Individual Income Tax Ch 3

Front 1

Individuals are subject to Federal Income Tax based on

Back 1

income

Front 2

The basic rate structure is ____ with rates varying from __ to ___%

Back 2

progressive
10-35%

Front 3

The highest taxes rates were in ____ with rates varying from ____ to __ %

Back 3

1944;23-94%

Front 4

Income (broadly conceived) includes

Back 4

all the taxayer's income, both taxable and non-taxable

Front 5

Income (broadly concieved) does not include

Back 5

return of capital
or
receipt of borrowed funds

Front 6

gross income is defined by the IRS as

Back 6

except as otherwise provided... all income from whatever source derived

Front 7

gross income does not include

Back 7

unrealized gains

Front 8

Individual taxpayers have two categories of deductions

Back 8

deductions FOR adjusted gross income

deductions FROM adjusted gross income

Front 9

examples of deductions FOR adjusted gross income include

Back 9

ordinary and necessary expenses incurred in a trade or businsss, one half of self employment tax paid, alimony paid, certain payments to an IRA and Health savings accounts, moving expenses, forfeited interest penalty for premature withdrawl of time deposits, captial loss deductions

Front 10

deductions for AGI are sometimes known as

Back 10

above the line deductions

Front 11

the basis for computing percentage limitations on certain itemized deductions

Back 11

Adjusted Gross Income

Front 12

The AGI is used for computing % on certain itemized deductions such as

Back 12

medical expenses
charitable contributions
casualty losses

Front 13

medical expenses are deductible if they exceed ?% of AGI

Back 13

7.5%

Front 14

Charitable contributions deductions may not exceed ?% of AGA

Back 14

50%

Front 15

tHe standard deduction is the sum of two components

Back 15

the basic standard deduction
the additional standard deduction

Front 16

The following individual taxpayers are NOT allowed to use the standard deduction and must itemize

Back 16

A married individual filing a separate return where either spouse itemizes deductions

a nonresident alien

an individual filing a return for a period of less than 12 months because of a change in the annual accounting period

Front 17

When filing his or her own tax return, a dependents basic standard deduction in 2006 is limited to the greater of _____ or the sum of the individual's earned income plus ___; but if the amount exceeds the _____ the standard deduction is limited to $5150 in 2006 for a Single person.

Back 17

$850, $300 normal standard deduction

Front 18

exemptions that are allowed for the taxpayer and spouse are called

Back 18

personal exemptions

Front 19

An individual cannont claim a personal exemption if

Back 19

he is claimed as a dependant by another

Front 20

When a husband and wife file a separate return, a married taxpayer cannot claim an exemption for his or her spouse unless

Back 20

the spouse has no gross income and is not claimed as the dependant of another taxpayer

Front 21

a ___ is available for either a qualifiying child or qualifying relative

Back 21

dependency exemption

Front 22

The qualifying child definition applies to the following tax benefits

Back 22

dependency exemption
head-of-household exemption
earned income tax credit
child tax credit
credit for child and dependent care expenses

Front 23

a qualifying child must meet the __,__... tests

Back 23

relationship
abode
age
support

Front 24

the relationship test for qualifying child includes a taxpayer's..

Back 24

child, adopted child, stepchild, eligible foster child, brother, sister, half brother, half sister, stepbrother, step sister, or a DESCENDANT of any of these parties

Front 25

Abode test requires

Back 25

that qualifying child must live with the taxpayer for more than half of the year

Front 26

the age test requries that a qualifying child must be under the age of ___ or ___ in the case of a student

Back 26

19 or 24

Front 27

the age test does not apply to

Back 27

any child who is disabled during any part of the year

Front 28

the support test requires

Back 28

that the child must not provide more than one-half of his or her own support

Front 29

TAX FORMULA
begins with

Back 29

Income (broadly conceived)

Front 30

TAX FORMULA
next line after income

Back 30

Less:Exclusions

Front 31

TAX FORMULA
next line after Less:Exclusions

Back 31

Gross Income

Front 32

TAX FORMULA
next line after
Gross income

Back 32

Less: Deductions for adjusted gross income

Front 33

TAX FORMULA
next line after
Less: Deductions for adjusted gross income

Back 33

Adjusted gross income

Front 34

TAX FORMULA
next line after
Less: The greater of total itemized deductions or the standard deduction

Back 34

Personal and dependency exemptions

Front 35

TAX FORMULA
next line after Adjusted gross income

Back 35

Less: The greater of total itemized deductions or the standard deduction

Front 36

TAX FORMULA
next line after
Personal and dependency exemptions

Back 36

Taxable income

Front 37

TAX FORMULA
next line after
taxable income

Back 37

Tax on taxable income (see tax tables)

Front 38

TAX FORMULA
next line after Tax on taxable income (see tax tables)

Back 38

Less: Tax credits (including income taxes withheld and prepaid)

Front 39

TAX FORMULA
next line after Less: Tax credits (including income taxes withheld and prepaid)

Back 39

Tax due (or refund)

Front 40

In order for the dependent to be a qualifying child the taxpayer must meet these characteristics for the support test

Back 40

provide more than one-half of his or her own support

Front 41

in the case of a fulltime student, ____ are not considered to be support

Back 41

scholarships

Front 42

the tiebreaker rules state that when both people are the parents and the child lives ith each the same period of time...

Back 42

the parent with the higher AGI claims the qualifying child

Front 43

Resorting to the tiebreaker rules for claiming a qualified child is not necessar if ...

Back 43

the person who would prevail does not claim the exemption

Front 44

a qualifying relative must meet the following test

Back 44

relationship
gross income
support

Front 45

an ex spouse can qulify as a member of the household..

Back 45

in the year following that of the divorce

Front 46

a qualifying relative relationship test includes...

Back 46

Lineal ascendants (parents, grandparents)
Collateral ascendants (uncles, aunts)
Certain in-laws (child, parent, sibling in-law)
and unrelated parties who LIVE WITH the taxpayer,
except for spouses in year of divorce.

Front 47

a dependent's gross income must be less than the ___ which is __

Back 47

exemption amount $3300

Front 48

In the case of scholarships when determining wheter the dependent meets the gross income test include ___ and exclude___

Back 48

taxable portion(amounts for room and board)
nontaxable portion(amounts for books and tuition)

Front 49

In the case of the qualifying relative support test, over one half the support of the qualifying relative must be supplied....

Back 49

furnished by the taxpayer

Front 50

For the purpose of the support test, recieved funds do not have to be claimed when

Back 50

funds that have been received from any source do not have to be counted if they are not spent

Front 51

When a group of people provides support for one person the following determinations must be made

Back 51

the group together must provide 50 percent of the support

any person who contributed more than 10% of the suppport may claim the deduction providing everyone else who claimed more than 10 files written consent (form 2120)

each person in that group must meet all the other requirements for claiming the exemption-except support

Front 52

A special exception to the support test that applies to parents with children who are separated, the parents must meet these conditions

Back 52

provide more than half of the support

have custody of the child for more than half the year

Front 53

The special rule grants the dependecy exemptions to the noncustodial parent if

Back 53

the divorce decree specifies or
the custodial parent issues a waiver

Front 54

If the special rule granting dependency does not apply to the situation and support may have to be determined the following rules as to source govern

Back 54

alimony received by the custodial parent does not count as support by the payor parent

If a parent has remarried, amounts received from the parents spouse are considered to be provided by that parent

Front 55

In addition to fitting into either the qualifying child or the qualifying relative category a dependent must meet the

Back 55

joint return and citizenship or residency tests

Front 56

If a person is married, the supporting taxpayer is generally not permitted a dependency exemptions if the married individual files a joint return with his spouse, but this does not apply unless

Back 56

the reason for filing is to claim a refund for tax withheld

no tax liability would exist for either spouse on separate returns

neither spouse is required to file a return

Front 57

To be a dependent the individual must be __ except for the following situation

Back 57

either a US citizen, a US resident, or a resident of Canada or Mexico; an adopted child need not be a citizen or resident of the US as long as her principal residence is with a US citizen.

Front 58

In testing for dependency exemption, in the case of a qualifying child ____ is not necessary; What is required is that

Back 58

support; the child not be self supporting

Front 59

In testing for dependency exemption, the qualifying child category has no____ limitation, where the qualifying relative category has no____

Back 59

gross income limitation; age restriction

Front 60

The repeal of the exepmtion phaseout was postponed until; and will not be complete until;

Back 60

2006;2010

Front 61

Exemptions are phased out by ___ for each ____ by which the taxpayers AGI exceeds the threshold amounts

Back 61

2%;2500

Front 62

For married taxpayers filing separately Exemptions are phased out by ___ for each ____ by which the taxpayers AGI exceeds the threshold amounts

Back 62

2,1250

Front 63

Steps for calculating the exemption percentage phaseout

Back 63

1 AGI-Threshold=excess
2 Excess/2500(or 1250MFS)*.02
3 Phaseout percentage*exemption amount= amount of exemptions phased out
4 Amount of exeptions phased out*reduction of phaseout fraction=phaseout amount
5 Exemption amount-phaseout amount=allowable exemtption deduction

Front 64

The child tax credit is___ through ___ for each dependent child under the age of ___

Back 64

$1000;2009;17

Front 65

The following taxpayers may not use the tax table method

Back 65

Individual who files a short period return
Individuals whose taxable income exceeds the max amount in the tax table
An estate or trust

Front 66

Prior to 2001 tax legislation, the tax rate schedules were ___; The rates were reduced to __

Back 66

15,28,31,36, and 39.6%; 10,15,25,28,33,and 35%

Front 67

The average rate of tax is equal to the ___

Back 67

tax liability/ taxable income

Front 68

Some of the common tax credits

Back 68

earned income credit
credit for child and dependent care expenses
credit for the elderly
foreign tax credit
Child tax credit

Front 69

Unearned income includes

Back 69

taxable interest
dividends
capital gains
rents
royalties
pension and annuity income
income received as the beneficairy of a trust

Front 70

the kiddie tax applies when

Back 70

child has not yet reached age 14 by the close of the year
has at least one living parent
unearned income of more than 1700

Front 71

net unearned income of a dependent child is computed as follows

Back 71

Unearned income
Less 850
Less The greater of
-850 of the standard deduction or
-the amount of allowable itemized deductions directly connected with the production of the unearned income
Equals: Net unearned income

Front 72

To reduce the tax savings that result from shifting income from parents to children the ____ of certain minor children is taxed as if it were the parents' income .

Back 72

Net unearned income

Front 73

If the net unearned income is zero, (or negative)the..

Back 73

tax is computed without using the parents' rate. If the amount is positive, the NET unearned income is taxed at the parents' rate.

Front 74

What are the options for filing a return when a child under the age of 14 has net unearned income

Back 74

a separate return may be filed for the child
the parents may elect to report the child's income on their own return

Front 75

If a separate return is filed for a child subject to the kiddie tax, the tax on net unearned income (referred to as____) is computed..Form___ is used to compute the tax

Back 75

allocable parental tax; as though the income had been included on the parents return; 8615

Front 76

The requirements for reporting the childs unearned imcome on the parents own tax return

Back 76

gross income is from interetst and dividends only
gross income is more than 850 but lses than 8500
no estimated tax has been paid in the same name and social security number as the child
the child is not subject to backup withholding

Front 77

If the parental election is made in regards to kiddie tax

Back 77

the child is treated as having no gross income and is not required to file a tax return

Front 78

If the parents are divorced, the taxable income of__ is used to determine the allocable parental tax

Back 78

custodial

Front 79

For the purpose of kiddie tax, when parents are filing separate returns, the individual with the___ is the parent who may elect to report the childs unearned income

Back 79

greater taxabe income

Front 80

Under the category of filing considerations, the following questions need to be resolved

Back 80

is the taxpayer required to file an income tax return
Which form should be used
When and how should the form be filed
In computing the tax liablity, which column of the tax table or which tax rate schedule should be used

Front 81

An individual should file a tax return if

Back 81

he has gross income that exceeds or equals the sum of the exemption amount plus the applicable standard deduction

Front 82

THe additional standard for being age 65 or older is/isn't considered when determining the gross income filing requirements,

Back 82

is

Front 83

the additional standard deduction for blindness is/isn't considered when determining the gross income filing requirments

Back 83

isn't

Front 84

A ___ must file a tax return regardless of the amount of gross income

Back 84

self-employed individual with net earnings of $400 or more

Front 85

Computation of the gross income filing requirement for an individual who can be claimed on another person's tax return involves determining if they have any

Back 85

earned income only and gross income that is more than the total statndard deduction (including any additional standard deduction)
Unearned income only and gross income of more than 850 plus any additional standard deduction that the individual is allowed
Both earned and unearned income and gross income for more than the larger of the 850 or the sum of earned income pluse $300(but limited to the applicable basic standard deduction) plus any additional standard deduction allowed

Front 86

The filing requirment for a dependent who has no unearned income is the total of the basic standard deduction plus any additional standard deduction which includes

Back 86

both the additional deduction for blindness and being 65 or older

Front 87

THe 1040 EZ cannot be used if

Back 87

taxpayer claims any dependents
taxpayer (or spouse) is 65 or older or blind
taxable income is 100,000 or more

Front 88

The 1040a cannot be used if

Back 88

taxpers decide to itemized deductions from AGI

Front 89

ERO are

Back 89

tax professionals who have been accepted into the electric filing program by the IRS (electronic return organizers)

Front 90

If a US military family is outside the US but not in a combat zone, the filing date is extended to -- if taxes are due then interest starts to accrue

Back 90

June 15;april 15

Front 91

If a US military member is in a combat zone, the filing date is ___ after___. Interest starts to accrue

Back 91

180 days after teh last day of combat service, interest never accrues. THIS APPLIES TO MARRIED FILING JOINTLY AS WELL

Front 92

When the due date falls on a __ the last day for filing is__

Back 92

Saturday, sunday or legal holiday; the next legal business day

Front 93

If an individual taxpayer needs to file an amended return form ___ is used. It must generally be filed within __ of the filing date of the original return, or __ from when the tax was paid, whichever was later

Back 93

1040 x; three years, two years

Front 94

Marital status is determined when__ except when the spouse dies, then the marital status is decided when__

Back 94

at the last oday of the tax year; at the date of death

Front 95

What are some examples of limitations the code places on married persons who file separate returns

Back 95

if either spouse must itemize, the other spouse must also itemize
the earned income credit and the credit for child and dependent care expenses cannot be claimed
no deduction is allowed for interest paid on qualified education loans
only 1500 of excesss captial losses can be claimed

Front 96

the__ rates also applies for __ years following the death of one spouse, if the surviving spouse__

Back 96

joint return; two; maintains a household for a dependent child, who must be a SON, STEPSON, who qualifies as a dependent

Front 97

In the year of death the surviving spouse is

Back 97

treated as if married

Front 98

to qualify for HOH rates a taxpayer must

Back 98

pay more than 1/2 the cost of maintaining a household, and must be the principal home of the dependent(except for school and hosptiatlization)
Must live in the taxpayers household for over 1/2 the year
Must satisfy either the qualifying child or qualifying relative category (the qualifying relative MUST meet the relationship test)

Front 99

For head of household purposes, a QR must meet

Back 99

the relationship test

Front 100

HOH may still be claimed if the taxpayer maintains a separate home for his or her ____ if ___

Back 100

parent or parents, at least one parent qualifies as a dependent of the taxpayer

Front 101

HOH is/is not changed by the death of the dependent as long as

Back 101

is not; the taxpayer provided more than half of the cost of maintaining the household prior to the dependents death

Front 102

The abandoned spouse rules allow a married taxpayer to file as a ___ if the following conditions are met

Back 102

the taxpayer does not file a joint return
the taxpayer paid more than 1/2 the cost of maintaining his or her own home for the tax year
the taxpayers spouse did not live in the home during the last six months of the tax year
the home was the principal residenc of the taxpayers son, steps, foster, or adopted child AND can be claimed as a dependent

Front 103

THe a concept of realized gain or loss is calculated

Back 103

amount realized from sale-adjusted basis of the property=realized gain(or loss)

Front 104

The amount of realized from the sale

Back 104

selling price-any costs of disposal

Front 105

the adjusted basis of the property is determined by

Back 105

cost at acquisition+captial additions-depriciation and other captial recoveries=adjusted basis

Front 106

__% of realized gains are recognized, __% of ralized losses are recognized for tax purposes

Back 106

all; some- generally losses realized from the disposition of personal use property are NOT recognized

Front 107

The principal capital assets held for personal (rather than business) use such as

Back 107

personal residence or an automobile and assets held for investment purposes

Front 108

capital assets include

Back 108

collectibles such as art, antiques, gems metals stamps and some coins and bullion and alcohol held for investment

Front 109

short term gains are taxed at
(net captial gains)

Back 109

35%

Front 110

long term gains are taxed at
Collectibles___
Certain depricable property used in trade or business___
All other long term captial gains
(net capital gains)

Back 110

28%;
25%;
15%or5%(regular tax bracket 15% or less)

Front 111

In order to arrive at a net captial gains, captial losses must be taken into account, the captial losses are ___ and appliede against the gains in that category. if there are excess losses in that category then they are __ a net capital gain will occur if the net long term captial gain exceeds the net short term captial loss

Back 111

aggregated by holding period (short term and long term; shifted to category carying the HIGHEST tax rate.

Front 112

For individual taxpayers
net capital loss can be used to offset ordinary income of up to___

Back 112

3000 (1500 for married filing separtate returns)

Front 113

If a taxpayer has both ST and LT capital losses, the ST category is used first to arrive at the $3000, and any remaining capital loss is__ and retains__

Back 113

carried over indefinatly until exhausted and retains its classification as short or long term

Front 114

A married person can be claimed as a dependent only if

Back 114

that individual does not file a joint return with his or her spouse

Front 115

the support of ta qualifiying child is relevant only if

Back 115

the child is self supporting

Front 116

to be claimed as a dependent the QR's taxable income has to be less than

Back 116

$3,300

Front 117

Several ways to reduce tax burden on unearned income of children under 14

Back 117

assets that defer taxable income until after the child reaches age 14
growth stocks that pay little dividends
emplying children in parent's business