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What are the rules for claiming a qualifying child as a dependent?
- C - A - R - E - S
- C: Close relative- brother/sister, niece/nephew, son/dtr, g-son/g-dtr, Mom/Dad, aunt/uncle, g-pa/g-ma
- A: Age limit of <19 or <24 if full-time student
- R: Resident of the taxpayer for >1/2 yr
- E: Eliminates gross income test
- S: Support is based on dependent’s contribution
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What are the rules for claiming a qualifying relative as a dependent?
- C - A - R - R - T - S
- C: Can’t file joint return
- A: A the whole year, lives with taxpayer
- R: Relative - brother/sister, niece/nephew, son/dtr, g-son/g-dtr, Mom/Dad, aunt/uncle, g-pa/g-ma
- R: Resident of North America
- T: Taxable income of dependent <$4,050
- S: Support the relative >50%
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Cancellation of debt is included in what income category?
Salaries and wages
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Define bargain purchases. In what income category are these included?
When a person purchases property from an employer for less than its fair market value, the difference is included in salaries and wages.
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A partner is guaranteed a payment from the partnership. Where is this income included?
- It’s considered compensation for services rendered
- Included in salaries and wages
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An employer pays for $200,000 in life insurance premiums. The premiums cost $3/month for every $100,000 of coverage. Is this amount taxable to the employee?
The first $50,000 of coverage is tax-free ($1.50/month x 12 months = $18.00). The remainder is imputed income ($4.50/month x 12 months = $54.00) included in salaries and wages
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Which of the following are taxable vs tax-exempt interest income: (a) federal bonds, (b) industrial development bonds, (c) state gov bonds, (d) corporate bonds, (e) local gov bonds, (f) bonds of a US possess [like Guam], (g) interest paid by the gov for late return of a tax refund
- (a) taxable – except Series EE if used for education
- (b) taxable
- (c) tax-exempt
- (d) taxable
- (e) tax-exempt
- (f) tax-exempt
- (g) taxable
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Define qualified dividend and explain how these dividends are taxed.
- Dividends from stock held for more than 60 days during the 120 days period that begins 60 days before the ex-dividend date.
- It is taxed at the long-term capital gains rates.
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When are state / local tax refunds taxable?
If the state / local tax was used in the itemized deductions to reduce taxes owed, the refund is then included in Gross Income and is now taxable.
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How are annuity or traditional IRA distributions taxed?
The prorated amount of money contributed and previously taxed is deducted as a basis payment from the amount received. The difference (payment – basis) is taxed as income.
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What are the exceptions that eliminate the 10% penalty on early withdraw from an IRA?
- H: Home buyer – up to $10,000 for first-timer
- I: Insurance – medical if unemployed for 12 consecutive months
- M: Medical expenses >10% AGI
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- D: Disability – permanent only
- E: Education
- A: and
- D: Death
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No social security benefits are taxable when income is equal to or less than what amounts?
- $25,000 for single filers
- $32,000 for married filing joint
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What amount of a scholarship is taxable, if any?
- Amounts received for room and board, or those amounts received but not spent on education are taxable.
- Amounts received for tuition, fees, and books are not taxable.
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