Term
| What does section 61 of the IRR say about gross income? |
|
Definition
| Gross income means all income from whatever source arrived even income from personal activities. |
|
|
Term
| how are personal receipts treated ( ie prizes ) |
|
Definition
prizes and awards = taxable
academic and athletic = taxable
scholarship = extent they cover tuition, fees, books equipment. |
|
|
Term
| How are gifts and inheritances taxed? |
|
Definition
|
|
Term
| Life insurance proceeds and death benefit income is treated how? |
|
Definition
|
|
Term
| legal damages are taxable income unless: |
|
Definition
| they represent compensation for physical injury or illness. |
|
|
Term
|
Definition
|
|
Term
| if someone gets a divorce, how is transfer of property treated? |
|
Definition
treated as a gift, so nontaxable. Transferee recognizes no income, and tranfer recognizes no loss.
-carryover basis. |
|
|
Term
|
Definition
taxable income
- deductible above the line deduction |
|
|
Term
| how are child support payments treated? |
|
Definition
|
|
Term
| As far as government transfer payments go, what are people who recieved need based payments treated as? |
|
Definition
| these payments are non taxable |
|
|
Term
| is unemployment compensation taxable? |
|
Definition
|
|
Term
| What do you need to know about social security. |
|
Definition
the range for singles are AGI 25,000- 34000. Those below this pay no SS, in it pay 50%, above is 85%.
- married the range is 32-44. Same rules apply. |
|
|
Term
| Assets held for personal use are characterized as... |
|
Definition
| capital assets, unless a creative asset ( ie copyrights, memorandum and is ordinary income ) |
|
|
Term
|
Definition
| tangible assets that people buy and cant recover cost through depreciation. losses are nondectible. |
|
|
Term
| if someone sells a collectable how is it treated |
|
Definition
| short term capital gain at 28% depending on holding period of asset. |
|
|
Term
| What does the IRR say about personal expenses? |
|
Definition
| no deduction allowed for personal, living, or family expenses. |
|
|
Term
| The tax law bends the no deduction rule for expenses in what three cases? |
|
Definition
| medical expenses, local state and foreign tax payments, and charitable contributions. |
|
|
Term
| How are medical expenses treated? |
|
Definition
- may claim itemized deduction for unreimbursed cost.
- medical must be needed ie cant be cosmetic surgery.
- limited to 7.5% of AGI |
|
|
Term
| how are local state and foreign tax payments treated |
|
Definition
| you can deduct either state and local sales taxes, or state and local income taxes, but not both. |
|
|
Term
| How are tax refunds treated? |
|
Definition
| the individual must include the tax refund in gross income. |
|
|
Term
| how are charitable contributions treated? |
|
Definition
| annual contribution limited to 50 percent of AGI |
|
|
Term
| how are the different characters of charitable contributions treated? |
|
Definition
| long term capital asset - deduction is FMV |
|
|
Term
| charitable contributions: how are non capital assets treated? |
|
Definition
| lesser of FMV or the contributors basis in the property. |
|
|
Term
| the required statement from donee is: |
|
Definition
| greater than 250, and required appraisal for non cash is greater than 5000. |
|
|
Term
| What are some tax subsidies for education? |
|
Definition
Education savings bonds - Indv can exclude interest earned on EE bonds.
- Qualified tution espenses,above the line deduction
- interest earned on qualified education loans - above the line deduc
- American opportunity credit- 2500 per eligible student credit.
- Lifetime learning credit - based on 20 percent of their qualified tuition expenses.
- coverdell education savings account: withdrawels are are nontaxable up to extent of costs. phased out for rich
- Qualified tution - distributions are nontaxable to extent they are used. |
|
|
Term
| If an individual realizes loss on disposition of personal asset: |
|
Definition
| the loss is nondeductible. Ex: if you buy a fridge for 1500, sell for 200, the 1300 loss is nondeductible, and sale of asset is a nonevent for tax purposes. |
|
|
Term
| Costs of tax compliance are |
|
Definition
|
|
Term
| indv are allowed an itemized deduction for |
|
Definition
real or personal property taxes paid on nonbusiness assets
either state and local sales taxes or state and local income taxes. |
|
|
Term
| how are casualty and theft losses treated? |
|
Definition
- itemized deduction
- loss is lesser of the tax basis in the property, or the decrease in value from casulty or theft.
- loss reduced by insurance reimbursement
- loss in excess of 100 floor is deductible
deduction limited to excess of aggregate costs over 10% AGI |
|
|
Term
| what is a hobby? and how is it treated |
|
Definition
activity not entered into for profit
- revenue included in gross income
- expenses are misc itemized deduction limited to amount of revenue
- profit in 3 of 5 years, considered a business and losses are deductible |
|
|
Term
| how are gambling losses treated? |
|
Definition
itemized deduction but not misc
- limited to gambling winnings |
|
|
Term
|
Definition
| to demonstrate a hobby is a business activity, you have to prove that you are doing it for profit. should probably have separate banking etc. |
|
|
Term
| where are gamblings reported? |
|
Definition
| as other income on schedule A. treated as an itemized deduction not subject to the 2% AGI rule |
|
|
Term
| how is home mortgage interest treated? |
|
Definition
personal interest is not deductible
qualified residence interest is an itemized deduction
deduction is available for mortgage on principle residence and one other personal residence. |
|
|
Term
| individuals who incur debt to finance a personal expenditure cannot: |
|
Definition
| deduct the interest paid on the debt |
|
|
Term
| What is the major exception to the home mortgage interest deduction? |
|
Definition
| qualified residence interest: which individuas may claim as an itemized deduction. |
|
|
Term
| What is acquisition debt? |
|
Definition
| incurred to acquire, construct, or substantially improve a personal residence. Acquisition debt must be secured by the residence and is limited to 1 million MFJ, 500000 MFS. |
|
|
Term
| What is home equity debt? |
|
Definition
| any other debt secured by a personal residence to the extent it does not exceed the owners equity. home equity debt is limited to 100000 |
|
|
Term
| deduction is available for mortgage when: |
|
Definition
| on principal residence, and one other personal residence. |
|
|
Term
| how do you calculate home mortgage deduction? |
|
Definition
take qualifying debt / total debt, and multiply it by total interest paid.
if they use proceeds as personal use, the rest is nondeductible |
|
|
Term
| Indv who realize a gain on a sale or exchange of a home can: |
|
Definition
exclude the gain from income if the home was owned and used as the principal residence for periods aggregating at least two years during the fiver year period ending on the date on the sale.
- exlusion applies to only one sale every two years.
- exclusion limited to 250,00 or 500,00 for MFJ if both spouses meet the two year |
|
|
Term
| if a person realizes a gain on the sale of a home, but doesnt meet two year obligation, what happens? |
|
Definition
| - may be eligible for reduced exclusion if person had to change employment, health reasons |
|
|
Term
| how do you figure out a reduced exclusion? |
|
Definition
| take 500,000 max x ( days of ownership / two years ) |
|
|
Term
| what are some itemized deductions as AMT adjustments? |
|
Definition
- medical deduction allowed to the extent they exceed 10% AGI
- deductions for state and local taxes are disallowed
- misc itemized deductions disallowed
interest on home equity debt dissalowed. |
|
|
