Definitions
Tax
A tax is a payment required by a government agency that is unrelated to any specific benefit or service received from the government agency
What are the three different tax rate structures
Proportional, Progressive, and Regressive
What is the Statute of Limitations on tax returns
Statute of Limitations ends three years from the later of the tax return's original due date or the date the return was filed
What are the requirements to file for a dependent
1. Citizenship of U.S or resident of US, Canada, or Mexico
2. Can't claim a dependent who files a joint return
3. Must be a qualifying child or qualifying relative
Calculate the Effective tax rate:
Georgia is a single individual and has $50,000 income from salary, $11,000 from interest revenue from stocks, and $4,000 interest revenue from investment in State of Indiana bonds.
What is 13.9%
Tax Liability: ($61,000-$41,775)*.22+$4,807.50=$9,037
Total Income: $50,000+$11,000+$4,000=$65,000
$9,037/$65,000
Tax Evasion
The willful attempt to defraud the government; falls outside the confines of legal tax avoidance
For filing status purposes, when is a taxpayer's marital status determined
At the end of the year
What Form, Page, and Line are Wages and Salaries reported
Form 1040, Page 1, Line 1
At what point in time does a taxpayer stop filling as a qualified widower
A taxpayer can file as a qualified widower up to two years after their spouse has passed.
What amount is recognized income.
Wages: $80,000
Inheritance: $7,0000
Municipal Interest: 2,000
Recognized Income: $85,000
Constructive Receipt Doctrine
Income recognized when it is credited to the taxpayers account or when income is unconditionally available
For AGI is more preferable because it reduces taxable income dollar for dollar and reduces AGI which may allow for other deductions
What is ยง280E
Section 280E precludes drug dealers from deducting any business expenses associated with the operation, apart from COGS. Is the exception to the exception of expenditures against public policy
What is the individual income tax formula
Gross income
-For AGI deductions
=adjusted gross income
-From AGI deductions
=Taxable Income
*Tax rates
=Gross Tax
-Credits and Payments
=Tax due/refund
Noelle purchased an annuity for $120,000. The annuity pays her $12,000 per year for the next 12 years. How much of the $12,000 is excluded in Noelle's gross income.
$10,000 is excluded form Noelle's gross income.
12,000*12=$144,000
$120,000/$144,000=83.3%
$12,000*83.3%=$10,000
"Wash Sale" Rule
It disallows the loss on stocks sold if the taxpayer purchases the same or "substantially identical" stock within a 61-day period centered on the date of the sale; intended to ensure that taxpayers cannot deduct losses from stock sales while essentially continuing their investment
When can a taxpayer deduct medical expenses
When incurred for: members of his family who are dependents, a qualified relative even if the relative does not meet the gross income test, divorced taxpayers can deduct expenses incurred for a child even if the child is claimed as a dependent by the former spouse and deductible medical expenses include long-term care services for disabled spouses and dependents
What is reported on Schedule D
Capital Losses are reported on Schedule D. Investment losses are for AGI deductions and are limited to $3,000 with the excess carried forward indefinitely
What does NOT qualify as alimony
Property divisions and child support payments do not qualify as alimony
What is Sarah's tax liability if she is single and has taxable income of 200,000 and qualified dividends of 17,340?
$46,832.50
(200,000-170,050)*32%+34,647.50=44,231.50
+
$17,340(15%)=2,601
Bargain Element
The bargain element is the difference between the fair market value of stock and the exercise price on the exercise date
What are the three permissible accounting methods
Cash: recognize income when received
Accrual: recognize income when earned or received
Hybrid: mix of accrual and cash depending upon accounts
What is predetermined by the IRS in Rev. Proc. 87-56
Cars, light general-purpose truck, and computers and peripheral equipment have a recovery period of 5 years
Office furniture, fixtures, and equipment have a recovery period of 7 years
What is the maximum amount of group-term life insurance that is not taxed
$50,000 is nontaxable
What is Morgan's tax liability on the grant and vesting date if she does make an 83(b) election? She is in the 24% tax bracket
Morgan received 1,000 shares of restricted stock on April 17th, 2019 valued at $6 per share. The shares vest on April 17th, 2020 with the shares valued at $9 per share.
Grant Date:$1,440
Vesting Date:$450
1,000*$6=$6,000*24%=$1,440
$9-$6=$3*1,000=$3,000*15%=$450