Term
| What three things constitute a tax? |
|
Definition
1) Required
2) Payment
3) To a government agency |
|
|
Term
| How do you calculate a tax? |
|
Definition
| Tax rate * tax base = tax |
|
|
Term
| What are the three tax rate structures? |
|
Definition
1) Proportional
2) Progressive
3) Regressive |
|
|
Term
| Define: Marginal tax rate |
|
Definition
| Tax rate that applies to the next additional increment of a taxpayer's income (or deduction) |
|
|
Term
| What is the formula to calculate the marginal tax rate? |
|
Definition
New total tax - Old total tax
--------------------------------------
New taxable income - Old taxable income |
|
|
Term
| How do implicit taxes work? |
|
Definition
| A tax-advantaged asset sells for a higher initial price or pays a lower annuity for its tax-advantaged status |
|
|
Term
| What is the formula to calculate the average tax rate? |
|
Definition
| Total tax / Taxable income |
|
|
Term
| What is the formula to calculate the effective tax rate? |
|
Definition
| Total tax / Total income (taxable and nontaxable) |
|
|
Term
| What are the five criteria for evaluating tax systems? |
|
Definition
-Sufficiency
-Equity
-Certainty (when and where to pay)
-Convenience (ease in collection)
-Efficient/Economy (Little to no administrative hardship) |
|
|
Term
| What are the four congressional objectives for the tax code? |
|
Definition
-Economic engineering ("Full employment")
-Social engineering (Provide for those who cannot be employed)
-Political goals
-Revenue raising |
|
|
Term
| What four taxes are considered federal? |
|
Definition
-Income
-Transfer
-Excise
-Employment/Unemployment |
|
|
Term
| What four taxes are considered state? |
|
Definition
-Sales/use
-Property
-Income
-Excise |
|
|
Term
| How do you get to taxable income? |
|
Definition
Gross income
-for AGI deductions
= AGI
-from AGI deductions
= Taxable income |
|
|
Term
| How do we know what to include in gross income? |
|
Definition
| All-inclusive income concept: All realized income unless a specific tax provision states not to |
|
|
Term
| What types of income are preferentially taxed? |
|
Definition
-Qualifying dividends
-Gains and losses on disposal of long-term capital assets |
|
|
Term
| What are the preferential tax rates? |
|
Definition
0% - Low-income
15% - Middle-income
20% - High-income |
|
|
Term
| If you sell your personal vehicle at a loss of $2,000 after having owned it for four years, how much of that loss is tax deductible? |
|
Definition
| All $2,000 - you cannot deduct a loss on personal use assets. |
|
|
Term
| What are the two types of for-AGI deductions? |
|
Definition
1) Greater of: Standardized or Itemized deduction(s)
2) Personal and dependency deductions |
|
|
Term
| What line in the 1040 is AGI reported on? |
|
Definition
|
|
Term
| How do you determine your tax liability or refund? |
|
Definition
| Taxable income * tax rate = Income tax liability + other taxes = total tax - prepayments - credits = Tax liability or refund |
|
|
Term
| How can you calculate your tax savings when you have multiple dependents? |
|
Definition
| $3,950 per dependent * marginal tax rate |
|
|
Term
| What are the three qualifications of a dependent? |
|
Definition
-US citizen or a US, Canadian or Mexican resident
-Must not file a joint return with spouse
-Must be a qualifying child or relative |
|
|
Term
| What are the four tests of a qualifying child? |
|
Definition
-Relationship
-Age
-Residence
-Support |
|
|
Term
| What are the four tests of a qualifying relative? |
|
Definition
-Relationship (all except cousin or if unrelated, lives with taxpayer for whole year)
-Support
-Gross income |
|
|
Term
| Describe the relationship test for a qualifying child |
|
Definition
-Legal guardianship is not the same thing as adoption
-Must be a foster, adopted, step-, or actual child
-May also be a sibling or descendant of sibling |
|
|
Term
| Describe the age test for a qualifying child |
|
Definition
-You must be 18 or younger or 23 or younger if a full-time student
-If individual is permanently and totally disabled, this test passes |
|
|
Term
| Describe the residence test for a qualifying child |
|
Definition
| -Must have the same principal residence as taxpayer |
|
|
Term
| Describe the support test for a qualifying child |
|
Definition
-Child may not have paid over half of own support
-Scholarships count as if provided for self, but not included in the calculation for PARENTS ONLY |
|
|
Term
| What are the tie-breaking rules on who gets to claim a qualifying child? |
|
Definition
1. Parent
2. Parent w/ whom child has lived with the longest
3. Taxpayer w/ highest AGI |
|
|
Term
| What are the three tests for a qualifying relative? |
|
Definition
-Relationship test
-Support test
-Gross income test |
|
|
Term
| Describe the relationship test for a qualifying relative |
|
Definition
-All family except cousin
-If unrelated, must live with taxpayer for entire year |
|
|
Term
| Describe the support test for a qualifying relative |
|
Definition
| -Taxpayer must have paid for half of the individual's support |
|
|
Term
| Describe the gross income test for a qualifying relative |
|
Definition
| -Individual's gross income for the year must be < personal exemption amount |
|
|
Term
| What are the five filing statuses? |
|
Definition
-Single
-Head of Household
-Qualifying widow(er)
-Married filling jointly
-Married filling separately |
|
|
Term
| For how long can a qualifying widow(er) status be claimed? |
|
Definition
| Up to two years after the year of death of spouse as long as taxpayer remains unmarried and pays over half of cost of maintaining a household with a dependent child |
|
|
Term
| What are the qualifications for claiming Head of Household status? |
|
Definition
-Unmarried
-Not a qualifying widower
-Pays over half cost of maintaining a home for year
-Qualifying person lives with taxpayer for > half the year |
|
|
Term
| Describe the return on capital principle |
|
Definition
| Upon sale of property, the amount of the original investment is deducted from taxable income |
|
|
Term
| How does the return on capital principle work if property is paid for in installments? |
|
Definition
|
|
Term
| Describe the constructive receipt doctrine |
|
Definition
| Taxpayer should recognize/realize income when constructively or actually received |
|
|
Term
| What are the three qualifications of realized income? |
|
Definition
1. Economic benefit received
2. Realizable (determinable amount)
3. Recognizable (no exclusion/deferral provision) |
|
|
Term
| Describe the claim of right doctrine |
|
Definition
| Income is realized if taxpayer receives and there are no restrictions on income |
|
|
Term
| Describe the assignment of income doctrine |
|
Definition
| The taxpayer that earned the income must recognize the income |
|
|
Term
| What are the two types of income? |
|
Definition
-Earned income (income from labor)
-Unearned income (income from property) |
|
|
Term
| What are the two types of annuities? |
|
Definition
-Annuities over a fixed period
-Annuities over a lifetime |
|
|
Term
| How can you determine the return on capital of an annuity? |
|
Definition
| Annuity exclusion ratio = (Original investment / Expected return on annuity) |
|
|
Term
| What are the restrictions on a deductible loss from the sale of an asset? |
|
Definition
-Personal use asset losses are not deductible
-May only deduct up to $3k a year |
|
|
Term
| How does taxation on discharge of indebtedness work? |
|
Definition
| Include in gross income amount over solvency |
|
|
Term
| For a single taxpayer, how much of the social security benefits are taxable if their modified AGI + 50% SS benefits < $25k? |
|
Definition
|
|
Term
| For a single taxpayer, how much of the social security benefits are taxable if their modified AGI + 50% SS benefits are between $25k and $34k? |
|
Definition
| The lesser of 50% of SS benefits OR [50% of (modified AGI + 50% SS benefits - $25k)] |
|
|
Term
| For a single taxpayer, how much of the social security benefits are taxable if their modified AGI + 50% SS benefits > $34k? |
|
Definition
| The lesser of 85% of SS benefits OR [85% of (modified AGI + 50% SS - $34k) + the lesser of $6,000 or 50% SS benefits] |
|
|
Term
| For a married filing separately taxpayer, how much of the social security benefits are taxable? |
|
Definition
| Lesser of 85% SS benefits or (85% modified AGI + 50% SS benefits) |
|
|
Term
| For a married filling joint taxpayer, how much of the social security benefits are taxable if their modified AGI + 50% SS benefits <= $32k? |
|
Definition
|
|
Term
| For a married filling joint taxpayer, how much of the social security benefits are taxable if their modified AGI + 50% SS benefits > $32k but < $44k? |
|
Definition
| Lesser of 50% SS benefits or 50% of (modified AGI + 50% SS benefits - $32k) |
|
|
Term
| For a married filling joint taxpayer, how much of the social security benefits are taxable if their modified AGI + 50% SS benefits > $44k? |
|
Definition
| Lesser of 85% SS benefits or [85% of (modified AGI + 50% SS benefits - $44k) plus the lesser of $6k or 50% SS benefits] |
|
|
