ACCT413 Exam 1 (Income Tax
Accounting) questions with correct
answers.
Individual income Tax Formula ANS - All Income
- Exclusions (income that is specifically excluded and never subject to taxes)
= Gross Income (GI)
- Deductions FOR AGI ("above the line" deductions)
= Adjusted Gross Income (AGI) [Line 37 of Form 1040 - important reference number]
- Deductions FROM AGI ("below the line" deductions)
♣ Minus: Greater of Itemized or Standard Deduction [Line 40 of Form 1040]
♣ Minus: Personal and Dependency Exemptions [Line 42 of Form 1040]
= Taxable Income (TI) [Line 43 of Form 1040 - the number that you use to calculate tax]
* Tax Rate(s)
= Income Tax Liability
- Nonrefundable Tax Credits
= Net Tax Liability
+ Other taxes (Self-Employment Taxes; Alternative Minimum Tax; Schedule H taxes)
= Total Tax Liability
- Payments and Refundable Tax Credits (EIC; Additional Child Tax Credit; etc.)
= Amount Due or Refund
Gross Income ANS - All inclusive income concept - gross income generally includes ALL realized income
from whatever source derived (unless specifically excluded)
Compensation for services including employee fringe benefits ANS - Ordinary income
Business Income ANS - Ordinary income
, Gains from selling property ANS - Ordinary/Capital
Interest and Dividends ANS - Ordinary or qualified dividend
Rents and royalties ANS - ordinary
Alimony received ANS - ordinary
Retirement Income ANS - Ordinary
Discharge of indebtedness ANS - Ordinary
Tax-Exempt (Define) ANS - Excluded from GI and never taxed
Tax Deferred (Define) ANS - income realized this year that is not included in gross income until a later
year (like-kind exchanges; installment sales)
Ordinary ANS - income (or loss) included in gross income and taxed at ordinary tax rates
Capital ANS - • gains and losses on the sale/disposition of capital assets
♣ Personal use assets such as personal auto and personal residence - gains required/losses not allowed
♣ Stocks and bonds -
• both gains and losses are allowed
• gains and losses are categorized as LT if owned > 1 year and ST if owned ≤ 1 year
• LT gains get preferential tax rate - generally 15% (20% for high income and 0% for low income)
• ST gains taxed at ordinary tax rates
• losses (both LT and ST) are a "FOR AGI" deduction and are limited to up to $3,000 per year with
indefinite carryover to future years
Accounting) questions with correct
answers.
Individual income Tax Formula ANS - All Income
- Exclusions (income that is specifically excluded and never subject to taxes)
= Gross Income (GI)
- Deductions FOR AGI ("above the line" deductions)
= Adjusted Gross Income (AGI) [Line 37 of Form 1040 - important reference number]
- Deductions FROM AGI ("below the line" deductions)
♣ Minus: Greater of Itemized or Standard Deduction [Line 40 of Form 1040]
♣ Minus: Personal and Dependency Exemptions [Line 42 of Form 1040]
= Taxable Income (TI) [Line 43 of Form 1040 - the number that you use to calculate tax]
* Tax Rate(s)
= Income Tax Liability
- Nonrefundable Tax Credits
= Net Tax Liability
+ Other taxes (Self-Employment Taxes; Alternative Minimum Tax; Schedule H taxes)
= Total Tax Liability
- Payments and Refundable Tax Credits (EIC; Additional Child Tax Credit; etc.)
= Amount Due or Refund
Gross Income ANS - All inclusive income concept - gross income generally includes ALL realized income
from whatever source derived (unless specifically excluded)
Compensation for services including employee fringe benefits ANS - Ordinary income
Business Income ANS - Ordinary income
, Gains from selling property ANS - Ordinary/Capital
Interest and Dividends ANS - Ordinary or qualified dividend
Rents and royalties ANS - ordinary
Alimony received ANS - ordinary
Retirement Income ANS - Ordinary
Discharge of indebtedness ANS - Ordinary
Tax-Exempt (Define) ANS - Excluded from GI and never taxed
Tax Deferred (Define) ANS - income realized this year that is not included in gross income until a later
year (like-kind exchanges; installment sales)
Ordinary ANS - income (or loss) included in gross income and taxed at ordinary tax rates
Capital ANS - • gains and losses on the sale/disposition of capital assets
♣ Personal use assets such as personal auto and personal residence - gains required/losses not allowed
♣ Stocks and bonds -
• both gains and losses are allowed
• gains and losses are categorized as LT if owned > 1 year and ST if owned ≤ 1 year
• LT gains get preferential tax rate - generally 15% (20% for high income and 0% for low income)
• ST gains taxed at ordinary tax rates
• losses (both LT and ST) are a "FOR AGI" deduction and are limited to up to $3,000 per year with
indefinite carryover to future years
