Taxes Test 1

Standard Deduction

an amount that the government allows you to deduct from your taxes, changes every year based on inflation 

C-Corp Tax Rate

21%, changes every few years

Itemized Deduction

mortgage interest, property tax, donations, if this is higher you take it compared to the other one

SALT Deduction pre 2018 limit

Unlimited

SALT Deduction from 2018-2025

allowed to deduct 10k of SALT taxes (5k if married filing seperately)

SALT Deduction now

you can deduct up to 40k, if AGI is more than 500k, a phaseout begins and brings my deduction down until I hit the 10k cap at 606k AGI

Mortgage Interest Deduction Pre-2018

You can deduct up to $1,000,000 of your home Mortgage INTEREST (500k if married filing separate)

Mortgage Interest Deduction from 2018 til now

You can deduct up to 750k of your home mortgage INTEREST (375k if married filing separately)

Big Beautiful Bill Law Changes

no tax on tips

no tax on overtime

new senior deduction- since 2025, additional 6k deduction for people over 65 years old

2025 Senior deduction criteria

need to have 150k gross income, at 250k it becomes a phase-out

What is AMT (additional minimum tax)

ensures that a minimum percentage of income tax is paid to the IRS, (its to ensure that the rich don’t completely finesse around paying taxes like they know how to do)

Traditional IRA

a fund that you can put money into without paying taxes on it (pre-tax), you pay tax when you take it out

ROTH IRA

a fund that you can take money out of and not pay taxes on it, you pay taxes when you put it in

RMD use (required minimum distribution)

only on a traditional IRA 

ROTH Conversion

Moving money from a traditional IRA to a ROTH IRA for the purpose of paying the tax now so that it can grow tax-free for the rest of your life and you don’t have to pay taxes when you take it out (and no rmd since its a roth)

Where is S-Corp Tax Code?

1300’s

Where is Partnership Tax Code?

700’s

Where is Individual Tax Code?

Starts at the 60’s

Where are Exclusions of Income

Section 100-199

Amount of Tax due is based on…

Amount of taxable income

Is Borrowed Money Income: Yes or No

No, borrowed money is not income

ROC (return of capital)

the “income” I make when in reality it is me just getting back what I put into it

This is NOT TAXABLE

ex: i put 1k into something, get only 500 back, this 500 is not income/is not taxable

Unrealized Gain

a gain that I have not sold yet

Realized Gain

the gain I get from the sale of something

Exclusions of Income (list them)

Gifts (as the recipient)

receiving child support

receiving a car accident settlement

Life Insurance Proceeds

Worker’s Compensation (i fall at work at get hurt)

up to 50k of group term life insurance (anything more is income)

Muni-bond interest as a resident of the state

Part of Social Security (if it fits the criteria)

compensatory damages check

Social Security tax laws (filing single/HOH/surviving spouse

less than 25k income and filing single/HOH- not taxable

25k-34k makes 50% of my social security taxable- (added to my total taxable income)

more than 34k makes 85% taxable (added to my total taxable income)

Social Security Tax Laws (filing jointly)

less than 32k income- not taxable

32k-44k- makes 50% of my social security taxable (added to my total taxable income)

more than 44k- makes 85% taxable (added to my total taxable income)

List of Income Sources

Salary 

Dividends 

Commissions 

Interest 

Business Income 

Rental Income 

Awards/Prizes 

Severance- “apology check” for laying me off

unemployment checks

discharge of debt (writing off debt)

student loan forgiveness (writing off student loan debt)

jury duty check

Compensatory Damages

checks/a new item to compensate me for the damages/accident/what was lost (not income)

Punitive Damages

This is when an act was perceived as so negligent that not only does the victim get a check/item to “replace” what was lost, but they get an additional check on top of it (is income)

FOR AGI

this refers to the standard deduction/schedule 1

FROM AGI

this refers to the itemized deduction/schedule A

When Can I not Take the Standard Deduction

if my spouse itemizes and i’m filing married filing jointly

Standard Deduction for a Dependent

the greater number of $1,300 OR their total income plus $350 (can never exceed $16k)

To verify a child as a dependent: 

Relationship: needs to be related to me in some sort (foster/adopted is a part of this) 

Residency: this person needs to live with me for more than half the year (you are still able to live away at school and be in the military) (residence vs domicile) 

Age: child must be under the age of 19 (exception is under the age of 24 but he/she must be a full-time college student) 

Support: have to provide more than half the support for this child 

Joint return: the child cannot file a joint tax return with his/her spouse 

Citizenship: must be a US, Canada, or Mexican citizen 

To verify a Relative as a dependent: 

Relationship: relationship tests are broader as it can be a sister, brother, aunt, uncle, or really any type of family member 

Residency: same as child, uncle, and is much 

Income: income has to be less then $4,300 per year 

Joint Return: same as child test 

Citizenship: same as child test 

True or False: You can never file married filing jointly AND be claimed as a dependent EXCEPT if the reason why you're filing is to get a refund

True- you can do this for the sake of a refund, if you owe then you can’t be claimed as a dependent

HSA Triple Tax Benefit and the catch to it

Money goes in tax free

money grows tax-free in the account

money can be taken out tax free

BUT; you be covered under an eligible high deductible medical plan (must pay for medical bills out-of-pocket until you meet the threshold where the insurance will kick in and pay for the rest

Short-Term Capital Gains

held for one year or less

Long-Term Capital Gains

held for more than one year

True or False: I get married dec 27, 2026, I can file jointly for tax year 2026 even though we were only married for 4 days in 2026

 What if I give birth on dec 29th, can i claim that kid as a dependent for the 2026 tax year?

True, as long as I get married before the start of 2027 its allowed

Yes, the same rules apply, born in 2026= claimed in 2026

Surviving Spouse

one spouse dies within the tax year, and you have a dependent child living with you 

Note: This gives you the ability to file a joint tax return in the year of death and two years after the date of death 

Head of Household (HOH)

made for the single moms and dads with a dependent that lives with them, the benefit is that they get better brackets and a higher standard deduction 

Multiple Support Agreement

where multiple people support one person and it needs to get decided who can claim that person as a dependent on their tax return

Multiple Support Agreement Criteria

does anyone provide more than 50% to the now dependent, if the answer is yes, that person gets to claim them as a dependent 

If no, the next question is, "does anyone give less than 10%", if so they are marked out of this equation 

If multiple people give the same amount and are all eligible, they often choose to alternate year after year on who gets to claim the dependent

Kiddie Tax

Exemption is 1300 dollars and anything above this will be taxed at the parent’s tax rate 

 Why does it exist: Parents were putting money into their children's accounts/putting it in the child's name tax-free 

Kiddie Tax Exemptions

If the child files a joint return

If both parents are deceased 

Realized Gain

means "what happened in the real world?" 

Recognized Gain

means “how much of what actually happened do I have to report to the IRS”

True or False: You want a lower cost basis bc then your capital gains are higher which means you have made more money 

False, you want a HIGHER cost basis bc then your recognized gain is less, which means less owed to the IRS

The Four Questions Asked When a Property is Sold

What is the adjusted cost (basis)? 

Amount realized? 

Realized gain?

Recognized gain?

Capital Improvements

something that increases the life span of the property

If something is not deemed significant enough to be a capital improvement it’s a…

basic repair

“Character” in Tax

Capital gain vs ordinary income 

Accrual Basis

income is recognized when the service is performed 

Cash Basis

income is recognized when the physical cash is received 

Cash Basis Exemption 1

Constructive receipt: if you have the ability/power/right to receive the money and you don't, it is as if you received the money even if you did not actually get the money 

Ex: i get paid on Friday dec 31 2026, but I don’t pick up the check until jan 3^rd 2027, that is 2026 income bc I had the ability to pick up the check on dec 31 

Cash Basis Exemption 2

Employer/Employee Tax Exemption: Typically, the person who performs the service is the one who has to receive payment; a man cannot do work and have the person paying write out a check to their son so that the dad gets untaxed income 

The only way this is acceptable is if a worker performs work for an employer 

Ex: Verizon technician, dad does the work, but Verizon gets taxed on the services in its total revenue numbers; this is acceptable 

Series EE Bonds (income recognition)

you can elect to recognize the income at the end of the bonds life, you would do this when you make less income in a year bc it is income OR you can elect to recognize it every year so you don’t get destroyed with taxes for that last year

Ordinary Dividends

no special tax treatment (treated as ordinary income) so whatever your tax bracket is the tax you pay on those dividends 

Qualified Dividend Criteria (for the stock owner)

You have to hold the stock for 60 days before AND after the ex-dividend date, which is the first day that the stock trades without the dividend attached (ex- dividend date meaning: the cutoff day that determines which shareholders are eligible to receive the next dividend payment) 

ex- dividend date

shareholders are eligible to receive the next dividend payment if they own the stock 60 days before and after this day

Qualified Dividend Criteria (for the company)

All domestic companies that pay dividends can qualify for this

Foreign companies can still qualify, as long as your stock is trading on a US market 

If your home country (the company home country) and the US government have a tax treaty  

Alimony

payments made to ex-spouses in the form of cash or checks,

It cannot be property and the two people cannot be living together anymore

If the recipient spouse dies/remarries, it stops 

When is/was alimony recognized as income?

If the divorce happened on or before Dec 31 2018, the person who pays alimony gets a deduction, and the receiver recognizes income,

If the divorce is Jan 1, 2019 or later, alimony is not income to the recipient & is not deductible to the payer of the alimony 

Market Rate of Interest

If I loan somebody more than 10k, there needs to be an interest rate I charge them

If I don't set a rate, the government will set one for me 

They do this so that I don't hide income as 'loans" 

AFR- Applicable Federal Rate

this is the rate agreed on (similar to treasury rate) that the government deems acceptable for a loan of a certain time length 

F Bar Filing: Foreign Bank Account Reporting 

This is where the government wants to know if I have money in a foreign bank account 

if you have at least I0k, the US government has to know where this money is and how much is there 

Foreign account tax compliance Act (FACT)

the government needs to see not only your cash but your assets in other countries

Tax Cuts and Jobs Act (TCJA) Rule Changes

capped the SALT tax at 10k

child tax credit went from 1k to 2k

pre/post 2018 alimony rule changes

corp tax rate went from 35% to about 21%

Writing off Business Meals Criteria

Meals must be provided on the business premises 

Must be served for the employer's benefit (business reason for the food)

Writing off Lodging Expense Criteria

Must be on the business premises 

Must be served for the employer's benefit (a need for you to live there that benefits the employer) 

Is within the employees contract that they have to live somewhere for the job

Tax Laws for winning a cash prize (such as Nobel Peace Prize)

taxable unless you choose to donate all of it to charity

Scholarship Tax Law

tuition/books are tax free, anything else is taxable

that includes room/board, meal plan and any personal expenses while in college

True or False: Inheritance you receive is not taxable

True