If their income is greater or equal to the sum of :

Personal Exemption + Regular Standard Deduction + Additional Standard Deduction (for over 65 or blind). 

Or IF:

1. Self employment earnings are over $400

2. Claimed as a dependent on another return, have unearned income, and gross income of $950

3. Recieved advance payments of earned income credit. 

April 15th

A 6 month extension may be requested b filing a 4868 by April 15th, however the due date for PAYMENT remains Apr. 15th 

Filing Status

Single

Any taxpayer who doesn't qualify for one of the other filing classes must use the single status by default.

Dec. 31 decides status. 

Single at year end or legally seperated. 

Filing Status

Married Finally Jointly

Must be:

1.Married at the end of the year

2. Living together under recognized common law marriage

3. Married & Living apart but not legally seperated 

If spouses dies during the year, a joint return may be filed.

Filing Status 

Married Filing Separately

Must seperately report their own income, exemptions, credits, and deductions. 

Most of this is split 50/50 in community property states

Filing Status

Qualifying Widow(er)/Surviving Spouse With Dependent Child

2 years after the year of death (year of death is MFJ)

Must maintain a household that for the WHOLE taxable year was principal place of abode for a son, stepson, daughter, stepdaughter. 

Filing Status

Head of Household

1. Not married, is legally seperated, or is married and has lived apart for last 6 months. 

2. Not a qualifying widow

3. Not a nonresident alien.

4. MORE THAN HALF THE YEAR was principal residence of: a. dependent child - ie divorced mom

b. father or mother (not required to live) - nursing home

c. dependent relatives - must live with (not friends, cousins, foster poarents, unrelated dependents) 

An individual is entitled to a personal exemption that is indexed annually (in 2011 $3,750)

1. Persons claimed as depenedents on another tax return can not use the personal exemption. "Folks use it, you lose it"

2. Each spouse receives a personal exemption

3. If filing seperately, may take both if the other spouse has no gross income and not claimed on other returns. 

4. Births and Deaths during the year get a personal exemption. 

People NOT pets 

Exemption for each qualifying child & qualifying relative. 

Close Relative- son, daughter, stepchild, brother, sister, legally adopted, foster child

Age Limit- Younger than taxpayer, under age 19 or 24 if full time student, no age limit for permanently disabled.

Residency & Filing Requirement  - must have same principal place of residence for MORE THAN HALF, can not file jointly

Eliminate Gross Income Test- Income test doesn't apply to a qualifying child. 

Support Test- Child doesn't contribute more thatn 1/2 of his/her own support. 

When do not meet qualifying child, can try for qualifying relative. 

Support Test- taxpayer must have supplied more than 1/2 of the support of the person.

Under Exemption Amount of Taxable Gross Income- Dependent's gross income must be less than the exemption amount (non taxable income- social security, tax exempt scholarships, tax exempt interest income)

Preclude Dependent Filing a Joint Return - MFJ can only occur to refund all taxes paid or withheld. 

Only Citizens of US or Residents of US, Mex, or Canada

Relative - children, grandchildren, parents, siblings, grandparents, aunts/uncles, nieces/nephews, legally adopted, foster kids. Foster parents or cousins must live with the tax payer for the entire year. 

or

Taxpayer Lives with the Indiv. for the WHOLE YEAR- non relative member of the household

All income from whatever source derived, unless specifically excluded. 

If TAXABLE-- income at FMV, Basis is FMV

If NONTAXABLE- income - NONE- NBV

Realization- accrual or receipt of cash, property, or changes in nature of investment (sale/exchange) - real world 

Recognized- Recorded on tax return

1.Money recieved, credited, or available (constructive receipt) 

2.Property (FMV) recieved

3. Cancellation of Debt

4. Bargain Purchases - employee discount. The difference between FMV and price paid by employee is recorded as income. 

5. Guaranteed Payments to a Partner for services rendered/capital use 

6. Taxable Fringe Benefits (personal use of company car)

7. Partially Taxable Fringe Benefits- amount over the first $50,000 of coverage

1. Life Insurance Proceeds (but INTEREST INCOME DEFERRED PAYMENT IS FULLY TAXABLE)

2. Accident, Medical, and Health Insurance employer paid

3. De Minimis Fring Benefits - minimal benefits, personal use of a computer for example 

4. Meals & Lodging- if for the convenience of the employer on employer's premise, lodging must be required as part of employment. 

5. Employer Payment of Employee's Educational Expenses up to $5,250 

6. Qualified tuition reductions for UG level or Grad Level if they are engaged in teaching/research activities

7. Qualified Employee Discounts- limited to employer's gross profit percentage, or 20% off services

8. Parking & Transport- $230 a month 

9. Payments made by Employer into a qualified pension, profit-sharing, stock bonus plan. BUT TAXABLE WHEN BENEFITS ARE DISTRIBUTED. 

10. Pre-tax deposits into flexible spending account- up to $5,000  - must use within 2.5 mos after year end. 

Reported on Schedule B

General Rule- all interest is taxable unless specifically excluded : 

1. State & Local Bonds/Obligations- Munibonds

2. Series EE (US savings bonds) - Educational Expenses, used to pay for higher education, reduced by tax free scholarships, taxpayer is over age 24, & bonds acquired after 1989. -Phase out when modified AGI exceeds indexed amount. 

3. Veteran's Administraion Insurance 

4. Forfieted Interest- penalty from early withdrawal from savings- interest recieved is taxable. 

Net Unearned INcome of a dependent child under 18 years of age (or a child between 19-24 who doesn't provide more than 50% of support/fulltime student) is taxed at the parent's higher rate. 

Unearned Income - 2 (child's allowed st. deduction) - amt taxed at parents rate. 

Cash- Amount Recieved

Property- FMV 

Source Depends on Source (E & P - Current or Accumulated, ROC, Capital Gains) 

Disqualified Dividends: Regulated Investment Companies, REIT, Short sale positions), amounts taken into account as investment income) 

Taxed at 15% or 0% for (10%-15% tax bracket)

 Return of Capital- Reduce the basis in the common stock held

Stock Split- Reallocate original basis over total # of shares

Stock Dividend- Unless cash/other property

Same stock- original basis divided by # of shares

Different stock- original basis based on relative FMV or the different stock 

Life Insurance Dividend- ownership of insurance with a mutual company 

State or Local Tax Refund is not taxable IF taxes didnt result in a tax benefit in previous year. 

Itemized Prior year- yes, taxable. used it as a deduction  -> becomes income

Standard Deduction Used (1040 EZ)- nontaxable state or local refund... INTEREST IS TAXABLE

Tax Deductible when Paid, Taxable when Recieved

1. Legally required

2. Cash or equivalent

3. Stops at death

4. Not in the same household

5. May not file jointly 

Non taxable or tax deductible

In mixed payment of alimony & child support, funds allocated to child support first 

Filed on Schedule C. 

Net income from self employment is computed on schedule C. Net income from the sole proprietorship is then transferred to form 1040. 

Gross Business Income- Business Expenditures = business profit or loss. 

Items that would normally be revenue in a trade or business or other self-employed activity are included as gross income on Schedule C. 

Cash Amount Received - cash basis

Property- FMV

Cancellation of Debt

1. Cost of Goods Sold (inventory expensed when sold0

2. Salaries & commissions PAID TO OTHERS

3. State & local business taxes paid

4. Office expenses

5. Actual automobile expenses 

6. 50% of meals and entertainment

7. Depreciation of business assets

8. Interest expense on business loans 

9. Employee benefits

10. Legal & professional services

11. Bad Debts actually written off- direct write off method

1. Salaries paid to sole proprietor

2. Federal Income Tax

3. Personal portion of: 

a. automobile, travel, vacation expenses

b. personal meals & entertainment, 100% of country club

c. Interest expense (may be itemized)

4. State & Local Taxes (itemized on Sch. A) 

5. Health Insurance of Sole proprietor--instead an adjustment to arrive at AGI 

6. Bad debt expense of CASH basis tax payer

7. Charitable Contributions- Itemized on Sch. A

Net Business Income is Taxable: 

1) Income Tax

2) Federal Self Employment Tax - sole proprietor may deduct employer portion as an adjustment to AGI 

Net Taxable Loss- 

A business with a loss may deduct loss against other sources of income. NOL can be carryforward. 

NOL carryback 2 years, forward 20 years. 

Generally causes an increase in the carrying cost of ending inventory and a decrease in operating expense. Increase in taxable income. 

1. Produced for use (real or tangible personal property produced by taxpayer for use in their trade or business- machine tools used) 

2. Produced for Sale- Real or tangible personal property produced for sale (inventory)

3. Acquired for reasale (retailer's inventory) Only when taxpayers avg gross reciepts for proceeding 3 years exceeds $10 mil annually. 

Direct materials, direct labor, factory overhead 

IE- utilities, warehousing costs, repairs, maintenance, indirect labor, rent, warehousing costs, repairs, maintenance, insurance, depreciation/amortization, storage, insurance, pension contributions, engineering, design, packaging, adminstrative supplies. 

NOT: Selling, advertising, marketing, general admin expense, research, officer compensation not attributed to production services 

General Rule: Taxable when withdrawn. 

Regular Tax on Ordinary Income for traditional deductible IRA distributions

Distributions from Non-Deductible IRAs:

-Roth IRA- non taxable benefits

- Trad. Nondeudctible IRA- principal is nontaxable, accumulated earnings- taxable when withdrawn

Penalty Tax of 10% on premature distribution

There is no penalty if the premature distribution was used to pay: 

Home Buyer (1st Time), $10,000 maximum exclusion if distribution is used toward the purchase of a first home within 120 dayts of distribution

Insurance- unemployed with 12 consecutive wks of unemployment compensation, self- employed 

Medical expenses in excess of 7.5% of AGI

Disability (permanent or indefinite disability)

Education: College tuition, books, fees. 

and

Death

Taxed only on the money made, not the original contribution. 

Distribution is taxed on a prorata basis to contribution/earnings amount

Reported on Schedule E

Used to compute income or loss from : 

-rental real estate

-royalties

-partnerships & limited liability companies

- S corporations

-Estates

-Trusts 

Gross Rental Income

+ Prepaid Rental Income (Nonrefundable deposits)

+Rent Cancellation Payment

Improvements in Lieu of Rent (at FMV)

- Rental Expenses

= Net Rental Income/Loss

If Rented Less than 15 days, it is treated as a personal residence. Rental income is excluded from income, mortgage interest & real estate taxes are deductible. 

If Rented 15 or More days..

1) AND used for personal purposes for more than 14 days or more than 10% of rental days=> treated as personal/rental residence-- PRORATED. 

taxes & interest (rented/year) 

other expense (rented usage/total usage) 

Passive Activity Losses (PALs) 

Any activity where the taxpayer does not materially particpate such as rental activities, limited partnership activities, S corps, most tax shelters. 

Passive losses are limited to passive income. 

Nondeductible PALs can be carryforward indefinitely. 

An individual may deduct rental activity losses if fulfills the mom & pop exception 

May deduct up to $25,000 per year of net passive losses attributable to rental real estate annually if the individuals are actively participating/managing and own more than 10% of the rental activity. 

Carryforward indefinitely as unused PAL. Estate can qualify for up to 2 years after decendent's death if decendent actively participated. 

PHASE OUT: 50% of excess of taxpayer's AGI over $100,000. Completely phased out at $150,000

Low Income - No SS benefits are taxable (below $25,000 S, $32000 MFJ) 

Lower Mid Income- Less than 50% Of SS benefits are taxed

Middle Income= 50% of SS benefits are taxed (income over $25,000/$32000) 

Upper Middle Income= Between 50% and 85% of SS benefits are taxable

Upper Income- 85% of SS benefits are taxable 

(income over $34,000/$44,000)

Provisional Income 

Includes the following items:

Income excluded because of foreign income exclusion

Any employer paid adoption expense you excluded

Any deduction you claimed for annual contribution to IRA

Any interest from series EE bonds used for education

Any deduction you claim for student loan interest or qualified tuition/related expenses. 

1. Prizes & Awards- FMV

2. Gambling Winnings (losses are an itemized deduction, only to extent of gambling winnings)

3. Business recoveries (compensation for loss income-recorded as income)

4. Punitive Damages (fully taxable as ordinary income if received in business context or for loss of personal reputation)

Scholarships & Fellowships- excludable only to amount actually spent on tuition, fees, books, and supplies 

Degree seeking, no services in exchanged

Non-degree seeking students- fully taxable at FMV

1. Life Insurance Proceeds (interest income on deferred payout IS FULLY TAXABLE)

2. Gifts & Inheritances

3. Medical Benefits (non-taxable) 

4. Worker's Compensation

5. Personal Physical Injury or Illness Award

6. Accident Insurance- If Premiums Paid by Taxpayer

7. Foreign Earned Income Exclusion (gross income up to $91,500 - must be a bona fide resident of foreign country for an entire tax year, and physically present in that country for 330 days in 12 month period). 

Machinary, equipment. 

All property not classified as real property. 

Property (real/personal) held by the taxpayer. 

Examples

1. personal automobile of taxpayer

2. furniture and fixtures in home

3. stocks & securities

4. personal and real property not used in business

5. interest in a partnership

6. goodwill of a corporation

7. copyrights that have been purchased

8. assets held for investments

1. Property normally included in inventory or held for sale to customers in ordinary course of business 

2. Depreciable personal property and real esate used in a trade or business (1231, 1245, 1250 property) 

3. Accounts & notes receivable arising from sales/services in business

4. Copyrights held by original artist

5. Treasury stock 

Amount Realized

(Adjusted Basis of Asset Sold) 

= Gain or Loss

1. Cash Recieved (boot)

2. Cancellation of Debt (boot) 

3. Property Recieved at FMV

4. Services Recieved at FMV

5. Reduce amount realized by any selling expenses 

Purchased Property Basis = Cost. 

Increased for Capital Improvements- adjusted upward

Reduce Basis for Accumulated Depreciation - NBV 

General Rule- Donor's Rollover Cost Basis

Rollover Cost Basis-NBV 

Exception: Lower FMV at Date of Gift 

If sell higher than donor basis- use donor basis to determine gain

If sell between donor basis and lower FMV at date of gift- no gain or loss

If sell lower than FMV at Date of gift- use lower FMV at date of gift to determine loss. 

The recipient of the gift normally asssumes the donor's holding period. 

Unless take FMV at time of gift, then the holding period starts at the date of the gift. 

Date of Dath FMV becomes basis

Unless opt for Alternate Valuation Date- asset of value is valued at FMV at earlier of: 

a. Distribution date of asset

b. alternate valuation date (earlier of 6 months after dath or date of distribution/sale) 

Holding Period-- usually considered LONG TERM regardless of how long its been held. 

Excluded/Deferred Gains 

IF HIDE IT 

Gain to extent of boot, the part the taxpayer did not hide, is taxable. Cash- kept & not reinvested, COD excess debt assumed by buyer. 

Homeowner's Exclusion- $500,000 for MFJ, $250,000

must have used as principal residence for 2 out of last 5 years- is renewable. 

Involuntary Conversions- destruction, theft, condemnation, restores taxpayer to the position he held prior to conversion. Has 2 years from year end for personal property, 3 years for business property. Gain is recognized when amount recieved exceeds cost of replacement. Losses are recognized, new basis is replacement cost.

Divorced Property Settlement - lump sum payment or property settlment in divorce settlement, non taxable event.

Exchange of Like Kind Property- unless when boot is recieved- lesser of gain or boot recieved. Basis= Basis - boot received + gain (boot) recognized.  

Installment Sales- Recognized when cash is recieved, gain is calculated by annual cash collection by gross profit percentage

Treasury & Capital Stock Transactions- by corporation. Exempt from gain- when sales of stock by corporation, repurchase of stock by corporation, reissue of stock. 

Nondeductible Losses

WRaP up these losses

Wash Sale Loss- when a security (stock or bond) is sold for a loss and is repurchased within 30 days before or after the sale date.

Loss on the wash sale is disallowed for tax purposes. (Basis of repurchased security is = to purchase price of new security plus diallowed loss on wash sale) date of acquisition is date of acquistion of orignial security. If sold resulting in a gain & repurchased within 30 days, the taxpayer can not use subsituted basis. must pay capital gains tax, new purchase price becomes basis.  

Related Party Transactions - not arms length, related parties, husband/wife, lineal descendants, NOT in-laws, more than 50% owned by indiv, corp, trust - new basis determined if sold higher than relatives basis-use relatives basis, if sold between relatives basis and lower purchase price by relative no gain or loss, if sold lower than purchase price by relative, use purchase price. 

Personal Losses - No deduction is allowed for the laoss on non-business disposal or lsos. Itemized deduction may be available in case of casualty or theft

Long Term - more than one year holding period, 15% is maximum, 0% if 10-15% tax bracket. 

Short-term - holding period of 1 year or less, treated as ordinary income. 

Unrecaptured Section 1250 Gains- taxed at 25% for taxpayers not in the 10% or 15% income tax bracket. 

Collectibles & Small Business Stock- 28% for taxpayers not in 10-25% tax bracket. 

$3,000 maximum deduction

Limited to taxable income before personal exemptions.

Carryforward indefinitely 

Net capital gains are added to ordinary income and taxed at the regular tax rate. 

Net capital losses may not be deducted from ordinary income. (deducted from capital or 1231 gains)

Carried back 3 years and forward 5 years as a short term capital losses.