Ed Suggs Flashcards
CPA Regulation R1: Individual Income Tax B1
What is the IRS Purpose
Collect Taxes
the requirements for qualified widower are
- tax payer spouse died one the the two previous years.
- taxpayer has a child (children) who can be claimed as dependents.
3Child (children) live with tax payer the entire year.
4.Taxpayer paid over half the cost of keeping up a home the child. - Tax payer filed a joint return in year of spouse death.
qualifying child or qualifying relative test:
Qualifying child: CARE (for full year): Close relative; Age lime full-time student and under 24 years (even if child has high income); Residency and filing requirement, Eliminate gross income test, Support test.
Qualifyng relative SUPPORT: pays more than half support; Under the gross income (taxable) limitations $4200; .
The Deduction for qualifyng business income is from separate or together with standard deduction and/or itemized deduction.
A deduction from AGI separate from standard deduction and itemized deductions.
If a couple is legally separated at the end of the year
Legally separated is considered unmarried and does not qualify as married.
A company provides a car to the spouse of an employee
the employee is tax on the benefit not the spouse.
Is nonliqudating cash distribution taxable in partnership
No. Non taxable to the extent on basis
In exchange of services for compensation
The person receiving service use the amount received as income.
If you found money
record as income no basis or other cost deducted.
Is IRA taxed
Yes. wirhdrawals after 59 and half are taxed as ordinary income. Roth are not taxed only interest.
When State tax itemized exceed state refund
Used the exceed from state tax exceed as income not refund.
Life insurance proceed on the life of an officer is it tax
No corp in the owner and benficiary are not taxed nor can premiums be deducted.
Cash basis report income on
in year actually received or constructively received as cash or property.
Annuity calc what is gross income
Purch annuity$64,000 /( life expectant year 23 * 12month) =276= $233,33 per tax free annuity. Pays $6300 per. Started april ‘6300 - (233,33*9) 2099.= tax $4201 taxed or gross income. Any payment over the 276 month will all be taxed at $6300 per year or $525 per month
If you withdraw from your IRa to use a down payment for a house, is it penalized.
NO. Not for 1st time home buyers, Insurance(medical), Mediacal expenses that excess of 10% of AGI, Disabilty, Education and Death expenses. You are only taxed.
What is the early retirement tax and penalty calc on
Withdrawl * marginal tax rate + Withdrawl * 10% penalty.
How are g/l on year-end sales of listed on stock transacton
On the TRADE DATED.
Loss on capital gain for individual is set at
$3,000
Award and prizes are excluded from taxes
When selected did not entered a contest and designate to a charitable organization.
What is the maximum % amount to be taxed on SSI
85% of the benefit
Gross income exclusion includes from paying on education expense
Interest income to pay education expenses and other qualified higher education expense must be reduced by scholarships not includiable in gross income.
Is a grant to a PH D candidate tax as income
Yes
Uniform Capitalization rule 263 does not include what costs
Research . Which is expensed
Is airfare deducted on a personal trip when conducting a a couple of days of business.
No. Only the business portion. of the trip.
How does a cash basis taxpayer recognize the deduction of interest.
Deducts interest in year paid or year in relates too. Which ever is later.
Is advance rent taxable in year tenent paid
Yes. Prepaid rent is taxable.
Uniform capitalization is used by
Real or Tangible personal property used in a trade or business
Real or tangible personal property produce to sale to customers
Real or tangible property acquired in resale.
Does not apply to acquired real or tangible personal property in resale of taxpayers with that DO NOT EXCEED $25m FOR THE PRECEEDING THREE YEARS.
For sole proprietor and partner ship do you deduct your salary to determine taxable income on sch c
No. It is included in gross income on 1040
cash basis customer collection sales in cash are they included in gross taxable income
Yes. would be included as gross taxable income.
Business Gross income includes
Gross income from business, spouse income, interests , g/l sale of security. Would not include salary from business.
What costs( are capitalized under Uniform capitalization rules 263 with respect to inventory
DM, DL, FOH, Depr, and amortization, insurance, supervisory, wages, utilities, spoilage and scrap, design expenses, maint. and rentals, facilities (offsite storarge) , cost of bonus, other materials and repacking. quality monitoring, warehouse space.
Under uniform capitalization rules what amount is the average gross amount preceeding three years
$25M
What is the 199a Deduction for QBI %
20%
is Sch C Business income the same as SCORP
No. sole proprietor uses SCh C and not SCORP ( line 17 1040)
does ordinary dividends and and qualified dividends qualify as income on 1040
Yes. when they are the same number. it is saying the $500 ordinary qualify for lower tax at $500 but add only from 3a
Who qualify as Specified Service trade or businses
CPA, Accountants, Doctors, laywers, insurance agents
QBI is a deduction from AGI or for AGI
From AGI
In a Distributed net income (DNI) of a trust of 10,000, $4,00 was distributed to beneficiares. who is responsible for taxes
Trust are separate income tax-paying entities. distribution are deductible by trust and taxable to recipient.
Indiviidual subject to Self employment taxes are
Indv not w2 and perform services in a partnership
Are Guaranteed payments in a partnership considered interest share payments:
No. They are salaried payments and compensation to partnership for services rendered.the will have to pay SE tax. Never % of interest.
Guaranteed payment are deducted on what tax forms for partnerships
Guaranteed payment are business expenses deducted on form 1065 partnership and included on k1 to be taxed as ordinary income to the partner.
Item that are separately stated on form 1120S SCORP return
G/L from sale of collectibes are separately report. 1245 gain (sale or transfer of depreciabe & amortized property) and 1250 gain ( where previos depr recognized is recaptured into income) are reported, market to market and unearned rev. are reproted
When grantor does not retain beneficial enjoyment of corpus or power to dispose, What tax form is income reported to beneficiary
It is reported on form 1041 US tax Estate and trust return with a Sch k-1
What type of income received is reported for SCorp and if shareholder is compensated by company with guarantee payments
taxable income % interest share. Dive income would deducted from basis..shareholder compensated are treated employees with guarantee payments with SE tax
ARE QTB and SSTB treated the same under taxable income below the thresholds
Yes
Does SSTB get the a QBI deduction in regards to income limitation
NO
Overall QBI deduction limitation is
Combine QBI : lesser of 20% of taxable income and business income in access of net capital gain.
If SSTB and QBT are under the income threshold can the 20% deduction be taken
Yes. If taxable income under $167, 700 single and $321,400 MFJ
Are limited partner subject to SE tax
No. they are considered investors.
What is the calculation for QBI Income =
Ordinary income less deductions earned from sole proprietors
what is Qualified Property =
Any tangible & depreciable property that is held by the business at the end of the year and used for production for QBI
who would qualify as a QTB
Any business other than SSTB: non professional
SSTB: harder to get the 20% deduction and who is considered a SSTB
Yes. Business involving direct services: lawyers, doctors, health, accounting,performaning arts,
consulting investment, insurance, representation ( engineer or archetic exempt they QBT)
QTB and SSTB Taxable Income Limitations
Single $160,700 - $210,700 $50K phase out
MarriedFJ: $321,400-$421,400 $100K phaseout
Below QTB and SSTB taxable income
Below you get 20% of Business income for QTB 20% or 50% taxable income less Net capital gains compared to Business Inc
. if less then use. SSTB
20% of Lessor taxable income less Net capital gains and Business Inc.
Taxable income above the QTB and SSTB threshold:
QTB will use Greater of 50% w2 wages and 25% w2 wages and 2.5%PPe.
Then you compared to the 20% business income.
Which ever is less is the 199A QBI deduction. SSTB no deduction allwed
Taxable income in between the
QTB and SSTB threshold:
QTB; phase in. SSTB amounts are reduced then phased in. QTB:Taxable income $203200 - threshold amount ( begining
amount) $160, 700 = phase in range $42,500/ Phase out single $50,000 = 85% phase in %.
business income $100,000 @ 20% $20.000 temp QBi deduction less 50% w2 ( 30000*50%) 15,000=
Excess amount $5000. $5000 * 85% = 4,250 reduction amount/ $20, 000 business income-4250 reduction amount
= $15,750 QBI deductions
In S Corp at risk interest rules are applicable to
shareholders with interest rather than corporate levev
A single tax payer rec’d $160K salary, $15K income from S corp in which he does not materially participate, and $35K loss from real estate rental which he materially participate. what is his rental loss
since he material participate in rental, he can offset loss $35K to not participate passive income $15K. His $160K sal does not make him eligible for 25K loss deduction but he can off by $15K income to loss
When a investor sales his part of a business with passive interest share how much of the loss can he deduct plus any carryfwd losses
He can deduct full amount against income plus any carryfwd loss from previous years
a taxpayer has $120K AGI w $40 loss from real estate the he actively participate. How much of loss can he deduct
Tax payer with below agi of $100K can deduct up to $25K.between $100K and $150K agi phase in. His income is $120K so $20K is phase out at 100-150= 50 or 50cents on $1 of $20K. $20K*.50 = $10 phase out. 25-10= 15K can deduct.
How are multiple loss suspended allocated to a specific segment: X $30K loss, Y $50loss and Z $20K gain
Solve for Segment X
You want to add up all losses 30+50 = 80. The sum up all activitivy gain and losses 30 l+50 l+20 g = 60L.
The allocate specific loss: 60 l* (30/80) =22.5L to X segment
Ordinary income
Taxable Rev - exp
Portfolio income
Income earned on Assets, interest and dividends . Capital gains subject $3000 loss for individual
Passive income
An indv did not ACTIVELY participate. loss may offset passive income. net passive losses are not deductible in year of loss but carried fwd.
Rental income. Benficiary of Trust and Investment in Partnerships,, LLC and S Corp
Two types of requirement plans for incentive stock options
Qualified plans: no tax when granted; no tax when exercised, all tax when sold. Non qualified plan:
Some tax immediately, plus balance when sold.
Requirements for Qualified plan
- option was granted under a plan approved by the shareholders.
- the options were granted within 10 yrs earlier of the date when the plan was adopted or approved
- The options were exercisable within 10 years of the grant and employee does not own more than 10% of the voting poser of corp, parent or subsidiary as of the date of the grant.
What is the Gain of stock option: granted on 3/14/12 200 shares at option price of $150 fmv ( basis), Execercised ( right to sale on 8/2/14 at FMv $180. Sold on 9/20/15 at $250. How much gross income recognized.
sold $250200 = $50,000
Basis grant: $150200 = $30,000
Gross income recognized = $20,000
non qualifed plans are
recognized on as ordinary income established market. $100 @ $4 = $400 ordinary income
Is there recognition of compensation expense in a incentive stock option plan
No
Stock option plan requiresment
- employer may recognized a deductible exp for nonqualified plan the same the employee recognized ordinary income.
- for incentive stock options, once exercised stock must be held 2 years after grant date and at least 1 yr after execercised date.
- emplyee stock purchse plans are a type of qualified plans.
4 . can not exercise more than 27 months after grant date. - option excercise price may not be less than the lesser of 85% of the FMV of the stock when granted or
excercised
Are non qualified plan option plus bonus + salary recognized on w2
Yes. If salary was $60K + bpnus $13K+ pluse non qualify 100sh value $25 per share and basis of $10 = $15* 1000 = $15k = Total w2 $88K
SE Tax is subject to a combined SSI and medicare tax of:
Both Federal tax and SE tax: SE Tax is made up of SSI at 12.4% and medicare @ 2.9%= 15.3%
A taxpayer that provides more than half the support of a friend, niece and cousin that don’t live with him can claim any of them as qualilfed reletive or child
None a qualified child but the niece meets the qualified relative test.
is mortgage interest deductible. and is rent income on a 14day in a year taxable
Mortgage int is deductible and rental income in 14 day is not taxable income. Must be over 15days in a year.
Is alimony a taxable income and deduction
yes
If there are multiple taxpayers that give support to a dependent, who may claim the dependent
Any one who give more than 10% support.
If a child of a taxpayer is 19yr old and move out in 4 months and took a job earning $19K, can taxpayer claim
No. Child failed the dependent test.
If a dependent and spouse is supported more than half by parents and dependent and spouse file joint return, can taxpayer claim dependents
Yes. either dependent file return, tax can claim them.
If two parent divorce and have equal time with dependent, who can claim
The parent with the higher AGI even though divorce degree has custody with parent with lower AGI
If taxpayer received refund of $400 and itemized can taxpayer be exempt from refund being tax
If itemized deduction exceed standard deduction by $400, it is taxable.
Are punitive award in law suit and disability premiums paid by employer and paid to taxpayer taxable
Yes.
Are fed bond interest paid as expense on qualified educational expense and no scholarship, tax payer AGI is $40 is interest exclude
Yes.
If Stock basis was $5000 @ 100shares for $50 yr 1. end of yr 1 $6000 @ $60 share. 2 for 1 split when share hit $65. Sold y5 at $40. Is gain ordinary income
No.
When 2 for 1 split happens, transaction is consider LT capital gain. $40* 200 = $8000 - $25*200 basis y1 = $5000 = 3000 l-t cap gain.
What are expenditures that are subject to Uniform Cap 263
Administrative exp, selling, G&A, marketing and research.
what are the exemption that company can take to not use the % of completion method for tax return
Project complete in 18 months with avg gross in $8m for the last 5 years; Service performed under a maintenance agreement,; Service of an engineer contract by a builder responsible for a two year project; Long term contract that include land and less than 10% contract costs relate to actual construction of property of land.
If someone has rental income above or below 15days what is always deductible to taxpayer
Real estate taxes.
What are deductions for rental losses when person does not participate
Rental losses are not deductible however, the are deductible to passive activity income
How is income on a non qualified plan recognized in final year
As long-term capital gain. for transaction in first year with established exchanged, it it ordinary income.
What are net earnings made up for SE
Income from Sole Proprietor and General partnership.
When calculate adjusted gross income, do you add salary from owner or partner to adjust gross income for Sch c or partner returns
No. should be included.
