Final Exam!

What is the IRS 1040 Form?

an individual income tax return form used by U.S. taxpayers to report their annual income and calculate their tax liability.

What is the purpose of Form 1040?

to report income and determine their tax for the year and any refund or additional tax owed.

What information is required on Form 1040?

Taxpayers must provide their name, Social Security number, filing status, income details, adjustments, deductions, tax credits, and other relevant financial information.

What does the top of Page 1 include?

Personal information, filing status, and information about standard deduction

What type of income types are reported on Lines 1-8?

Wages, salaries, dividends, interest, and other income types.

What is reported on page 2?

Information about tax, payments, and any refunds.

What is Form 8800 used for, what is the significance of the form?

to figure the amount, if any, of your retirement savings contributions credit. (SAVERS CREDIT)

What does Form 8812 calculate?

the Child Tax Credit and additional child tax credit.

What worksheet should you use to calculate non-refundable tax credits?

Form 8862, the Nonrefundable Credit Worksheet

What form calculates the Credit for Child and Dependent Care Expenses?

Form 2441, which is used to determine the credit amount based on eligible care expenses for children or dependents.

What is Adjusted Gross Income?

The total income calculated from all sources, minus specific deductions, used to determine tax liability.

How can AGI be reduced?

by taking allowable deductions such as contributions to retirement accounts, student loan interest payments, and certain education expenses. These deductions lower the total income amount, thus decreasing the AGI.

What does Schedule 1 include?

Additional income and adjustments to income that are not reported directly on the Form 1040, such as unemployment compensation and educator expenses.

What does Schedule 2 include?

Additional taxes you owe that are not included on the Form 1040, such as self-employment tax and additional taxes on IRAs.

What does Schedule 3 include?

Nonrefundable credits such as foreign tax credit and education credits that can reduce your tax liability but cannot result in a refund.

What is Schedule A used for?

to report itemized deductions, including mortgage interest, charity contributions, and medical expenses, which can reduce taxable income.

What are Above the Line Positive Schedule 1 Adjustments?

Adjustments to income that can be subtracted from gross income to arrive at adjusted gross income, such as student loan interest and educator expenses.

What are the Above the Line Negative Schedule 1 Adjustments?

Adjustments to income that must be added to gross income to arrive at adjusted gross income, such as certain business losses or deductions for IRA contributions.

What is Schedule A Below the Line Deductions?

Deductions that are claimed after the adjusted gross income is calculated, typically including state and local taxes, mortgage interest, and certain medical expenses.

What is the make-up for gross income?

The total income received by an individual or business before any deductions or adjustments are made, including wages, dividends, capital gains, and other forms of earnings.

What is Foreign Earned income Exclusion?

A provision that allows U.S. taxpayers to exclude a certain amount of foreign earnings from their taxable income, provided they meet specific residency requirements.

What are Capital Gains/Losses?

Profits or losses from the sale of assets or investments, typically involving stocks, bonds, or real estate.

What determines the taxable portion of Social Security benefits?

individual's combined income, which includes adjusted gross income, tax-exempt interest, and half of the Social Security benefits received. If the combined income exceeds certain thresholds, a portion of the benefits may become taxable.

What should be referenced to ensure accurate calculations?

Tax regulations and guidelines

What entity is required to be determines “Business Income”?

the net earnings from any trade or business activity.

What form is used for a Sole Proprietor?

Form 1040 Schedule C

What form is used for a Partnership?

Form 1065

What is Form 1120 used for?

reporting the income, gains, losses, deductions, and credits of a corporation. It is the U.S. Corporation Income Tax Return.

What form is used for S-Corp?

Form 1120-S, which is used to report income, deductions, and credits

What are the expenses for a business for tax purposes?

Expenses that are necessary and ordinary for the operation of the business, including costs like rent, utilities, salaries, and supplies.

What are these examples of Advertising, Utilities, Insurance Premiums, Salaries, etc.?

These are examples of business expenses that can be deducted for tax purposes.

How do you calculate Business Auto Expenses?

by tracking actual expenses or using the standard mileage rate set by the IRS, which includes costs such as fuel, maintenance, and depreciation.

What was the 2023 Standard Business Mileage?

65.5 cents per mile driven for business purposes.

What are the 3 Partnership tax rules?

The three partnership tax rules are: first, partnerships do not pay income tax; second, each partner is taxed on their share of the partnership's income; and third, partners receive a basis in the partnership that impacts their tax upon sale or distribution.

What are the Reciprocal State Agreements?

allow residents of one state to work in another state without having to pay income taxes in both states. These agreements help simplify tax obligations for workers and employers.

What are the requirements for Reciprocal State Agreements regarding employers?

Employers must withhold taxes only for the state where the employee resides, and they may need to file necessary documentation with both states to validate the agreement.

What are the 2 IRA/401k Distribution penalty rules?

first, early withdrawals before age 59½ typically incur a 10% penalty; second, certain exceptions may apply, such as for hardship withdrawals or first-time home purchases.

Is a distribution from Roth IRA four months after it was established an allowable tax deduction?

No, distributions from a Roth IRA are not tax-deductible. Additionally, if taken before the account is five years old, earnings may be subject to taxes and penalties.

What is included in the total itemized deductions?

medical expenses, state and local taxes, mortgage interest, charitable contributions, and certain unreimbursed business expenses.

What are the 2023 Standard Deductions?

The 2023 Standard Deductions are $13,850 for single filers and married individuals filing separately, $27,700 for married couples filing jointly, and $20,800 for heads of household.

What are the requirements to deduct gambling losses?

taxpayers must report all gambling winnings as income and can only deduct losses up to the amount of winnings reported. Losses must be itemized on Schedule A.

What does the Qualified Business Income deduction allow taxpayers to do?

It allows taxpayers to deduct up to 20% of their qualified business income from a qualified trade or business, subject to certain limitations and qualifications.

What should teachers know about the Educator Expense deduction?

Teachers can deduct up to $300 of unreimbursed expenses for classroom supplies. If married and both spouses are eligible educators, the deduction increases to $600.

What is refundable tax credit?

A tax credit that allows taxpayers to receive a refund if the credit amount exceeds their tax liability. This can reduce the amount owed to zero and provide a refund for the excess.

What is a tax credit where you must meet a certain income level to qualify?

Earned Income credit

What is a Premium Tax Credit? What is it based on?

A subsidy for lower-income individuals and families that helps reduce the cost of health insurance purchased through the Health Insurance Marketplace. It is based on your household income and family size.

How much money can a taxpayer get for having one qualifying child for the Child Tax Credit?

Up to $2,000.

What is the refundability status for the American Opportunity Tax Credit?

partially refundable, meaning that if the credit exceeds the amount of taxes owed, a portion may be refunded to the taxpayer.

What can Non-Refundable Tax Credits lower? What can you not use it for?

They lower your tax liability, but cannot result in a refund if the credit exceeds the taxes owed.

How many school years can you qualify for the American Opportunity Tax Credit? How much can you receive up to?

You can qualify for up to four school years, receiving up to $2,500 per year.

What is the max profit per return on the Lifetime Learning Credit?

Max Credit 20% of $10,000 in expenses, up to $2000

What is the Child and Depend Care Expenses Credit?

A tax credit for taxpayers who pay for child care or dependent care expenses to allow them to work or look for work, providing a percentage of allowable expenses incurred.

How much can a Married Filing Jointly Taxpayers receive for the Retirement Savings Credit?

Married Filing Jointly taxpayers can receive a credit of up to $2,000 based on their qualifying retirement contributions.

What are the 2 refundable tax credits?

The Earned Income Tax Credit and the Additional Child Tax Credit.

What are two partially refundable tax credits?

The Premium Tax Credit and the American Opportunity Credit.

What are the Schedule 3 Nonrefundable tax Credits?

the Foreign Tax Credit and the Retirement Savings Contribution Credit,.

How are non-refundable tax credits applied?

Non-refundable tax credits reduce your tax liability but cannot decrease it below zero. Any unused portion of a non-refundable credit is not refunded.

What day of the year determines the tax Filing Tax?

Last day of the year. December 31st

What are the requirements for Single Filing Status?

you must be unmarried, legally separated, or a resident alien, and cannot be claimed as a dependent on someone else's tax return.

What are the requirements for Married filing Jointly Filing Status?

You must be legally married and both spouses agree to file together, reporting combined income and deductions.

What are the requirements for Married Filing Separately Filing Status?

You must be legally married and choose to file separately, reporting only your own income and deductions.

What are the requirements for Qualifying Surviving Spouse?

You must have a qualifying child or dependent, have not remarried since your spouse's death, and meet certain income limits.

What are the 3 general rules for Dependents?

A dependent must be a qualifying child or qualifying relative, must meet specific relationship and residency requirements, and must not provide more than half of their own support.

Why would someone have the status of: Nonresident Tax Residency?

typically assigned to individuals who do not meet the substantial presence test or residency criteria for tax purposes in a given country. This status affects their tax obligations on income earned within that country.

What are the requirements for Tax Residency Status?

Individuals must meet specific criteria such as physical presence, residency duration, and connection to the country to be classified as tax residents. This status determines tax liabilities on worldwide income.

What is the Substantial Presence Test?

A method used by the IRS to determine if an individual qualifies as a resident for tax purposes based on the number of days spent in the country over the current and prior two years.

What is Dual Alien Tax Residency Status?

A classification applying to individuals who are considered tax residents in two different countries simultaneously, leading to potential tax obligations in both jurisdictions. This status can arise from conflicting residency rules or presence in each country.

What is the AGI Formula?

Gross Income - Adjustments

When finding taxable income, what do you subtract the AGI from? And how do you pick between the two possibilities?

Standard Deduction or Itemized Deductions; choose the greater amount.

What is the Total Tax formula?

Taxable Income × Tax Rate

What is the Total Payments formula?

Total Tax - Refunds + Credits

What am I trying to find: Total Tax - Total Payments?

Tax Balance Due or Refund

How do you find the Individual Federal Income?

You find it by using the IRS tax tables or by calculating taxable income and applying the appropriate tax rates.

What is Business Profit or Loss Formula

Total Revenue - Total Expenses

What is the Business Actual Expense Formula?

Actual Business Expenses - Business Deductions