gross income

<adjustments>

AGI

<Standard or itemized deductions>

<exemptions>

taxable income

apply tax

<tax credits>

other taxes

<payments>

tax due or refund

How to determine single + mfj status

what is spouse dies during the year

end of year test

if spouse dies during year, can still file mfj

qualifying widower

when can file?

how to qualify?

can file 2 years after year of death (mfj in year of)

Must be principal residence of dependent child for whole year

Widower = Whole year

head of household

how to qualify?

maintains a home that is the principal residence of:

Son or daughter, dependent relatives for more than Half the year

(no cousins, unrelateds, etc.)

Father or mother over half the cost of upkeep of home (nursing home)

Dependents

Qualifying Child mnemonic

C   Close Relative (brothers, sisters, kids)

A   Age limit (19/24 college)

R   Residency and filing restrictions (more than 1/2

     year, no joint return for child)

E   Eliminate gross income test (doesn't matter unlike

     SUPORT)

S   Support test changes (child didn't contribute more

     than 1/2 own support (no parent))

Dependents

Qualifying relative mnemonic

S   Support Test (taxpayer provides more than 50%

     support, 10% if multiple)

U   Under $4,000 taxable income (S.S., tax exempt don't

     count)

P   Precludes dependent filing a joint return (unless to

     just get refund)

O   Only citizens of U.S., Canada, Mexico

R   Relative Test - any relative.

     -OR-

T   Taxpayer lives with dependent for Whole year if

     non-relative

can only be offset against passive income

net passive loss carried forward

- Money

- Property (FMV)

- Cancellation of debt

- Bairgain purchase (difference between price and FMV)

- Premium payments on life insurance > 50K by

      employer

- Interest income on life insurance deferred payment

- Payouts to employee of accident, med, health

     insurance unless repayment for costs incurred or

     dismemberment

- Greater than 5,250 of reimbursed educational

     expenses

- Contributions to 401K not taxable, withdrawals are

     though.

All except:

1) State and local bonds interest

2) Bonds of U.S. possession interest (treasury bonds are taxable)

3) Series EE (Educational expenses) bond interest PHASE

       OUT

4) Unearned income of child under 18/24 college

       calculated as: unearned income - std. deduction -

       same amount as std. ded. taxed at childs rate

       rest taxed at parents rate

company's earnings and profits

cash or FMV if property

taxed at 15% or 0% for low income people

Return of capital (no e+p) > reduces shareholders basis

Stock split

Stock dividend unless had option to receive cash

dividends from mutual life company

No earnings and profits, but shareholder recovered entire basis of stock.

entire distribution is taxable

State and local tax refunds

taxable?

yes, if itemized in prior year

no if standard deduction

Payments pursuant to a divorce

(3)

Alimony - income to receiver, deductible to contributor

Child Support - non-taxable to receiver

Property Settlements - not taxable

cash

property

cancellation of debt

every cost except:

- salaries and commissions to yourself

- business meal and entertainment at 50%

- interest expense in advance cannot be deducted until

      actual time

- federal income tax

- personal portion of interest expense

- personal portion of state and local tax expense

- personal portion of health insurance of sole

      propreitorship (actually adjustment to arrive at AGI)

income tax and

federal self employment tax

capitalized as inventory: DM, DL, OH

period expense: selling, general, admin, R+D

amount realized

<adjusted basis>

gain or loss realized

(covered later)

IRA Income

general rule

taxable when withdrawn

deductible

non-deductible

Roth

10% penalty, unless:

next slide

10% penalty, unless:

mnemonic

H   Home buyer (1st time)

I    Insurance

M   Medical expenses in excess of 7.5% of AGI

D   Disability (not temporary)

E    Education: tuition, books, fees

A    -And-

D    Death

Treat like depreciation

Divide contract amount by period annuity will be collected over, this is not taxable, any excess is taxable.

If live longer than payout period, fully taxable.

If die before recovery, unrecovered is miscellaneous itemized deduction subject to 2% of AGI floor.

Rental Income

formula

Gross rental income

Prepaid rental income (non-refundable deposits)

Rent cancellation payment

Improvement in-lieu-of rent at FMV

<Rental expenses>

Net rental income or loss

if rent less than 15 days, income is ordinary, no deductions. treated as personal residence.

rent 15 or more days and live more than 2 weeks for personal purposes, or 10% of rental days, expenses are prorated. treated as personal/rental residence.

personal/rental residence deduction for taxes, interest, * rented months/12

personal/rental residence deduction for utilities, depreciation (can't go below zero) * rented months/occupied months

can only  be deducted to the extent of income (can't be negative)

carryforward w/o limit, fully deductible in year of disposal

can deduct net loss if active (next slide)

1) mom & pop - $25,000 max deduction (excess carried forward indefinitely) and must be 'active'

PHASE OUT

2) real estate professional

more than 50% of services in real estate

more than 750 hours incurred.

unemployment fully taxable

workers comp is not

real and personal property held by taxpayer, except:

Non-capital assets

PURCHASED copyrights, music compositions are capital assets

inventory

depreciable personal property in trade or biz

AR + NR from biz

copyrights, music compositions held by ORIGNAL ARTIST

treasury stock

capital gains and losses

how to determine gain or loss

amount realized

<adjusted basis of asset sold>

gain or loss

amount realized > cash, cancellation of debt, property (FMV), services

adjusted basis of asset sold > purchase price, increase for capital improvements, decrease for depreciation

gifted property for gain/loss purposes

general rule

retains rollover cost basis

basis is increased by any gift tax paid

gifted property for gain/loss purposes

exception

                        lower FMV at date of gift

            Sell higher: use 'donor basis' to determine gain

DONOR BASIS

            Sell between: No gain or loss

LOWER FMV AT DATE OF GIFT

            Sell lower: Use lower FMV at date of gift to

                            determine loss

date of death FMV becomes basis

alternate date : earlier of 6 months later or date of distribution/sale

automatically long term holding period

non taxable event, basis of property carries over

In like kind exchange, recognized gain is ____.

In like kind exchange, basis is _____.

recognized gain is the lesser of realized gain or boot.

basis is decreased by money received and increased by gain (boot) recognized.

recognize over period cash is received

gross profit = sale - cogs

gross profit % = gross profit/sales price

earned revenue = cash collections * gross profit %

corporations are precluded from tax benefits or income taxes from dealing in their own stock.

this includes:

sales of stock by corporation

repurchase of stock by corporation

reissue of stock

W   Wash Sale Loss

R   Related party transactions

A   -and-

P   Personal loss

brothers/sisters, husband/wife, father/son/grandfather, entities that are more than 50% owned by individuals, corporations, trusts, partnerships.

capital gains taxes imposed on all transactions except husband to wife basis transfer

capital losses disallowed.

holding period starts fresh

same basis rules as gift tax

individual capital gain and loss

long term vs. short term

long term - holding period greater than 1 year

15% max tax rate

short term- holding period 1 year or less

treated as ordinary income.

single and mfj 3000

if husband and wife file separately, loss deduction limited to 1500.

individuals

excess capital losses

net capital gains > ordinary income

net capital losses > can only be deducted from net capital gains. 3 back/ 5 forward