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What are the req for a qualifying widower (surviving spouse) with dependent child?
- 1. 2 years AFTER spouse's death (in year of death joint return).
- 2. Principal Residence for Depndent WHOLE tax year. principal abode of son etc.
What are the req for Head of Household?
- 1. Individual is not married, legally seperated, married lived apart for last six months of the yr.
- 2. not a qualifying widower (surviving spouse)
- 3. not a nonresident alien
- 4. maintsin household for more than half of the taxable year. principle residence of:
- a. dependent son or daugther
- b. father or mother (not req to live with taxpayer) taxpayers maintains home entire year.
- c. dependent relative must live with taxpayer No cousins, fosters parents, unrelated people.
What are the req for a qualifying child dependency exemption?
- 1. Close Relative
- 2. Age = <19 or 24 full time student, disabled always.
- 3. Residency and Filing req.
- 4. Elminiate Gross Income Test
- 5. Support Test, child doesn't contribute more than 1/2 of own support.
what are the req for a Qualifying Relative dependency exemption?
- 1. Support (over 50%) test
- 2. Under a specific amt of taxable gross income
- 3. Precludes dependent filing a joint tax return.
- 4. Only Citizens residents of US,MEX,CANADA
- 5. Relative test.
- 6. Individual lives w/taxpayer entire year.
Where is interest and ordinary dividends reported on a tax return?
- Interest from tax refund being late is taxable.
- non taxable:
- interest from state and local gov't bonds/obligations.
Does Series EE have a phase out?
- Yes as you become richer.
- single over 72k
- married over 109k
What are the 2 taxes on net income?
- 1. Income Tax
- 2. Federal self-employment S/E tax
Net taxable loss in business sole
a. you may deduct against other sources of income.
- excess loss you can carryforward or back
- 1. 2 year carryback
- 2. 20 year carryforward.
What costs should be capitalized?
- Direct Material
- Direct Labor
What costs should be expensed?
- Research & Dev
What method of income recognition is used for non exempt long term contracts?
Percentage of completion
When are you exempt from using % of completion method?
- 1. small contractor
- 2. home construction contractors
- 3. long term contract on land with little contruction
- 4. Services performed by architects, engineers, designers,
- 5. Services performed under warranty and maintenance agreements related to long term contracts.
Calculation of % of completion method
1. Cost to Cost method to determine percentage (total cumulative costs to date/total expected costs to be incurred under contract)
2. Multiply the ratio determined using cost to cost method by the total contract price and subtract the amt of income that was recognized in prior years for the contract.
Exception to Penalty tax on early withdrawl on IRA
- 1. Home Buyer 1st time.
- 2. Insurance Medical
- 3. Medical expenses in excess of 7.5% agi
- 4. Disability
- 5. Education
- 6. Death
Tax effect on annuities if tax payer dies before full recovery of investment?
if the annuitant dies before the specified number of payments to be collected, the unrecovered portion of investment is a misc itemized deduction on the annuitant's final tax return NOT subject to the 2% of AGI Floor
**If annuitant lives longer then further pmts are fully taxable.**
What income/los is reported on Schedule E?
- Rental Real Estate
- Partnerships and Limited Liablility Companies
- S Corps
What is the basic formula for the determination of net rental income?
- Gross Rental Income
- Prepaid Rent Income (non refundable deposits)
- Rent Cancellation Pmts
- Improvement in Lieu of Rent @ FMV
- <Rental Expenses>
- Net Rental Income or <Loss>
Are Passive activity losses deductible?
- 1. NO against wages, active income, portfolio or capital gains.
- 2. YES against other passive income
How do you treat excess passive losses?
- 1. Carry forward indefinitely
- 2. if still unused, suspended losses become fully tax deductible in the year the property is disposed of (sold)..
What is the passive activity losses exception?
- 1. Mom and Pop exception. may deduct 25k if individuals are actively partiipating/managing
- 2. Carry forward indefinitely
- 3. Phase out rule reduced by 50% when agi is in excess of 100k.
Is Unemployment Compensation taxable?
**worker's compensation is tax free**
How is Social Securit Income taxed?
- A. Low income = SS benefits aren't taxed
- B. Lower Mid Income = Less then 50% of Ss is taxable.
- C. Middle Inc = 50% of SS is taxed
- D. Upper Middle Inc = Between 50-85% SS taxed
- E. Upper Income = 85% of SS benefits are taxed.
Are scholarships and fellowship grants taxable?
- 1. Only up to amts actually spent on tuition, fees, books, and supplies.
- 2. NOT on room and board
- 3. Grant is made to degree seeking student
- 4. No services are to be performed as a condition to receiving pmt.
What is Real Property?
Land and Building
What is Personal Property?
Machinery and Equipment
What are NON capital assets?
- 1. Property normally held in inventory or held for sale in the ordinary course of business.
- 2. Depreciable personal property and real estate used in a trade or business.
- 3. Copyrights held by ORIGINAL artist
- 4. Treasury Stock.
Where are Capital Gains and losses reported?
What is the basic formula for determing a gain or loss?
- Amount Realized
- <Adj Basis of Asset Sold>
- Gain or <Loss>
What is included in amount realized?
- 1. Cash received (boot) (taxable event)
- 2. Cancellation of debt (boot) (excess taxable)
- 3. Property recv'd at FMV
- 4. Services rendered at FMV
- 5. Less: any selling expenses.
What is the basis for purchased property/asset?
- The Cost of purchase.
- Increase basis for capital improvement.
- reduce basis for accum depr.
What is the holding period basis for a gift?
- 1. normally assumes donor's holding period
- 2. if Loss basis is used the holding period starts as of the date of the gift.
What is the general rule for basis on inherited property?
date of death FMV becomes basis
Basis using Alternate Valuation date for inherited property
- The asset is valued using FMV at the EARLIER of:
- 1. Distribution Date of Asset; or
- 2. Alternate Valuation date (earlier of 6 mos. after death or date of distribution/sale)
what type of capital gains aren't taxed? (HIDE IT)
- 1. Homeowner's exclusion
- 2. Involuntary Conversion
- 3. Divorce Property Settlement
- 4. Exchange of like kind (business)
- 5. Installment sales
- 6. Treasury Capital & Stock
Home Owner's Exclusion
- 1. 500,000 exclusion to married couples filing joint, suriving spouse
- 2. 250,000 exclusion for single, head of household
- ***Excess gain is TAXABLE***
- 3. Taxpayer must have owned AND used property as principal residence for 2 yrs or more during the 5 yr period ending on the date of sale or exchange by a taxpayer.
- 4. Either spouse must meet the ownership req but both must meet the use req with respect to the property.
- 5. No age req.
- 6. exclusion is renewable
- 1. No gain if proceeds are used on same similar asset.
- 2. Reinvestment time for personal property 2 yrs from year end. For business 3 years from yr end.
What is the basis of property acquired as a result of involuntary conversion?
Cost of such property decreased by the amt of any gain not recognized upon such conversion.
Divorced Property settlements
- 1. non taxable event.
- 2. basis of property to the receipient will be the carryover basis.
Exchange of Like Kind
- 1. The recognized gain is the lower of the realized gain or the boot.
- 2. Basis:
- Carryover basis - Cash (boot)rec'd + Gain Recognized = New Basis
What is the new basis in an exchange of like kind (hidE it)
Basis= Adj Basis of Property Given up + Gain Recognized + Boot Paid - Boot Received
Capital Losses not deductible?
- 1. Wash Sales, 30 days before and after sale of sale of stock.
- 2. Related Party Transactions
- 3. Personal Loss
How is a net capital loss treated? (for individuals)
- 1. $3000 maximum deduction against other income.
- 2. excess loss carry forward an unlimited time. No carryback only forward.
- 3. filing seperate married 1500$ max on ea. return.
Like Kind Exchange must be tangible
Like Kind Exchanges must be tangible, can't be stocks etc.
When is a nonqualified option taxed for an employee? (when it has a readily ascertainable value=on the stock exchange)
- 1. taxed when granted.
- 2. if there is a cost to the employee, ordinary income is value of the option minus cost.
- 3. no taxation on date of exercise. already taxed when granted.
- 4. holding period begins w/exercise date
- 5. option lapse, capital loss.
When is the employee taxed on a nonqualified option w/o a readily ascertainable value?
- 1. taxed on exercise date.
- 2. on date of exercise ordinary income based on fmv of stock - cost.
- 3. holding period beings with exercise date.
- 4. option lapse, no tax consequences.
When can an employer deduct a nonqualified option?
- 1. Same yr that the employee recognizes income.
- 2. as a business expense.
What is included in gross income for tax purposes?
- State Tax Refunds (if itemized with tax benefit prior yr)
- Alimony Rec'd
- Business Income
- Capital Gain/Loss
- IRA Income
- Pension and Annuity
- Rental Income/Loss
- K-1 Income
- Unemplomyment Compensation
What are Adjustments to Arrive at AGI (Above the line)
- Educator Expenses
- Student Loan Interest Expenses
- Tuition & Fee Deduction
- Health Savings Acct
- Moving Exp
- 1/2 Self Employment Tax
- Self Employed Health Insurance
- Self Employed Retirement
- Interest Withdrawal Penalty
- Alimnoy Paid
What are itemized deductions (below the line)?
- Medical Exp (excess of 7.5% of AGI)
- Taxes - State/Local (income/sales & propert)
- Interest Exp (home & investment)
- Charity (up to 50% of AGI)
- Casualty and Theft (in excess of 10% agi)
- Misc (2% excess of agi)
- Other Misc
What are the req for a qualifiying widow? surviving spouse?
- 1. The taxpayer's spouse died in one of the two previous years and the taxpayer did not remarry in the current tax year,
- 2. The taxpayer has a child who can be claimed as a dependent,
- 3. This child lived in the taxpayer's home for all of the current tax year,
- 4. The taxpayer paid over half the cost of keeping up a home for the child,
- 5. The taxpayer could have filed a joint return in the year the spouse died.
Uniform Capitalization Rule Applies To?
- 1. real or tangible personal property produced for use in personal business.
- 2. Real or tangible " " produced for sale to customers.
- 3. real or tangible acquired for resale and annual gross receipts exceeds 10,000,000$
What if a vacation residence is rented less then 15 days out of the year?
it is treated as a personal residence. The rental income is excluded from income, and mortgage interest (first or second home) and real estate taxes are allowed as itemized deductions. Depreciation, utilities, and repairs are not deductible.
Netting Procedures for short term capital gains and losses
If there are any short-term capital losses (this includes any short-term capital loss carryovers), they are first offset against any short-term gains that would be taxable at the ordinary income rates.
Any remaining short-term capital loss is used to offset any long-term capital gains from the 28% rate group (e.g., collectibles).
Any remaining short-term capital loss is then used to offset any long-term gains from the 25% group (e.g., un-recaptured Section 1250 gains).
Any remaining short-term capital loss is used to offset any long-term capital gains applicable at the lower (e.g., 15%) tax rate.
Netting procedures for long term capital gains and losses.
If there are any long-term capital losses (this includes any long-term capital loss carryovers) from the 28% rate group, they are first offset against any net gains from the 25% rate group and then against net gains from the 15% rate group.
If there are any long-term capital losses (this includes any long-term capital loss carryovers) from the 15% rate group, they are offset first against any net gains from the 28% rate group and then against net gains from the 25% rate group.