Federal Taxation of Individuals - 15-25%

Question 1

A taxpayer provides services to a business, and bills $40,000. In lieu of receiving cash for the entire payment, the business exchanges ownership, and equipment for the services. How do you determine the taxable amount from the transaction?

Answer 1

The income realized by the TP from the services rendered equals the sum of the amount of cash received, and the MV of any property/ ownership received.

Question 2

What 2 ways can bond premiums be amortized?

Answer 2

1. Computed under the constant yield to maturity method.

2. Treated as an offset to the interest income on the bond.

Question 3

What year did the divorce rules change?

Answer 3

Divorces prior to 2019 are subject to old tax rules.

Question 4

What is the formula to calculate PI (provisional income fka MAGI)?

Answer 4

PI = AGI + tax exempt interest + PI% (SSB)

Question 5

What are the base amount thresholds for determining SSB?

Answer 5

BA1 BA2
MFJ $32k $44k
MFS $0 $0
Other $25k $34k

Question 6

What is the income limitation for the QBI deduction?

Answer 6

MFJ $340,100; $170,050 (MFS/ all others)

Question 7

How do you determine the QBI deduction?

Answer 7

The QBI deduction cannot exceed the greater of:

1. 50% of the TP share of W-2 wages paid by the business, or
2. 25% of the TP share of the W-2 wages paid by the business, plus 2.5% of the adjusted basis of qualified property.

Question 8

If the payment date of a dividend from a listed corporation stock is made on 12-30-01, but the dividend is not received in the mail until 1-2-02; what year is the dividend taxable?

Answer 8

Year 1

Question 9

How do you calculate the basis for a Common Stock that yields a preferred stock as a dividend?

Answer 9

Determine the ratio of the CS to the total value (Add the FMV of the Common Stock and the Preferred Stock at the date of the dividend, then divide the total FMV by the CS) Multiply this ratio, by the cost basis. The remaining amount is the basis for the PS.

Question 10

How do you determine the holding period preferred stock dividends?

Answer 10

The holding period of the PS begins when the CS was acquired.

Question 11

What expenses qualify under a 529 educational savings plan, and what is the annual limit?

Answer 11

Tuition at elementary or secondary public, private, or religious schools.

Exclusions are limited to $10,000/ year.

Question 12

What is the limit on deductions for the compensation with respect to a covered employee of a publicly traded corp?

Answer 12

$1M per employee.

Question 13

What amount are you allowed to deduct for business interest expense?

Answer 13

Business interest expense is limited to 30% of the business’s adjusted taxable income.

Question 14

What items may be deducted in the operation of business for the sale of illegal narcotic substances?

Answer 14

Cost of merchandise. No other business expenses may be deducted.

Question 15

When are life insurance premiums deductible for a business?

Answer 15

Life insurance premiums are only deductible when the beneficiary is the insured employee, or their own beneficiary.

Question 16

When are medical expenses paid by credit card deductible?

Answer 16

In the year the charge is made.

Question 17

How do you calculate the amount of the deduction for charitable donations of property held for less than 1 year?

Answer 17

FMV less STCG

Question 18

What is the percentage limitation on charitable donations?

Answer 18

Cash contributions up to 60% of AGI.
Non-cash contributions up to 50% of AGI.
Charitable contributions of capital gain property up to 30% of AGI

Question 19

How do you calculate the casualty loss deduction?

Answer 19

Lower of decline in FMV or Adj Basis of property
Less: Insurance proceeds
Less: $100 per casualty
Less: 10% of AGI thresshold
= Deduction amount

Question 20

What was the rule regarding NOLs?

Answer 20

Cannot be carried back, and can be carried forward indefinitely.

Question 21

What is the max amount of business losses that a single individual can deduct in 2022?

Answer 21

$270,000

Question 22

A corporation is required to use what method for deductions relating to bad debts?

Answer 22

A corporation is required to use the direct charge-off method rather than the reserve method.

Question 23

How do you calculate the taxable amount of income from hobbies?

Answer 23

Sales are reported in gross income, and none of the expenses are allowed as a deduction.

Question 24

What is the rule regarding rental real estate losses?

Answer 24

For active participation in the rental real estate activity up to $25,000 can be deducted. However, the deduction is reduced once MAGI exceeds $100,000 up to $150,000.

Question 25

What happens if a taxpayer has excess SS withheld during a particular year by:
A. one employer?
b. more than one?

Answer 25

A. If the excess is withheld by one employer, the taxpayer should be reimbursed by the employer.
B. If the excess is withheld by more than one employer, the taxpayer can claim a credit against income tax.

Question 26

What are the 3 levels of the includible amount of SS benefits?

Answer 26

85%, 50%, 0%

Question 27

Are OTC drugs considered to be a part of medical expenses?

Answer 27

No