Term
Stephanie owns a 4-unit apartment building and receives monthly rent of $500 per unit. Three of the units were rented for all of 2012. The fourth unit was occupied from January 1 to April 30, 2012. After vacating the fourth unit, the tenant was not refunded his security deposit of $500 because of damage to the unit. The unit was subsequently rented for $500 per month beginning August 1, 2012, when the new tenant paid the first and last month's rent and a refundable security of $500. What is Stephanie's 2012 rental income? |
|
Definition
Rental income is any payment received for use of property. Generally, rental income is reported in the year received regardless of the accounting method used. When calculating Stephanie's rental income, include the rental deposit not returned and the advanced rent payment. Three of the rental units were rented all 12 months for a total of $18,000 ($500 per month x 12 x 3). The first tenant of the 4th unit paid 4 months' rent and the security deposit of $500 was not returned totaling another $2,500 in rental income ($500 x 4 = $2,000 + 500). The new tenant paid rent from August through December and paid the last month's rent in advance for a total of $3,000 ($500 x 6). Stephanie's total rental income for 2012 is $23,500 (18,000 + 2,500 + 3,000). |
|
|
Term
| An employee is subject to penalty for failure to report tips to their employer. The penalty is a percentage against all social security and Medicare taxes due. The amount of the penalty is _________? |
|
Definition
| If the employee did not report tips to the employer as required, the employee may be charged a penalty equal to 50% of the Social Security and Medicare tax due on those tips. IRS Form 4137. |
|
|
Term
|
Definition
|
|
Term
Travis did not make his estimated tax payments on time due to a disability. He would like to request a waiver of the penalty for underpayment of estimated tax from the IRS. What should he do in this situation?
A. He should not enter the penalty on Form 1040, and must attach documentation that shows his date of disability.
B. He should write DISABLED on Form 1040 instead of the penalty amount.
C. He must allow the IRS to calculate his penalty, then request a refund using Form 2210.
D. He should file Form 2210 with his tax return and include documentation that shows his date of disability. |
|
Definition
Certain taxpayers may request a waiver from the penalty. A taxpayer requesting a complete waiver can elect to have the IRS calculate the penalty, while a taxpayer requesting a partial waiver must calculate the penalty on Form 2210. The taxpayer must attach Form 2210 and a statement to their tax return explaining the reasons for not meeting the estimated tax requirements and the period for the waiver request.
Correct Answer: D |
|
|
Term
| Over how many years does a taxpayer have to repay the first time home buyer's credit if the home was purchased in 2008? |
|
Definition
| For homes purchased in 2008, a taxpayer has 15 years to make repayments. The taxpayer must repay at least 1/15 of the credit with every tax return during the repayment period until the year the credit is paid in full. The taxpayer may choose to repay more than the minimum amount with any tax return, thus the final payment may be less than the required minimum amount. IRS Form 5405. To claim the first-time homebuyer credit for 2011, the taxpayer (or spouse if married) must have been a member of the uniformed services or Foreign Service or an employee of the intelligence community on qualified official extended duty outside the United States for at least 90 days during the period beginning after December 31, 2008, and ending before May 1, 2010. |
|
|
Term
Daniel Larusso is the vice-president of Miyagi-Do Karate. Daniel is confused about his alternative minimum tax liability. Which one of the following is NOT a tax preference item or an adjustment to taxable income?
A. Daniel's exemption for his wife, Elizabeth.
B. A portion of medical expenses not greater than 10% of AGI for broken ribs.
C. The subtraction of any refund of state and local taxes included in gross income
D. Addition of all itemized deductions (if claimed) |
|
Definition
AMTI includes certain adjustments to the taxpayer's taxable income:
Add amount claimed for personal or dependency exemptions,
Add amount claimed for the standard deduction, or certain (not all) itemized deductions for state and local taxes, certain interest (not eligible mortgage on main home), most miscellaneous deductions, and part of medical expenses not greater than 10% of AGI,
Subtract any refund of state and local taxes included in gross income.
Correct Answer: D |
|
|
Term
| Who chooses the date when installment payment is due? |
|
Definition
| The taxpayer can choose the day of each month the payment is due. This can be on or after the 1st of the month, but no later than the 28th of the month. When the IRS approves the request, it will notify the taxpayer of the month and day that the first payment is due. If the IRS has not replied by the date chosen for the first payment, the taxpayer can send the first payment to the applicable IRS center listed on Form 9465. IRS Form 9465. |
|
|
Term
Because Diane has household employees she should:
A. always withhold federal income taxes for every household employee.
B. never withhold federal income taxes for any household employee.
C. withhold federal income tax for any household employee with wages of more than $3,700.
D. withhold federal income tax from wages only if the employee requests it. |
|
Definition
| An employer is not required to withhold federal income tax from wages paid to a household employee. An employer should withhold federal income tax only if the household employee requests it and provides a completed Form W-4, Employee's Withholding Allowance Certificate. If the employer or employee agreed to withholding, either may end the agreement by letting the other know in writing. |
|
|
Term
Lisa is single, a calendar year taxpayer, and owns a home that was damaged by a hurricane in 2012. The area where Lisa lives was declared a federal disaster area. Lisa determined that her loss is $10,000. On what return can she claim the casualty loss?
A. Only on her 2012 return.
B. Only on her 2011 return.
C. On either her 2011 or 2012 return.
D. On both her 2011 and 2012 returns. |
|
Definition
| Taxpayers generally must deduct a casualty loss in the year it occurs. However, if there is a casualty loss from a federally declared disaster, a taxpayer may choose to deduct that loss on his return or amended return for the tax year immediately preceding the tax year of the disaster. If an individual makes this choice, treat the loss as having occurred in the preceding year. Claiming the loss on the previous year's return may result in a lower tax for that year, often producing or increasing a cash refund. |
|
|
Term
An individual taxpayer has capital gain distributions only, and no other capital transactions. He also has ordinary dividends to report. Which of the following statements is correct regarding his reporting requirements:
A. All capital distributions must be entered on Schedule D
B. No Schedule D is required. He may enter his gains directly on Form 1040 and his dividends on schedule B
C. Capital gain distributions are a return of shareholder capital and not taxed
D. If there are no other capital transactions, he may combine his capital gain distributions with the dividends on Schedule B |
|
Definition
Schedule B is for reporting interest and ordinary dividends, not capital gains. Schedule D is used to report capital gains transactions; however, if the only transactions are capital gains distributions a taxpayer can enter the gains directly on Form 1040, and need not file Schedule D.
Correct Answer: B |
|
|
Term
| Nancy bought a house in 1991 and lived in it until selling in 2012 and then marrying Tom. Nancy's gain from the sale of her house was $300,000. In addition, Tom also sold his primary residence in 2012 before he and Nancy were married. He then moved in with her for six months before the sale of her home. He had a gain of $100,000 from the sale of his home of ten years. Can Nancy and Tom exclude the sum of their entire gains from their 2012 taxable income? |
|
Definition
The $500,000 maximum exclusion for certain joint returns does not apply because Nancy and Tom do not jointly meet the use test for the same home. The ownership and use tests are met independently (for their own homes). The maximum exclusion that can be claimed by the couple is the total of the maximum exclusions that each spouse would qualify for if not married and the amounts were figured separately. They cannot exclude the entire gain of $300,000 on Nancy's home as a result, as the exclusion for that home is limited to $250,000.
Taxpayers who are married and file a joint return for the year can exclude up to $500,000 of the gain on the sale of a main home if all of the following are true:
Either spouse meets the ownership test.
Both meet the use test.
During the 2-year period ending on the date of the sale, neither you nor your spouse excluded gain from the sale of another home.
If either spouse does not satisfy all these requirements, the maximum exclusion that can be claimed by the couple is the total of the maximum exclusions that each spouse would qualify for if not married and the amounts were figured separately. For this purpose, each spouse is treated as owning the property during the period that either spouse owned the property. |
|
|
Term
Elroy purchased several houses in 2012. Points he paid for mortgages are fully deductible in 2012 except when:
A. The points are not clearly stated on the settlement statement.
B. Paying points is an established business practice in the area where the loan was made.
C. The mortgage is for the purchase of your primary residence.
D. The points are computed as a percentage of the amount of the mortgage. |
|
Definition
To receive a current deduction for points they must be used to buy or build a main home. The amount is clearly shown on the settlement statement (such as the Uniform Settlement Statement, Form HUD-1) as points charged for the mortgage. The points may be shown as paid from either your funds or the seller's.
Correct Answer: A |
|
|
Term
Amelia sold the following stock during 2012:
20 shares of Lipton stock for a short term gain of $1,000
100 shares of Sunoco stock for a long term gain of $300
35 shares of Pepsico stock for a short term loss of $750
Determine the character and amount of Amelia's gain or loss.
A. $250 short term gain, $300 long term gain
B. $550 long term gain
C. $1,000 short term gain, $300 long term gain
D. $1,750 short term gain, $300 long term gain |
|
Definition
The first step is netting gains and losses together within each category, short-term and long-term. A taxpayer may calculate total net gain (loss) by comparing the net short-term capital gain (loss) to the net long-term capital gain (loss). The resulting gain or loss maintains the character of the larger item. If the net result of the long-term and short-term items both result in gain (or both are losses), each maintains its character of short-term or long-term. This calculation is made on the schedule D.
Net Short-term gain $250 ($1,000-$750)
Net Long-term gain $300
The total gain reported on Schedule D is $550; however, since Amelia has both long-term and short-term gains, each gain maintains its character. The result is $250 STCG and $300 LTCG.
Correct Answer: A |
|
|
Term
Maria believed in Teachers Unite, inc. so much that she purchased all of the original stock when it was issued on September 16, 2005 for $10,000. Teachers Unite, inc. met all the requirements under Section 1244 Small Business Stock. When they began having financial difficulty in 2007 Maria contributed an additional $10,000. In 2012, Maria had financial needs and was forced to sell all of her stock for $10,000. How much loss should Maria report on her 2012 return and is the loss capital or ordinary?
A. Deduct $5,000 as ordinary loss and $5,000 as capital loss subject to limitations.
B. Deduct $3,000 of her loss on Schedule D as a capital loss and carryover the remainder.
C. Deduct her $10,000 loss as an ordinary loss.
D. None of the above. |
|
Definition
A loss on the sale of Section 1244 Small Business Stock can be deducted as an ordinary loss. Section 1244 stock is stock that was issued for money or property in a domestic small business corporation. Maria has a stock basis of $20,000 but only $10,000 of the basis was derived from the issuance of Section 1244 stock. The $10,000 in contributed capital does not qualify as Section 1244 stock basis when determining the ordinary loss deduction.
Maria has an ordinary loss of $5,000 and a capital loss of $5,000. The Section 1244 ordinary loss is determined by allocating the percentage of Section 1244 basis to the actual loss. Maria's Section 1244 basis represents 50% of her total basis (10,000 / 20,000 = 50%). The sale results in a Section 1244 ordinary loss of $5,000 [(20,000 total basis - 10,000 sales price) x 50%]. The remaining $5,000 stock loss is treated as a capital loss.
Correct Answer: A |
|
|
Term
Henry owned stock in Braves Corporation with a cost basis of $15,000. He sold the stock to his brother Tommy in May 2012 for $8,000. Tommy later sold the same stock to his boss for $20,000. What is Henry's recognized gain or loss?
A. $12,000 gain
B. $7,000 gain
C. $7,500 loss
D. $ 0 |
|
Definition
Henry cannot recognize a loss on the sale of stock to a related party. Henry has a realized loss of $7,000, but Henry cannot recognize the loss. His brother has a realized gain of $12,000, but only recognizes a gain of $5,000 when the stock is sold to his boss. Tommy is not required to recognize a portion of his gain equal to the loss previously disallowed to Henry.
Correct Answer: D |
|
|
Term
Nico's individual income tax return for 2008 was examined by the IRS. The examination resulted in a tax assessment in the amount of $10,000, which he paid on June 16, 2009. On February 14, 2012 Nico discovered papers which he believed would show that the IRS determination was erroneous. Nico can claim a refund of income taxes as follows:
A. Take a credit for the amount on his 2012 return
B. File an amended return by April 15, 2012
C. Nico cannot file for a refund the statute of limitations has expired
D. Immediately sue for a refund in court |
|
Definition
The claim must be filed within 3 years from the date of filing of the original return, or 2 years of the date the tax was paid, whichever is the later date. The due date for a 2008 return is April 15, 2009. Accordingly, the last day Nico has to file 1040X to claim for refund is April 15, 2012, three years from the date for filing his original return.
Correct Answer: B |
|
|
Term
Sgt. Alvin York is a calendar year taxpayer on active duty for the US Army in Germany on April 15. Which of the following statements about Sgt. York's tax return is not true?
A. Sgt. York can send the IRS a letter requesting a 2-month additional extension of time to file his return in addition to receiving a 6 month extension by filing Form 4868, giving him until December 15 to file.
B. Sgt. York will receive an automatic 2 month extension by filing his return and paying any tax due within 2 months of the due date along with a statement describing his overseas duty.
C. Sgt. York can file an Form 4868 electronically by April 15 to receive an automatic 6-month extension to file his taxes.
D. If Sgt. York cannot file his return within the automatic 2-month extension period, he generally can get an additional 4 months to file his return, for a total of 6 months. Unlike the original 2 month extension, the additional 4 months extend the time to file a return but is not an extension of time to pay any tax due. |
|
Definition
Form 4868 may be filed by mail or electronically through e-file. The extension provides taxpayer an additional period of 6-months (Oct 15) to file their tax returns. Form 4868 does not grant additional time to pay tax due.
To request an automatic 2-month extension to file and pay federal income tax, the taxpayer must either live outside the US and have a main place of business outside the US or be in military service on duty outside the US and Puerto Rico. A qualified taxpayer must attach a statement to the tax return explaining which of the two situations apply.
The IRS has discretion to grant an additional 2-months for taxpayers, who only receive notification from the IRS if the request is denied. |
|
|
Term
|
Definition
| Extension to file taxes....not an extension on paying taxes. |
|
|
Term
Tom has two dependent children for 2012. His wife died in May 2012. Tom has not remarried. Tom's eligible filing status that results in the lowest tax rate for 2012 is:
A. Head of household
B. Married filing jointly
C. Married filing separately
D. Qualifying Widow(er) With Dependent Child |
|
Definition
A surviving spouse can use status as married filing jointly if otherwise qualifying for that status. The year of death is the last year to file jointly with a deceased spouse. In certain cases, qualifying widow(er) with dependent child is the filing status for two tax years following the year of the spouse's death.
Correct Answer: B |
|
|
Term
When Carlos injured his ACL playing basketball, he was unable to work for two months. During this time, he received $2,500 in sick pay from his employer. He also received $1,000 from an insurance policy he had personally purchased several years ago. How much of the amount Carlos received while not working is taxable income?
A. $-0-
B. $2,500
C. $1,000
D. $3,500 |
|
Definition
Pay received from an employer while sick or injured is part of salary or wages. In addition, employees must include in income sick pay benefits received from a welfare fund, state sickness or disability fund, an association of employers or employees, and an insurance company, if the employer paid for the plan. However, if the employee paid the premiums on an accident or health insurance policy, the benefits received under the policy are not taxable.
Correct Answer: B |
|
|
Term
Jason is a doctor who provides humanitarian services for the Red Cross. He is required to file a US tax return, but on the due date for his return, he is in Afghanistan performing duties for the Red Cross. He arrived in Afghanistan on December 1, 2010 and returned home August 20, 2013. When is latest date that Jason can file and pay his 2012 taxes?
A. Jason is not in the military so he must file by April 15, 2013, his normal tax filing deadline.
B. He must file within 180 days of leaving the combat zone.
C. He must file within 180 days of leaving, plus an additional 3 1/2 months.
D. He can file and pay by June 15, 2013 under an automatic 2-month extension as he is out of the country. |
|
Definition
A person serving in the Red Cross or under the direction of the military while in a qualified combat zone receives the same treatment as military personnel. When individuals serve in a qualified combat zone, the filing deadline increases by 180 days after the latter of the last day in a qualified combat zone, or the last day of a continuous hospitalization related to injury from service. In addition to the 180 days, a service member in a qualified combat zone can receive a deadline extension of up to three and a half months, based on the number of days remaining to file upon entering the combat zone. This is representative of the time normally allotted for filing taxes (January 1 - April 15). If entering the combat zone before the first of the year, the service member may add the entire three and a half months to the 180-day extension.
Correct Answer: C |
|
|
Term
Which of the following taxpayers can file a tax return using status as Married Filing Jointly?
A. Fred and Wilma, a married couple with each spouse using a different accounting period.
B. Ricky and Lucy, a married couple with each spouse using a different accounting method.
C. Greg and Marsha, a married couple that are legally separated prior to the last day of the year but agree to file jointly.
D. Carol, the surviving spouse of Mike, filing a return for the tax year after his death. |
|
Definition
**Choice A and B are not the same, A is an accounting period while B is accounting method.
Different accounting methods are allowable for those filing jointly. However, both must use the same accounting period and are generally required to sign the return.
In general, filing status depends on marital status. A person is considered unmarried for the whole year if, on the last day of the tax year, he is unmarried or legally separated from a spouse under a divorce or separate maintenance decree. You cannot use MFJ if you are not married on the last day of the year unless your spouse died during the year. If a spouse dies during the year, the IRS considers the surviving spouse married for the whole year and allows married filing joint as the status only for that year if otherwise qualifying for that status. The year of death is the last year to file jointly with a deceased spouse.
Correct Answer: B |
|
|
Term
Which of the following individuals is not required to file a tax return?
A. Joe, who is filing single, under age 65, and had gross income of $20,000.
B. Larry, who is married, filing jointly, under age 65 with a spouse over age 65, and has gross income of $23,000.
C. Carl, who is filing single, age 66, and had gross income of $10,000.
D. Shemp, who is single, age 65, and a dependent on his daughters return. He has dividend income of $4,000. |
|
Definition
The gross income threshold determines when filing a return is necessary. It is the sum of the standard deduction and personal exemption amounts for each filing status. It is not necessary to file a return if gross income is less than the allowable deductions. The minimum income amount for filing for a single individual 65 or older in 2012 is $11,200. A dependent taxpayer over age 65 with over $2,400 in unearned income is required to file a return.
Correct Answer: C |
|
|
Term
Joe, Larry, Carl, and Martha provide support for the following individuals. Which of them is not eligible for a filing status as Head of Household?
A. Joe, whose mother lives with him and whom he claims as a dependent.
B. Larry, whose married adopted son lives with him and whom he claims as a dependent.
C. Carl, whose foster daughter lives with him and whom he claims as a dependent.
D. Martha, who provided for all the support of her aunt who lives in a nursing home. |
|
Definition
| To qualify for head of household, a person must be unmarried or considered unmarried (file a separate return and spouse did not live in home the last 6 months of the tax year) on the last day of the year and pay more than half the cost of keeping up a home for the year. A qualifying person must live with the taxpayer over half the year, with the exception of a mother or father. A qualifying person is a qualifying child or qualifying relative for whom the taxpayer can claim an exemption. For these purposes, a person that is a qualifying relative only because he or she lives with the taxpayer all year as a member of the household will not count as a qualifying person for HOH status. The aunt did not meet the residency test, even though she is a qualifying relative for purposes of the dependency exemption. |
|
|
Term
Paul had a boat dock constructed at his home on Lake Travis in June 2011 for a cost of $40,000. It was completely destroyed by a flood two months later. He did not have any insurance on the boat dock. The entire community where Paul's house and dock are located was declared a federal disaster area. Which if the following correctly describes how Paul can deduct the loss, before limitations?
A. 40,000 in either 2011 or 2012
B. $40,000 in either 2010 or 2011
C. $40,000 in 2009, or 2010, or 2011
D. No deduction in any year because the loss is personal |
|
Definition
Under normal circumstances, a taxpayer must deduct a casualty loss in the year of occurrence. If the loss occurred in a federally declared disaster area, a taxpayer can choose to amend the return for the tax year immediately preceding the tax year in which the disaster happened. A qualifying disaster loss on the previous year's return may result in a lower tax for that year, often producing or increasing a cash refund.
Correct Answer: B |
|
|
Term
| Dean and Cathy are married and filing a joint tax return for 2012. Their two children under age 18 and Cathy's mother lived with them all year. During 2012, Dean and Cathy provided all the support for their children and more than half of the support for Cathy's mother. The children each had interest income of less than $500. Cathy's mother received $2,500 from a taxable pension, $1,500 of dividends, and $1,000 of interest income. How many exemptions can Dean and Cathy claim on 2012 their tax return? |
|
Definition
| Dean and Cathy claim exemptions for themselves and their two children. They cannot claim Cathy's mother as a dependent under the qualifying relative test because she has gross income of more than the exemption limit, , which is $3,800 for 2012. |
|
|
Term
| What are the tests for a person to be a taxpayer's qualifying relative |
|
Definition
Not a qualifying child test,
Member of household or relationship test
Gross income test, and
Support test. |
|
|
Term
Bill and Melinda file a joint tax return. They submitted a single Form 4868 together prior to the due date of their tax return. As a consequence, they:
A. will not owe interest on any tax due after filing the extension.
B. are not assessed any penalty for failure to make estimated tax payments if they paid their entire tax liability when submitting Form 4868.
C. can still incur a late payment penalty and interest on any tax not paid by the regular due date.
D. have an additional 6 months to file the tax return and pay any tax owed as long as they wrote Out of the Country across the top of Form 4868. |
|
Definition
| Form 4868 is NOT an extension of time to pay taxes. Taxpayers must estimate the taxes due and submit payment with the request. The penalty for underpayment of estimated tax is separately calculated from the penalty for paying tax after the final due date. Taxpayers who are U.S. citizens (or residents) may receive an automatic 2-month extension to file returns and pay tax due if on the due date they are on duty in the military or live (and maintain a main place of business) outside the United States and Puerto Rico. Interest is charged from due date until the date paid. |
|
|
Term
Tiki is a nonresident alien. Which of the following is not a requirement for Tiki to elect taxation as a U.S. resident for the entire tax year?
A. He must be married.
B. His spouse must be a U.S. citizen or resident alien on the last day of the tax year.
C. He must file a joint return for the year of the election using Form 1040, 1040A, or 1040EZ.
D. He must not include worldwide income on his return. |
|
Definition
The taxpayer must include worldwide income for the whole year on the return, subjecting the entire amount to taxation under U.S. tax laws.
Correct Answer: D |
|
|
Term
Which of Marsha's expenses below qualify for a medical deduction?
A. Legal abortion
B. Maternity clothing
C. Health club membership advised by her doctor
D. Over-the-counter medication to treat symptoms of the flu |
|
Definition
Legal abortion is specifically allowable and maternity clothes are specifically disallowed. The health club membership and over-the-counter medications are also disallowed.
Correct Answer: A |
|
|
Term
Tips reported to the employer constitute gross income in the year when _________?
A. Received
B. Reported
C. Realized
D. Recognized |
|
Definition
| Tips must be reported to the employer by the 10th day of the month following the month they are received. Tips are considered income in the month the employee reports them. For example, tips received in December 2011 that are reported to the employer by January 10, 2012, are considered income in 2012 and should be included on the employee's 2012 Form W-2. IRS Form 4137. |
|
|
Term
With respect to a refund of tax, when is a Form 8888 (Allocation of Refund) filed?
A. To buy savings bonds
B. To deposit a refund into more than one account
C. Both of the above
D. None of the above |
|
Definition
Form 8888 must be filed if direct deposit of a refund to more than one account is desired. The taxpayer can also file this form to use a refund to buy up to $5,000 in paper series I savings bonds. IRS Form 8888.
Correct Answer: C |
|
|
Term
|
Definition
| To allocate refund into more than one account OR to buy savings bonds |
|
|
Term
| Todd and Patti purchased their Phoenix home in 1991 for $250,000 and incurred settlement costs of $10,000. They lived in the house as their primary residence until selling it in 2012 for $1,000,000. They paid a commission of $60,000 to a real estate broker for selling the property. During the 1990s, they added improvements to the home that cost $100,000. Todd and Patti are married and file a joint tax return. What is their taxable gain from selling the home in 2012? |
|
Definition
| The couple meets the tests (owned over 2 years and lived in at least 24 of prior 60 months) to exclude up to $500,000 of gain. Their basis is $420,000 ($250,000 + $10,000 + $60,000 + $100,000). Subtracting this basis from the sale price of $1,000,000 results in a $580,000 gain. Deducting the exclusion leaves a taxable gain of $80,000. |
|
|
Term
| Janet's husband Brad died on March 7, 2012. Brad had no income for 2012 and Janet has not remarried. Their two minor children continue living with Janet. She paid all of the costs for maintaining her home for the year and she paid for all the support of Brad and the children. What filing status results in the lowest tax rate for Janet for tax year 2012? |
|
Definition
| Because Brad died during the tax year and Janet has not remarried she can use a married filing jointly status, which provides the best of all possible tax rates. For two tax years following the year a spouse dies a taxpayer may file as a Qualifying Widow(er) with dependent child, provided the requirements are met. The tax rates and standard deduction are the same as for married filing joint. |
|
|
Term
| Jason is a doctor who provides humanitarian services for the Red Cross. He is required to file a US tax return. He went to Haiti to perform duties for the Red Cross during Operation Unified Response, which was designated as a contingency operation. He arrived in Haiti on December 1, 2011 and returned home April 21, 2012. When is latest date that Jason can file and pay his 2011 taxes? |
|
Definition
Deadlines for taking care of a variety of federal tax matters are automatically extended for persons serving in a combat zone or a contingency operation. Operation Unified Response (Haiti relief) is a contingency operation, thus giving designated persons providing earthquake relief in Haiti the same extensions that are available to military and support personnel serving in Iraq, Afghanistan, and other combat zone localities.
The normal tax filing deadline for his 2011 return is extended to January 31, 2013 (285 days after leaving the contingency operation on April 21, 2012). The time allotted to the extension related to the contingency operation is 180 days + 105 days in 2012 he had to file and was performing services in support of the military. |
|
|
Term
| Tom has two dependent children for 2012. His wife died in May 2012. Tom has not remarried. Tom's eligible filing status that results in the lowest tax rate for 2012 is: |
|
Definition
| A surviving spouse can use status as married filing jointly if otherwise qualifying for that status. The year of death is the last year to file jointly with a deceased spouse. In certain cases, qualifying widow(er) with dependent child is the filing status for two tax years following the year of the spouse's death. |
|
|
Term
| When the law requires withholding on a payment of U.S. source income to a nonresident alien, the payor must generally withhold at what rate? |
|
Definition
| Most types of U.S. source income received by a foreign person are subject to U.S. tax at a rate of 30%. A reduced rate, including exemption, may apply if there is a tax treaty between the foreign person's country of residence and the United States. |
|
|
Term
| Peter is a degree candidate at UCLA. During the fall semester of 2012 he received a $3,000 scholarship. He spent the entire amount plus another $1,500 from a student loan by paying $2,000 for tuition, $500 for books, and $2,000 for room and board. How much of the $3,000 scholarship does Peter report as 2012 income? |
|
Definition
| The qualified educational expenses are $2,000 of tuition and $500 for books. Room and board are not qualified educational expenses. The $3,000 scholarship minus the $2,500 in qualified expenses leaves $500 of the scholarship as taxable income. The student loan is not taxable. |
|
|
Term
| Bill is 72 and single. His 2012 income was $14,000 of Social Security payments, $21,000 of dividend and interest income, $30,000 of pension plan payments, and $16,000 of taxable distributions from his IRA. What is Bill's 2012 adjusted gross income? |
|
Definition
| Only part of Bill's Social Security is taxable. To determine the amount of benefits to include in income, compare his provisional income of $74,000 (one-half of the benefits of $7,000 + all other income sources totaling $67,000) to the upper base amount for single taxpayers of $34,000. A taxpayer must add 85% of excess provisional income (above the upper base amount) to income. However, the amount to include is limited to a maximum of 85% of the social security amount. The excess provisional income of $40,000 is more than his $14,000 in benefits. Therefore, he adds only $11,900 (85% of $14,000 in social security benefits) to his other income to arrive at AGI. The resulting AGI is $78,900. |
|
|
Term
| Can an individual taxpayer schedule payments in advance on EFTPS? |
|
Definition
| Businesses can schedule payments up to 120 days in advance of the due date, and individuals can schedule payments up to 365 days in advance of the due date. The payment will occur on the date the payer indicates. |
|
|
Term
| Ralph rents a house to Fred and Wilma. During a cold winter week in December, a pipe burst at the house. Ralph was on a ski vacation in Aspen and asked Fred and Wilma to get a plumber to repair the damage. They paid the plumber $575, which Ralph asked them to deduct from their next monthly rental payment of $5,000 in January. How much rental income does Ralph have for January? |
|
Definition
Any expenses paid by a tenant on behalf of the owner are considered income to the owner. A cash basis taxpayer must report income in the year of constructive receipt (when he actually receives it) regardless of when it is earned. Fred and Wilma are considered to pay $575 in rent to Ralph in December. The payment of $4,425 is income in January, upon constructive receipt.
This is an interesting question. The landlord agrees to allow the rental deduction which brings the income into that year, and he could not claim the expenses until reimbursement occurs, which is arguably the following year. |
|
|
Term
| Greg and Marsha are married cash basis taxpayers with a large number of investments. Greg earned substantial income in 2012 as a self-employed writer. Consequently, Greg and Marsha reinvested some of their 2012 investment income. They received $12,000 of dividends from corporate stocks and reinvested $4,000 of dividends earned on mutual funds. They also earned $5,000 of interest on certificates of deposit. In addition, they loaned money to Marsha's unemployed brother that accrued $2,000 of interest he did not pay. What amount of interest and dividends is taxable in 2012 for Greg and Marsha? |
|
Definition
| The CD interest, the mutual fund dividends, and the corporate stock dividends are all taxable. Interest and dividend income is taxable when it is constructively received. Reinvesting the interest or dividends does not change this. So the total is $21,000 ($12,000 + $5,000 + $4,000). The $2,000 of accrued interest on the loan to Marsha's brother was not constructively received in 2012 so it is not reported. |
|
|
Term
After Ms. Duke died on June 20, 2012, her estate had income before the year ended on December 31, 2012. The estate received $250 of interest and $150 of dividends. In addition, the estate sold some stock and received $10,000 (net of the broker's commission). The basis of the stock was $9,900. The estate did not make distributions to beneficiaries during 2012. Which of the following statements is true regarding a Form 1041 tax return?
A. The estate is not required to file a tax return.
B. If the estate pays an expense of at least $500 to prepare the tax return, it doesn't owe any tax.
C. The estate has to file a tax return to show how much it must eventually distribute to beneficiaries.
D. Both B and C |
|
Definition
No tax return is required because the estate's gross income is under $600. The total income is $500 consisting of the interest, the dividends, and the gain on the sale of stock ($250 + $150 + $100). While technically the estate is not required to file, IRS will receive form 1099-B reporting the stock sale, but will not have the basis information and will be looking for a tax return based on that 1099.
Correct Answer: A |
|
|
Term
| Elden is 78 years of age and single. He received Social Security benefits of $15,000, which includes $500 for Medicare premiums. His pension income was $57,000. He also had received $1,500 dollars of interest income, $700 of gross rental income and $1,600 of dividends. How much is Elden's adjusted gross income? |
|
Definition
| Under certain circumstances, social security benefits are not taxable. To determine the amount of benefits to include in income, compare his provisional income of $68,300 (one-half of the benefits of $7,500 + all other income sources $60,800) to the upper base amount for single taxpayers of $34,000. The amount of his social security benefits included in income is limited to a maximum of 85% of his social security amount. The excess provisional income $34,300 is more than his $15,000 in benefits, therefore $12,750 (85% of $15,000 in social security benefits) is added to his other income to arrive at AGI. AGI equals $73,550. |
|
|
Term
| Brad and Jen were divorced in 2011. Their son, Bubba, lived with Jen for all of 2012 and qualifies as her dependent. However, the divorce decree states that Brad is entitled to take Bubba as an exemption for 2012. Bubba incurred some medical expenses in 2012. Jen paid $1,200 of the medical expenses and Brad paid $2,000. In 2012, Jen entered into a multiple support agreement with her brother to assist with their mother's care. Under the agreement, her brother takes their mother as a dependent for 2012. Jen's one-half of her mother's medical expenses in 2012 totaled $1,500. How much is Jen's medical expense deduction for 2012 (without regard for income limitations). |
|
Definition
| Jen can deduct the $1,200 paid for Bubba's medical expenses. For purposes of the medical and dental expenses deduction, a child of divorced or separated parents can be treated as a dependent of both parents. Either parent can include the medical expenses he or she pays for the child, even if the other parent claims the child's dependency exemption. Because Jen's brother treats her mother as a dependent under the multiple support agreement, Jen cannot deduct any of her expenses. Only her brother is entitled to deduct medical expenses he paid. |
|
|
Term
Sam receives money from a variety of sources in 2012. Which of the following amounts does he report as income on his 2012 tax return?
A. $1,000 per month that Sam directs the tenant of his rental house to pay his ex-wife.
B. $2,000 for construction by the tenant of the rental house, without Sam's knowledge, of a deck and patio as additions that add $2,000 of value to the property.
C. $10,000 for the value of Sam's coin collection that he sent to a dealer on consignment to sell for $10,000.
D. $7,000 that the consignment vendor receives after commission for selling Sam's coins and places in an escrow account controlled by the vendor. |
|
Definition
Items C and D referencing the consignment vendor are not income because Sam does not yet have constructive receipt of the income. Item B is not income because it is a capital improvement that increases the value of the rental property. But the amounts in item A are taxable income for Sam because he has constructive receipt of the income according to the lease terms and directs payment to his ex-wife.
Correct Answer: A |
|
|
Term
Which of the following must the recipient include in gross income?
A. Gifts
B. Child support
C. Alimony
D. All of the above |
|
Definition
Neither gifts nor child support are taxable to the recipient. Gross income does include, however, alimony received during the taxable year.
Correct Answer: C |
|
|
Term
Perry is age 41 and files a US tax return with a filing status of single. Which of the following statements is not true about his extension of time to file a personal tax return?
A. He may receive more than a 6 month extension if he files Form 2350 and is outside the US.
B. If the amount of tax due is paid by credit card prior to the original due date for filing the tax return, the taxpayer can file the return at any time before the end of the 6 month extension period.
C. Filing Form 4868 results in an automatic 6 month extension for filing the tax return and paying any tax due.
D. Filing Form 4868 results in an automatic 6 month extension for filing the return. |
|
Definition
The extensions discussed here are extensions of time to file the return. They do not include any extension of time to pay the taxes due on the return. No interest or penalty will occur if tax is paid by April 15th. You can get an extension if you pay part or all of your estimate of income tax due by using a credit or debit card. You generally cannot get an extension of more than 6 months; however, if you are outside the United States and meet certain requirements, you may be able to get a longer extension of more than 6 months to file your tax return if you need the time to meet either the bona fide residence test or the physical presence test to qualify for either the foreign earned income exclusion or the foreign housing exclusion or deduction. To receive an extension beyond 6-months, he must file form 2350 by the due date for filing his return.
Correct Answer: C |
|
|
Term
| Frank exchanged his collection of old vinyl record albums for a Picasso sketch from Peter in December 2012. The fair market value of the record albums is $4,000. The Picasso sketch has the same $4,000 fair market value. The collection cost Frank $1,000 over the years to assemble. How should Frank report this transaction on his 2012 tax return? |
|
Definition
| While an exchange was made, it is not of a like kind because the property is not similar or related in service or use. Bartering is an exchange of property or services. Bartering income includes income derived from the exchange of property for property. The taxpayer must report the fair market value of property or services received in bartering as income. Frank's basis in the given property was $1,000 and the property he received in the exchange has a value of $4,000. He has a $3,000 gain to report ($4,000 - $1,000 = $3,000). |
|
|
Term
| Gene and Claire, a married couple filing jointly are partners in a consulting business. The partnership had gross receipts of $60,000 and a net profit of $45,000. In addition, Gene had wages of $25,000. They also had stock dividends of $2,000, City of Birmingham Bond interest of $4,000 and savings account interest of $1,000. Ignoring any SE tax adjustments, what is their adjusted gross income? |
|
Definition
Net profit from a partnership is included in each partner's individual income tax return. Bond interest from a municipality is exempt from federal income tax.
Gene and Claire's adjusted gross income equals $73,000 ($45,000 partnership income + $25,000 wages + $2,000 dividends + $1,000 savings account interest). |
|
|
Term
Fred loaned $10,000 to Ricky in 2010. Ricky ran away to Cuba in 2011. Fred was unable to contact Ricky for over a year and does not expect to ever collect any of the money he loaned. When preparing his 2012 tax return, Fred finds that the loss on this nonbusiness bad debt is:
A. deductible as a short-term capital loss.
B. deductible as a long-term capital loss.
C. deductible only if he itemizes deductions.
D. not deductible. |
|
Definition
All non-business bad debts are short term capital losses and are claimed on Schedule D. The amount of time the money has been owed does not matter.
Correct Answer: A |
|
|
Term
Brad makes the following payments to his ex-wife Jen. Which payment can he claim as alimony?
A. $500 made under a written separation agreement to pay the gardener at the house where Jen is living that Brad owns.
B. A property settlement for Brad to keep the Ferrari that he and Jen owned together.
C. $2,000 paid under a written separation agreement to the Actor's Studio for Jen to take acting lessons.
D. $1,000 that is required to be made after Jen dies in a car accident. |
|
Definition
Alimony does not include payments to maintain property of the payer, property settlements, or payments after the recipient's death. Cash payments, checks, or money orders to a third party on behalf of a spouse under the terms of the divorce or separation instrument can be alimony, if they otherwise qualify. These include payments for a spouse's medical expenses, housing costs (rent, utilities, etc.), taxes, tuition, etc. The payments are treated as received by the spouse and then paid to the third party.
Correct Answer: C |
|
|
Term
Which of the following students might qualify as a qualifying child on their parents tax return?
A. Manuel, who on Dec 31 is age 20 and enrolled part-time at Rutgers.
B. Patsy, who on Dec 31 is age 24 and enrolled full-time at Yale
C. Jules, who on Dec 31 is age 23. She was enrolled full-time for the first 6 months of the year at UCLA, but has since graduated.
D. Jerimiah, who on Dec 31 is 20 and enrolled full-time at Florida State. Jerimiah provides his own support. |
|
Definition
A full-time student must be enrolled at a school for the number of hours or classes that the school considers full-time. The student must have been a full-time student for some part of each of 5 calendar months during the year. The months need not be consecutive. The student must be under age 24 at the end of the year and cannot provide more than half of his own support.
Correct Answer: C |
|
|
Term
Elsa purchased three electric vehicles. One is for use in her business delivering pizza. The other is for her to commute to work and the third was purchased for resale to her business partner. Which of the vehicles is not qualified for Elsa to use the Electric Vehicle Credit?
A. The one used for business.
B. The one used for business and the one used to commute to work.
C. The one purchased for resale.
D. All of them are not qualified for the credit. |
|
Definition
| This credit is not available for vehicles purchased for resale. |
|
|
Term
Nick is a management consultant who travels constantly to the headquarters of different companies that contract with his employer for services. Nick does not have a regular place of business. He reports to his employer from the various places he is temporarily assigned or from his house in Houston when he is not traveling. He does not have a permanent office at the headquarters of his employer in New York City. Nick determines his tax home based upon:
A. Where he performs part of his business and uses for lodging while doing business in the area.
B. Where he has living expenses as his main home that are duplicated because his business requires him to be away from that home.
C. Where he has not abandoned as both his traditional place of lodging and his main home; where members of his family live; or where he often uses for lodging.
D. All of the above. |
|
Definition
A, B, and C are the three factors used to determine a tax home in this situation. A tax home is the place where a taxpayer permanently or indefinitely engages to work as an employee or self-employed individual. Generally, a tax home is the entire city or general area where the main place of business or work is located, regardless of where the individual maintains the family home.
Correct Answer: D |
|
|
Term
| When must the taxpayer report tips to his or her employer? |
|
Definition
| A taxpayer must report tips to his or her employers by the 10th day of the month following the month they were received. If the 10th day of the month falls on a Saturday, Sunday, or legal holiday, the report should be given to the employer by the next business day. IRS Form 4137. |
|
|
Term
Mike and Carol had some capital improvements to their house that was built in 1969. Which of the following costs are they not permitted to itemize and deduct as medical expenses?
A. A wheelchair ramp that makes the home accessible for Mike's physical condition.
B. Bathroom remodeling to add hand rails around the shower.
C. Kitchen remodeling to lower the cabinets.
D. A residential elevator with a cost of $17,000 that added $17,000 of value of their home. |
|
Definition
Adding an elevator is one of the very few modifications to the home made for medical reasons that might increase the value of the property. Deduct any increase in property value from the cost before taking the item as a medical expense. There is no allowable medical deduction for this elevator because the cost of the improvement is equal to the increase in property value.
Correct Answer: D |
|
|
Term
Jason is a doctor who provides humanitarian services for the Red Cross. He is required to file a US tax return, but on the due date for his return, he is in Afghanistan performing duties for the Red Cross. He arrived in Afghanistan on December 1, 2010 and returned home August 20, 2013. When is latest date that Jason can file and pay his 2012 taxes?
A. Jason is not in the military so he must file by April 15, 2013, his normal tax filing deadline.
B. He must file within 180 days of leaving the combat zone.
C. He must file within 180 days of leaving, plus an additional 3 1/2 months.
D. He can file and pay by June 15, 2013 under an automatic 2-month extension as he is out of the country. |
|
Definition
A person serving in the Red Cross or under the direction of the military while in a qualified combat zone receives the same treatment as military personnel. When individuals serve in a qualified combat zone, the filing deadline increases by 180 days after the latter of the last day in a qualified combat zone, or the last day of a continuous hospitalization related to injury from service. In addition to the 180 days, a service member in a qualified combat zone can receive a deadline extension of up to three and a half months, based on the number of days remaining to file upon entering the combat zone. This is representative of the time normally allotted for filing taxes (January 1 - April 15). If entering the combat zone before the first of the year, the service member may add the entire three and a half months to the 180-day extension.
Correct Answer: C |
|
|
Term
Andy received the following income from his employer in 2012:
$25,000 regular wages
$5,000 cash bonus
A vacation package valued at $1,000
Parking privileges in a lot adjacent to the office building valued at $100 per month
$200 per month contributions to his 401(k) that Andy did not contribute toward from his wages
What is the total amount that Andy must include as income for 2012? |
|
Definition
| The wages, the bonus and the trip are all taxable income to Andy. The parking privilege is a nontaxable fringe benefit. Employer contributions to a 401(k) are not income the employee (but are tax-deductible for the employer). |
|
|
Term
| Paul had a boat dock constructed at his home on Lake Travis in June 2011 for a cost of $40,000. It was completely destroyed by a flood two months later. He did not have any insurance on the boat dock. The entire community where Paul's house and dock are located was declared a federal disaster area. Which if the following correctly describes how Paul can deduct the loss, before limitations? |
|
Definition
| Under normal circumstances, a taxpayer must deduct a casualty loss in the year of occurrence. If the loss occurred in a federally declared disaster area, a taxpayer can choose to amend the return for the tax year immediately preceding the tax year in which the disaster happened. A qualifying disaster loss on the previous year's return may result in a lower tax for that year, often producing or increasing a cash refund. |
|
|
Term
Scott is a US citizen on vacation in Argentina on April 15th. He is a calendar year taxpayer who has not filed his tax return. Which of the following is correct about Scott's extension request?
A. Scott may request an automatic 2-month extension to file his return because he is out of the country on the due date of his return.
B. Scott can request an automatic 6-month extension to file and pay his taxes using form 4868.
C. Scott can receive an automatic 6-month extension to file his return by telephone if he pays his tax due with a debit card.
D. If Scott files an extension by April 15, he will not owe interest on unpaid amounts prior to the extended due date. |
|
Definition
A taxpayer may request an automatic 6-month extension without form 4868 by paying part or all of the estimate of tax due by using a credit or debit card. This can be executed by phone or the internet.
To request an automatic 2-month extension to file and pay federal income tax, the taxpayer must either live outside the US and have a main place of business outside the US or be on active military duty outside the US and Puerto Rico. Qualified taxpayers must attach statements to their return explaining which situation applies.
Form 4868 is used to request an automatic 6-month extension to file a tax return. This is not an extension of time to pay any tax due.
Correct Answer: C |
|
|
Term
Which of the following statements is correct about Duke's personal exemption for the year of his wife's death?
A. If Duke remarries in the same year as his wife's death, he can still claim an exemption for his wife.
B. Duke must file a joint return with the deceased spouse.
C. As long as Duke has no gross income for the year of his wife's death, he can remarry in that year and be claimed as an exemption on both a final separate return of his deceased wife and the separate return of his new wife.
D. Duke can claim an exemption for his deceased wife only if she had no income.
Explanation:
An individual without gross income who remarries in the year of a spouse's death can be claimed as an exemption on both the final separate return of a deceased spouse and the separate return of a new spouse. If filing a joint return with a new spouse, the exemption is appropriate only for that return.
Correct Answer: C
FFA EA Book Reference: CH 1 Filing Information
Subsection: Taxpayer Data
Subject: Personal exemptions including dependents |
|
Definition
An individual without gross income who remarries in the year of a spouse's death can be claimed as an exemption on both the final separate return of a deceased spouse and the separate return of a new spouse. If filing a joint return with a new spouse, the exemption is appropriate only for that return.
Correct Answer: C |
|
|
Term
| In which of the following circumstances should a taxpayer not request an installment agreement on Form 9465? |
|
Definition
| A taxpayer does not file Form 9465 if he can pay the full amount he owes within 120 days. The taxpayer must call or apply online to establish a request to pay in full. The taxpayer will avoid paying a set-up fee on an installment agreement under this method. Also, a taxpayer does not file Form 9465 if he is in bankruptcy or if the IRS has accepted an offer-in-compromise. IRS Form 9465. |
|
|
Term
A refund may be directly deposited into which individual retirement account?
A. Traditional IRA
B. Roth IRA
C. SEP-IRA
D. All of the above |
|
Definition
A refund (or part of it) may be directly deposited to a traditional IRA, Roth IRA, or SEP-IRA, but not a SIMPLE IRA. The trustee or custodian of the account must be notified of the year to which the deposit is to be applied. IRS Form 8888.
Correct Answer: D |
|
|
Term
| Jill was certified by her optometrist on December 31, 2012, as having 20/200 vision when she wears her glasses. What is her deduction? |
|
Definition
Jill is legally blind because her vision is not BETTER than 20/200. If you are blind on the last day of the year and do not itemize deductions, you are entitled to a higher standard deduction. You qualify for this benefit if you are totally or partly blind. If you are not totally blind, you must get a certified statement from an eye doctor (ophthalmologist or optometrist) that:
You cannot see better than 20/200 in the better eye with glasses or contact lenses, or
Your field of vision is 20 degrees or less.
If your eye condition is not likely to improve beyond these limits, the statement should include this fact. You must keep the statement in your records.
If your vision can be corrected beyond these limits only by contact lenses that you can wear only briefly because of pain, infection, or ulcers, you can take the higher standard deduction for blindness if you otherwise qualify. |
|
|
Term
Warren owns several types of bonds. Which of the following is not true about original issue discount (OID)?
A. The OID rules do not apply to U.S. Savings Bonds.
B. OID is included as income over the term of a debt security regardless of whether payments are received from the issuer.
C. The amount of OID is the difference between the stated redemption price at maturity and the par value.
D. OID is treated as zero if it is less than one-fourth of 1% (.0025) of the stated redemption price at maturity multiplied by the number of years from the date of issue to maturity. |
|
Definition
OID is the difference between the stated redemption price at maturity and the issue (purchase) price. Report OID in the year accrued. U.S. savings bonds are issued at a discount; however, only an accrual basis taxpayer must report interest when accrued. Unlike other instruments issued at a discount, a cash basis taxpayer can choose to defer recognition of income until redemption (or sale) of the bonds. The OID in item D is de minimis and not necessary to report.
Correct Answer: C |
|
|
Term
| When Carlos injured his ACL playing basketball, he was unable to work for two months. During this time, he received $2,500 in sick pay from his employer. He also received $1,000 from an insurance policy he had personally purchased several years ago. How much of the amount Carlos received while not working is taxable income? |
|
Definition
| Pay received from an employer while sick or injured is part of salary or wages. In addition, employees must include in income sick pay benefits received from a welfare fund, state sickness or disability fund, an association of employers or employees, and an insurance company, if the employer paid for the plan. However, if the employee paid the premiums on an accident or health insurance policy, the benefits received under the policy are not taxable. |
|
|
Term
| Kathy is single and owns an apartment building with 12 units that she manages personally. She collects the rents and arranges for ordinary repairs. In 2012, Kathy had a loss of $30,000 on this rental activity and had no reportable passive income. Her adjusted gross income before considering the rental loss is $50,000. How much of the rental loss does Kathy deduct on her 2012 return? |
|
Definition
Because of her active participation, Kathy is allowed to offset ordinary income with a loss of up to $25,000. If rental losses are less than $25,000 and the taxpayer or spouse actively participate in the rental activity, the passive activity limits may not apply. Active participation is a less stringent standard than material participation. Active participation includes management decisions such as approving tenants, deciding rental terms, approving expenditures, etc.
If a taxpayer (S or MFJ) has modified adjusted gross income (MAGI) over $100,000, the $25,000 special allowance is limited to 50% of the difference between $150,000 and MAGI. There is no allowance when MAGI is over $150,000. |
|
|
Term
Joe, Larry, Carl, and Martha provide support for the following individuals. Which of them is not eligible for a filing status as Head of Household?
A. Joe, whose mother lives with him and whom he claims as a dependent.
B. Larry, whose married adopted son lives with him and whom he claims as a dependent.
C. Carl, whose foster daughter lives with him and whom he claims as a dependent.
D. Martha, who provided for all the support of her aunt who lives in a nursing home. |
|
Definition
To qualify for head of household, a person must be unmarried or considered unmarried (file a separate return and spouse did not live in home the last 6 months of the tax year) on the last day of the year and pay more than half the cost of keeping up a home for the year. A qualifying person must live with the taxpayer over half the year, with the exception of a mother or father. A qualifying person is a qualifying child or qualifying relative for whom the taxpayer can claim an exemption. For these purposes, a person that is a qualifying relative only because he or she lives with the taxpayer all year as a member of the household will not count as a qualifying person for HOH status. The aunt did not meet the residency test, even though she is a qualifying relative for purposes of the dependency exemption.
Correct Answer: D |
|
|
Term
|
Definition
|
|
Term
After Ms. Duke died on June 20, 2012, her estate had income before the year ended on December 31, 2012. The estate received $250 of interest and $150 of dividends. In addition, the estate sold some stock and received $10,000 (net of the broker's commission). The basis of the stock was $9,900. The estate did not make distributions to beneficiaries during 2012. Which of the following statements is true regarding a Form 1041 tax return?
A. The estate is not required to file a tax return.
B. If the estate pays an expense of at least $500 to prepare the tax return, it doesn't owe any tax.
C. The estate has to file a tax return to show how much it must eventually distribute to beneficiaries.
D. Both B and C |
|
Definition
| No tax return is required because the estate's gross income is under $600. The total income is $500 consisting of the interest, the dividends, and the gain on the sale of stock ($250 + $150 + $100). While technically the estate is not required to file, IRS will receive form 1099-B reporting the stock sale, but will not have the basis information and will be looking for a tax return based on that 1099. |
|
|
Term
| The IRS will notify the taxpayer of the due dates of any remaining payments _________? |
|
Definition
| After each payment, the IRS will send the taxpayer a notice showing the remaining amount owed, and the due date and amount of the next payment. However, if the taxpayer has chosen to have payments automatically withdrawn from their checking account, no notice will be sent. IRS Form 9465. |
|
|
Term
|
Definition
|
|
Term
Tiki is a nonresident alien. Which of the following is not a requirement for Tiki to elect taxation as a U.S. resident for the entire tax year?
A. He must be married.
B. His spouse must be a U.S. citizen or resident alien on the last day of the tax year.
C. He must file a joint return for the year of the election using Form 1040, 1040A, or 1040EZ.
D. He must not include worldwide income on his return |
|
Definition
The taxpayer must include worldwide income for the whole year on the return, subjecting the entire amount to taxation under U.S. tax laws.
Correct Answer: D |
|
|
Term
| Dwight Howard owned an office building for investment purposes on the east side of Orlando. Dwight's adjusted basis in the building was $725,000 and the fair market value (FMV) was $550,000. He exchanged his investment for other real estate held for investment, near the big lake, with a FMV of $650,000. Dwight assumed a mortgage of $100,000 on the new building. What is Dwight's basis in the new building? |
|
Definition
Dwight's basis in the new building is $825,000. He can increase his basis in the replacement property by the amount of net liabilities he assumes in the exchange. If a taxpayer acquires property in a like-kind exchange, the basis of that property is generally the same as the basis of the property transferred, with the following adjustments:
Increase basis by the total amount of:
Additional money paid, including exchange expenses
FMV of any non-like kind property transferred to other party
Net liabilities assumed by the taxpayer
Any gain recognized on the exchange
Decrease basis by the amount of:
Boot received (money, FMV of non-like kind property, net liabilities other party assumes)
Any loss recognized on the exchange |
|
|
Term
The related persons rule regarding asset sales applies to transactions between _________?
A. In-laws.
B. A two percent partner and the partnership.
C. The grantor and a fiduciary of a trust.
D. A minority shareholder and a corporation. |
|
Definition
The Code recognizes that transactions between related persons are subject to tax abuse. For instance, a child may sell property to her parent at a loss (i.e. cost basis exceeds amount realized) in order to offset income from another transaction. This transaction is deemed abusive because child claims a loss even though she retains ownership of the property. In this case, the losses in a transaction between a grantor and fiduciary will be disallowed because trust grantors and fiduciaries of such trusts fall within the list of related persons. Related persons include family members (but not in-laws), and individuals and entities in which the individual owns or controls more than 50% of the entity.
Correct Answer: C |
|
|
Term
Carla is paid $1,000 per week by Diane to wash dishes and make her breakfast. Carla requests that Diane withhold $150 of federal income tax from each paycheck. Diane has no other employees. How does Diane report and remit the taxes related to employing Carla?
A. As a household employee, Carla is responsible for her own withholding.
B. Diane sends Carla a 1099-MISC and Carla files Schedule H quarterly to report Social Security, Medicare, and federal withholding.
C. Diane files Schedule H as an attachment to her personal income tax return to report Social Security and Medicare on the wages paid to Carla. Diane then files Form 940 reporting federal income tax withheld.
D. Diane files Schedule H as an attachment to her personal income tax return to report Social Security, Medicare, federal tax withholding and federal unemployment tax related to wages paid to Carla. |
|
Definition
A taxpayer must annually file Schedule H with Form 1040 to report federal taxes related to household employees, including income tax withholding. Diane is not required to withhold federal tax, but may do so Carla's request. Other than providing a W-2 for Carla, Diane is not required to submit any other forms to the IRS related to employing Carla. However, there are state laws that may involve filing requirements.
Correct Answer: D |
|
|
Term
| Becky began receiving $10,000 annual distributions from her qualified retirement plan in 2010 when she was 45. These amounts are exempt from the penalty tax on early distributions because they are equal payments based upon Becky's lifetime. In 2012, Becky received an additional $5,000 from the retirement plan that she used to pay off her credit card debt. Therefore, Becky's total 2012 distribution was $15,000. How much penalty on early distributions is she required to pay for 2012? |
|
Definition
An early distribution recapture tax may apply if, before reaching age 59 1/2, the distribution method under the equal periodic payment exception changes for reasons other than death or disability. The recapture tax may also apply if payments are not made for at least 5 years under a method that qualifies for the exception. The taxpayer may have to pay it even if the change occurs after reaching age 59 1/2. In that case, the 10% tax applies only to payments distributed before reaching age 59 1/2. The recapture tax applies to the first tax year to which the change applies. The amount of tax is the amount that would have been imposed had the exception not applied, plus interest for the deferral period.
Because Becky received an additional distribution in 2012, she no longer qualifies for the exception under equal periodic payments and must recapture the tax on early distributions for all distributions previously exempt. Becky's tax on early distributions for 2012 without regard to interest is $3,500-computed as ($10,000 2010 distribution + $10,000 2011 distribution + $15,000 2012 distribution) x 10%. |
|
|
Term
| Greg owns a four-unit apartment building in San Jose. He advertises for tenants, negotiates leases with tenants, collects rents, and makes repairs. His cousin, Rafael, owns similar apartment buildings in the same neighborhood as Greg's building. Rafael spends more than half his time developing, constructing, renting, managing, and operating his apartment buildings as well as providing regular cleaning, linen service and maid service for the convenience of the tenants. Does either Greg or Rafael have self-employment income from these activities? |
|
Definition
|
|
Term
| Earl Masterson is a full-time minister at the Washington Heights Church, which is FICA exempt. The church provides Rev. Masterson with housing that has annual fair rental value of $4,800. The church pays an annual salary of $13,200, of which $1,200 is designated for utility costs. His actual utility costs during the year were $1,000. What is Rev. Masterson's self-employment income? |
|
Definition
A member of the clergy is self-employed for self-employment tax purposes. Self-employment tax is based upon net earnings from self-employment. If a church is FICA exempt, the W-2 wages are considered income from self-employment. However, the rental value of the home or the housing allowance must be included as earnings for self-employment purposes (on Schedule SE) when applicable. The rental value of a home (including utilities) or any designated housing allowance is not income for federal tax purposes. The exclusion cannot be more than the reasonable pay for services rendered. Exclude any allowance designated for utility costs, up to the actual utility cost. The home or allowance must be compensation for services rendered as an ordained, licensed, or commissioned minister.
Self-employment tax (not federal income tax) is calculated on Schedule SE. The minister includes all income as self-employment income on schedule SE. For federal tax purposes (Form 1040) he does not include the housing allowance as taxable income. Only the portion of the allowance not used for housing or utilities is subject to income tax.
Most of the allowance is not included in income on form 1040, it is however considered income from self-employment for purposes of calculating self-employment tax on schedule SE and certain retirement plan contributions. The minister's income from self-employment includes the following:
Wages - Since the church is FICA exempt, social security and Medicare taxes are not withheld. In this case, the minister must include wages in income from self-employment. The entire amount received ($13,200) is part of self-employment income even though a portion is designated as utility costs.
Housing allowance - The entire allowance ($4,800) is part of self-employment income.
Now, for income tax purposes (Form 1040), the minister may exclude a reasonable amount from income that is actually used for housing and utilities. The amount that he must include in income is $200, which is the difference between what he used and what is received. |
|
|
Term
Which of the following applies to the allowable credit for prior year minimum tax?
A. Any unused portion may not be carried forward.
B. It is allowed in full against the current year's tax.
C. It may only be carried forward for five years.
D. The allowable credit cannot reduce the current year's tax below the current year's tentative minimum tax. |
|
Definition
A taxpayer with AMT liability in the current year may recapture that amount in future years in the form of a credit. This non-refundable credit can offset future AMT liability only to the extent prior AMT tax paid was due to deferral items. If unused after three years, the credit may become refundable.
Correct Answer: D |
|
|
Term
| Jen bought a rundown house in Long Beach with a plan to renovate it. Right after making $10,000 in improvements, a fire completely destroys the house. She originally paid $90,000 for the property, which includes $10,000 for the land. The fair market value (FMV) of the property before the fire was $120,000, consisting of $105,000 for the house and $15,000 for the land. After the fire, the FMV was only the $15,000 value of the land. Jen collected $85,000 from her insurance company. What is her casualty loss (before applying the $100 and 10% limits)? |
|
Definition
| In figuring a loss to real estate you own for personal use, all improvements (such as buildings and ornamental trees and the land containing the improvements) are considered together. Jen's adjusted basis is $100,000. The FMV before the fire is $120,000 and FMV after the fire is $15,000. The decrease in FMV is $105,000. Her loss is the smaller of her adjusted basis or the decrease in FMV. The loss is therefore $100,000 LESS the insurance reimbursements. The result is a loss of $15,000 ($100,000 - $85,000). |
|
|
Term
Sgt. Alvin York is a calendar year taxpayer on active duty for the US Army in Germany on April 15. Which of the following statements about Sgt. York's tax return is not true?
A. Sgt. York can send the IRS a letter requesting a 2-month additional extension of time to file his return in addition to receiving a 6 month extension by filing Form 4868, giving him until December 15 to file.
B. Sgt. York will receive an automatic 2 month extension by filing his return and paying any tax due within 2 months of the due date along with a statement describing his overseas duty.
C. Sgt. York can file an Form 4868 electronically by April 15 to receive an automatic 6-month extension to file his taxes.
D. If Sgt. York cannot file his return within the automatic 2-month extension period, he generally can get an additional 4 months to file his return, for a total of 6 months. Unlike the original 2 month extension, the additional 4 months extend the time to file a return but is not an extension of time to pay any tax due. |
|
Definition
Form 4868 may be filed by mail or electronically through e-file. The extension provides taxpayer an additional period of 6-months (Oct 15) to file their tax returns. Form 4868 does not grant additional time to pay tax due.
To request an automatic 2-month extension to file and pay federal income tax, the taxpayer must either live outside the US and have a main place of business outside the US or be in military service on duty outside the US and Puerto Rico. A qualified taxpayer must attach a statement to the tax return explaining which of the two situations apply.
The IRS has discretion to grant an additional 2-months for taxpayers, who only receive notification from the IRS if the request is denied. |
|
|
Term
Donald paid the following expenses for 2012. Which of them are deductible on Schedule A subject to the 2% limitation?
A. The license fee for Donald to obtain his real estate sales license that he uses for occasional income as an independent contractor.
B. Taxes on his new car.
C. Fees paid to his tax preparer for his prior year tax return.
D. The cost of hauling small tools in his car for work he performs as a mechanic. |
|
Definition
| Tax preparation fees are subject to the 2% of AGI limit. You cannot deduct professional accreditation fees paid for the initial right to practice. Taxes on his new car are deductible as taxes and not subject to 2% of AGI limit. The cost of hauling tools in his car is not deductible. Hauling tools or instruments in your car while commuting to and from work does not make your car expenses deductible. However, you can deduct any additional costs you have for hauling tools or instruments (such as for renting a trailer you tow with your car). |
|
|
Term
| Which filing status would prevent a taxpayer from claiming the tuition and fees deduction? |
|
Definition
| A taxpayer cannot claim the tuition and fees deduction if their filing status is married filing separately or if another person can claim an exemption for the taxpayer as a dependent on his or her tax return (even if the other person does not actually claim that exemption). IRS Form 8917. |
|
|
Term
Kirk passed away. At his death he had a traditional IRA with a basis of 25,000 and a FMV of $50,000. Kirk had taken no distributions and all the contributions he made were non-deductible. As the spousal beneficiary, which of the following applies to his wife Jenny?
A. Kirk's $25,000 basis in the IRA may be treated as basis to Jenny upon Kirk's death
B. When Jenny receives the distribution she must roll it over to her own traditional IRA or pay tax on all income earned in the account
C. Jenny must begin receiving periodic distributions by December 31 of the fifth year following Kirk's death
D. Jenny must pay a 10% penalty on the funds in the IRA if she receives an immediate distribution after Kirk's death |
|
Definition
| The basis in a traditional IRA, along with the untaxed income in respect of a decedent (IRD) transfers to the beneficiary. A surviving spouse can treat the IRA as her own, or begin taking distributions from the IRA according to the rules established for beneficiaries. The spouse of the decedent is the only beneficiary that can roll an inherited IRA into their own traditional IRA. Distributions due to death are not subject to a 10% penalty. |
|
|
Term
| Donald hires Brenda, the 19-year-old daughter of his business partner, to care for his son while he works. Brenda is paid $200 every week of cash wages. Donald expects to pay Brenda at least $3,400 the entire year. Donald decides to pay all of the Social Security and Medicare taxes on Brenda's wages without withholding her employee share from wages. When calculating these taxes, what is the weekly gross income that Donald reports as Brenda's wages? |
|
Definition
If you prefer to pay your employee's social security and Medicare taxes from your own funds, do not withhold them from your employee's wages. The social security and Medicare taxes you pay to cover your employee's share must be included in the employee's wages for income tax purposes. However, they are not counted as social security and Medicare wages or as federal unemployment (FUTA) wages.
$200 Weekly Wage
+ $11.30 Employee Share of Social Security$211.30 Brenda's wages each payday for income tax purposes
**Note: For 2012, the employee tax rate for social security is 4.2%. The employer tax rate for social security remains unchanged at 6.2%. The 2012 social security wage base limit is $110,100. In 2012, the Medicare tax rate is 1.45% each for employers and employees, unchanged from 2011. |
|
|
Term
| Employee tax rate for Social Security |
|
Definition
|
|
Term
| Employer tax rate for social security. |
|
Definition
|
|
Term
| 2012 Social Security wage base limit? |
|
Definition
|
|
Term
|
Definition
1.45 for employers
1.45 for employees |
|
|
Term
| Fred and Ethel are married filing a joint tax return for 2012. They have $110,000 in wages and gambling winnings of $5,000. Their deductions consist of $8,500 for mortgage interest, $2,500 for property tax on their home, $500 of charitable contributions, and $15,000 of losses from gambling. What is the total of itemized deductions that Fred and Ethel have for 2012? |
|
Definition
| Gambling losses are deductible up to the amount of gambling winnings as a miscellaneous itemized deduction not subject to the 2% limit. The itemized deductions allowable to Fred and Ethel for 2012 total $16,500 ($8,500 mortgage interest + $2,500 property taxes + $500 charitable contributions + $5,000 gambling losses). |
|
|
Term
| Thelma works for Louise and received land as payment for her services on Louise's 1965 Cadillac Sedan. Louise's basis in the land was $3,000 and the land had a FMV of $5,000. Thelma's basis in the land is: |
|
Definition
| f you receive property for services, include the property's FMV in income. The amount you include in income becomes your basis. If the services were performed for a price agreed on beforehand, it will be accepted as the FMV of the property if there is no evidence to the contrary. |
|
|
Term
In 2003 Mackenzie purchased 200 shares of Rattlers Inc. stock for $100,000. Rattlers Inc. met all the requirements of Section 1244 (small business) stock. She purchased it directly from the company. In 2012 she sold one-half of her stock for $45,000. The loss from the sale of the stock will be reported on her joint return as:
A. Long-term loss.
B. Ordinary loss.
C. Short-term loss.
D. Ordinary loss subject to limitations. |
|
Definition
Certain C corporations with gross assets under $50 million may qualify under section 1244 as qualified small business stock. If so, any gain on the sale of stock is a capital gain if the stock is a capital asset. A taxpayer may deduct as an ordinary loss, rather than as a capital loss, the loss on the sale, trade, or worthlessness of section 1244 stock. The deduction as ordinary loss under 1244 is limited to $50,000/yr ($100,000 /yr MFJ) each year. It is not stated whether or not Mackenzie has other losses on 1244 stock; but it is important to understand that there are limitations to the deduction.
Correct Answer: D |
|
|
Term
Orville is preparing an estate tax return (Form 706) for his brother Wilbur, who died on December 17, 2012. Which of the following items does Orville omit from listing in Wilbur's gross estate?
A. An IRA that Wilbur will receive upon the death of his parents.
B. A life insurance policy owned by Wilbur at the time of his death, with Orville as the beneficiary.
C. An airplane in Ohio that Wilbur has under contract to sell at the time of his death.
D. An airplane that Wilbur owns jointly with Orville. |
|
Definition
The gross estate includes the fair market value (FMV) of all property in which the taxpayer had an interest at the time of death (or an alternate valuation date, if elected). A potential inheritance is not an interest until actually inherited. Therefore, it is not included because it is not Wilbur's property.
Correct Answer: A |
|
|
Term
|
Definition
|
|
Term
Amelia sold the following stock during 2012:
20 shares of Lipton stock for a short term gain of $1,000
100 shares of Sunoco stock for a long term gain of $300
35 shares of Pepsico stock for a short term loss of $750
Determine the character and amount of Amelia's gain or loss. |
|
Definition
The first step is netting gains and losses together within each category, short-term and long-term. A taxpayer may calculate total net gain (loss) by comparing the net short-term capital gain (loss) to the net long-term capital gain (loss). The resulting gain or loss maintains the character of the larger item. If the net result of the long-term and short-term items both result in gain (or both are losses), each maintains its character of short-term or long-term. This calculation is made on the schedule D.
Net Short-term gain $250 ($1,000-$750)
Net Long-term gain $300
The total gain reported on Schedule D is $550; however, since Amelia has both long-term and short-term gains, each gain maintains its character. The result is $250 STCG and $300 LTCG. |
|
|
Term
| Scott had been accumulating copper a few ounces at a time for investment purchases. When Scott passed away on June 3, 2012 he had accumulated 50 ounces of copper with a FMV of $20,000 and a basis of $12,000. In his will he left the copper, his only asset, to his friend Hildy. Hildy was also purchasing copper and had accumulated 25 ounces with a basis of $13,000. She received a tip that the price of copper was going to drop so she sold the entire 75 ounces for $65,000. What was Hildy's gain on the sale of copper? |
|
Definition
| Her basis in the inherited copper is $20,000 (the FMV of Scott's copper at the time of his death). Her copper had a basis of $13,000. Total basis is $33,000, so there is a gain of $32,000 as a result of selling all the copper for $65,000. |
|
|
Term
| Jerry received three awards from his employer during 2012. One was an award of tickets to the theater that cost $250. The other two awards were a Macy's gift certificate with a cost of $400, and a $1,500 television from a qualified plan. What amount of these awards does Jerry count as 2012 income? |
|
Definition
Only the television qualifies for an exclusion from gross income. Since the cost of the television is less than the $1,600 annual limit, he can exclude the entire amount.
The exclusion does not apply to awards of cash, cash equivalents, gift certificates, or other intangible property such as vacations, meals, lodging, tickets to theater or sporting events, stocks, bonds, and other securities. He must report $650 of income ($250 + $400) resulting from the other items that do not qualify as achievement awards. |
|
|
Term
Duke has several traditional IRAs with deductible contributions from past years. He received a $10,000 distribution from one of his accounts at the age of 61 in 2012. On his 2012 tax return, Duke reports:
A. the entire amount of $10,000
B. nothing because he is over age 59 1/2
C. the percentage that $10,000 represents of all his deductible contributions
D. only $1,000 because he can spread the reporting over 10 years |
|
Definition
| He reports the entire amount on his tax return. There is no 10% penalty tax because he is over age 59 1/2. There is no 10-year option for IRA owners taking money from their own IRAs. Rather, 10-year averaging is available to employees born before Jan. 1, 1936, who have been in their company 401K or other qualified retirement plan for at least five years. In addition, 10 year averaging only applies to lump sum distributions. |
|
|
Term
| Immediately after Emily purchased 150 shares of stock, for $10.00 per share, the corporate officers declared a 3 to 1 stock split. What is Emily's basis per share after the split? |
|
Definition
| Emily owned 150 shares of stock at $10 a share (or $1,500). She now has 450 shares with the same total basis. Her cost per share is 3.34 ($1,500 / 450). |
|
|
Term
Jacob Marley went to a third-party tax office to get his taxes done. His tax preparer informed him that he is subject to the alternative minimum tax. Jacob must include the following adjustments or tax preference items for computing alternative minimum tax, except:
A. Dependency exemptions.
B. Standard deduction.
C. Itemized deduction for state and local taxes.
D. Interest income. |
|
Definition
AMTI includes certain adjustments to the taxpayer's taxable income:
Add amount claimed for personal or dependency exemptions,
Add amount claimed for the standard deduction, or certain itemized deductions for state and local taxes, certain interest expenses (not eligible mortgage on main home), most miscellaneous deductions, and part of medical expenses not greater than 10% of AGI,
Subtract any refund of state and local taxes included in gross income. |
|
|
Term
|
Definition
+ personal or dependent exemtions
+ Standard/Itemized deduction
+ Certain interest expense +
+ misc. deductions+
+ part of medical expenses not greater than 10% of AGI
- any refund of state and local taxes in gross income
= AMTI |
|
|
Term
hich of the following, when greater than total tax due, can result in a refund?
Which of the following, when greater than total tax due, can result in a refund?
A. Tax withheld from Form W-2.
B. Estimated tax payments.
C. Earned income credit.
D. All of the above |
|
Definition
Generally, a refund results when the taxpayer has made tax payments in excess of tax calculated under Line 61 of Form 1040. Tax payments include taxes already withheld on Form W-2 and 1099, and estimated tax payments made during the taxable year. Additionally, specifically listed credits such as the earned income credit can offset any tentative tax owed. Form 1040 Instructions.
Correct Answer: D |
|
|
Term
|
Definition
reporting income only.
Does not:
-entitle taxpayer to EIC or Social Security.
-create a presumption about the taxypayers immigration or work status. |
|
|
Term
| Theo forgot to file his tax return and mailed his return more than 60 days late. He did not file an extension. Theo owed $120 with his return. What is his minimum penalty for late filing? |
|
Definition
| If a return is filed more than 60 days late, the minimum penalty for late filing is the smaller of $135 or 100% of tax owed. Since he owed $120 with the return, his penalty is 100% of the amount due. |
|
|
Term
Charles had a $4,500 tax liability in 2012. In 2013, Charles expects to owe approcimately #3,200 in federal taxes. He has $1,200 in income tax withheld from his paycheck. Which of the following statements is true?
A. Charles is require to make estimated tax payments in 2013
B. Charles is not required to pay estimated taxes in 2013.
C. Charles is required to adjust his withholding. He cannot make estimated tax payments because he is an employee.
D. None of the above. |
|
Definition
| Charles is required to make extimted tax payments because his expected tax liability for 2013 exceeds $1,000. His withholding is insufficient to cover his tax liability. Charles could elect to adjust his withholding with his employer so the taxes are taken out of his pay automatically. If he does not adjust his withholding, he will be required to make estimated tax payments. If he does not make estimated tax payments, then he will be subject to a penalty. |
|
|
Term
What is the statue of limitations for IRS assessment on a tax return in which more than 25% of the taxpayer's income was omitted? |
|
Definition
Six years from the date the return was filed. |
|
|
Term
Logan had the following gross income amounts in 2012.
- Taxable Interst 3,000
- Dividends: 42,000
- Farm income (Schedule F): 80,000
Is Logan allowed to use the special estimated tax rules for farmers and fishermen? |
|
Definition
Based on his income, Logan does NOT qualify to use the special estimated tax rules for qualified farmers. At least two-thirds of his gross income (66.6%) must be fom farming in order to qualify. Logan's gross farm income is 64% of his total gross income. Therefore, Logan is not a qualified farmer.
$80,000
/ 125,000
= 64% |
|
|
Term
| What are the due dates for estimated tax payments? |
|
Definition
Period Due Date
Jan. 1 - March 31 April 15
April 1 - May 31 June 15
June 1 - Aug. 31 September 15
Sept. 1 - Dec 31 Jan. 15 (following year) |
|
|
Term
| What are the two filing statuses that generally result in the loswest tax amounts? |
|
Definition
|
|
Term
| Kathy's marriage was annulled on Gebruary 25, 2013. She was married to her husband in 2010 and 2011. She has not yet filed her 2012 return. Kathy has no dependents. How should she file? |
|
Definition
| She must file single for 2012. Plus file amended returns for 2010 and 2011. If a couple obtains a court decree of anulment, the taxpayer must file amended returns for all tax years affected by the annulment that are not close by the statue of limitations. |
|
|
Term
| Standard Deduction for MFJ |
|
Definition
|
|
Term
| Standard Deduction for MFS |
|
Definition
|
|
Term
| Standard deduction for HOH |
|
Definition
|
|
Term
| Standard deduction for HOH & blind |
|
Definition
|
|
Term
| Standard deduction for HOH & blind & Over 65 |
|
Definition
8,700
+1,450
+1,450
= 11,600 |
|
|
Term
| Standard deduction for HOH Over 65 |
|
Definition
|
|
Term
| Standard deduction for Single & blind & Over 65 |
|
Definition
5,950
+1,150
+1,150
=8,250 |
|
|
Term
| Standard deduction for Single & blind |
|
Definition
|
|
Term
| Standard deduction for Single & Over 65 |
|
Definition
|
|
Term
| Standard deduction for MFS & blind & Over 65 |
|
Definition
5,950
+ 1,150
+ 1,150
= 8,250 |
|
|
Term
| Standard deduction for MFJ & Over 65 |
|
Definition
|
|
Term
| Additional deduction for QW if over 65 |
|
Definition
|
|
Term
|
Definition
5,000 under age 50
6,000 age 50 or older |
|
|
Term
|
Definition
|
|
Term
| Amount of adoption credit |
|
Definition
12,650 non-refundable
was refundable in 2011 |
|
|
Term
|
Definition
|
|
Term
|
Definition
|
|
Term
|
Definition
|
|
Term
|
Definition
|
|
Term
| Gift tax annual exclusion |
|
Definition
|
|
Term
|
Definition
Credit for Prior Year Minimum Tax
used to calculate credit if taxpayer paid AMT in previous year |
|
|
