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57 Cards in this Set
- Front
- Back
Marginal Tax Rate (1) |
(New Tax Amount - Old Tax Amount) / (New Taxable Income - Old Taxable Income) |
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Average Tax Rate (1) |
Total Tax / Taxable Income |
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Effective Tax Rate (1) |
Total Tax / (Taxable + Nontaxable Income) |
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5 Categories for Evaluating Tax Systems (1) |
1) Sufficiency 2) Equity 3) Certainty 4) Convenience 5) Economy |
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Sufficiency (1) |
Enough tax revenues to pay for governmental expenditures |
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Equity (1) |
Is the tax burden distributed fairly across taxpayers |
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Certainty (1) |
Should be able to determine when to paytax, where to pay tax, and how much tax is due |
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Convenience (1) |
Tax system should be designed to facilitatethe collection of tax revenues without undue hardship on the taxpayer orgovernment |
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Economy (1) |
Should minimize the compliance andadministration costs associated with the tax system |
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Horizontal Equity (1) |
Two taxpayers in similar situations should paythe same tax |
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Vertical Equity (1) |
Taxpayers with greater ability to pay tax pay morethan taxpayers with less ability to pay |
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Individual Tax Formula (4) |
Gross Income -For AGI Deductions =AGI -Standard Deduction or Itemized Deductions) -Personal and Dependency Exemptions) =Taxable Income * Tax Rates =Income Tax Liability +Other Taxes =Total Tax -Credits -Prepayments =Taxes due (or refund) |
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Personal Exemption (4) |
May only be deducted if the taxpayer does not qualify as a dependent Up to $4,050 per person |
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3 Requirements for Dependency Qualification (4) |
1) Must be citizen of US or resident of US, Canada, or Mexico 2) Must not file joint return with spouse unless no tax liability if filed separately 3) Must be qualifying child or qualifying relative |
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Qualifying Child Tests (4) |
1) Relationship - Must be child, sibling, or descendent 2) Age - <19, or <24 and a full-time student 3) Residence test - share residence for >1/2 the year 4) Support test - Provide >1/2 living expenses |
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Qualifying Relative Tests (4) |
1) Relationship - descendant or ancestor, sibling, nephew, uncle, in-laws, those who share residence for an entire year 2) Support - provide >1/2 expenses 3) Gross Income - |
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Married Filing Jointly (4) |
1) Taxpayers are legally married as of the least day of the year 2) When one spouse dies, the surviving spouse is still considered married for that year |
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Qualifying Widow(er) (4) |
1) Within 2 years of death 2) Remain unmarried 3) Pay >1/2 costs of maintaining household where depending CHILD lived for entire year |
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Head of Household (4) |
1) Unmarried at end of year 2) Not a qualifying widow(er) 3) Pay >1/2 support for home 4) QC or QR living in residence for >1/2 year |
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Capital Income (4) |
Gains or losses on the disposition orsale of capital assets |
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Longterm Capital Income Tax Rates (4) |
Taxpayer owned the capital asset formore than one year before selling it Gaintaxed at 15% (20% for high-income taxpayers, 0% for low-income tax payers) |
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Short-Term Capital Income Rates (4) |
Taxpayer owned the capital asset for one year or lessbefore selling it Gaintaxed at ordinary tax rates |
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Capital Loss (4) |
A loss on the sale of a capital asset(no matter how long the taxpayer held the asset before selling) generates a FOR AGI deduction for the taxpayer in the year of sale Net losses limitedto $3,000 deduction for the year (remaining is carried forward) Personal-use assets (car, house) can not be deducted |
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For AGI Deductions (9) (4) |
Deducted from gross income to find AGI Tend to be related to business/investing activities "Above the line" |
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From AGI Deductions (3) (4) |
Deducted from AGI to find taxable income Tend to be personal in nature Deduction “below the line” Generally less valuable that for AGI deductions |
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Tax Prepayments (3) (4) |
1)Withholdings 2) Estimatedtax payments (paid directly to IRS) 3) Taxesthe taxpayer overpaid on the prior tax return that the taxpayer elects to applyas an estimated payment for the current tax year |
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Recognition of Income (5) |
Taxpayers recognizegross income when: -They receiveeconomic benefit -They realizeincome -No tax provisionallows them to exclude or defer the income from gross income for that year |
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Realization of Income (5) |
Income is realizedwhen: -A taxpayerengages in a transaction with another party -The transactionresults in a measurable change in property rights |
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Tax Basis (5) |
Cost or capital investment in underlyingproperty |
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Return on Capital Principle (5) |
When tax payers sell property, they are allowed toreduce the sale proceeds by their unrecovered investment in the property todetermine the realized gain from the sale |
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Recovery of Amounts Previously Deducted (5) |
A refund is not typically included in gross incomebecause it usually represents a return of capital Net refund andpurchase price to reduce net cost of asset |
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Tax Benefit Rule (5) |
If a refund is made for an expenditurededucted in the PREVIOUS year the refunded is included in gross income |
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Constructive Receipt (5) |
states that a taxpayer realizes and recognizesincome when it is actually (constructively) received 1) The income hasbeen credited to the taxpayer’s account 2) The income isunconditionally available to the taxpayer 3) The taxpayer isaware of the income’s availability 4) There are norestrictions on the taxpayer’s control of the income |
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Claim of Right (5) |
Incomehas been realized if the taxpayer receives income and there are no restrictionson the taxpayer’s use of income (no obligation to repay the amount) |
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Capital Assets (4) |
All assets other than: -Accounts receivable -Inventory and other assets held for sale -Short term assets used in trade or business |
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Business Activities (6) |
require a relatively high level of involvementor effort |
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Investment Activities (6) |
investment activities are profit motivatedactivities that don’t require a highdegree of involvement or effort |
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Trade or Business Expenses (6) |
For AGI Deductible expenses must be appropriate and helpfulfor generating a profit |
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Rental and Royalty Expenses (6) |
For AGI |
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Loss on Disposition of Assets (6) |
For AGI Net loss deduction limited to $3,000, remainder carries forward |
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Flow-through Entities Operating Loss (6) |
For AGI Any expenses and losses incurred by the entitypass through to the entity owners |
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Moving Expenses (6) |
For AGI |
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Health Insurance Deductionby Self-Employed Tax Payers (6) |
For AGI |
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Self-Employment TaxDeduction (6) |
For AGI Self-employed tax payers are allowed to deduct theemployer portion of the self-employment tax they pay |
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Deduction for Interest onQualified Education Loans (6) |
For AGI Limited to $2,500 per taxpayer per year |
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Transportation and Travelfor Medical Purposes (6) |
From AGI 19 cents per mile |
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Hospitals and Long-TermCare Facilities (6) |
From AGI Cost of meals and lodging at other types offacilities such as nursing homes are deductible only when the principal purposefor the stay is medical care rather than convenience |
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Medical Expenses Limitation (6) |
The deduction of medical expenses is limited to theamount of unreimbursed qualifying medical expenses paid during the year REDUCEDby 10% of the taxpayer’s AGI |
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Tax Deduction (6) |
From AGI Individuals may deduct as itemized deductions paymentsmade during the year for the following taxes: -State, local, andforeign income taxes -Real estate taxeson property held for personal or investment purposes -Personal propertytaxes that are assessed on the valueof the specific property |
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Indebtedness Interest Expense (6) |
From AGI -Acquisition Indebtedness – is any debt secured by the taxpayer’s qualifyingresidence that is incurred in acquiring, constructing, or substantiallyimproving the residence -Home-Equity Indebtedness – any other debt secured by the taxpayer’s qualifyingresidence |
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Charitable Contributions (6) |
From AGI Qualified charitable organizations includeorganizations that engage in educations, religious, scientific, governmental,and other public activities |
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Contributions of PropertyOther Than Money (6) |
From AGI The deduction for capital gain property that is tangible personal property is limited tothe adjusted basis of the property ifthe charity used the property for a purpose that is unrelated to its charitable purpose |
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Miscellaneous Itemized Deductions Subject to AGIFloor
(6) |
These misc. deductions are summed together and aredeductible only to the extent that their sum exceeds 2% of the taxpayer’s AGI -Employee Business Expense -Business Travel and Transportation -Employee expense reimbursements -Investment expenses -Tax preparation fees -Hobby losses |
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Gain on Sale of Personal Residence (5) |
The first 250,000 (500,000 if married filing jointly) is excluded as long as: -Owned it for at least 2 of the 5 years prior to sale -Lived in it for at lease 2 of the 5 years prior to sale |
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Child Support (5) |
Not deductible or recognizable |
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Forgiveness or Discharge of Debt (5) |
Realize entire amount forgiven Not recognizable if taxpayer remains insolvent |
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Gifts/Inheritance (5) |
Not recognizable |