U.S. Federal Income Tax – Comprehensive Review of
Inclusions, Exclusions, Deductions, and Credits
What are the sources of taxable income? ✔✔-Wages&Salaries
-Portfolio Income
-Passive Income
-Capital Income
What are some nontaxable fringe benefits? ✔✔-Insurance premium
-De minimis fringe benefits
-Qualified tuition reduction
-qualified employee discounts
Are insurance premiums paid by employers taxable? ✔✔<$50,000 ... No
>$50,000 ... Yes, use tax table to figure out how much (not entire amount over 50k)
Give some examples of exempt interest ✔✔-State and local government bonds
-bonds of US possession (territory)
-Series EE if used for higher education
-Interest on VA insurance
What is the tax treatment of unearned income of a child who falls under the "kiddie" tax"
rules? ✔✔First 100ish is tax free, second is taxed at child's rate, anything over about 2500ish is
taxed at parents rate
State the tax treatment of property settlements in a divorce ✔✔Tax free transfer/division of
property
What are the requirements for alimony to be deductible by the paying former spouse and
includable by the recipient? ✔✔-must be pursuant to written decree
-cash or its equivalent
-can't extend beyond life of payee
-can't be made to the same members of the household
-no joint tax return is filed
Describe the self-employment tax ✔✔-2.9% medicare tax on earnigns up to 118,500 and 12.4
ss tax on everything
-one half is available to take as a for AGI deduction
,On what property do the Uniform Capitalization Rules apply? ✔✔-Manufacturer's inventory,
regular inventory, rental inventory
-N/A if gross recipients in past 3 years do not exceed 10m annually.
When are funds in a nondeductible IRA taxable? ✔✔Principle is taxable when incurred and
interest when withdrawn
What is the formula to determine the excludable portion of an annuity? ✔✔in years =
(investment in contract/Age factor in months)
What are the exceptions form the early withdrawal penalty for pensions? ✔✔Home buyer
(first time) 10k max
Insurance (for SE or 12wk UNEmp)
Medical expense >10% AGI
Disability
Education (tuition, books, fees)
And
Death
How is rental income from a vacation house treated? ✔✔<15 excluded from income
>15 days rented <15 days lived in ... rental property
.15 days rented and used(or 10% of days rented) allocated rental expense to the extent of
rental income
Define and give examples of passive activity ✔✔Activity that the investor does not have
significant management say in how his/her money is managed (rental<<always, interests in lp,
s-corps)
What is the tax treatment of nondeductible passive activity loss? ✔✔deductible to the extent
of gains with indefinite carry forward and become fully deductible in year of disposition
What are the rules to determine taxable SS benefits? ✔✔low 0%
lower middle <50%
middle 50%
upper middle 50%-85%
upper 85%
(calc. as 50% ss plus tax-exempt interest)
,Are scholarships and fellowships includable in gross income? ✔✔As long as degree-seeking
student did not have to exchange for services (strictly merit based). If non=degree seeking, then
always fully taxable
What are the tests for the foreign-earned income exclusion? ✔✔bona fide residence for entire
taxable year and physically present for >330 days
List some nontaxable misc items (exclusions) ✔✔-Life insurance proceeds
-gifts and inheritance
-accident insurance premiums (when paid by taxpayer)
-foreign-earned income exclusion
-Worker's compensation
-Medicare benefits
Describe the employee and employer taxation of nonqualified employee stock options
✔✔employee pays ordinary tax on stock in granted if there is a readily ascertainable value. If
not, then use the FMV less any amount paid for the option on the exercise date. Employer can
deduct that amount. Gain on sale is capital and not deductible by employer
Describe the employee and employer taxation of incentive stock options (ISOs) and Employee
Stock Purchase Plans(ESPPs) ✔✔ISO employee pays capital gains on gain in value from exercise
date and sale date (as long as exercise after 1 year from grant and sale occurs 2 years from
grant)
What are the criteria for filling "qualifying widow(er) (surviving spouse)? ✔✔Spouse must have
passed in tax year OR in the last two years if son/daughter lives with tax payer
Name the tests for claiming an exemption for a "qualifying child" ✔✔Close relative
Age (19/24)
Resident and filing requirements
Eliminate gross income test
Support test modified
Name the tests for claiming an exemption for a "qualifying relative" ✔✔Support (>50%) test
Under the personal exemption of gross income test
Precludes dependent filing a joint tax return
Only citizens
Relative
Taxpayer lives with individual for whole year test
, For AGI Deductions ✔✔Ira
Moving expenses
One half SE tax
Alimony
Tuition
Health Savings Account
Attorney fees (spec)
SE health insurance
SE benefits
Interest penalty(early wdrwl)
DPAD
Educators Expenses
Student loan interest
For AGI rules regarding child support and alimony ✔✔-Alimony paid and child support received
is deductible
-Alimony received and child support paid is not
Limits on IRA deduction ✔✔-5500 per year (11000 if mfj) and another possible for
nondeductible IRA (provided gross inc is greater)
-phase out at 98k mfj, if actively enrolled in employer pension plan
Coverdell Education Savings account time limit ✔✔30 years old, if not penalt of 10% plus full
taxation or must rollover to another eligible recipient
Keogh Deduction limits ✔✔-for SE and employees
-lesser of 25% NE (after deduction) and one-half SE tax OR 53k
SE Deductions ✔✔-SE Tax 50%
-SE Health Insurance 100%
When is standard deduction not an option? ✔✔-mfs and other spouses itemizes
-dual-status or nonresident alien
-short tax year
Major Classes of From AGI (itemized) deductions? ✔✔-Medical and dental expenses
-Taxes paid
Inclusions, Exclusions, Deductions, and Credits
What are the sources of taxable income? ✔✔-Wages&Salaries
-Portfolio Income
-Passive Income
-Capital Income
What are some nontaxable fringe benefits? ✔✔-Insurance premium
-De minimis fringe benefits
-Qualified tuition reduction
-qualified employee discounts
Are insurance premiums paid by employers taxable? ✔✔<$50,000 ... No
>$50,000 ... Yes, use tax table to figure out how much (not entire amount over 50k)
Give some examples of exempt interest ✔✔-State and local government bonds
-bonds of US possession (territory)
-Series EE if used for higher education
-Interest on VA insurance
What is the tax treatment of unearned income of a child who falls under the "kiddie" tax"
rules? ✔✔First 100ish is tax free, second is taxed at child's rate, anything over about 2500ish is
taxed at parents rate
State the tax treatment of property settlements in a divorce ✔✔Tax free transfer/division of
property
What are the requirements for alimony to be deductible by the paying former spouse and
includable by the recipient? ✔✔-must be pursuant to written decree
-cash or its equivalent
-can't extend beyond life of payee
-can't be made to the same members of the household
-no joint tax return is filed
Describe the self-employment tax ✔✔-2.9% medicare tax on earnigns up to 118,500 and 12.4
ss tax on everything
-one half is available to take as a for AGI deduction
,On what property do the Uniform Capitalization Rules apply? ✔✔-Manufacturer's inventory,
regular inventory, rental inventory
-N/A if gross recipients in past 3 years do not exceed 10m annually.
When are funds in a nondeductible IRA taxable? ✔✔Principle is taxable when incurred and
interest when withdrawn
What is the formula to determine the excludable portion of an annuity? ✔✔in years =
(investment in contract/Age factor in months)
What are the exceptions form the early withdrawal penalty for pensions? ✔✔Home buyer
(first time) 10k max
Insurance (for SE or 12wk UNEmp)
Medical expense >10% AGI
Disability
Education (tuition, books, fees)
And
Death
How is rental income from a vacation house treated? ✔✔<15 excluded from income
>15 days rented <15 days lived in ... rental property
.15 days rented and used(or 10% of days rented) allocated rental expense to the extent of
rental income
Define and give examples of passive activity ✔✔Activity that the investor does not have
significant management say in how his/her money is managed (rental<<always, interests in lp,
s-corps)
What is the tax treatment of nondeductible passive activity loss? ✔✔deductible to the extent
of gains with indefinite carry forward and become fully deductible in year of disposition
What are the rules to determine taxable SS benefits? ✔✔low 0%
lower middle <50%
middle 50%
upper middle 50%-85%
upper 85%
(calc. as 50% ss plus tax-exempt interest)
,Are scholarships and fellowships includable in gross income? ✔✔As long as degree-seeking
student did not have to exchange for services (strictly merit based). If non=degree seeking, then
always fully taxable
What are the tests for the foreign-earned income exclusion? ✔✔bona fide residence for entire
taxable year and physically present for >330 days
List some nontaxable misc items (exclusions) ✔✔-Life insurance proceeds
-gifts and inheritance
-accident insurance premiums (when paid by taxpayer)
-foreign-earned income exclusion
-Worker's compensation
-Medicare benefits
Describe the employee and employer taxation of nonqualified employee stock options
✔✔employee pays ordinary tax on stock in granted if there is a readily ascertainable value. If
not, then use the FMV less any amount paid for the option on the exercise date. Employer can
deduct that amount. Gain on sale is capital and not deductible by employer
Describe the employee and employer taxation of incentive stock options (ISOs) and Employee
Stock Purchase Plans(ESPPs) ✔✔ISO employee pays capital gains on gain in value from exercise
date and sale date (as long as exercise after 1 year from grant and sale occurs 2 years from
grant)
What are the criteria for filling "qualifying widow(er) (surviving spouse)? ✔✔Spouse must have
passed in tax year OR in the last two years if son/daughter lives with tax payer
Name the tests for claiming an exemption for a "qualifying child" ✔✔Close relative
Age (19/24)
Resident and filing requirements
Eliminate gross income test
Support test modified
Name the tests for claiming an exemption for a "qualifying relative" ✔✔Support (>50%) test
Under the personal exemption of gross income test
Precludes dependent filing a joint tax return
Only citizens
Relative
Taxpayer lives with individual for whole year test
, For AGI Deductions ✔✔Ira
Moving expenses
One half SE tax
Alimony
Tuition
Health Savings Account
Attorney fees (spec)
SE health insurance
SE benefits
Interest penalty(early wdrwl)
DPAD
Educators Expenses
Student loan interest
For AGI rules regarding child support and alimony ✔✔-Alimony paid and child support received
is deductible
-Alimony received and child support paid is not
Limits on IRA deduction ✔✔-5500 per year (11000 if mfj) and another possible for
nondeductible IRA (provided gross inc is greater)
-phase out at 98k mfj, if actively enrolled in employer pension plan
Coverdell Education Savings account time limit ✔✔30 years old, if not penalt of 10% plus full
taxation or must rollover to another eligible recipient
Keogh Deduction limits ✔✔-for SE and employees
-lesser of 25% NE (after deduction) and one-half SE tax OR 53k
SE Deductions ✔✔-SE Tax 50%
-SE Health Insurance 100%
When is standard deduction not an option? ✔✔-mfs and other spouses itemizes
-dual-status or nonresident alien
-short tax year
Major Classes of From AGI (itemized) deductions? ✔✔-Medical and dental expenses
-Taxes paid
