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Income Tax Planning > Basic Income Tax (Lesson 2) > Flashcards

Basic Income Tax (Lesson 2) Flashcards

1
Q

Taxpayers are either

A
  • Cash basis
  • Accrual basis
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2
Q

Cash basis taxpayers recognize income when

A
  • it is received or set aside
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3
Q

Accrual basis taxpayers recognize income when

A
  • it is earned
  • must report an amount in their gross income on the earliest of the following dates
  • when payment is received
  • when the income amount is due to the taxpayer
  • when the taxpayer earns the income
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4
Q

When is a cash basis taxpayer deemed to receive income

A
  • when it is credited to the taxpayers account
  • set apart for the taxpayer
  • made available to be taken into the taxpayers possession
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5
Q

What does the constructive receipt doctrine state

A
  • When income is readily available to the taxpayer and that income is not subject to substantial limitations or restrictions that income is deemed to be constructively received and should be taxed
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6
Q

What is substantial limitations under the constructive receipt doctrine

A
  • any substantial limitation or restriction on either the time or manner of payment and
  • the financial condition of the debtor makes payment of the income in question impossible
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7
Q

What is a fiscal year

A
  • a 12 month period ending on the last day of a month other than December
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8
Q

When can a fiscal year be elected

A
  • adequate records are maintained
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9
Q

How can an individual change their tax year

A
  • must file form 1128 to get IRS approval either under the automatic approval procedures or the ruling request procedures
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10
Q

What are the 5 filing statuses for taxpayers

A
  • Single
  • MFJ
  • MFS
  • Head of Household
  • Qualifying widower with qualified child
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11
Q

When can a person file as MFJ

A
  • married on the last day of the year
  • Spouse dies in the tax year and taxpayer did not remarry (May file one year as MFJ)
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12
Q

When can an individual file as head of household

A
  • considered unmarried on the last day of the year
  • taxpayer must have paid more than half the cost of keeping up a home during the tax year
  • qualifying person must have lived with the taxpayer for more than half of the year
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13
Q

A qualifying child is a qualifying person if

A
  • if they are single
  • they are married and you can claim an exemption for them
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14
Q

A qualifying relative who is your father or mother is a qualifying person if

A
  • can claim an exemption for them
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15
Q

A qualifying relative other than your father or mother is a qualifying period if

A
  • person lived with the taxpayer more than half the year and you can claim an exemption for them
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16
Q

When can a taxpayer file as a qualifying widower with qualified child

A
  • can file under this for two years following the year in which the taxpayers spouse died if the following apply:
  • taxpayer was eligible to file a joint return with his or her spouse in the year in which the taxpayers spouse died
  • taxpayer has not remarried
  • taxpayer has a child or stepchild for whom the taxpayer can claim as qualified
  • child lived in the taxpayers home all year
  • taxpayer paid more than half the cost of keeping up a home during the year
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17
Q

If one spouse itemizes and files as MFS what must the other spouse do

A
  • Also itemize
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18
Q

Can a nonresident alien use the standard deduction

A

no

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19
Q

Can an individual filing return less than 12 months use the standard deduction

A

no

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20
Q

What is the standard deduction that a taxpayer who is claimed as a dependent of another taxpayer

A

equal to the greater of:

  • $1,100 or
  • $350 plus earned income (not exceeding the regular standard deduction)
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21
Q

What four tests must a qualifying child meet

A
  • Relationship test
  • Adobe test
  • Age test
  • Support test
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22
Q

What does a qualifying child have to do to meet the relationship test

A

Must be:

  • is a descendant of the taxpayer, taxpayers sibling, or a descendant of the taxpayers sibling
  • Cousin is not a qualifying child
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23
Q

What is the abode test for a qualifying child

A
  • qualifying child must live with the taxpayer for more than half the year
  • taxpayer and dependent are considered to occupy the household even during temporary absences due to special circumstances such as illness, education, business, vacation, or military service
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24
Q

What is the age test for a qualifying child

A
  • must be either under 19 as of the end of the calendar year or
  • a student under the age of 24 as of the end of the calendar year
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25
Q

Are amounts received as scholarships considered to be support for the support test

A

No

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26
Q

What is the support test for a qualifying child

A
  • qualifying child must not provide more than one half of their own support during the year
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27
Q

(Tie Breaker Rules for more than one person being eligible to claim another person)

Eligible taxpayer of the qualifying child is:

Both Parents

A
  • The parent with whom the child lived longer
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28
Q

(Tie Breaker Rules for more than one person being eligible to claim another person)

Eligible taxpayer of the qualifying child is:

Both parents and the child lives with each for the same amount of time

A
  • the parent with the higher adjusted gross income
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29
Q

(Tie Breaker Rules for more than one person being eligible to claim another person)

Eligible taxpayer of the qualifying child is:

Only one is a parent

A
  • the parent
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30
Q

(Tie Breaker Rules for more than one person being eligible to claim another person)

Eligible taxpayer of the qualifying child is:

Neither is a parent

A
  • taxpayer with the higher adjusted gross income
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31
Q

(Children of Divorce)

All four of the following requirements must be met if the child will be treated as the qualifying child of the noncustodial parent

A
  • Parents are divorced, are separated under a written separation agreement, or they lived apart at all times during the last six months of the year
  • child receives over half of their support for the year from their parents
  • child is in the custody of the parents for more than half the year and
  • custodial parent signs a statement that she will not claim the child for the year and the noncustodial parent attaches the statement to the return (Form 8332)
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32
Q

What four tests does a qualifying relative must meet

A
  • relationship test
  • gross income test
  • support test
  • not a qualifying child test

(Also has to meet the joint return test and the citizenship or residency test)

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33
Q

What is the relationship test for a qualifying relative

A
  • taxpayers child or descendant of child (etc. grandchild)
  • taxpayers brother, sister, stepbrother, stepsister
  • taxpayers father, mother, or ancestor (Grandparent etc.)
  • taxpayers stepfather or stepmother
  • son (nephew) or daughter (niece) of a brother or sister of the taxpayer
  • brother (uncle) or sister (aunt) of the father or mother of the taxpayer
  • son in law, daughter in law, father in law, mother in law, brother in law, or sister in law of the taxpayer or
  • any unrelated person who for the taxable year of the taxpayer has the same principal place of abode as the taxpayer and is a member of the taxpayers household
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34
Q

Can a child of the taxpayer meet the requirements to be a qualifying relative if they do not meet the qualifying child tests

A

Yes

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35
Q

What is the gross income test for qualifying relative

A
  • dependents gross income must be less than the personal exemption amount for the year
  • $4,300 for 2021
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36
Q

What is the support test for a qualifying relative

A
  • taxpayer must provide more than one half of the support of a dependent
  • support must be for providing housing, food, clothing, education, and medical treatment
  • if money supplied is not used for support it does not count towards it
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37
Q

What is the not a qualifying child test for a qualifying relative

A
  • in order to be claimed as a qualifying relative, a person cannot be a qualifying child of any taxpayer for the tax year
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38
Q

What is the joint return test for a qualifying relative

A
  • a married dependent must not file a joint return with a spouse unless a tax return is filed only to claim a refund for tax withheld if neither spouse is otherwise required to file a tax return and if no tax liability would exist for either taxpayer on separate returns
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39
Q

What is the citizenship or residency test for a qualifying relative

A
  • must be a citizen or national of the united states or a resident of the united states, Canada, or Mexico during some part of the year
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40
Q

What dates are quarterly estimates due for individuals

A
  • April 15th
  • June 15th
  • September 15th
  • January 15th
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41
Q

In order to avoid penalties taxpayers must pay estimated tax for 2021 if what two things apply

A
  • taxpayer expects to owe at least $1,000 in tax for 2021 after subtracting withholding and credits
  • taxpayer expects his withholding and credits to be less than the smaller of:
  • 90% of the tax to be shown on your 2021 tax return or
  • 100% of the tax shown on your prior years tax return (must be a full year return)
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42
Q

What is gross income

A
  • all income from whatever source derived
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43
Q

When is alimony deductible and included in gross income

A
  • Finalized before 12/31/18
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44
Q

What is the formula for the exclusion ratio to determine the nontaxable portion of an annuity

A

ER = Investment in Contract/ Expected Total Return

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45
Q

What does the exclusion ratio tell you

A
  • the portion of each payment that is excluded from taxation
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46
Q

How long is the exclusion ratio applied to annuity payments

A
  • for the whole term
  • if the annuity is based on life expectancy and the annuitant outlives life expectancy the full payment becomes taxable
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47
Q

When will a participant have an adjusted basis in distributions received from a qualified plan

A
  • participant made after tax contributions to a contributory qualified plan or
  • participant was taxed on the premiums for life insurance held in the qualified plan
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48
Q

What is the formula to determine the adjusted basis in a traditional IRA distribution

A
  • Ratio of AB = AB before withdrawal/ FMV of account at withdraw
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49
Q

What is the maximum amount of SS benefit that is taxable

A

85%

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50
Q

If the MAGI plus one half of SS benefits exceeds the first hurdle but not the second the taxable amount of SS benefits is the lessor of

A
  • 50% SS benefits or
  • 50% [MAGI + 0.50(SS Benefits) - Hurdle 1]
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51
Q

What is the first hurdle for SS

A
  • MFJ = $32,000
  • All other tax payers = $25,000
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52
Q

What is the second hurdle for SS

A
  • MFJ = $44,000
  • All other tax payers = $34,000
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53
Q

If the MAGI plus one half of SS benefits exceeds the second the taxable amount of SS benefits is the lessor of

A
  • 85% SS benefits or
  • 85% [MAGI + 0.50(SS Benefit) - Hurdle 2] plus the lessor of:
  • $6,000 for MFJ or $4,500 for all other taxpayers or
  • taxable amount calculated under the 50% formula and only considering hurdle 1
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54
Q

(Imputed Interest)

Loan Amount: 0 <= 10,000

A

$0

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55
Q

(Imputed Interest)

Loan Amount: 10,001 <= 100,000

A

The lesser of

  • net investment income or
  • interest calculated using AFR less interest calculated using stated rate of the loan If borrowers net investment income <= 1,000, 0 imputed interest
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56
Q

(Imputed Interest)

Loan Amount: > 100,000

A
  • interest calculated using AFR less interest calculated using stated rate of the loan
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57
Q

How are below market loans by a corporation to a shareholder treated

A
  • as a dividend to shareholder
  • as the shareholder makes loan payments the payments are treated by the corporation as interest income
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58
Q

How are below market loans from an employer to an employee are treated

A
  • as paid compensation for the employee and are subject to employment taxes
  • as the employee makes loan payments the employer must treat the payments as taxable interest income
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59
Q

What is the definition of a gift

A
  • gratuitous transfer of property
  • donor acted out of a detached and disinterested generosity made out of affection, respect, admiration, charity, or like impulses
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60
Q

Property received by gift or bequest is

A

not taxable

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61
Q

Are life insurance proceeds paid on account of the death of the insured included in gross income or not

A
  • not included in gross income
  • interest portion of any payment is taxable though
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62
Q

What happens if the insured cashes in life insurance before the insureds death

A
  • owner of the policy must recognize any cash received in excess of what the owner paid in premiums
  • losses are not deductible
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63
Q

How is a life insurance policy that is transferred for valuable consideration taxed

A
  • the amount received is includable in the owners gross income to the extent that amount exceeds the owners basis in the policy
  • death proceeds will be taxable to the new owner
  • the owners basis in the policy is defined as the amount that the owner paid for the policy
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64
Q

The proceeds of a life insurance policy can be excluded from gross income even if the policy is transferred for valuable consideration if

A
  • policy is transferred to the insured
  • policy is transferred to a partner of the insured
  • policy is transferred to a partnership in which the insured is a partner
  • policy is transferred to a corporation in which the insured is a shareholder or officer or
  • policy is transferred by tax free exchange or gift
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65
Q

What is a viatical settlement

A
  • the sale of a life insurance policy by a terminally or chronically ill policy owner
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66
Q

What is a terminally ill individual for a viatical settlement

A
  • illness that will result in death in 24 months or less after the date of certification
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67
Q

What is a chronically ill individual for a viatical settlement

A
  • a person who is unable to perform at least 2 ADLs for a period of at least 90 days
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68
Q

What test must a MEC meet in order to not be classified as a MEC

A
  • 7 pay test
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69
Q

What is the 7 pay test for a MEC

A
  • if the accumulated amount paid under the contract at any time during the first 7 contract years exceeds the sum of the net level premiums
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70
Q

How are withdrawals from a MEC treated

A
  • on a LIFO method
  • basis comes out last
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71
Q

What is considered a qualified expense for a scholarship or grant

A
  • does not include room and board
  • amounts used for room and board are taxable
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72
Q

What much of a gain can be excluded from gross income for the sale of a personal residence

A
  • $250,000 single
  • $500,000 MFJ
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73
Q

What do MJF taxpayers have to do in order to qualify for the exclusion of personal residence

A
  • either spouse meets the ownership requirement with respect to the property
  • both spouses meet the use requirement with respect to such property and
  • neither spouse is ineligible for the exclusion as a result of having used the exclusion in the prior two years
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74
Q

A reduced exclusion may be available even if they do not meet the other requirements if the sale is due too

A
  • change in employment
  • change of health or
  • unforeseen circumstances
  • amount excluded is based on the period of ownership between the last sale and the current sale
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75
Q

How long is the exclusion of the personal residence available to a surviving spouse

A
  • sale occurs no later than two years after the date of death of the deceased spouse
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76
Q

How is appreciation treated during a nonqualified use period for the personal residence exemption

A
  • not subject to the exclusion
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77
Q

What is a qualified Roth IRA distribution

A
  • account has been held for 5 years and
  • the distribution must be made on account of disability, death, or on/after attainment of 59 1/2
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78
Q

How are distributions for a Roth 401(k) treated

A
  • on a pro rata basis
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79
Q

What types of compensation for injuries and sickness are excluded from gross income

A
  • Workers compensation for personal physical injury or sickness
  • any damages received on account of personal physical injuries or sickness and
  • payments from accident or health insurance that is personally owned by the taxpayer
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80
Q

How are punitive damages taxed

A
  • are not excludable from income
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81
Q

How are damages for emotional distress taxed

A
  • must be included in gross income unless the damages are attributable to physical injury or sickness or are paid for reimbursement of actual medical expenses arising from emotional distress
82
Q

(Employer Sponsored Accident and Health Plans)

Medical

A
  • excluded from gross income
83
Q

(Employer Sponsored Accident and Health Plans)

Group Term Life Insurance

A
  • premiums deductible under Section 162 as ordinary and necessary business expense for the employer
  • Exceptions to premiums being deductible
  • deductions made on behalf of sole proprietors or partners
  • deductions made on behalf of stockholders, unless they are providing substantial services and
  • employer is named the beneficiary
84
Q

Group term not taxable to the employee when

A
  • employee has terminated because of disability
  • qualified charity is named as beneficiary and
  • employer is named as beneficiary
85
Q

Under section 79 how much of group term insurance is non taxable

A
  • first $50,000 of coverage
86
Q

When are meals and lodging not included in gross income of an employee

A
  • if they are furnished by the employer on employer business premises and for convenience of employer
87
Q

When is lodging excluded from gross income if provided by an employer

A
  • employee is required to accept lodging as a condition of employment in order to be excluded
88
Q

How much of dependent care cost can be excluded from gross income

A
  • up to $5,000 paid by the employer
89
Q

When are athletic facilities excluded from gross income if provided by the employer

A
  • located on employer premises
90
Q

How much educational assistance is exclude from gross income if provided by employer

A
  • $5,250 per year
91
Q

How much adoption assistance is excluded from gross income if provided by the employer

A
  • limited to $14,440 of expenses
  • phases out between MAGI of $216,660 - $256,660
92
Q

When is a cafeteria plan taxable

A
  • if amount is provided in cash
93
Q

When are no additional cost services non taxable

A
  • employee receives services not property
  • employer incurs no substantial additional cost in providing the services
  • services offered are within line of business in which the employee works
  • benefit is offered on non discriminatory basis
94
Q

When are qualified employee discounts nontaxable

A
  • discount is not on realty or investment property
  • item discounted is from the same line of business in which employee works
  • discount cannot exceed gross profit on personality or 20% on services and
  • benefit is offered on non discriminatory basis
95
Q

Are working condition fringes taxable

96
Q

What is an example of de minimis fringe benefit

A
  • dinner money
  • occasional personal use of company copy machine
  • company cocktail parties
  • picnics for employees
  • can be provided on a discriminatory basis
97
Q

What deductions are available for qualified transpiration fringes

A
  • Employer deduction not avalaible for commuter highway vehicle, transit pass, or qualified parking
  • Employee can exclude from income amounts used for the above
  • can be provided on a discriminatory basis
  • for parking the employee can choose between cash or employer provided parking without loss of exclusion
98
Q

Can a qualified moving expense reimbursement be excluded from gross income

A

no must be included in gross income

99
Q

When are deductible moving expense reimbursements deductible

A
  • if a member of the armed forces on active duty and move was due to a military order and permanent change of station
100
Q

What is the foreign earned income exclusion for 2021

101
Q

In order to claim the foreign earned income exclusion, the foreign housing exclusion, or the foreign housing deduction they must

A
  • have foreign earned income, tax home is foreign country, and you must be one of the following
  • US citizen who is a bona fide resident of a foreign country for a period that includes an entire tax year
  • US resident alien who is a citizen or national of a country with which the US has an income tax treaty in effect and who is a bona fide resident for entire year or
  • US citizen or a US resident alien who is physically present in a foreign country or countries for at least 330 full days during any period of 12 consecutive months
102
Q

Which type of bond interest is not tax exempt

A
  • Private activity bonds that are not qualified bonds
  • Arbitrage bonds
  • Bonds that do not meet all the requirements of section 149
103
Q

What happens when a creditor cancels a debt

A
  • creates income for the debtor
104
Q

The gain on the discharge of indebtness is generally the lower of

A
  • amount of indebtness canceled or
  • excess of assets over liabilities after the debt is canceled
105
Q

What are the exceptions to discharge of indebtness being included in gross income

A
  • Debts discharged in Bankruptcy
  • certain student loan debt that is forgiven for public services
  • qualified principal residence after 12/31/20 and before 1/1/26 (Maximum discharge exclusion is $750,000 ($375,000 MFS))
106
Q

What are above the line deductions subtracted from

A
  • from gross income to arrive at AGI
107
Q

In order for trade or business expenses to be deductible they must be

A
  • ordinary
  • normal, usual, or customary
  • necessary
  • prudent businessperson would incur same expense
  • reasonable
  • question of fact
  • Incurred in conduct of business
108
Q

When does a divorce decree need to be finalized in order for alimony to be included in income or deductible

A
  • must be finalized prior to 12/31/18
109
Q

Can alimony extend beyond death

110
Q

Is there a deduction available for alimony if property is transferred

A
  • no deduction is available and no gain/loss is recognized by the transfer
  • transferee takes a carryover basis in the property
111
Q

What are excess alimony payments

A
  • subject to a 3 year review period
  • look for decreases of > $15,000 between years 1 and 2 or 2 and 3
112
Q

How are excess alimony payments treated

A
  • included in payors taxable income in third post separation year
  • payee is permitted a deduction equal to the amount includable in the payors income in that year
113
Q

What is the shortcut formula to determine if there is an excess alimony payment

A

P1 + P2 - 2(P3) - $37,500 = Recapture

  • If greater than 0 then excess alimony
114
Q

Can child support be considered alimony

115
Q

Is an amount that is reduced upon the happening of a contingency specifically relating to a child considered alimony

116
Q

Is rent free occupancy of a home considered alimony

117
Q

What and how much of a charitable contribution can be considered an above the line deduction

A
  • $300 ($600 MFJ)
  • Must be a cash contribution
118
Q

(Above the line deductions for Self employed)

When can education expenses be deducted and what are considered education expenses

A
  • to maintain or improve existing skill or
  • to meet the requirements of the employer, profession, licensing, or state law
  • Tuition, books, supplies, transportation, and travel (50% of meals) are available for deduction
119
Q

(Above the line deductions for Self employed)

When can business gifts be deducted

A
  • gifts of tangible personality with a value of $25 or less per person per year are deductible
  • if gift is $4 or less and the name of the business appears on the item it is not considered a gift
  • gifts to employers or superiors are not deductible
120
Q

(Above the line deductions for Self employed)

Are entertainment expenses deductible

A
  • no 50% deduction for meals
121
Q

(Above the line deductions for Self employed)

Is there a home office deduction

A
  • only for self employed
  • no longer for W-2 employees
122
Q

What are deductions from AGI

A
  • Standard deduction or
  • Itemized deduction
123
Q

What is the AGI floor for medical expenses

A
  • 7.5% of AGI
124
Q

How much SALT can be deducted

125
Q

What is the valuation for purposes of charitable deduction for the below property:

Ordinary income property

A

Lesser of adjusted basis or the FMV

126
Q

What is the valuation for purposes of charitable deduction for the below property:

Short term capital gain property

A

Lesser of adjusted basis or the FMV

127
Q

What is the valuation for purposes of charitable deduction for the below property:

All Loss property

A

FMV must be used

128
Q

What is the valuation for purposes of charitable deduction for the below property:

LT capital gain property: intangible such as stocks, bonds, etc

A

Either FMV or the adjusted basis

129
Q

What is the valuation for purposes of charitable deduction for the below property:

LT capital gain property: Real Property

A

Either FMV or the adjusted basis

130
Q

What is the valuation for purposes of charitable deduction for the below property:

LT capital gain property: Tangible Personality (Related use)

A

Either FMV or the adjusted basis

131
Q

What is the valuation for purposes of charitable deduction for the below property:

LT capital gain property: Tangible Personality (Unrelated use)

A

lesser of the adjusted basis or the FMV

132
Q

What is the AGI limit for publics charities and private charities for the below property:

Ordinary income property

A

Public: 50%

Private: 30%

133
Q

What is the AGI limit for publics charities and private charities for the below property:

ST capital gain property

A

Public: 50%

Private: 30%

134
Q

What is the AGI limit for publics charities and private charities for the below property:

All Loss Property

A

Public: 50%

Private: 30%

135
Q

What is the AGI limit for publics charities and private charities for the below property:

Cash

A

Public: 60%

Private: 30%

136
Q

What is the AGI limit for publics charities and private charities for the below property:

LT capital gain property: Intangibles such as stocks, bonds, etc.

A

Public:

  • 30% of AGI if FMV
  • 50% of AGI if Basis

Private:

  • 20% must use basis
137
Q

What is the AGI limit for publics charities and private charities for the below property:

LT Capital gain property: Real Property

A

Public:

  • 30% of AGI if FMV
  • 50% of AGI if Basis

Private:

  • 20% must use basis
138
Q

What is the AGI limit for publics charities and private charities for the below property:

LT Capital gain property: Tangible Personality (Related use)

A

Public:

  • 30% of AGI if FMV
  • 50% of AGI if Basis

Private:

  • 20% must use basis
139
Q

What is the AGI limit for publics charities and private charities for the below property:

LT Capital gain property: Tangible personality (Unrelated use)

A

Public: 50%

Private: 20%

140
Q

What is considered a public charity

A
  • churches, schools, hospitals, and government entitles
141
Q

What is considered a private charity

A
  • exempt organizations that do not fit the definition of public charity
  • include veterans organizations, fraternal orders
142
Q

What four categories of itemized deductions can use the strategy of deduction clustering

A
  • Early payment of SALT
  • Early payment of mortgage interest
  • Medical expenses
  • Charitable deductions
143
Q

What are the requirements for making charitable contributions from a IRA

A
  • Must be made directly by the IRA trustee to a qualified charity
  • owner must have reached 70 1/2 before making contributions
  • cannot exceed $100,000 per year
144
Q

How is the distribution from an IRA directly to a charity treated

A
  • contribution is not treated as income to the IRA owner
  • contribution is not treated as a charitable contribution
  • contributions can count as the owners RMD
145
Q

When are casualty losses deductible

A

in the year that they are sustained

146
Q

When are personal casualty losses deductible

A
  • only in nationally declared disaster areas
  • Can deduct net loss with a $500 deductible
147
Q

Are losses from disease and insects considered casualty losses

148
Q

What is the effect of claim reimbursement

A
  • if there is a reasonable prospect of full recovery the loss should be deducted in the year of settlement
  • if only partial recovery is expected you should deduct in year of loss any amount not covered by insurance
149
Q

For a partial business casualty loss what can be claimed as a casualty loss

A
  • lesser of the decline in value (difference between FMV before and the FMV after event) less insurance received or
  • Adjusted basis in property less insurance proceeds
150
Q

For full business casualty loss what can be claimed as a loss

A
  • adjusted basis in property less insurance proceeds
151
Q

Is a business casualty loss a deduction for or from AGI

152
Q

What are the rules for deducting investment interest expense

A
  • limited to investment income
  • may be carried over indefinitely
  • special election can be made for LTCG to be treated as ordinary income to offset investment interest
153
Q

What is the limit for deducting personal mortgage interest

A
  • limited to $750,000 of mortgage indebtness (prior to 12/15/17 can be up to $1 million)
  • limited to two houses
  • no home equity interest
154
Q

What does the QBI deduction reduce

A
  • taxable income but does not reduce AGI
155
Q

What is the QBI deduction

A
  • 20% of the taxpayers QBI
156
Q

What is deductible QBI

A
  • is determined for each business separately and is generally 20% of business income not including investment income
157
Q

What is combined QBI

A
  • is the net amount of deductible QBI for all qualifying businesses owned by the taxpayer plus qualified REIT dividend and qualified PTP income
158
Q

Is QBI a business expense against revenue

A

no it is a deduction on pass through income of the owners

159
Q

What are the qualifications for the earned income tax credit

A
  • must have earned income and
  • must have a qualifying child (Must meet relationship, residency and age test)
160
Q

What is the adoption expenses credit

A
  • a credit for qualified adoption expenses incurred in adoption of eligible child
  • expenses include adoption fees, court costs, and attorney fees
161
Q

What is the maximum adoption credit

A
  • $14,440
  • phased out for AGI between $216,660 and $256,660
  • nonrefundable credit
162
Q

Who is considered an eligible child for the adoption credit

A
  • less than 18 years old or
  • physically or mentally handicapped
163
Q

What and how much is the child tax credit

A
  • $2,000 for each dependent child under age 17
  • includes stepchildren and foster children
  • Married taxpayers must file jointly to be eligible
  • Phased out at certain AGIs
164
Q

Who is an eligible child for the tax credit

A
  • under age 17
  • US citizen
  • Claimed as dependent on taxpayers tax return
165
Q

How much of the tax credit is refundable

166
Q

How much is the family credit for qualifying dependent credit

A
  • $500 credit for those who qualify as a dependent (child over 17)
167
Q

What is the child and dependent care credit

A
  • must have employment related care cost for either
  • Dependent under age 13 or
  • handicapped dependent or spouse
  • Married taxpayers must file joint
168
Q

What is the amount of the child and dependent care credit

A
  • Eligible care cost x applicable percentage
  • Applicable percentage ranges from 20% to 35% depending on AGI
169
Q

What is the applicable percentage for AGI over $43,000 for the child and dependent care credit

170
Q

What expenditures qualify for the child and dependent care credit

A
  • lesser of actual costs or $3,000 for one qualified individual and $6,000 for two or more qualified individuals
  • care cannot be provided by a dependent of the taxpayer
171
Q

What is the limitation earned income limitation for child and dependent care credit

A
  • amount of eligible care costs cannot exceed taxpayers or spouses earned income
  • full time student or disabled taxpayer are assumed to have earned income up to maximum per month limits
172
Q

What is the maximum credit for the AOTC

A
  • $2,500 per year for first 4 years of post secondary education
  • 100% of first $2,000 of qualifying expenses plus
  • 25% of next $2,000 of qualifying expenses
173
Q

What does a student have to be in order to be eligible for the AOTC

A
  • student must take at least 1/2 of full time course load
  • not eligible if student already has 4 year degree
174
Q

How much of the AOTC is refundable

A
  • up to 40% or $1,000
175
Q

What is the maximum credit for the LLC

A
  • maximum credit per taxpayer is 20% of qualifying expenses (Up to $10,000 per year)
176
Q

What are the income limitations for the LLC

A
  • phased out for AGI of $160,000 to $180,000 (MFJ) and $80,000 to $90,000 for all other statuses
177
Q

What are the income limitations for the AOTC

A
  • phased out for AGI of $160,000 to $180,000 (MFJ) and $80,000 to $90,000 all other statuses
178
Q

Who does the kiddie tax apply too

A
  • net unearned income of a child under age 19 with a living parent is taxed at the parents rate and age 24 if the child is a full time student
  • unearned income in excess of $2,200
179
Q

What is the basis for computing AMT

A
  • taxable income with certain adjustments for preference items
180
Q

What deductions are allowed for AMT

A
  • charitable contributions
  • IRD, gambling losses to extent of winnings, casualty losses, and medical expenses in excess of 7.5% of AGI
  • QBI deduction, qualified resident interest
  • investment interest
181
Q

What is AMTI

A

Taxable income plus or minus adjustments plus preferences = AMTI

182
Q

What is the AMT Tax Base

A
  • AMTI minus exemption
183
Q

What are the three AMT preference items

A
  • Percentage depreciation
  • intangible drilling costs
  • interest on private activity bonds
184
Q

What is the percentage depletion AMT preference item

A
  • amount of percentage depletion taken for regular tax in excess of the adjusted basis of the property at the end of the year is a preference item
185
Q

What is the intangible drilling cost AMT preference item

A
  • AMT requires 10 year amortization
  • preference is excess of regular tax deduction over [AMT amortization plus (65% x net oil & gas income)]
186
Q

What is the interest on private activity bonds AMT preference item

A
  • interest is not taxable for regular tax but is included for AMT purposes
187
Q

What are the rules for deductions for a non vacation rental property

A
  • usually a passive activity

- Two exceptions for passive activity

  • rental activities by dealers are considered active
  • residential rental losses up to $25,000 are deductible by taxpayers with AGI less than or equal to $100,000
  • Phaseout between $100,000 and $150,000
188
Q

Where are rental property income and expenses reported

A

Schedule E

189
Q

What are the rules for rental vacation homes

A
  • subject to same provisions as hobbies
  • no rental expenses in excess of rental income
190
Q

What are the determination of vacation rental properties

A

Fewer than 15 rental days

  • no gross income from rentals and no deductible rental expenses
  • Mortgage interest and property taxes are treated as if on a personal residence (Deductible in full)

More than 14 rental days

  • treatment depends on amount of personal use
  • if personal use days are not more than the greater 14 days or 10 percent of fair rental days then the taxpayer can deduct all expenses allocated to rental use even if loss results
191
Q

How are mortgage interest and taxes allocated for vacation rental properties

A
  • allocation based on total days used
192
Q

How are other expenses allocated for vacation rental properties

A
  • allocation based on total days used
193
Q

What is the treatment of income and expenses of a primarily rental vacation home

A
  • income is included in gross income
  • expenses are deductible for AGI
  • reported on schedule E
194
Q

What are the hobby rules whether to determine if an activity is a hobby or not under rule of section 183

A
  • shows profit 3 out of 5 years (2 out of 7 for horses)
195
Q

Are hobby losses deductible

A
  • are no longer deductible due to TCJA
196
Q

What are the three types of income

A
  • Active
  • Passive
  • Portfolio
197
Q

What are the at risk rules under passive activities

A
  • losses can only be deducted to the extent of property/money that is at risk
198
Q

How much can be deducted if a rental property is activity managed

A
  • $25,000
  • subject to a phaseout of $1 for every $2 that AGI exceeds $100,000
  • completely phased out at AGI of $150,000
199
Q

What does a taxpayer have to do in order to have the activity classified as active with material participation

A
  • Participates greater than 500 hours per year or
  • taxpayer participation constitutes essentially all participation
  • taxpayer participation is greater than 100 hours and the most of any participants
  • Tax payer participates for 100 hours in this activity and their total participation in all such activities exceeds 500 hours
200
Q

When are losses suspended under at risk amounts deductible

A
  • not until the at risk amount is positive from additions or income
201
Q

When are losses available under passive activity rules

A
  • when there is passive income or the activity is disposed of
202
Q

Can PTP gains be offset by non PTP losses

Income Tax Planning (5 decks)

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