Area 4 Flashcards
When are state tax refunds federally taxable?
When the individual itemizes for the state return. The refund will be taxable in the year received.
How are Passive Activity Losses Treated in combination with Passive Gains?
You can deduct the losses up to the amount of the gain. the rest must be carried over. If there are multiple losses, they losses are proportionately attributed to the gain and the remainder is carried forward.
Mom and pop rule exception
What is a net operating loss for an individual?
Net Operating Loss (NOL) is the excess of a taxpayer’s deductions over income (Salaries & Wages, Schedule C income, Rental income, and Farm income) including personal casualty losses. The most common reason for an NOL is the operation of a business.
NOLs are deductible up to 80% of income and can be carried forward indefinitely.
How are investment expenses treated?
If the taxpayer itemizes, they are deductible up to the amount of net investment income the taxpayer had for that year. The remainder of the expenses (if any) can be carried forward indefinitely.
Charitable contributions: Above the line or below?
If the taxpayer takes the standard deduction, they are above the line. - Up to the limit - 300 Single 600 MFJ
If the taxpayer itemizes, the deductions are below the line. (After AGI)
QBI
20% deduction of business income.
How is property and stock treated in a charitable contribution?
Charitable Contributions paid are allowed as an itemized deduction up to 60% of AGI. Property contributed is allowed as an itemized deduction up to 30% of AGI.
Gifts to individuals, such as a gift to a needy family, are not deductible.
The deduction of a charitable contribution of appreciated property depends on the status of the property.
Appreciated property that would realize a long-term capital gain if sold instead of donated is valued at fair market value.
Other property (including short-term capital gain property) is valued at the lesser of basis or fair market value.
Kiddie Tax
kiddie tax is applicable to unearned income of a 17-year-old child, even if he / she had earned income more than one half of his / her support.
How is Alimony Treated?
Prior to 2019 - it is deductible as long as it’s paid in cash and the payments continue until the death of the recipient.
Child support and property settlements do not count as alimony and are not deductible.
2019 and Beyond - Nothing is deductible.
Fringe Benefits
A fringe benefit for employees is a form of payment other than money for employee performance. Any fringe benefit given to an employee shall be taxable income for that person unless specifically excluded from taxation by the tax law.
If the employee uses the fringe benefit only for work, it is not taxable. The value of any personal use of a fringe benefit is included in the employee’s compensation, and it is taxable to the employee regardless of who uses the fringe benefit in the family.
Employer provided health insurance is not taxable to the employee.
Medical Expenses
7.5% AGI
Only Medical and Dental
Cosmetic does not qualify unless it is related to an injury
Premiums on disability insurance are NOT included
Charitable Contributions - Property
If you would recognize a long-term capital gain the property is contributed at the higher of basis or FMV.
If it a short-term item, the property or investment is contributed at the lower of basis or FMV.
Stock Options
The compensation to the employee if they exercise stock options, is the difference between the FMV and the exercise price of the option.
How is Worker’s Comp Treated?
It is excluded from income
Are Self Employment Taxes deductible by the business on Schedule C?
No.
