Acct 3315 & 5314 - Chapter 2: Determination of Tax
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Flashcards covering key concepts from the lecture notes on Federal Income Tax, Chapter 2.
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60 Terms
What is Gross Income?
Total income minus exclusions.
What is Taxable Income?
Gross income minus deductions.
What are examples of Exclusions from Total Income?
Gifts, life insurance proceeds, welfare benefits, certain scholarships, and tax-exempt interest.
What are examples of items included in Gross Income?
Wages, business gross income, gains from property sales, interest, rents, royalties, and dividends.
What are 'For' AGI deductions?
Deductions taken 'for' Adjusted Gross Income (AGI).
What are 'From' AGI deductions?
Deductions taken 'from' Adjusted Gross Income (AGI), such as itemized deductions or the standard deduction.
What are examples of deductions 'For' AGI?
Trade and business deductions, reimbursed employee expenses, retirement plan contributions, and self-employed health insurance premiums.
What are examples of Itemized Deductions?
Medical expenses exceeding 7.5% of AGI, state and local taxes (limited to $10,000), home mortgage interest, and charitable contributions (limited to 60% of AGI).
What are the standard deduction amounts for 2023?
$14,600 (Single), $21,900 (Head of Household), $14,600 (Married Filing Separately), $29,200 (Married Filing Jointly).
What are the Tier 1 criteria for claiming a dependency exemption?
Having a SSN, being a US citizen/national/resident, and not filing a joint return (with exceptions).
What are the Tier 2 criteria for a Qualifying Child?
Being a natural/adopted/foster/step-child or sibling/half-sibling/step-sibling/descendant, meeting the age test, abode test, and support test.
What are the Tier 2 criteria for a Qualifying Relative?
Being related to the taxpayer, having gross income less than $5,050, and receiving more than half of their support from the taxpayer.
What are the tie-breaker rules for dependency exemptions?
Taxpayer who can claim under qualifying child rules, parents over non-parents, or taxpayer with the highest AGI.
What is a Multiple Support Agreement?
A written agreement among eligible members of a group, designating one person to claim a dependent.
Under what condition can a non-custodial parent claim a dependency exemption?
The noncustodial parent can claim the dependency exemption if the custodial parent signs Form 8332.
What is the amount of the Child Tax Credit?
$2,000 per qualifying child, partially refundable.
What are the different Filing Statuses?
Married Filing Jointly, Married Filing Separately, Single, Head of Household, Qualifying Surviving Spouse.
What are the Surviving Spouse criteria for Year 1?
If not remarried, can claim MFJ, can use MFJ tax schedule and MFJ standard deduction.
How is the standard deduction limited for children with unearned income?
Standard deduction is limited to the greater of $1,300 or earned income + $450 (not to exceed $14,600).
What is the 'Kiddie Tax'?
Some of the child’s unearned income is taxed at the parent’s marginal rate.
How are capital gains taxed?
Net long-term capital gains are taxed at a lower rate than ordinary income; net short-term capital gains are taxed as ordinary income.
How are capital losses treated?
Net capital losses are deductible up to $3,000; excess losses can be carried forward.
What are some tax planning considerations?
shifting income, maximizing itemized deductions, choosing MFJ vs. MFS, and splitting income
Who is required to file a tax return?
Taxpayers must file if gross income exceeds certain thresholds, even if no tax is due.
A qualifying relative must
Be related to the taxpayer or reside in the taxpayer's household for the entire year,
Have gross income less than $5,050 (2024),
Receive over one-half of their support from the taxpayer, and
Not be a qualifying child
A qualifying child must
be the taxpayer's child or sibling (or a descendant of either),
be under 19, a full-time student under 24, or disabled,
live with the taxpayer for more than half the year, and
Not provide more than one-half of their own support
What is the minimum gross income that requires a taxpayer under age 65 and filing as Single to file a return?
$14,600
What is the minimum gross income that requires a taxpayer under age 65 and filing as Married Filing Jointly (MFJ) to file a return?
$29,200
What is the minimum gross income that requires a taxpayer under age 65 and filing as a Surviving Spouse to file a return?
$29,200
What is the minimum gross income that requires a taxpayer under age 65 and filing as Married Filing Separately (MFS) to file a return?
$5
What is the minimum gross income that requires a taxpayer under age 65 and filing as Head of Household to file a return?
$21,900
When must a taxpayer who is claimed as a dependent by someone else file a return, even if income is below the threshold?
If unearned income is over $1,300 or gross income exceeds the standard deduction.
When must a taxpayer file a return due to Medicare or investment income taxes?
If the taxpayer owes 0.9% Additional Medicare Tax or 3.8% Net Investment Income Tax.
When must a taxpayer with self-employment income file a return, regardless of gross income?
If self-employment income exceeds $400.
What is the purpose of Schedule 1 on Form 1040?
To report sources of income not included directly on Form 1040.
What is the purpose of Schedule 2 on Form 1040?
To report additional taxes and tax prepayments.
What is the purpose of Schedule 3 on Form 1040?
To report nonrefundable tax credits
If more than one taxpayer can potentially claim an individual as a dependent, then the possible claimants are prioritized in order of greatest claim to least:
Taxpayer who can claim under qualifying child rules vs. other relatives
Parent have greater claim over non-parents.
if 1 and 2 don’t apply, then exemptions goes to taxpayer with highest AGI
Multiple Support Declaration (MSD)
If group provides > 50% support but no one person provides > 50%, then the eligible members can designate one person.
Eligible members must agree in writing.
Claimant must complete a Multiple Support Declaration (Form 2120).
MSD trumps tie-breaker rules.
Taxpayer who can claim under qualifying child rules can’t transfer to another taxpayer who can claim under the dependent’s rules.
How much is the Child Tax Credit?
$2,000 per qualifying child under 17
$500 per other dependent
At what income does the Child Tax Credit begin to phase out?
over $200,000 for single filers
over $400,000 for MFJ
By how much is the Child Tax Credit reduced as income exceeds the threshold?
$500 for every $1,000 (or part thereof) over the threshold.
What formula determines the refundable portion of the Child Tax Credit?
The lesser of
15% of earned income over $2,500 or
$1,700 (for one or two qualifying children under 17).
What is the standard deduction for a taxpayer filing as Single in 2024?
$14,600
What is the standard deduction for Head of Household in 2024?
$21,900
What is the standard deduction for Married Filing Separately (MFS) in 2024?
$14,600
What is the standard deduction for Married Filing Jointly (MFJ) in 2024?
$29,200
How much is added to the standard deduction for a married taxpayer who is elderly or blind?
$1,550
How much is added to the standard deduction for a married taxpayer who is both elderly and blind?
$3,100
What is the maximum standard deduction increase for Married Filing Jointly if both spouses are elderly and blind?
$6,200
How much is added to the standard deduction for an unmarried taxpayer who is elderly or blind?
$1,950
What is the criteria to qualify as an abandoned spouse?
The taxpayer lived apart from his or her spouse for the last six months of the year
The taxpayer pays over half the cost of maintaining a household in which the taxpayer and a dependent son or daughter live over half of the year
The taxpayer is a U.S citizen or resident
Net capital losses are deductible only up to
$3,000
What portion of medical expenses is deductible on Schedule A?
Only the amount that exceeds 7.5% of AGI.
What is the deduction limit for state, local, property, and real estate taxes?
$10,000 total ($5,000 if Married Filing Separately).
What is the mortgage limit for deducting home mortgage interest on loans incurred on or after 12/16/2017?
$750,000
What is the mortgage limit for deducting home mortgage interest on loans incurred before 12/16/2017?
$1 million
What is the AGI limit for deducting charitable contributions?
60% of AGI
When does the kiddie tax apply to an individual age 18?
If earned income is ≤ half of support and unearned income exceeds $2,600.
When does the kiddie tax apply to someone age 19 to under 24?
If they are a full-time student, earned income is ≤ half of support, and unearned income exceeds $2,600.