Shared Flashcard Set

Details

First exam
Chapter 1, 4 & 5
54
Accounting
Undergraduate 3
02/10/2015

Additional Accounting Flashcards

 


 

Cards

Term
What three things constitute a tax?
Definition
1) Required
2) Payment
3) To a government agency
Term
How do you calculate a tax?
Definition
Tax rate * tax base = tax
Term
What are the three tax rate structures?
Definition
1) Proportional
2) Progressive
3) Regressive
Term
Define: Marginal tax rate
Definition
Tax rate that applies to the next additional increment of a taxpayer's income (or deduction)
Term
What is the formula to calculate the marginal tax rate?
Definition
New total tax - Old total tax
--------------------------------------
New taxable income - Old taxable income
Term
How do implicit taxes work?
Definition
A tax-advantaged asset sells for a higher initial price or pays a lower annuity for its tax-advantaged status
Term
What is the formula to calculate the average tax rate?
Definition
Total tax / Taxable income
Term
What is the formula to calculate the effective tax rate?
Definition
Total tax / Total income (taxable and nontaxable)
Term
What are the five criteria for evaluating tax systems?
Definition
-Sufficiency
-Equity
-Certainty (when and where to pay)
-Convenience (ease in collection)
-Efficient/Economy (Little to no administrative hardship)
Term
What are the four congressional objectives for the tax code?
Definition
-Economic engineering ("Full employment")
-Social engineering (Provide for those who cannot be employed)
-Political goals
-Revenue raising
Term
What four taxes are considered federal?
Definition
-Income
-Transfer
-Excise
-Employment/Unemployment
Term
What four taxes are considered state?
Definition
-Sales/use
-Property
-Income
-Excise
Term
How do you get to taxable income?
Definition
Gross income
-for AGI deductions
= AGI
-from AGI deductions
= Taxable income
Term
How do we know what to include in gross income?
Definition
All-inclusive income concept: All realized income unless a specific tax provision states not to
Term
What types of income are preferentially taxed?
Definition
-Qualifying dividends
-Gains and losses on disposal of long-term capital assets
Term
What are the preferential tax rates?
Definition
0% - Low-income
15% - Middle-income
20% - High-income
Term
If you sell your personal vehicle at a loss of $2,000 after having owned it for four years, how much of that loss is tax deductible?
Definition
All $2,000 - you cannot deduct a loss on personal use assets.
Term
What are the two types of for-AGI deductions?
Definition
1) Greater of: Standardized or Itemized deduction(s)
2) Personal and dependency deductions
Term
What line in the 1040 is AGI reported on?
Definition
37 and 38
Term
How do you determine your tax liability or refund?
Definition
Taxable income * tax rate = Income tax liability + other taxes = total tax - prepayments - credits = Tax liability or refund
Term
How can you calculate your tax savings when you have multiple dependents?
Definition
$3,950 per dependent * marginal tax rate
Term
What are the three qualifications of a dependent?
Definition
-US citizen or a US, Canadian or Mexican resident
-Must not file a joint return with spouse
-Must be a qualifying child or relative
Term
What are the four tests of a qualifying child?
Definition
-Relationship
-Age
-Residence
-Support
Term
What are the four tests of a qualifying relative?
Definition
-Relationship (all except cousin or if unrelated, lives with taxpayer for whole year)
-Support
-Gross income
Term
Describe the relationship test for a qualifying child
Definition
-Legal guardianship is not the same thing as adoption
-Must be a foster, adopted, step-, or actual child
-May also be a sibling or descendant of sibling
Term
Describe the age test for a qualifying child
Definition
-You must be 18 or younger or 23 or younger if a full-time student
-If individual is permanently and totally disabled, this test passes
Term
Describe the residence test for a qualifying child
Definition
-Must have the same principal residence as taxpayer
Term
Describe the support test for a qualifying child
Definition
-Child may not have paid over half of own support
-Scholarships count as if provided for self, but not included in the calculation for PARENTS ONLY
Term
What are the tie-breaking rules on who gets to claim a qualifying child?
Definition
1. Parent
2. Parent w/ whom child has lived with the longest
3. Taxpayer w/ highest AGI
Term
What are the three tests for a qualifying relative?
Definition
-Relationship test
-Support test
-Gross income test
Term
Describe the relationship test for a qualifying relative
Definition
-All family except cousin
-If unrelated, must live with taxpayer for entire year
Term
Describe the support test for a qualifying relative
Definition
-Taxpayer must have paid for half of the individual's support
Term
Describe the gross income test for a qualifying relative
Definition
-Individual's gross income for the year must be < personal exemption amount
Term
What are the five filing statuses?
Definition
-Single
-Head of Household
-Qualifying widow(er)
-Married filling jointly
-Married filling separately
Term
For how long can a qualifying widow(er) status be claimed?
Definition
Up to two years after the year of death of spouse as long as taxpayer remains unmarried and pays over half of cost of maintaining a household with a dependent child
Term
What are the qualifications for claiming Head of Household status?
Definition
-Unmarried
-Not a qualifying widower
-Pays over half cost of maintaining a home for year
-Qualifying person lives with taxpayer for > half the year
Term
Describe the return on capital principle
Definition
Upon sale of property, the amount of the original investment is deducted from taxable income
Term
How does the return on capital principle work if property is paid for in installments?
Definition
Pro rata
Term
Describe the constructive receipt doctrine
Definition
Taxpayer should recognize/realize income when constructively or actually received
Term
What are the three qualifications of realized income?
Definition
1. Economic benefit received
2. Realizable (determinable amount)
3. Recognizable (no exclusion/deferral provision)
Term
Describe the claim of right doctrine
Definition
Income is realized if taxpayer receives and there are no restrictions on income
Term
Describe the assignment of income doctrine
Definition
The taxpayer that earned the income must recognize the income
Term
What are the two types of income?
Definition
-Earned income (income from labor)
-Unearned income (income from property)
Term
What are the two types of annuities?
Definition
-Annuities over a fixed period
-Annuities over a lifetime
Term
How can you determine the return on capital of an annuity?
Definition
Annuity exclusion ratio = (Original investment / Expected return on annuity)
Term
What are the restrictions on a deductible loss from the sale of an asset?
Definition
-Personal use asset losses are not deductible
-May only deduct up to $3k a year
Term
How does taxation on discharge of indebtedness work?
Definition
Include in gross income amount over solvency
Term
For a single taxpayer, how much of the social security benefits are taxable if their modified AGI + 50% SS benefits < $25k?
Definition
None
Term
For a single taxpayer, how much of the social security benefits are taxable if their modified AGI + 50% SS benefits are between $25k and $34k?
Definition
The lesser of 50% of SS benefits OR [50% of (modified AGI + 50% SS benefits - $25k)]
Term
For a single taxpayer, how much of the social security benefits are taxable if their modified AGI + 50% SS benefits > $34k?
Definition
The lesser of 85% of SS benefits OR [85% of (modified AGI + 50% SS - $34k) + the lesser of $6,000 or 50% SS benefits]
Term
For a married filing separately taxpayer, how much of the social security benefits are taxable?
Definition
Lesser of 85% SS benefits or (85% modified AGI + 50% SS benefits)
Term
For a married filling joint taxpayer, how much of the social security benefits are taxable if their modified AGI + 50% SS benefits <= $32k?
Definition
Not taxable
Term
For a married filling joint taxpayer, how much of the social security benefits are taxable if their modified AGI + 50% SS benefits > $32k but < $44k?
Definition
Lesser of 50% SS benefits or 50% of (modified AGI + 50% SS benefits - $32k)
Term
For a married filling joint taxpayer, how much of the social security benefits are taxable if their modified AGI + 50% SS benefits > $44k?
Definition
Lesser of 85% SS benefits or [85% of (modified AGI + 50% SS benefits - $44k) plus the lesser of $6k or 50% SS benefits]
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