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100,000
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Investments:
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5,70011,4008,350
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65; $1,100, $1,400;
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Qualifying Relative Exemption:a. (relationship) - any primary family (____/_____, ______), OR anyone who is _______________ b. The person's gross income must not __________. c. Must receive ____ of ______ from _______. *** _______ does not count for _____
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,
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seminars, publications; Miscellaneous itemized deduction; itemized deduction; munincipal bonds; carryforward;
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Investments:
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20%; underpayment; preponderance;
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75%; underpayment;
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50%; 85%
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Divorce:Transferring property: no _____ or ______ recognized on transfer but the ________ is ______.
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Investments:
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Passive Activities: When don't materially participate in day to day activity. If business is classified as this, it effects the __________. _______ is always classified as a passive activity (rentals of DVDs, Autos, Hotels, are NOT). If passive activity generates a loss, it may only be deducted to the extent of ____________. Any disallowed loss is carried forward against future passive income. There is a large exception for rental real estate: _______ may be deducted if AGI is < _______. Phases out at _______.
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Acc. Depreciation; 25%; Acc Depreciation; A/D; 25%; LTCG;
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Investments:
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Qualified Retirement Plans:
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General attributes:-Cannot discriminate-Contributions today are non-taxable;-Retiree is taxed on withdrawls of all amounts; -Premature withdrawals (before age ____) are subject to a ___ excise tax. (exceptions: ____, ____ or retiree is over 55 and terminated employment w sponsor).
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A;
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above the line deduction; itemized; Congress
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Hobbies:
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Hobby income is _______. Hobby deductions are _______, but as ________ (these are not deductible to the extent they are less than ___ of ___) and the hobby loss is limited to the amount of ________. If activity _______ for __ of the last __ years, then considered ________. (this is favorable because one can ________ net ____ from _____).
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blind;
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dependent; greater 1. $9502. earned income (wages, salary, etc) + $300
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Cash Surrender Value (CSV); CSV; premiums paid; *exception for accelerated death benefits. If you are chronically / terminally ill, if you liquidate to pay medical costs, non taxable.
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Investments:
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Tax policy
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1. Sufficient to raise gov't revenues2. Convenient to admisinter3. Efficient4. Fair to taxpayers
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1. Sufficiency
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(this means that the gov't ____________. If it doesn't, the gov't must make up this revenue shortfall by _______, and thus accruing more ______. (US: deficeits for past 40 years, except 2000, 2001).
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3. Efficient
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According to classical definition, an efficient tax is one that is _________. According to the Keynesian definition, an efficient tax is one that ______________. The US gov't clearly advocates the _______ definition of efficiency. This helps them remedy the byproducts of the free enterprise system, or ___________. The gov't can also target subsidies they deem desirable. Examples? These incentives are known as ___________. They do not raise money for gov't, ergo, technically they are ___________. Opponents of tax preferences argue that their cost to the gov't is therefore overlooked, and hence an annual ___________ that __________.
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Government Transfer Payments:_______ like _____ and food stamps are nontaxable. _______ compensation is taxable.
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Social Security = taxable?Controversial because not supposed to be based on financial need, but they paid nondeductible taxes to receive this. For poorer families, SS income isn't taxable, otherwise, ___ or ___ of Social Security income is taxed, depending on income level.
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The ____________ office assists taxpayers in resolving problems and helps taxpayers who suffer hardship through IRS actions;
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Correspondence; Office; Field;
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Must meet 3 requirements:1. Deficiency attributable to erroneous item from spouse;2. Must establish that he/she did not know, nor had a reason to know that the return was understated; 3. It is inequitable to hold the person liable for the deficiency; (rel
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Innocent Spouse;
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2. ________Individuals may deduct real or personal ______ tax (like on _____ or _____ - no limit). Individuals may deduct either _________ or _________. Individuals may deduct fees from __________ as a misc. deduction. Some taxes are not deductible like:-
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3. ________ (later)
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Home Ownership
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imputed ____ from ________: This is the benefit that a homeowner receives from not having to pay a rent expense and taxes on income to pay that expense.
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health insurance; life insurance; child care benefits; moving expenses; supplies at work;
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$50,000; $5,000; Health Insurance;
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permanent; disallowed loss;
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Transfer taxes:Gift tax:No tax on gifts to _____ or ______. Also no tax on payment of ______ or _____ costs of another.
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ordinary income; unrecovered investment / current year IRA value;
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higher education; first home purchase
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Gift and estate taxes;Employee payroll taxes; Employment taxes (FICA); like maids or nannies; Federal income tax;
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3. Home mortgage interest;
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Qualifying Child Exemption:a. (relationship) taxpayer's ____, ______, ______ (including _____), and their ______. b. Must have had the same _____ _____ for more than ____ of the year. c. Must be less than ___ years old or ___ years old if student. (Cannot
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number of people; $3650; taxpayer; MFJ; dependents;
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Alternative Minimum Tax; tax preferences; indexed for inflation;
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-Taxable income-Standard deduction / exemption amount-Preferences-AMTI before exemption-Exemption (don't forget phase out)-AMTIx 26% for first 175000x 28% for rest= TMT (Tentative Minimum Tax)regular tax vs. TMT; TMT; AMT;
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sole prop.; E; net profit; partnership; S; salary; investments;
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Step 2: Calculate AGI:
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Calculation:Start with ______+/- ________ / _________+ ________ (certain itemized deductions)= _____ before ______- __________= _______x ___ % for first _______x ___ % for the rest= _________(look at ____ vs. _____ and if ____ is higher, then the differen
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Individuals can carryforward some of the AMT as a credit against future regular tax. Ex: AMT in 09: $3000AMT Credit allowed: $1000If reg. tax in '10 is $4500 and TMT is $4000. How much pay in taxes?
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TAX COMPLIANCE:
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Even if you rely on professional help, you are STILL responsible for complying and will bear consequences; Required filing date, corporations: ___ day of ___ month following end of fiscal year; both individuals and businesses may apply for ______ _______ extensions;
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Itemized deductions as AMT adj.
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Almost everything added back in except:- _________ only to the extent they exceed ____ of ____.-_______ debt for mortgage interest. -________ contributions
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throughout the year; taxes; withheld; profit from sole proprietorship; profit from partnership; and investment income; "quarterly"; "Quarterly"; April 15th; June 15th; September 15th; January 15th;
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underpayment penalty; 90%safe harbor; 150,000; 100%; 150,000; 110%;
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Investment expenses: ie. _______, _______, and investment fees. These are classified as a _________ (subject to 2% floor).
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Investment Interest Expense: ie. if you borrow money to invest: the interest is classified as a _______. Exception: if you borrow to invest in _________, the interest is nondeductible; However, it is limited to TOTAL net investment income (investment income less investment expenses); If investment income is taxed preferentially, they can elect to can the rate, or include it as investment income (to further deduct interest expense), but not both. Therefore LTCG and others are USUALLY excluded from the "Net Investment Income" figure in order to keep rates. *If the total investment income limitation prevents you from deducting full amount of interest, can _______.
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nontaxable; nontaxable; you live in the state of the bond; an AMT preference item; taxable; nontaxable;
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market; Originally issued debt (OID);
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LAND classified as a ______ asset. Property taxes = deductible ________. Mortgage interest = ____________. However, if not itemizing deductions, these would be lost... therefore, for land, can __________ of land. Cutting land up into parcels can sometimes
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capital; itemized deduction; investment interest expense (deductible); be capitalized into basis;
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income; gain/loss; tax basis; adjusted;
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deducts from income; above the line; recognizes income; gets no deduction; doesn't recognize income;
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Credits = reduce tax directly.
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Child Credit - $______ for each qualifying child under age of ___.
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Gain on Sale of Residence
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Allowed to exclude $________ of gain on sale if home is principal residence ________. Only allowed to exclude 1 gain every _____. If married, allowed to exclude _______ if ____ spouse(s) meet the ________ requirement and _____ spouse(s) meet the _________ requirement. Exception to the rule: if person's principal residence <2 of 5 years and sold residence because of ______, _______ or because of __________, allowed a _______ exclusion.
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taxable; deductible; misc. deductions; 2%; AGI; hobby income; generates a profit; 3; 5; a business; deduct; loss; AGI;
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Not classified as misc. deductions; 2% of AGI limitation;
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Gift tax exclusion (not taxable):1. Annual = 13,000 (each recipient of gift - can give 2 people 13,000 dollars to give to another person. Also can give 26,000 per donee if giving as a couple). 2. Lifetime = 1,000,000 (2,000,000 MFJ). The amount in excess
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If property / securities are transferred, the basis is transferred to the recipient.
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Also for kids under 18, if unearned income excess annual base rate ($1900), they must pay taxes on parents marginal rate. (_______ tax).
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spouse; charity; tuition; medical;
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tax deductible; 100% of annual income; 49,000 (inflation adjusted); 1. Profit sharing plan; 2. Employee Stock Ownership plans (ESOP); 3. 401K plan; employer / employee; $16,500;
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Nonqualified employer plan = __________; Because it is non qualified, it can _______. This is helpful to top executives. The receive future benefits from company, but don't recognize income today, while the company recognizes a current expense / non-current liability for book purposes, but not tax purposes. IE. the employee would want this is he was certain about _________ (he is essentially a _______).
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administer; pay; .40 cents; 100 dollars;
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neutral in the market; regulates the economy; Keynesian; negative externalities; Tax break on restoration of historic buildings; Tax break on state and local debt obligations; tax preferences; indirect gov't expenditures; Tax Expenditures Budget; quantifies the revenue loss from each major tax preference.
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acquisition (buying and renovations); $1,000,000; home equity; $100,000; MFJ; 2 residences; must be principal;
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greater; 14 days; 10% of rental days; where you can deduct everything; gross rent received; mortgage interest and property taxes; depreciation; net loss; carry forward; deductions;
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50% of AGI; 5; property; 30%; AGI; FMV of property; avoid capital gains for appreciated assets; lesser of cost and FMV of property;
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Tax subsidies for Eduction
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_______ is defined as a government's attitudes, objectives, and actions with respect to its tax system.
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Standards for a good tax:1. ________________2. ________________3. ________________4. ________________
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capital; creative; creator still owns; depreciated; non-deductible; capital gain; short-term CAP gain; 28% LT capital gain;
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No ABL deduction is allowed for personal, living or family expenses. HOWEVER, itemized deduction:1. ________The medical expense deduction is limited to the ______ of total unreimbursed expenses over ___ of ____. Medical expenses include:-Doc visits-Hospital stays-Medical aids-__________- _________ (if ________)- __________
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Employees generally must include all fringe benefits in income. However, excluded from taxes income:1. Providing social welfare (_______, ________, _______)2. Necessary for job (_________, ________).
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Group term life insurance: If the benefits exceed ________, then the excess is taxable to the employee.
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The passive loss limitation is not ______. ie. in year of disposition, the _______ is fully deductible.
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deductibility of losses; Rental Real Estate; other income from passive activities. $25,000 of loss; $100,000; $150,000
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Negligence: applies when IRS determines that taxpayer did not make a good faith effort to compute correct tax; The penalty is ___ of any ________ attributable to negligence. IRS must show a __________: Neg. vs. Mistake is based on taxpayer's experience, e
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Civil Fraud: Penalty is ___ of any _______ attributable to fraud; Must have clear and convincing evidence (> preponderance).
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T (tax) = r x B (base)
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1. Exploit a new base (politically unpopular)2. Increase rate of base (politically unpopular)3. Enlarge existing base (subtle)
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________ ____ Credit. For dependents who are under the age of ___ or dependents who are incapable of _________. This is to recompensate for caregivers or daycare costs. The limit for the daycare costs is limited to $3000 if ________, and $6000 if _______
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Example: Husband and wife each make $15,000 each spend $5000 on child care; no ABL deductions; 3 kids < 13 years old; Care credit?
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Example: Child has $3000 in wages, $800 in interest income. Standard deduction?
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Total Income - above the line deductions; deductions; credits; disposable income. Self-Employment tax
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20% of S-E earned income; 49,000 (2009); Not allowed; must offer plan to all employees;
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5,000; 100% of earned income (each spouse may contribute 5,000 if MFJ and combined earned income is > 10,000); 50; 1,000;
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1.__________ - can exclude INTEREST from earned to the extent ________2. ____________ - ABL deduction (limited to _____)3. ____________ - ABL deduction (limited to _____) - can use proceeds for _____. 4. ___________ - eligible for ______ of post-secondary
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OR claim the _________ - based on ____ of _______. Maximum credit is ______ per _____. Can be used for ______.5. ___________ - can contribute ________ every year for beneficiary under _______. Can be used for ______ and college. 6. ___________ sponsored by state and private colleges. Distributions are tax exempt.
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Anyone claimed as a dependent, may not get a ______ on their return.
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A progressive income tax system that allows married couples to file joint returns can be _________ or ___________, but not both. There is a marriage penalty past the ___ tax bracket.
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Social Security income; gross income; financial support;
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may not get an exemption on their tax return
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__ Corporations have an incentive to pay unreasonably large salary (max. deductions)
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_ Corps. have an incentive to pay unreasonably low salarys (min. payroll taxes).
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$250,000; 2 of the last 5 years; 2 years; $500,000; either; ownership; both; use;
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change in place of employment; health reasons; unforeseen circumstances; pro-rated;
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Capital Gain: ST is one year or less and recorded as ordinary income; LT is one year or longer and has preferential rates. Can be one of 3 rates:1. _______2. _________________.3. _________________.
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Normal: Net STCG and LTCG separately. If both gain / loss, don't net. (Total capital losses are netted against ordinary income only for $_____ - rest carryforward indefinitely. If both LTCL and STCL, use _______.) However, net the 2 if opposites exist (ie. STCL and LTCG, etc..)
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