4 Tax 1/2

Question 1

Alimony on Taxes?

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Answer 1

2018 and earlier
- Deductible for AGI to earner
- Taxable to recipient

After 2018
- Taxable to earner
- Exclusion for Gross Income to recipient

Question 2

Average Tax Rate

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Answer 2

= Tax Paid ÷ Taxable Income

Question 3

Which tax credits are refundable?

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Answer 3

• Earned Income Credit: fully
• Child Tax Credit: technically not refundable, only “Additional” Child Tax Credit (up to $1700 per child in 2024)
• American Opportunity Credit: up to 40% ($1,000)
• Premium Tax Credit: fully

Question 4

Schedule E

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Answer 4

Schedule E (Supplemental Income and Loss) is used to report income and losses from passive income sources, such as:
- Rental real estate
- Royalties
- Partnerships & S Corps (reported via Schedule K-1, partnerships through Form 1065, S-Corps through Form 1120-S)
- Estates & Trusts

Question 5

How do partnerships and S-Corps report taxable activity to partners/shareholders?

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Answer 5

Schedule K-1, aka:
Partnerships: Form 1065
S-Corps: Form 1120-S

Question 6

Flow of tax forms & terms if Self-Employed

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Answer 6

1. 1099-NEC: provided to you by clients
2. Schedule C: business profit & loss… bottom line is Net Profit
3. Schedule SE: SE tax… involves Net Earnings = Net Profit * 92.35%
4. Form 1040-ES: for quarterly est. tax payments
5. Form 1040: tax return

Question 7

Est. Tax Payment Due Dates

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Answer 7

Mnemonic: All the ranges are to the 31st; no months that end in 30th

Question 8

How to calc. Estimated Tax Payments?

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Answer 8

Reframe as: You avoid penalty on the underpaid amount if…
(A) Est. current year tax < $1,000; or
(B) Income Tax Witholding (/ Est. Tax Payments) + Refundable Credits is more than… (“safe harbor”)
- 100% of last year’s tax, or 110% if prior year’s AGI > $150K for all filing types (except MFS is $75K)
- 90% of current year’s tax

Est. payments must be made quarterly, 25% of amount.

Question 9

When is cut-off where your est. tax payments must be a higher % of prior year’s taxes?

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Answer 9

Have to pay 110% instead of 100% if AGI is > $150K for all filing types (except $75K if MFS)

Question 10

SE Health Insurance Deductions for AGI

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Answer 10

• 100% of SE health insur. is deductible
• not avail. if other coverage is avail (eg, spouse’s employer-sponsored plan)
• limited to SE income
• for SE indiv, spouse, & dependents

Question 11

SE Tax Calculation & Deduction

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Answer 11

1. Who: Sole proprietors, indep. contractors, partnership partners
2. Rate: 15.4% (12.4% SS up to wage base per TTs) + 2.9% medicare = 15.3% total, + “add’l” medicare tax (TTs)
3. Can deduct 1/2 of 15.3% = 7.65% (of 92.35% of pre-tax income) for AGI

First you have to multiply net SE profit by 92.35% to get net earnings (also confusingly called net profit by CFP land)