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1. Determined on the last day of the tax year (Dec. 31)
2. Common-Law Marriages (legal capasity to marry, current intent, live together, publically present) Ark doesn't have but will recognize from other states. Must petition the state for a divorce decree if break up.
Determined for adults (not children) the day before their actual bday (i.e. Born Jan 1, 1985 then for 2012 taxes you are actually 28 the 12' tax year.
If someone dies they are whatever age they were at death.
Ownership of income worldwide.
In all but AZ, CA, ID, LA, NV, NM, TX, WA, WI, income received belongs to the spouse that produced it. In the listed states its split.
Filing Status and Standard Deductions
SD reduces income subject to tax.
- S or MFS = 5,800
- MFJ or QW = 11,600
- HoH = 8,500
If gross income doesn't exceed SD they pay no taxes.
- 65 +
- 65 + S or HoH = 1,450
- 65+ m or qw = 1,150
Claiming a spouse as an exemption
- By end of tax year.
- Must have doctors note if partially blind (20/200 in best eye with corrective lenses (unless it can only be worn briefly bc of pain, infection, or ulcers) or field vision 20 degrees or less.)
A spouse can never be a dependent, but can be claimed as a personal exemption by the other spouse if they have no gross income
, are not filing a return
, and are not a dependent of anyone
Dependent Taxpayers SD
A person can not decide to be a dependent and dependents can never claim themselves.
SD is equal to the greater of 950 or EI + 300 and may never exceed the SD for filing status (usually 5,800 for single)
* People must file if they have uncollected ss or medicare tax (usually from tips) or a gross income from self-employment of 400 even if their gross doesn't meet their SD + E
S (unmmaried without dependents)
MFJ and MFS - if one spouse itemizes the other spouse's SD = 0
Must report SS# of other spouse in
If spouse dies that year they are still considered married for that year as surviving spouse doesn't remarry then is on new husbands income.
MFS is almost never benificial but used bc the spouses don't want to be liable for the other's taxes.
If spouse is nonresident alien they must be resident alien by end of year to file joint.
Injured Spouse Allocation v. Innocent Spouse Relief
If filed joinly and one spouse owes past-due the other spouse can file a 8379 (ISA) if they were not legally obligated to pay the debt and/or (depending on community property state or not) made or reported tax payments or claimed a refundable tax credit.
If one spouse understates income or overstates exemption the innocent spouse can file for relief of joint responsibility through form 8857 Request for ISR.
Relationship ( bro/sis, adopted, foster, decendant of these)
Age (18 or younger and yonger than taxpayer or spouse, full time student 23 or younger and younger than taxpayer or spouse, permanently and totally disabled at any time regardless of age, only one spouse has to be older when mfj)
Residency ( 6+ months with tp, birth and death at any point in year gets credit as long as lived with tp all year alive, temporarily absent)
Support ( dependent doesnt provide over 1/2 of own support)
joint return (can't file joint return unless its to get a refund)
Relationship or member of house hold (Parent or ancestor, aunt/uncle, in-law, lived with tax payer the entire year, in-laws don't cease to count after divorce unless spouse files separate return)
Gross income (less than exemption amount)
Support (tp provides 1/2+ of support, if no one paid 1/2+ of support taxpayers may use the multiple support agreement if they paid over 10% of the total support and decide amongst themselves who gets the exemption. If theres no agrreement on who gets the dependent no one gets it)
Not a QC
Dependent Taxpayer Test
Not a dependent (dependent can't be a dependent)
Joint Return Test (the taxpayer cannot claim a married person who files joint unless the joint is only to claim refund and they have no liabilities)
Citizen or Resident Test ( U.S. citizen, resident alien, U.S. national, resident of Canada or Mex.)
include but not limited
Lodging (frv rather than actual cost of home, repairs, utilities, and food consumed in home. Divide expenses by number of persons living in home)
Educational Expenses (tuition)
- Items pruchased for general household use (not specifically for the dependent)
- Dependents Fed and state income, social sec., medicare taxes
- Life insurance premiums
- Funeral expenses
- Certain scholarships
- Health insurance benifits
Child Tax Credit
1,000 for each QC
Must have QC
QC must be 16 or under
QC must be claimed on tax return
QC must be U.S. citizen, national, or resident
$50 for ever 1,000 of MAGI over 75,000 if single or hoh, or qw, 110,000 (mfj), 55,00 (MFS)
Head of Household
- unmarried or considered unmaried on Dec 31
- paid more than half of cost of household for
- QC or QR who lived with tp over 1/2 a year or parent for an entire year
Maintaining House Hold Cost
- rent (actual not fmv)
- Mortgage interest (not principal)
- Real estate taxes
- Insurance on home
- Property Taxes
- Food eaten in home
- Does not include:
- clothing, education, medical treatment, vacinations, life insurance, transportation, rental value of home owned by tp, services provided by tp
Head of Household Exeptions
Non-relative Dependent (must actuatlly be related)
Multiple Support Agreements
Maried, But Unmaried for Tax Purposes
Spouse deserts family and relationship is over
Legally separated under a decree of divorce or separate maintenance or
- 1. Files separatre return from spouse
- 2. provided more than half the cost of maintaining home
- 3. home is principal place of abode of tp and dependent for more than 1/2 the year
- 4. Spouse has not lived at home in the last 6 months of the tax year (since June and before)
* Does not include spouse living away from home temporarily.
TP must be qualified to file MFJ
Spouse died in either of the two tax years immediately preceding the current year (MFJ for current year)
TP paid over 1/2 of household cost for the entire year.
Remarrying within the three years nullifies the status.
Children of Divorced or Separated Parents
Custodial parent is parent child lived with for greater number of nights regardless of legal custody
Divorce decrees or written separation agreements between 84-09 must state the following three facts:
1. noncustodiala parent can claim the child as a dependent without regard to any conditions, such as payment of support.
2. custodial parent will not claim the child as a dependent for the year
3. The years for which the noncustodial can claim the child as a dependent.
If parent gives exemption and thus the tax credit to noncustodial, a form 8332 must be filled (custodial doesnt get either)
Attached to the noncustodials tax return who gets the exemption must either be the form 8332 or:
- 1. cover page, on which he should write other parents social security number
- 2. pages containing information required for three reasons for years between 84-09
- 3. signature page showing date of agreement and other parents signature.
Step-parents can use this with step-children if they divorce.
Decides who gets the dependent
- 1. Parents > Grandparents, Aunts and Uncles,
- 2. Parent child lived longest with and then the higest AGI
- 3. If no parent can claim then it goes to the person with the highest AGI
- 4. If parents can but dont claim the child is the QC of the person with highest AGI if the AGI is higher than each parent (divide parents combined income in half to see)
- Interest = unearned = taxable.
- All interest over $10 comes with a Form 1099-INT. It must be claimed even if not withdrawn. Occasionally the tp has to determine interest recieved own own (ex: loans and contracts.)
Interest of 1500 or more, from foreign investments, not properly attributable to the taxpayer (nominee interest which belongs to another person, such as a child), interest on a seller-financed morgage (not reporting = 50 dollar fine and must provide name, address, and ss# of buyer), or from U.S. bonds must be claimed on a Schedule B.
Tax exempt interest = F. municipal bonds and mutual funds (but reportable). AR: Bonds Treasury Bills,
foreign tax credit (tax can't exceed 300 and 600 for joint, can't be refundable,
Ordinary dividends are portions of a corperations profits paid to shareholders.
Qualified dividends are treated as long-term capital gains.
Capital gain distributions represent the shareholders portion of a gain from the sale of securities owned by mutual funds, regulated investment companies, and real estate investment trusts.
Distributed capital gains are paid in cash to the shareholder or reinvested in additional shares.
Undistributed capital gains are retained by the investment company, which pays the tax on them. These gains are automatically reinvested in additional shares and reported to the taxpayers 2439 rather than 1099-DIV
* Dividends paid by credit unions and exempt-interest dividents are actually interest and treated as such. The former is taxable and the latter is exempt.
Form 8814 Parents' Election to Report Child's Interest and Dividends is filed if to report childs income on parents return if:
- 18 or yonger or 23 or younger if full-time student at end of year.
- income is only from interest and dividents
- Gross income is less than 9500
- Child doesn't file a joint return
Form 8615 Tax for Certain Children Who Have Investment Income of More than 1,900
Child is required to fill out a return for 11'
Child was under 17 or under at end of year, or 18 and did not have earned income that was smore than half of the support, or a full-time student between 18 and 23 at the end of the year with an income that was not more than half of their support.
one of the parents was alive at end of year
Child does not file a joint return for the year
Anything owned for personal, business or investment purposes.
All property except:
Property held mainly for sale to customer (i.e. inventory)
Depreciable or Real property used in a trade or business
Copyrights, literary, musical, or artistic property created for the taxpayer
Supplies of a type regularly used or consumed in the ordinary course of your trade or business.
Cost that determines type of gain/loss including cash paid, fmv of services rendered, and fmv of peroperty traded in exchange for the property. Certain closing costs are also included.
A measure of the tp's investment in property for tax purposes.
Adjusted basis is the original basis
- Cost of major imporvements
- Cost of restoration after a casulty
- Assessment for local improcements
Any discount rebate, or reimbursement of any portion of the purchase price.
Insurance reimbursement for property damage
amount of casualty or other losses deducated on the return for any year
Depletion or depreciation allowed or allowable
Gross sales price
Amount of cash recieved by seller from buyer +
fmv of any obligations, property, or services received
face value of the sellers liabilities (i.e. mortgage) the purchaser assumes as part of thetransations
Deduction v. Credit
Deduction reduces taxable income
credit decreases tax liability
additional child tax credit
refundable credit which is available when tax liability limits the Child Tax Credit
Must have EIC over 3k for 2011 or 3+ kids
May claim a credit of up to 15% of the amount by which EIC exceeds 3k.
3 + kids in which social secruity + medicare tax paid exceeds EIC tax credit allows for higher credit (rare)
valuable refundable credit available to lower-income taxpayers with earned income.
Qualifying without Children
- - 25-64 by Jan 1
- - not a dependent
- - Not a QC of someone else
- - Live in US 6 months and a day
- - EC + AGI less than 13,660 or 18,740 (mfj)
Qualifying with Children
- - QC must meet all the test except support (they pay over half their support)
- - QC can't be claimed by more than one person for EIC
- - Not be QC of anyone
- - Have EI and AGI less than certain amount depending on status and number of children.
Rules for Everyone
- - Have valid SSN
- - Can't use MFS (unless unmarried for tax purp)
- - Be a U.S. citizen or resident alien ALL YEAR
- - Not file Form 2555 or 2555-EZ
- - Investment income of 3,150 or less
- - Have earned income
- Dependents MFJ only qualify if filing for refund
- Divorced or Separated = only custodial parent can claim
OI Allocated Tips
If nothing in box 8 ask if they claimed all their tips. If they didn't get 15% tips can they prove they didn't (tip log?)
OI Unemployment Comp
Generally fully taxable
TP may request 10 percent be withheld but rare. Withholding only helps those in the 10-15% bracket and most do not choose to elect this.
If tp received an overpayment and repaid part of it, subtract the amount repaid from the amount on the Form 1099-G
OI Scholarships and Fellowships
If tp receives a W-2 for scholarship it's fully taxable.
Non-degree candidates that don't receive a W-2 write in "SCH" on dotte line next to line 7 and report it.
Qualified educational expenses (tuition, fee,s course-required books, supplies, equipment, etc) need not be reported. These expenses are excluded from gross income.
Room and board and travel are always taxable
Taxable whether the winner received a Form W-2G or not. Enter all winnings even if its lost.
OI Line 21 Income
- prices and rewards for which no services performed
- Jury Duty
- Cancelled Debts
- Alaska Permanent Fund dividends
- Rental of personal property engaged in rental for profit but not in business of renting
- Taxable distributions from HSA or Archer MSA
- Credit Card Insurance
- Hobby income
- Medical Trial income
Only income that is specified by law as being exempt from taxation:
- Most gifts and inheritances
- Certain foster care payments
- Child support payments
- Disaster relief payments
- Federal income tax refunds
- Insurance proceeds or court judgments received for personal physical injury or illness
- Life insurance proceeds
- Most medical insruance proceeds
- Rebates (reduces basis)
- Most veterans' benefits
- Welfare benefits
- Workers' comp
OI Long-Term Disability
Under employers plan:
Can be treated as wages if the receiver is not retirement age. After retirement age it's reported as pension income.
Treated as Earned Income
Under Social Security:
Never reported as wage and thus not considered EI