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TAX4001 - Woodward - Exam 1.
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TAX4001 - Woodward - Exam 1A property tax is assessed based on the value of the property at a point in time. How
does this compare to how income taxes are assessed? - ANS-Income taxes are
assessed based on income *over a period of time* rather than at a point in time. Think
income statement verses balance sheet.
Different types of income may be treated differently. For example, one type of income
may be taxed at a different rate than another. What is another phrase for "type of
income"? - ANS-Character of income
Does appreciation in a stock investment that the tax payer has not yet sold count as
income for income tax purposes? Why or why not? - ANS-No because the income has
not been realized.
Generally, how do you calculate a tax? - ANS-Base * Rate = Tax
How are dividends treated if they do not meet the criteria to be considered qualified
dividends? - ANS-As ordinary income and therefore taxed at ordinary rates
How are net capital losses treated for individual income tax purposes? - ANS-$3,000 is
deductible against ordinary income for year. Losses in excess of $3,000 are carried
forward.
How are net long-term gains treated for individual income tax purposes? - ANS-Net
long-term capital gains are generally taxed at 0%, 15%, or 20% depending on the
taxpayer's taxable income.
How are short-term capital gains treated for individual income tax purposes? -
ANS-Short-term capital gains taxed at ordinary rates.
How do *for AGI deductions* affect income? - ANS-For AGI deductions are subtracted
from gross income to get adjusted gross income.
How do *from AGI deductions* affect income? - ANS-From AGI deductions are
subtracted from adjusted gross income to get taxable income
How does a taxpayer determine if they owe more income taxes or are due a refund? -
ANS-Total tax liability
, -credits
-prepayments
=tax owed or (tax refund)
How does the taxpayer determine whether to take the standard deduction or an
itemized deduction? - ANS-They choose, generally taxpayers choose the whichever is
higher and it reduces their tax burden.
In addition to the standard deductions based on filing status, what two situations allow
for additional standard deductions? - ANS-Being over age 65
Blindness
Income from which sources is subject to federal individual income tax? - ANS-All
income from whatever source derived unless it is excluded
What are *For AGI deductions* typically associated with and what are some common
examples? - ANS-For AGI deductions are typically associated with business activities
and certain investing activities. Some common examples include:
Alimony paid
Health insurance deduction for self-employed taxpayers
Moving expenses
Rental and royalty expenses
Capital losses (net losses limited to $3000 for the year)
One-half of self-employment taxes paid
Business expenses
Losses on disposition of assets used in a trade or business
Contributions to qualified retirement accounts
What are conversion strategies? - ANS-Trying to convert non excluded income to
excluded income for tax purposes and therefore reduce the amount of income tax
What are deductions? - ANS-Reductions in the taxpayers taxable income as allowed by
specific tax provisions. Deductions can be either *for AGI deductions* or *from AGI
deductions*.
What are deferrals? - ANS-Realized income items that taxpayers include in gross
income in a subsequent year
What are exclusions? - ANS-Realized income items that taxpayers permanently exclude
from taxation
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