35 - Individual Taxation 1

Question 1

Under what accounting basis are individual tax returns prepared?

Answer 1

Cash Basis. Note: This basis is NOT allowed for Corporations, Partnerships with a C-Corp partner, or for inventories.

Question 2

What are the deductions to arrive at Adjusted Gross Income (AGI) for individuals?

Answer 2

*MSA/HSA contributions
*Investment penalties for early withdrawal
*Self-employed medical insurance premiums
*Self-Employment Tax (approx. 50%)
*IRA Contributions
*Student loan interest (can’t be another taxpayer’s dependent)
*Moving expenses
*Alimony
*Tuition - can’t take AOC/Lifetime Learning Credit for same expense
*Teacher expenses
*Attorney fees in discrimination lawsuit

Question 3

Which items can be carried over to future years on an individual tax return?

Answer 3

Investment interest expense in excess of investment income
Charitable contributions
Excess Section 179
Capital losses
AMT Paid
Passive Activity Losses

Question 4

Characterize the following carryover: Passive Activity Loss

Answer 4

No carryback

Can carry forward indefinitely

Question 5

How is excess 179 expense carried forward?

Answer 5

Carry forward to next year.

Use in any year is limited to taxable income.

Question 6

How long can investment interest expense in excess of investment income be carried forward?

Answer 6

Indefinitely.

Question 7

How long is the carry forward for charitable contributions?

Answer 7

Can be carried forward 5 years.

Question 8

How long is AMT paid carried forward, and how is it applied?

Answer 8

It can be carried forward indefinitely.

It may be applied against future regular income tax, but not against future AMT tax liability.

Question 9

How are capital losses applied in individual taxes?

Answer 9

$3,000 net capital loss can be taken in each year, the rest is carried forward indefinitely.

The loss retains its character (STCL or LTCL).

Question 10

How does an individual capital loss carryover differ from a corporate capital loss carryover?

Answer 10

Corporate capital loss carryovers may be carried back 3 years and forward 5 years. Individual capital losses are carried forward indefinitely.

Individual capital loss carryovers retain their character (STCL or LTCL). Corporate loss carryovers are carried forward as STCL only.

Question 11

What ratio is applied to principle payments in an installment sale to determine the gain in a given year?

Answer 11

Gross Profit / Contract Price

Question 12

What is the contract price in an installment sale for income tax purposes?

Answer 12

Contract Price = Sales Price - Liability assumed by buyer

Question 13

On an individual return, regular mortgage interest on what loan amount is deductible?

Answer 13

$1,000,000

Question 14

Interest on home equity loans up to what amount are deductible on an individual tax return?

Answer 14

$100,000

Question 15

What business gift amounts are deductible on Schedule C of form 1040? What amount for service awards?

Answer 15

$25 per person for gifts

Service awards up to $400

Question 16

What income can business losses offset on a 1040?

Answer 16

They may only offset active business income.

Note: W2 wages are considered active business income.

Question 17

What income can passive losses offset on a 1040?

Answer 17

Only passive income such as rental income or limited partnership income.

Note: Wages are ACTIVE (cannot be offset by passive) and Interest/Dividends are PORTFOLIO (cannot be offset by passive)