REG 1: Individual Taxation, Filing Requirements, and Dependents

Comprehensive vocabulary flashcards covering individual tax filing requirements, filing statuses, dependency tests, gross income components, adjustments to AGI, itemized deductions, QBI deductions, and tax calculations based on Becker REG Unit 1.

Individual Income Tax Formula

The sequential calculation of federal tax liability: Gross Income minus Adjustments equals Adjusted Gross Income (AGI), minus Standard or Itemized Deductions, minus QBI Deduction, minus Additional Deductions equals Taxable Income; Taxable Income multiplied by tax brackets equals Federal Income Tax, minus Tax Credits, plus Other Taxes, minus Tax Prepayments equals Tax Due or Refund.

Form 4868

An application filed by individual taxpayers on or before April 15 to request an automatic six-month extension of time to file Form 1040 (extending the filing deadline to October 15); it does not extend the due date for the payment of taxes owed.

End-of-Year Filing Status Rule

The general rule determining an individual's tax filing status based on their marital and legal status on December 31 of the tax year, with an exception allowing a joint return if a spouse dies during the tax year.

Qualifying Surviving Spouse (QSS)

A filing status that allows a surviving spouse to use joint tax return brackets and standard deduction amounts for two taxable years following the year of the spouse's death, provided the taxpayer remains unmarried and maintains a household for the entire year for a dependent child or stepchild.

Head of Household (HOH) Status

A filing status for unmarried, legally separated, or abandoned spouses who maintain a principal residence for more than half the taxable year for a qualifying child or relative (or maintain a separate household for a dependent parent for the entire year).

CARES Mnemonic

The five dependency tests required to qualify as a qualifying child: Close relative, Age limit, Residency and filing requirements, Eliminate gross income test, and Support test.

Qualifying Child Age Limit Test

The dependency requirement that a child must be younger than the taxpayer and either under age 19, or under age 24 in the case of a full-time student attending an educational institution for part of each of five months during the year; no age ceiling applies to permanently and totally disabled individuals.

Qualifying Child Support Test

The rule requiring that a qualifying child must not have provided more than half of their own support during the tax year; scholarships received by a full-time student son, daughter, stepson, or stepdaughter are excluded from the support calculation.

SUPORT Mnemonic

The dependency requirements for a qualifying relative: Support test (taxpayer provides $> 50\%$), Under gross income limitation, Precludes dependent filing a joint return, Only citizens of the U.S. or residents of the U.S., Mexico, or Canada, Relative test, or Taxpayer lives with individual for the whole year.

Under Gross Income Limitation Test

The qualifying relative rule prohibiting an individual from being claimed as a dependent if their taxable gross income is equal to or greater than $\$5,300$ (for 2026); nontaxable income like low-income Social Security, tax-exempt interest, and tax-exempt scholarships is excluded from this test.

Multiple Support Agreement (Form 2120)

An agreement permitting one contributor to claim a dependent when two or more taxpayers collectively contribute over $50\%$ of support, provided no single taxpayer contributed over $50\%$, the claimant contributed more than $10\%$, and all contributors meet the other qualifying relative criteria.

Custodial Parent Rule

The principle that the parent who has physical custody of a child for the greater part of the year (determined by a time test, not the divorce decree) is entitled to claim the child as a dependent, with the parent holding higher AGI claiming the benefits if custody is equal.

Realized vs. Recognized Gain

"Realized" gain occurs when an amount is received from the sale or exchange of property (including cash, FMV of property or services, and debt assumed), whereas "recognized" gain is the portion of the realized gain actually reported as taxable income on the return.

HIM DEAD TED Mnemonic

The exceptions to the $10\%$ early withdrawal penalty tax on traditional IRA distributions: Homebuyer ($\le \$10,000$), Insurance (medical while unemployed), Medical expenses (exceeding AGI floor), Disability (permanent), Education, Adoption or birth, Disaster, Terminal illness or death, Emergency, and Domestic abuse victims.

Tax Benefit Rule

The doctrine stating that a refund of prior-year state or local income taxes is taxable in the year received only to the extent the prior-year deduction resulted in a federal income tax benefit (meaning the taxpayer itemized rather than claiming the standard deduction).

Divorce-Related Alimony Rules

Payments made under divorce or separation agreements executed on or before December 31, 2018, are taxable gross income to the recipient and deductible as an adjustment to income for the payor; agreements executed after 2018 treat alimony as neither taxable to the recipient nor deductible by the payor.

Business Interest Expense Limitation

A limitation restricting a business's loan interest deduction to business interest income plus $30\%$ of adjusted taxable income (ATI) plus floor plan financing interest, which does not apply to small business taxpayers with average annual gross receipts of $\le \$32\text{ million}$ for the prior three years (2026).

Three-of-Five-Year Presumption

A statutory presumption classifying an activity as a profit-motivated business rather than a hobby if it shows net profit in at least three out of the preceding five consecutive taxable years, thereby shifting the burden of proof to the IRS.

Excess Business Loss Limitation

A loss limitation capping the deduction of aggregated business losses against nonbusiness income at $\$512,000$ for married filing jointly and $\$256,000$ for all other taxpayers (2026), with disallowed losses carried forward as a net operating loss (NOL).

Educator Expenses Adjustment

An above-the-line deduction permitting eligible elementary and secondary (K–12) educators to deduct up to $\$350$ (2026) of qualified out-of-pocket classroom supplies, with qualified expenses exceeding this threshold allowable as an uncapped itemized deduction.

Health Savings Account (HSA)

A tax-advantaged trust account coupled with a high-deductible health plan allowing pretax contributions up to $\$4,400$ for self-only or $\$8,750$ for families (2026); distributions used for nonqualified purposes are includible in gross income and subject to a $20\%$ penalty tax.

Maximum Annual IRA Contribution

The annual statutory limit on contributions to traditional or Roth IRAs, capped at the lesser of earned income or $\$7,500$ in 2026, plus a catch-up contribution of $\$1,100$ for taxpayers aged 50 or older.

Self-Employed Above-the-Line Deductions

Adjustments to arrive at AGI allowed to self-employed individuals, consisting of one-half ($50\%$) of self-employment tax, $100\%$ of qualifying health insurance premiums, and deductible contributions to qualified self-employed retirement plans (such as SEP, SIMPLE, or Solo 401(k) plans).

SALT Deduction Limitation

An itemized deduction cap that limits the aggregate deductible amount of state and local real property, personal property, and income (or sales) taxes to a maximum of $\$40,400$ (for 2026).

FIB Mnemonic

A memory aid for taxes that are nondeductible as itemized deductions on Schedule A: Federal taxes (including income and Social Security taxes), Inheritance taxes, and Business/rental property taxes (deducted on Schedules C or E).

Casualty Loss Deduction

An itemized deduction allowed only for property losses attributable to a declared federal or state disaster, equal to the lesser of adjusted basis or decrease in FMV (reduced by insurance), subject to a $\$100$ floor per casualty and an aggregate $10\%$ of AGI floor.

Charitable Contribution Limitations

Deduction ceilings for donations to public charities applied in sequence: cash ($60\%$ of AGI), ordinary income property ($50\%$ of AGI), and LTCG property ($30\%$ of AGI), followed by a $0.5\%$ of AGI floor on total contributions and a five-year carryforward of excess contributions.

Section 199A QBI Deduction

A deduction of up to $20\%$ of qualified business income from eligible domestic flow-through entities and sole proprietorships; taxpayers above income thresholds face phase-outs and limitations based on W-2 wages and qualified property for QTBs, while SSTBs are entirely disallowed.

Additional Deductions (Module 6)

Deductions allowed to individuals regardless of whether they itemize or take the standard deduction: up to $\$25,000$ for qualified tips, up to $\$12,500$ ($\$25,000$ MFJ) for qualified overtime, up to $\$10,000$ for vehicle loan interest on personal vehicles assembled in the U.S., and up to $\$6,000$ enhanced senior deduction for taxpayers aged 65 and older.

American Opportunity Tax Credit (AOTC)

An education tax credit of up to $\$2,500$ per eligible student per year for the first four years of post-secondary education ($100\%$ of the first $\$2,000$ and $25\%$ of the next $\$2,000$ of tuition, fees, and course materials), of which up to $40\%$ ($\$1,000$) is refundable.

Lifetime Learning Credit (LLC)

A nonrefundable tax credit providing up to $\$2,000$ per family per year, calculated as $20\%$ of the first $\$10,000$ of qualified tuition and fees (excluding course materials) for an unlimited number of years of post-secondary and career training courses.

Child Tax Credit (CTC)

A tax credit of $\$2,200$ (2026) per qualifying child under age 17 at year-end, which is phased out for high-income taxpayers and partially refundable; a nonrefundable $\$500$ credit is provided for other qualifying dependents.

Earned Income Tax Credit (EITC)

A fully refundable credit designed to supplement low-to-moderate-income workers, the amount of which depends on earned income levels and the number of qualifying children (or available at a reduced level for individuals aged 25 to 64 without children).

Estimated Tax Safe Harbor Rules

Provisions protecting taxpayers who owe $\$1,000$ or more at year-end from underpayment penalties if prepayments equal at least $90\%$ of the current year's tax liability or $100\%$ of the prior year's liability ($110\%$ if prior year AGI exceeded $\$150,000$).

Net Investment Income (NII) Tax

A $3.8\%$ surtax assessed on the lesser of an individual's net investment income (portfolio interest, dividends, capital gains, and passive income) or the excess of modified AGI over statutory thresholds ($\$250,000$ for MFJ and $\$200,000$ for single or head-of-household filers).

Kiddie Tax

Rules governing the unearned income of a dependent child that shield the first $\$1,350$ via the child's standard deduction, tax the second $\$1,350$ at the child's individual tax rate, and tax any unearned income in excess of $\$2,700$ (for 2026) at the parent's marginal tax rate.