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Tax Accounting
48 flashcards
Marginal tax rate is the tax rate applied to the last dollar of taxable income. Effective tax rate is the overall tax paid as a percentage of total income.
The standard deduction for single filers in 2023 is $13,850.
A tax credit directly reduces the tax owed dollar-for-dollar. A tax deduction reduces taxable income, resulting in less tax being owed.
The maximum child tax credit for 2023 is $2,000 per qualifying child.
The corporate tax rate for tax year 2023 is a flat 21% rate.
Tax planning involves analyzing a financial situation to ensure tax efficiency and taking advantage of available deductions and credits to legally minimize tax liability.
For most taxpayers, long-term capital gains are taxed at 0%, 15%, or 20% in 2023, depending on taxable income level.
An S corporation is a pass-through entity where income is taxed at the shareholder level. A C corporation is a separate tax-paying entity.
The 401(k) contribution limit for 2023 is $22,500 for those under age 50, plus an additional $7,500 catch-up contribution for those 50 and older.
The foreign tax credit allows taxpayers to offset U.S. income taxes with income taxes paid to a foreign country on foreign-sourced income.
The AMT ensures that higher-income taxpayers pay at least a minimum amount of tax by disallowing certain deductions and tax preference items.
Contributions to a traditional IRA may be tax-deductible depending on income level and access to an employer retirement plan.
To qualify for long-term capital gains treatment, an asset must be held for more than one year.
The NOL deduction allows businesses to offset current profits with prior-year losses, providing tax relief during periods of loss.
An LLC can elect to be taxed as a partnership, where income is passed through to members, or as a corporation.
Interest income from municipal bonds issued by state and local governments is generally exempt from federal income tax.
The AMT credit allows taxpayers to claim a credit for AMT paid in prior years against regular tax in future years.
Contributions to a Roth IRA are made with after-tax dollars, but qualified distributions in retirement are tax-free.
The maximum EITC for 2023 is $6,935 for taxpayers with three or more qualifying children.
The passive activity loss rules limit the deductibility of losses from rental real estate and other passive activities for high-income taxpayers.
Up to $250,000 ($500,000 for married couples) of capital gains from the sale of a principal residence is excluded from income if certain requirements are met.
The Section 179 deduction allows businesses to expense the cost of certain qualified property in the year it's placed in service, rather than depreciating it over time.
Contributions to an HSA are tax-deductible, and distributions used for qualified medical expenses are tax-free.
The kiddie tax applies the parents' tax rate to certain unearned income of child dependents to prevent income shifting to lower tax brackets.
Alimony payments are tax-deductible for the payer and taxable income for the recipient, subject to certain requirements.
The QBI deduction allows non-corporate taxpayers to deduct up to 20% of their qualified business income from pass-through entities.
Under the accrual basis, income is recognized when earned and expenses when incurred. Under the cash basis, income is recognized when received and expenses when paid.
Contributions to an FSA are made with pre-tax dollars, and distributions used for qualified medical or dependent care expenses are tax-free.
The home office deduction allows taxpayers to deduct a portion of their home expenses if they use part of their home regularly and exclusively for business purposes.
Severance pay is generally taxable as ordinary income in the year it's received.
The medical expense deduction allows taxpayers to deduct unreimbursed medical expenses that exceed a certain percentage of their adjusted gross income.
Contributions to a 529 college savings plan are not deductible for federal tax purposes, but earnings grow tax-deferred and qualified distributions are tax-free.
The self-employment tax is a Social Security and Medicare tax paid by self-employed individuals to fund the Social Security and Medicare programs.
Gambling winnings are taxable income and must be reported on your tax return, subject to certain limitations and offsets for losses.
The lifetime learning credit provides a tax credit for qualified education expenses paid for eligible students enrolled in eligible educational institutions.
Contributions to an HRA are tax-deductible for employers and tax-free for employees. Distributions used for qualified medical expenses are tax-free.
The DPAD provides a tax deduction for income derived from certain domestic manufacturing, production, and extraction activities.
Certain amounts of student loan interest paid may be deductible as an above-the-line deduction, subject to income limitations.
The WOTC provides a tax credit to employers who hire individuals from certain targeted groups facing employment barriers.
Employer contributions to a SEP plan are tax-deductible, and earnings grow tax-deferred until distributed in retirement.
The R&D tax credit provides a credit for certain qualified research and development expenditures incurred by businesses.
Life insurance proceeds paid to a beneficiary upon the insured's death are generally tax-free.
The rehabilitation tax credit provides a credit for certain costs incurred in rehabilitating and preserving historic buildings.
Qualified moving expenses incurred for a job-related move are no longer deductible for federal tax purposes as of the 2018 tax year.
The LIHTC provides a tax credit to incentivize the construction and rehabilitation of affordable rental housing for low-income households.
Tips and gratuities received by employees are considered taxable income and must be reported to the employer.
The foreign earned income exclusion allows qualifying U.S. citizens and residents to exclude a certain amount of foreign earned income from U.S. taxes.
Contributions to a SIMPLE IRA are tax-deductible for the employee, and earnings grow tax-deferred until distributed in retirement.