4. Federal Taxation of Individuals

Question 1

Series EE Bonds

Answer 1

Purchaser must be the sole owner or joint if married
Interest proceeds, if used for tution/fees for personal or dependent use, are tax free

Question 1

Charitable Contributions

Answer 1

Cannot be substantiated amounts given to families (not a formal org)
Stock is donated at the lesser or FMV and basis IF short term
Long Term stock is capped at 30% of AGI and rest is carried forward
Max deduction is 60% of AGI

Question 2

Passive Loss

Answer 2

Passive activity losses (PAL) can be generally offset against passive income only. Excess is carried forward indefinitely or until the activity is disposed of,

Question 3

Rental Income Loss (Active)

Answer 3

Maximum of 25,000 may be deducted against ordinary income and portfolio income. Phase out of 50% of AGI over 100,000

Question 4

Deductions to arrive at AGI (For AGI)

Answer 4

MSA/HSA Contributions
Educator Expenses: Up to $250 of qualified expenses.
Deductible part of Self-Employment TaxSelf-Employed SEP, SIMPLE, and Qualified Plans
Self-Employed Health Insurance Premiums
Investment penalties for early withdrawal
Alimony Paid (Divorce Prior to December 31, 2018)
Traditional IRA Deduction
Student Loan Interest up to $2,500 (Can’t be another taxpayer’s dependent)
Qualified Tuition and Fees

Question 5

Head of Household

Answer 5

Must be single at the end of the year or not remarried after the demise of the spouse.
Must support a qualifying relative or a qualifying child for more than half the year.
Must incur more than 50% of the expenses related to running the household.

Question 6

Illegal Activities

Answer 6

Income is reportable
Most expenses are NOT deductible unless they are merchandize costs.

Question 7

Built in Gains Tax

Answer 7

C Corps that become S Corps. Assets at time of conversion where the FMV is greater than the adjusted basis are subject to a tax on the gain of 21% (c corp tax rate) IF they sell or dsitribute within 10 years of conversion