Reg - Individual Tax - Memorize

that it was included in income.
Bad debt expense is actually the removal of a previously recognized income that was never received. If No income was recognized (cash basis) - no expense can be reported.

Organizational costs of up to $5,000 can be expensed immediately. Then, the remaining organizational expenses are amortized over 180 months.
Total = $5000+ amortized costs for the #of months

municipal bond

and losses on sales between them cannot be deducted until the property is eventually sold to an outside party.
In contrast, gains continue to be taxable until the ownership level hits 80 percent.

NET
Any resulting capital gain is taxed but at the ordinary tax rate. There is no reduced rate as is applicable for individual taxpayers. Any net loss is not deductible. Instead, it can be carried back for three years to reduce or eliminate net capital gains. In addition, it can then be carried forward for up to five years. When a loss is carried back and forward in this manner, it is always handled as a short-term capital loss.

ordinary and necessary
In addition, the expense must be reasonable in amount.

if it had been sold for its fair value.

the tax basis is retained by both parties and no income effect results.

Life insurance proceeds,
state and municipal bond interest,
and penalties and fines

Normally, the benefit is larger if a credit is taken but the taxpayer is also allowed the option of using the amount as an itemized deduction.

adjusted gross income if the taxpayer is forced to move at least fifty miles.
Casualty losses and gambling losses are both included with itemized deductions. The cost of child care is a tax credit that reduces the amount of income taxes rather than adjusted gross income.

($250 in recent years).
Qualified expenses include ordinary and necessary expenses paid in connection with books, supplied, equipment, software, and the like.
However, expenses for home schooling are not included as allowable costs for this deduction.

The taxpayer must report gains and losses on investment property, but only reports gains on personal property.

gains are taxed but losses are not deductible.

written-off in the year the loan is deemed worthless and is categorized as short-term irrespective of the time period involved. The foregone interest is not deductible.Non-business bad debts are deductible as short term capital losses on Schedule D of the form 1040 in the year the debt becomes worthless. Such losses are treated as short-term capitales loss no matter how long the debt was outstanding.

not earning income.
The property will have a tax basis equal to the fair value of the assets on the date of death. However, the executor of the estate may choose an alternate valuation date which is 6 months from the date of death (or the date of conveyance, if earlier).

$3,000 per year.
Any remaining loss can be carried over indefinitely.

the same reduced rate that applies to long-term capital gains.

no taxable gain or loss is recognized.
Because no gain or loss is recognized, the taxpayer retains the tax basis given up.

removed and the asset received is recorded at its fair value. The difference in the new tax basis and the tax basis given up+cash paid is recorded as a gain on the exchange.

the lower of the boot or the gain on the exchange. The gain is determined by taking the tax basis surrendered and comparing it to the fair value received

the gain on the sale.

a loss must be computed by comparing the amount received with the lower of the previous owner’s basis or the fair value at the date of gift.

General rule: FMV>Donor's Basis -> use DONOR'S BASIS

FMV < Donor's Basis ->
1) sell higher --> use Donor's Basis to calc. gain
2) sell between --> NO G/L
3) Sell lower --> use LOWER FMV on the day of gift

ordinary income rate

In a like-kind exchange, the taxable gain is the lower of the gain on the trade or the cash (boot) received. If the gain is actually a loss -- no gain is recognized.
The items received must have a tax basis of the old item less boot received.

the operation fails to earn a profit in any three of the most recent five years including the tax year in question. Losses from a business can be used to reduce other income but expenses related to a hobby are deductible only to the extent of revenues earned.

received in cash.

1)breach of contract damages, compensation for services, jury duty fees and unemployment compensation, debt forgiven
2)Employer-provided health insurance, group-term life insurance premiums (up to $50,00), gifts and inheritance and workers’ compensation.

1)the taxpayer has the right to choose cash instead of the stock.
2)Preferred stock dividends issued on common stock are taxable because the stocks are different. The taxable amount is the fair market value per share times the number of shares issued.

cafeteria plans. Employees are only required to include the cash received in lieu of benefits that are offered under these plans.

1)within the income of the taxpayer.
2) miscellaneous itemized deductions.
However, the losses deducted cannot exceed the amount of gambling winnings being reported.

deductible up to $25,000 as long as the owner is an active participant in the management. The deductibility of this $25,000 is lost gradually if the taxpayer's income is especially high.

the value

depreciation, interest, insurance, repair, and maintenance. Charitable contributions are not necessary for the operation of rental homes.

fair value of this asset

Eighty percent of the payment is treated as a charitable contribution regardless of whether the tickets would have been otherwise available. The value of donated services or foregone income are not tax deductible but unreimbursed expenses related to these activities may be deductible.

not deductible, but the cost of reconstructive surgery if necessitated by illness, accident, or the like. The installation of a swimming pool is not deductible even thought the exercise benefits the taxpayer. Burial expenses do not qualify as medical deductions and are not deductible for income tax purposes.

Surgery that is only cosmetic in nature (liposuction) and nonprescription medicine (such as for heartburn and migraines) are not deductible for income tax purposes.

not deductible
even if it is required to comply with a dress code
because such clothing can be worn outside the workplace.

in the year paid.
be amortized and deducted over the life of the loan.
Thus, points paid simply to refinance an existing mortgage must be amortized over the life of the loan. Points paid on a home equity loan used to improve the property (such as by adding a swimming pool) are deductible when paid. Points paid on home equity loan where the proceeds are not used for home improvements must be amortized over the life of the loan. Prepayments of mortgage interest are required to be matched with the tax years to which the interest applies.

interest on a home acquisition loan (to buy, construct, or improve home) of up to $1 million of debt, interest on a home equity loan (the house is used as security but the money is not used to buy, construct, or improve home) of up to $100,000 of debt, and interest expense to buy investments (but only the interest up to the amount of net investment income can be deducted).

the lesser of the cost or fair value of the gift.

The loss is
the LOWER of the tax basis of the property OR
the drop in value.
That amount is then reduced by any insurance payment to arrive at the actual loss incurred
Each casualty loss must then be reduced by $100
and all of the casualty losses combined must be further reduced by 10 percent of adjusted gross income.

either a joint return or each must file as married but filing separately. Anna may not file head of household, even though she maintains a home for dependent children, because she is not legally separated.

Taxpayers who meet the requirements for qualifying widow(er) may not file as head of household. Head of household is taxed at lower tax rate than single filers but at a higher rate than joint filers. Head of household also gets a higher standard deduction than single filers but lower than joint filers. Single taxpayers pay the highest tax rate of the three and have the lowest standard deduction. Filing status is determined as of December 31 of the tax year. Head of household is for single filers who maintain a home for an unmarried child or dependent relative.

He/she should file married filing jointly in the year of death, then qualifying widow with dependent child for two years, and then head of household for all subsequent years,as long as she does not remarry and either an unmarried child or dependent relative lives with her.

The statute is normally the due date for the return. If the taxpayer files before the due date, the statute still starts to run on the due date for the return.
If the taxpayer files one or more extensions and files the return after the due date, the statute of limitation begins on the filing date.
However, if there is fraud involved, there is no statute of limitations. If the taxpayer omits more than 25 percent of the income to be reported, the statute of limitations is extended to six years.
If no extension and filed after due date - the statute of limitation begins on the due date.

any state income tax refunds as revenue and payment of balances due on the state return in the year paid.

parent, grandparents, siblings, children, grandchild, aunts. uncles, nephews, and nieces.→
Do not have to live with taxpayer to be Qualifying relative
Cousins are not considered to be blood relatives nor are in-laws.→
have to live for the Whole year with taxpayer

increased level for the standard deduction. If 65 y.o. Hitchcock does not itemize his deductions, he will take the standard deduction and he will be somewhat higher because of his age.

they cannot file as married.

an unmarried child lives with the taxpayer,
without the child having to be a dependent.

a 1/3 likelihood of success.

that the amended return needs to be filed as quickly as possible.
If the client does not file the amended return to correct the problem, CPA should consider resigning from the Year Two engagement. The CPA should not be associated with a party who files erroneous tax returns and refuses to correct them.

the earned income credit. This credit is designed to provide benefit to low-income workers who have wages or salaries (and, in most cases, a qualifying child). Because the purpose is to benefit workers with low income, the earned income credit was designed to be refundable; the benefit is available regardless of the amount of income tax that is owed.

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