Individual Taxpayer Data Flashcards

A taxpayer is required to make estimated tax payments. What is the annualized penalty threshold — what percentage of the current year's tax must be paid in to avoid underpayment penalty (assuming prior-year tax was over $150,000)?

Answer: Either 90% of current year or 110% of prior year, whichever is smaller

Taxpayers with prior-year AGI over $150,000 must pay the lesser of 90% of current year tax or 110% of prior year tax to avoid the underpayment penalty.

A taxpayer contributes $3,000 of appreciated stock (basis $1,000, FMV $3,000) to a qualified public charity. What is the deductible amount and the basis used for computing the deduction?

Answer: $3,000 (FMV), and no capital gain is recognized

For long-term capital gain property donated to a public charity, the deduction equals FMV ($3,000) and the donor does not recognize the embedded gain.

Which taxpayer is subject to the alternative minimum tax (AMT) preference item adjustment for accelerated depreciation on personal property placed in service after 1986?

Answer: A sole proprietor who claims MACRS depreciation faster than the ADS straight-line method

For AMT purposes, depreciation is recomputed using the Alternative Depreciation System (ADS); the excess of MACRS over ADS depreciation is an AMT preference item for personal property.

A taxpayer sells a rental property for $200,000. Their adjusted basis is $120,000, which includes $30,000 of prior depreciation deductions. What portion of the gain is subject to unrecaptured Section 1250 gain (taxed at up to 25%)?

Answer: $30,000 (the prior depreciation deductions)

Unrecaptured Section 1250 gain equals the lesser of the total gain or the prior straight-line depreciation taken; here that is $30,000, taxed at a maximum 25% rate.

A married couple files jointly. One spouse has a long-term capital loss of $10,000 and the other has a long-term capital gain of $6,000. What is the net capital loss deductible against ordinary income in 2023?

Answer: $3,000, with $1,000 carried forward

Net capital losses are deductible against ordinary income up to $3,000 per year; the remaining $1,000 net loss carries forward to the next tax year.

A taxpayer is not eligible to be claimed as a dependent but is under age 65 and meets income requirements. What is the maximum Earned Income Tax Credit available to a childless worker in 2023?

Answer: $600

For 2023, the maximum EITC for a taxpayer with no qualifying children is $600.

A self-employed taxpayer pays health insurance premiums of $9,600 for themselves and their family. Their net self-employment income before this deduction is $40,000. What is the maximum above-the-line deduction for self-employed health insurance?

Answer: $9,600, limited to net self-employment income

Self-employed individuals may deduct 100% of health insurance premiums as an above-the-line deduction, but the deduction cannot exceed the taxpayer's net self-employment income.