
gifted to you?if the fmv is higher, then selling price basis.
if fmv value is lower, then gain = selling price basis and
loss = fmv selling price.
anything in between is no gain or loss.
how do you calculate gifted property depreciation?Lesser of
Donor's adjusted basis at the date of the gift
or
FMV at the date of gift.
what is the holding period when you receive property as a
gift?normally assume the donor's holding period. unless the FMV is
used (as a loss basis) as the basis of the fit, the holding period
starts as of the date of the gift.
what is the alternative valuation date for inherited
property?the earlier of 6 months after death or the date of
distribution/sale
what is the general rule for inherited property basis?Property
acquired by the bequest or inheritance generally takes as its basis
the stepup (or down) to FMV at the date of the decedent's death
how is the holding period determined for property acquired from
a decedent?automatically considered to be longterm property
regardless of how long it has actually been held.
a gain is not taxed for the following:H Homeowner's
exclusion
I Involuntary Conversions
D Divorced Property Settlement
E exchange of LikeKind Business/Investment assets
I Installment Sale
T Treasury and capital Stock Transactions
What is the dollar amount of the homeowner's exclusion from
gross income for gain?$500,000 for married couples filing a joint
return and certain surviving spouses;
$250,000 for single, married filling separately, and head of
household
who qualifies for the homeowner's exclusion from gross income
for gain?taxpayer owns and used the property as a principal
residence for two years or more during the 5 year ending period
ending on the date of the sale or exchange. either spouse for a
joint return must meet the ownership requirement, but both spouses
must meet the use requirement with respect for the property. may
not use exclusion more than once every 2 yrs (could get partial if
other reasons though)
how are involuntary conversions treated for gains?nonrecognition
treatment is given because the reinvestment of proceeds restores
him to the position he held prior to the conversion. if the
taxpayer does not reinvest all the proceeds, his gain on the
transaction will be recognized to the extent of the unreinvested
amount.
in an involuntary conversion, when must property be reinvested
by?personal property = 2 years from year end, business property = 3
years
in an involuntary conversion, when the gain exceeds $100,000,
__________property acquired from related parties and certain close
relatives don't qualify as replacement property
how are losses dealt with in an involuntary conversion?losses
are recognized!
nonrecognition treatment is accorded to like kind" exchange of
property used in the trade or business or held for investment,
EXCEPT:"inventory, stock, securities, partnership interests, and
real property in different countries
how do you determine the amount of income to report in an
installment sale for the year?earned revenue = cash collections x
GP %
how are treasury and capital stock transactions by a corporation
treated for tax purposes?sales of stock by corporation, repurchase
of stock by corp, and reissue of stock are exempt from gain and
losses are disallowed. essentially corporations are precluded from
tax benefits or income taxes resulting from dealing in their own
stock.
which losses on sales of property are nondeductible?W wash sale
loss
R related party transactions
P Personal loss
what is a wash sale?when a security is sold for a loss and is
repurchased within 30 days before or after the sale date
who falls under a related party?brothers and sisters, husband
and wife, lineal descendants, entities that are more than 50% owned
by individuals, corps, trusts, and/or partnerships
capital gains taxes are imposed on all sales of nondepreciable
property between all related parties except:1. husband and wife
(basis is merely transferred)
2. individual and a 50% controlled corp or partnership (where
the gain is taxed as ordinary income
what are the basis rules for selling property under related
party transactions?same as giftbasis rules
no deduction is allowed for the loss on a nonbusiness disposal
or loss. an itemized deduction may be available in the category of
______casualty and theft
what is the holding period and tax rate for short term capital
gains?one year or less, tax rate is treated as ordinary income.
long term gains on ________ are taxed at 28% (for taxpayers not
in the 10%, 15% or 25% tax brackets)collectibles, antiques, and
small company (section 1202) stock
individual taxpayers realizing a net long or shortterm capital
loss may only recognize (deduct) a max of ___ of the amount
realized from other types of gross income (ordinary income, passive
income, or portfolio income)$3,000
for individuals, what is the carryback of a net capital loss?no
carryback. but you can carry forward an unlimited time until
exhausted.
how is a personal (nonbusiness) bad debt treated?a shortterm
capital loss in the year debt becomes totally worthless
how are worthless stock and securities treated under net capital
losses?the cost (or other basis) of worthless stock or securities
is treated as a capital loss, as if they were sold on the last day
of the taxable year in which they became totally worthless
what are the netting procedures for capital gains and losses for
individuals?gains and losses are netted within each tax rate group,
creating net shortterm and longterm gains or losses by rate group.
resulting shortterm and longterm loses are then offset against
short term and longterm gains (respectively) beginning with the
highest tax rate group and continuing to the lower rates
how are net capital gains for c corps treated?added to ordinary
income and taxed at the regular rate (do not get the benefit of
lower capital gains rates). section 1231 gains are entitled to
capital gain treatment
how are net capital losses for c corps treated?corporations may
not deduct any capital loss from ordinary income. only use capital
losses against capital gains. net capital losses are carried back 3
years and forward 5 years as a short term capital loss.
how are section 1231 assets treated in a business in terms of
gains and losses?gains treated as capital" assets used in the
business while losses are treated as ordinary losses."