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Define Taxable Income
The Amount of Income that is taxed. You get it by taking your adjusted gross income reducing it by taking deductions FROM AGI.
What are the tax rates as of 2011?
15%, 28%, 31%, 36%, 39.6%
How do you use tax credits?
Tax credits can be subtracted from the gross tax to arrive that the net tax due or the refund due.
Refundable tax credits are what?
Refundable tax credits are allowed to reduce a taxpayers liability to zero and if a credit remains then it is refunded to the taxpayer.
What are non-refundable tax credits?
Non-refundable tax credits are allowed to reduce a taxpayers liability to zero but if a credit remains they are non-refundable to the taxpayer.
When are itemized deductions used?
Itemized deductions are claimed only if the total of such expenses exceed the standard deduction.
List 6 deductible items
- Medical expenses
- Investment and residential interest
- Charitable contributions
- Casualty and theft losses
- Employee expenses
What is the standard deduction for head of household?
What are the rules for the loss of standard deduction?
- An individual filing for a period of less than 12 months
- A married spouse filing seperately when the spouse itemizes their deductions
- Non-residential Aliens
What is the standard deduction for dependents?
- The standard deduction of the dependent is limited to the great of:
- The dependents Earned Income +$300
List 4 requirements common to all dependents.
- Must have a qualified ID number
- Must meet a citizenship test
- Must meet a seperate return test
- Must not be able to claim a dependent themselves
What are the requirements for the relationship test?
- Natural children
- Adopted Children
- Foster Children
- Step Children
What are the additional requirements for qualifying children?
- Must pass the relationship test
- Must pass the age test
- Must pass the abode test
- Must pass the support test
What are the requirements for the support test?
A qualifying child may not provide more than 1/2 of their own support during the year.
What are the requirements for the abode test?
- Must have the same address as the taxpayer for more then half of the year.
- (A non-custodial parent meets this requirement if the custodial parent agrees in writing)
What are the requirements for the age test?
- Must be under 19
- Must be a full time student under 24
- Must be permanently and totally disabled
What is a personal exemption and how much is it?
A personal exemption is an exemption allowed for each taxpayer, their spouse, and one for each dependent in the amount of $3,650/each.
What is Adjusted Gross Income (AGI)?
A measure of income that falls between Gross Income and Taxable Income.
What are Deductions FROM AGI?
Personal expenses congress chooses to allow.
What are Deductions FOR AGI?
Expenses connected with a trade or business.
What is Gross Income?
Income reduced by exclusions.
What is an exclusion?
Any item of income that the tax law says is not taxable.
What is Income?
It is all forms of income both taxable and non-taxable.
What is the standard deduction for married filing jointly?
What is the standard deduction for individuals filing a single return?
List the employment taxes
- Social Security (FICA)
- Federal unemployment compensation
- State unemployment compensation
What is sales tax?
An imposed tax on retails sales of tangible personal property.
What are Federal excise taxes and custom duties?
Taxes imposed on imported goods.
What are property taxes?
Taxes based on the value of a taxpayers property.
What are the federal estate tax rules?
- The decendents property is valued at FMV on the death date unless the alternative valuation date is elected.
- The basis of the property received by the estate and by the decendent's heirs is thepropertys FMV on the death date or Alternate Valuation Date.
- Property transfered to the decendent's spouse is exempt.
What does FMV stand for?
Fair Market Value
What is the Federal Estate Tax ?
It is a part of a unified transfer tax system based on the total property transfers an individual makes both during life and at death.
What are the gift tax rules?
- Gifts between spouses are exempt due to marital deduction.
- The primary liability for payment is on the donor.
- A donor is permitted a $13,000 anual exclusion to each donee.
- Charitable contributions are exempt
- The tax basis of the property to the donee is generally the donor's cost (See chapter I:5)
- A unified tax credit equivalent to a $1,000,000 deduction is available to offset any taxes that exceed the $13,000 annual exclusion.
What is the 16th Amendment?
The congress shall have the power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several states, and without regard to any census or enumeration.
What is a progressive rate?
A rate of tax where the taxes increas as the base increases.
What is a proportional rate?
A rate of tax where the tas is the same for all taxpayers regaqrdless of the level of the base. (Also called a flat tax.)
What is a gift tax?
A tax that is imposed on the donor (not the donee) for transfers of proper that are considered to be a taxable gift.
What is a franchise tax?
A tax that is usually based on a weighted-average formula consisting of net worth, income, and sales.
What is total economic income?
All types of income that a taxpayer has for the year.
What is an effective tax rate?
A tax rate where the total tax liability is divided by the total economic income.
What is the average tax rate?
A tax rate that is computed by dividing the total tax liability by the amount of taxable income.
What is the marginal tax?
The tax rate applied to an incremental amount of taxable income that is added to the tax base.
What is a regressive tax rate?
The tax rate where the rate decreases as the base increases.
What is a capital asset?
All assets other than those listed in Sec 1221.
What is a capital loss?
A loss from the sale of a capital asset.
What is a capital gain?
A gain form the sale of a capital asset.
How much is the child credit?
- it is reduced by $50 for each $1,000 the AGI goes over the threshold amount
What is a parental release?
A paper that must be signed by the custodial parent so that the non-custodial parent can claim the dependent.
What is a multiple support agreement?
When a group (but not 1 seperate person) supplies more than half of a dependents income. All members must agree in writing to one person claiming that dependent.
What are the tie-breaker rules for dependency exemptions?
- Taxpayers who meet the requirements to claim the dependent under the qualifying child have first priority.
- Next priority provides that parents have priority over other individuals.
- Last is who has the highest AGI.
What is the support test?
The taxpayer must normally provide more then 1/2 of a dependents financial support during the year.
What is the gross income test?
The dependents gross income must be less than the exemption amount for the year.
What are the relationships included in the relationship test for other relatives?
- Taxpayers parents and their ancestors and siblings.
- Taxpayers stepparents.
- Specified in-laws (mother, father, brother, sister, son, and daughter).
- Qualified children
What is the relationship test for other relatives?
Other relatives must either be related to the taxpayer or live with them for the entire year.
What are the requirements for other relatives?
- Relationship test
- Gross income test
- Support test
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