Gross Income Part: 2 _ M3

Question 1

How is Interest paid taxed?

Answer 1

It is allocated of the proper period and taxed like an accrual basis even if the tax payer is cas basis.

Question 2

What is the carryforward rule for NOL’s

Answer 2

Can be only carried forward indefinitely.

Question 3

What are the exemptions from being required to use Percentage-of-Completion Method for income recognition?

Answer 3

• Small contractors whose projects are not expected to exceed 2 years
• whose average gross income do not exceed $29 Million.
• Can use Contract Method instead.

Question 4

How is rents collected taxed?

Answer 4

• Tax rent received on cash basis even if TP is on accrual.
• All Prepaids and exit bribes taxable when received.
• Only deposits that maybe returned are not taxable rent it is accrued liabilities on the books.

Question 5

What are the travel rules?

Answer 5

• If foreign travel primarilary personal vacation with SOME work no airfare is deductible.
• Business events 100% deductible

Question 6

What are the rules for dependent care credit?

Answer 6

• Expenses for disabled spouse credit, up to a maximum expenditure of $3,000.
• The child must be under age 13.
• To be a qualifying child, the child must be a dependent of taxpayer.
• The maximum child and dependent care credit is 35 percent of
  eligible expenses, with a phase-out for excessive AGI. The maximum qualifying expenditures is $6,000 for two or more dependents, so the maximum credit is $2,100 ($6,000 × 35%)

Question 7

What is kiddie tax?

Answer 7

• Net unearned income of a dependent child under 18 years of
  age (or a child age 18–24 who does not provide over half of his or her own support and is a full-time student) is taxed at the parents’ marginal rate under the “kiddie tax” rules.
• Calculation: net unearned income over the allowable threshold is taxed at parents’ marginal rate. If unearned income is between $1,250 and $12,500 and consists solely of interest, dividends, and capital gain distributions, parents can elect to include the income on their return, rather than file a separate income tax return for dependent.

Question 8

What is the Lifetime Learning Credit?

Answer 8

• Unlimited amount of years for qualified tuition related expenses except for books.
• Postsecondary and graduation level
• Can use once per family may use AOCT on other qualified dependents per tax season.
• 20% of the 1st $10,000 in qualified expenses
• begining phase out $80,000 - $90,000 single / $160,000 - $180,000 MFJ
• Max non-refundable ant. $2000

Question 9

What is the American Oppurtunity Credit?

Answer 9

• 1st 4 years of postsecondary college
• Max $4,000 in educational expenses excludes room and board
• 1st $2000 x 100% = $2,000
• 2nd $2000 x 25% = $500
• Max refundable amy. $2,500

Question 10

What is considered regular income and also net investment income (NII)

double taxed on these incomes when they exceed $125K Others/ $250K MFJ

Taxed at 3.8%

Answer 10

• Dividend Income
• Interest Income
• LTCG/STCG
• Non-qualified annuity
• Passive activity
• Rental activities
• Royalty Income

Question 11

What is considered LTCG preferential income?

Taxed at preferential% 0%/15%/20% Max

Answer 11

• Dividends
• LTCG’s

Question 12

What is considered Taxable Income for regular tax purposes?

Add them all and exclude LTCG because it is taxed at preferential%

Reg tax (see Tax rate Chart at) T.I. - Std. Deduction - LTCG

Answer 12

Active
Portfolio
Passive