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Income Tax Fundamentals 2023 41st Edition By Gerald Whittenburg
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Income Tax Fundamentals 2023 41st Edition By Gerald Whittenburg
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Income Tax Fundamentals 2023 41st Edition By GeraldWhittenburg, Steven Gill
Internal Revenue Code - aka Federal Tax Law - ANSWER Primary source of all tax
law
Treasury Regulations - ANSWER Source for all tax law
Revenue Rulings/Revenue Procedures - ANSWER Administrative interpretation,
may be cited as a precedent
Congressional Committee Reports - ANSWER May not be cited as a precedent
Private Letter Rulings - ANSWER Apply to a specific taxpayer in a particular
situation
Judicial Sources - ANSWER Court decisions interpret law and/or facts
Step Transaction - ANSWER Ignore the individual transactions and tax the ultimate
transaction
Sham Transaction - ANSWER Lacks a business purpose and economic substance
will be ignored for tax purposes
(ex: selling xyz to abc, when both xyz and abc are owned by the same person)
Substance over Form - ANSWER The substance of a transaction and not merely its
form governs its tax consequences
(Ex, president of xyz company takes a loan for himself, with no written agreement.
he never intends to pay back the loan or to take a salary. The loan "salary" is taxed
to the president
Assignment of Income - ANSWER Income is taxed to "the tree that grows the fruit",
even if assigned to someone else
(ex: owner of xyz directs that all income be paid to his son, but owner reports no
income. The income is taxed to the owner)
Hobby Loss - ANSWER Income is reportable.
Any activity generating income for 3 of 5 years is a business not a hobby. For
horses, profit is needed only 2 of 7 years
Who MUST File??? - ANSWER Individuals (US Citizens)
Dependents
Children under 24 (kiddie tax rules)
Self Employed
Aliens
Self Employment Earnings - ANSWER Must file if in excess of $400
,Amended Returns - ANSWER 1040X
Estates and Trusts - ANSWER 1041
Who can represent a taxpayer before the IRS - ANSWER attorney
CPA
enrolled agent
enrolled actuary
and any other person permitted to represent a client before the IRS
CFP Certificant not classified as an audit rep
Tax Penalty - Frivolous Return - ANSWER $5,000
Omits info necessary to determine taxpayer's tax liabiliity
Negligence - ANSWER An accuracy penalty. Due to negligence or disregard of
rules. Penalty is 20% of underpayment attributed to negligence
Fraud - ANSWER The intent to cheat the government by deliberately understating
tax liability.
Penalty is 75% of the tax underpayment that is attributable to fraud
Failure to pay - ANSWER .5% per month, max of 25%
Failure to file - ANSWER 5 % of the tax due each month with a max of 25%`
To avoid tax penalties, pay: - ANSWER 90% of the CURRENT year's tax liability
OR
100% of the prior year's liability
OR
110% if the prior year's AGI exceeded $150,000
Head of Household - ANSWER Maintains principal residence
Provide more than 50% of child's support
Qualifying Widow(er) - ANSWER Must maintain home for a dependent child
Must not remarry
Can file as MFJ in the year of death and two years after
Flow Chart for Taxes - ANSWER Gross Income
(less adjustments/above the line)
AGI
(less deductions/below the line)
Taxable Income
(time appropriate tax rates)
Taxable Calculation
(less credits plus other taxes)
, Tax Liability
(less quarterly payment and withholding)
New Tax Due/Refund
Income Items Included on 1040 - ANSWER Ordinary Dividends (Sch 6)
Taxable Interest (Sch 6)
Business income/losses (Sch C)
Capital gains/losses (Sch D)
Real Estate (Sch E)
Punitive Damages
Wages/Salaries/Tips
IRA Distributions
Pensions/Annuities
Items EXCLUDED from Gross Income - ANSWER Gifts
Inheritances
Child Support
Municipal Bond Income
Workers Comp Payments
Compensatory Damages
Student Loans - ANSWER up to $2,500 of student loan interest can be deducted
from income (above the line)
Tax Treatment of Scholarships - ANSWER Tuition and Books are EXCLUDED from
income
Room and Board IS Taxable Income
If Scholarship is paid to the child, it's their income.
EX: Full scholarship for $20,000. $12,000 for tuition, $1,000 for books, remainder for
room and board. Taxable income to child is: $7,000.
Investment Interest Deduction - ANSWER Investment interest is interest paid on
indebtedness for property help for investment (ex: margin account interest)
Max deduction allowed for investment is limited to Net Investment Income.
Re: Margin Interest Deduction - ANSWER Can ONLY deduct up to net investment
income amount
Investment Income is: - ANSWER Interest
Dividends
Royalties
Short Term Gains
Buying Tax-Exempt Bonds on Margin - ANSWER NO DEDUCTION IS
PERMITTED FOR INTEREST PAID ON DEBT INCURRED TO PURCHASE TAX-
EXEMPT BONDS
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