TAX 4001 EXAM 1
__ formulas for computing taxable social security benefits - ANS-2
3 primary methods of accounting for tax purposes - ANS-Cash receipts and
disbursements method
Accrual method
Hybrid method
Abandoned Spouse - ANS-Allows taxpayer to file as Head of Household if taxpayer:
1) Does not file joint return
2) Abandoned Spouse's Spouse did not live in home during last 6 months of tax year
3) Paid more than 1/2 cost of maintaining a home
4) Home was principal residence of taxpayer's child for more than 1/2 of the year
(4.5) can claim child as dependent
Accelerated death benefits - ANS-Gain on cash surrender or transfer of life insurance
policy by terminally or chronically ill individual is EXCLUDIBLE
Accident and Health Insurance Benefits - ANS-Benefits received under policy
PURCHASED BY TAXPAYER are EXCLUDIBLE
even if benefits are substitute for income
Different rules apply if accident and health insurance plan was purchased by the
individual's employer
Accrual Method - ANS-income recognized in year earned regardless of when collected
Accrual method required for ____ when ____ - ANS-determining purchases and sales ;
inventory is an income-producing factor
adjusted basis = - ANS-cost + capital additions - cost recovery
Adjusted Gross Income - ANS-Basis for computing % limitations on certain itemized
deductions like
medical expenses
charitable contributions
certain casualty losses
(ex. medical expenses are deductible only to the extent that they exceed 10% of AGI)
,(this is a 10% "floor" under the medical expense deduction, so you can only (itemized)
deduct the medical expenses that you incur in a year that exceed 10% of your AGI, so
the total medical expense you can itemize deduct = [medical expenses - 10%(AGI)],
and if this value is 0 or negative then you can't itemize deduct any medical expense
Adoption Assistance programs - ANS-employee adoption expenses paid or reimbursed
by employer are EXCLUDIBLE
Exclusion limited to 13,570
Exclusion phases out as AGI increases from 203,540 to 243,540
Age Test (child) - ANS-Must be under age 19 (18 or younger)
Or if a student, under age 24 (23 or younger)
Cannot be older than taxpayer
Student = child who, during any part of 5 months of the year, is enrolled full time at
school or government-sponsored on-farm training course
Disabled Individuals Exception: not subject to age test if disabled
Alimony and Separate Maintenance Payments - ANS-Alimony is:
deductible by payor
includible in gross income of recipient
All other personal injury damages are - ANS-TAXABLE
This includes:
Compensatory damages for NONphysical injury and
all punitive damages
amount of income from "in kind" receipts is equal to - ANS-FMV of property or service
received
amount realized = - ANS-selling price - cost of disposition
Amounts > increases in cash value are treated as - ANS-recovery of capital until cost
recovered, then additional amounts beyond cost recovery are included in income
Amounts received for medical expenses deducted on a prior return - ANS-INCLUDED in
gross income
Amounts received from employer-sponsored insurance are - ANS-NOT TAXABLE when
received for medical care or for permanent loss of body part or function
, Annuity - ANS-purchaser pays fixed amount for right to receive future stream of
payments
Annuity Income:
Early collections and loans against annuity < or = increases in cash value are: -
ANS-Included in gross income
Athletic facilities - ANS-value of use of athletic facilities located on employer premises
can be EXCLUDED
BSD Limit for Person Claimed as Dependent - ANS-Dependent of someone has a Basic
Standard Deduction limited to greater of:
1050 -or-
350 + earned income (but not exceeding normal Basic Standard Deduction)
normal ASD amount(s) still available for Dependents
Cafeteria Plans - ANS-Allow employees to choose between TAXABLE cash and certain
NONTAXABLE benefits
provide tremendous flexibility in tailoring employee pay package to fit individual needs
capital assets are defined as any property other than - ANS-inventory, accounts
receivable, depreciable property or real property used in a business
capital gains are _______ ; and capital losses are ________, resulting in a ______ ; net
capital gains are _____, and net capital losses are ______ - ANS-taxable ; netted
against capital gains , net capital gain/loss ; taxable - added to gross income ,
deductible but ONLY IF FROM INVESTMENT USE PROPERTY - net capital losses
from personal use property are not deductible
Cash Receipts and Disbursements Method - ANS-Income recognize in year it is actually
or constructively received in cash or cash equivalent
Categories of Deductions - ANS-Deductions for AGI
Deductions from AGI
chapter 5 - ANS-gross income: exclusions
Child support payments - ANS-made to satisfy legal obligation to support child of
taxpayer
nondeductible by payor, not taxed to recipient
__ formulas for computing taxable social security benefits - ANS-2
3 primary methods of accounting for tax purposes - ANS-Cash receipts and
disbursements method
Accrual method
Hybrid method
Abandoned Spouse - ANS-Allows taxpayer to file as Head of Household if taxpayer:
1) Does not file joint return
2) Abandoned Spouse's Spouse did not live in home during last 6 months of tax year
3) Paid more than 1/2 cost of maintaining a home
4) Home was principal residence of taxpayer's child for more than 1/2 of the year
(4.5) can claim child as dependent
Accelerated death benefits - ANS-Gain on cash surrender or transfer of life insurance
policy by terminally or chronically ill individual is EXCLUDIBLE
Accident and Health Insurance Benefits - ANS-Benefits received under policy
PURCHASED BY TAXPAYER are EXCLUDIBLE
even if benefits are substitute for income
Different rules apply if accident and health insurance plan was purchased by the
individual's employer
Accrual Method - ANS-income recognized in year earned regardless of when collected
Accrual method required for ____ when ____ - ANS-determining purchases and sales ;
inventory is an income-producing factor
adjusted basis = - ANS-cost + capital additions - cost recovery
Adjusted Gross Income - ANS-Basis for computing % limitations on certain itemized
deductions like
medical expenses
charitable contributions
certain casualty losses
(ex. medical expenses are deductible only to the extent that they exceed 10% of AGI)
,(this is a 10% "floor" under the medical expense deduction, so you can only (itemized)
deduct the medical expenses that you incur in a year that exceed 10% of your AGI, so
the total medical expense you can itemize deduct = [medical expenses - 10%(AGI)],
and if this value is 0 or negative then you can't itemize deduct any medical expense
Adoption Assistance programs - ANS-employee adoption expenses paid or reimbursed
by employer are EXCLUDIBLE
Exclusion limited to 13,570
Exclusion phases out as AGI increases from 203,540 to 243,540
Age Test (child) - ANS-Must be under age 19 (18 or younger)
Or if a student, under age 24 (23 or younger)
Cannot be older than taxpayer
Student = child who, during any part of 5 months of the year, is enrolled full time at
school or government-sponsored on-farm training course
Disabled Individuals Exception: not subject to age test if disabled
Alimony and Separate Maintenance Payments - ANS-Alimony is:
deductible by payor
includible in gross income of recipient
All other personal injury damages are - ANS-TAXABLE
This includes:
Compensatory damages for NONphysical injury and
all punitive damages
amount of income from "in kind" receipts is equal to - ANS-FMV of property or service
received
amount realized = - ANS-selling price - cost of disposition
Amounts > increases in cash value are treated as - ANS-recovery of capital until cost
recovered, then additional amounts beyond cost recovery are included in income
Amounts received for medical expenses deducted on a prior return - ANS-INCLUDED in
gross income
Amounts received from employer-sponsored insurance are - ANS-NOT TAXABLE when
received for medical care or for permanent loss of body part or function
, Annuity - ANS-purchaser pays fixed amount for right to receive future stream of
payments
Annuity Income:
Early collections and loans against annuity < or = increases in cash value are: -
ANS-Included in gross income
Athletic facilities - ANS-value of use of athletic facilities located on employer premises
can be EXCLUDED
BSD Limit for Person Claimed as Dependent - ANS-Dependent of someone has a Basic
Standard Deduction limited to greater of:
1050 -or-
350 + earned income (but not exceeding normal Basic Standard Deduction)
normal ASD amount(s) still available for Dependents
Cafeteria Plans - ANS-Allow employees to choose between TAXABLE cash and certain
NONTAXABLE benefits
provide tremendous flexibility in tailoring employee pay package to fit individual needs
capital assets are defined as any property other than - ANS-inventory, accounts
receivable, depreciable property or real property used in a business
capital gains are _______ ; and capital losses are ________, resulting in a ______ ; net
capital gains are _____, and net capital losses are ______ - ANS-taxable ; netted
against capital gains , net capital gain/loss ; taxable - added to gross income ,
deductible but ONLY IF FROM INVESTMENT USE PROPERTY - net capital losses
from personal use property are not deductible
Cash Receipts and Disbursements Method - ANS-Income recognize in year it is actually
or constructively received in cash or cash equivalent
Categories of Deductions - ANS-Deductions for AGI
Deductions from AGI
chapter 5 - ANS-gross income: exclusions
Child support payments - ANS-made to satisfy legal obligation to support child of
taxpayer
nondeductible by payor, not taxed to recipient
