Income Tax Flashcards
As a direct result of the rules under TCJA 2017, qualifying dividends are taxed at set _____ breakpoints.
It used to be related to tax breakpoints.
Dollar Breakpoints.
It used to be related to tax breakpoints.
In year 1 Justin earns $700 from delivering papers for a newspaper company and he is treated as self-employed. In year 2 the newspaper company hires him as an employee and pays him $700 as W-2 income with no federal or state income tax withholding. Does Justin have to file a tax return in either year?
A. Year 1: Yes Year 2: Yes
B. Year 1: No Year 2: Yes
C. Year 1: Yes Year 2: No
D. Year 1: No Year 2: No
The correct answer is C.
The rule is that a taxpayer must file if he has greater than or equal to $400 of net earnings from self-employment. If the taxpayer does not have self-employment income there is no requirements to filing unless your income exceeds the standard deduction and personal exemption ($0 for 2018 - 2025) for that year.
If a client’s AGI from last year is greater than $150,000, the safe harbor is __% of current year tax or ___% of prior year tax.
90%.
110%.
In calculating a net operating loss for an individual, which of the following items would not be added back to negative taxable income?
A. Net operating loss deduction
B. Long-term capital losses in excess of short-term capital gains.
C. Section 1202 exclusions
D. None of the above would be added back.
D. None of the above would be added back.
The following items are not allowed when figuring an NOL:
- Any deduction for personal exemptions.
- Capital losses in excess of capital gains.
- The section 1202 exclusion.
- Nonbusiness deductions in excess of nonbusiness income.
- Net operating loss deduction.
- The domestic production activities deduction.
In order for a dividend to be a qualified dividend, the individual must meet the requisite holding period, which is more than __ days in the ___ days surrounding the ex-dividend date.
60 days in the 121 days.
The 4th quarter federal income tax estimated payment is due by _____ __ of the year following the year the payment is being made for.
January 15th.
NOL losses can only be carried ______, (except for select agricultural or insurance filers).
However, the NOL can only offset 80% of the current year’s income for years after 12/31/17.
Forward.
Which of the following income(s) is/are NOT subject to Social Security tax?
I. Rental real estate income.
II. Small part-time repair shop income as a proprietor.
III. Shareholder’s share of S corporation’s income in excess of salary.
IV. Income of an individual working as an independent contractor.
Option “I” - Income from rental real estate is not subject to self-employment taxes.
Option “III” - A shareholder’s distributive share of S corporation profits is recognized as ordinary income and not subject to self-employment taxes.
Self employment tax is the employee and employer portion of Social Security and Medicare tax for a total of 15.3%.
Self employment tax is the employee and employer portion of Social Security and Medicare tax for a total of __%.
15.3%.
How much of state income tax and real estate taxes can be deducted?
It is capped at $10,000.
Tax planning fees may no longer be deducted against a taxpayer’s itemized deduction, Schedule A. However, if the taxpayer is self-employed, the portion of services related to the business and not personal may be taken as a deductible expense on the taxpayer’s Schedule __.
Schedule C.
Section ____ is applied to the sale of depreciated assets.
Section 1245 recapture.
_____ property includes equipment, patents, copyrights and other intangibles.
Depreciable.
With regard to Sections 1245 and 1250, Section 1231 will be applied only when any _____ property is sold at a profit above its original cost.
Depreciable.
Section _____ applies when:
All or a portion of gain on tangible personal business property resulted from depreciation taken.
1245.
Section 1245 recapture is treated as _____ income for the gain realized resulting from depreciation taken that was greater than economic reality.
Ordinary.
Abigail was an original investor in, and owns a 25% interest in, Decorate Your Dream LLC, a home decorating company. Abigail paid $50,000 for her interest. This year, Decorate Your Dream did very well and had a profit of $100,000. However, no distributions were made. What is Abigail’s basis in her interest in Decorate Your Dream at the end of this year?
$75,000.
Abigail’s original cost basis is increased by her share of the profits. Therefore, her original cost basis of $50,000 is increased by $25,000. If there had been a distribution, this would have reduced Abigail’s adjusted basis in her interest in the company.
Sam’s Turbo Repair, Inc. (STR) purchased a new machine for cleaning and retooling the turbo blades on semi-trucks. The machine cost was $30,000, there was 10% sales tax, and $1,000 delivery and setup fee. What is STR’s basis in the new machine?
$34,000.
The machine cost of $30,000 plus the sales tax of $3,000 plus the $1,000 freight is the basis for depreciation.
Upon the death of either spouse in a ____ ____ titling, both halves of are stepped to the fair market value regardless of who inherits the descendant’s half.
Community Property.
A single person with no children that provides more than half of the expenses for maintaining residence and necessary expenses for their parent can file as _______, the parent qualifies as a dependent.
Head of Household.
These are requirements to file _______:
The taxpayer must file a separate tax return from the spouse.
The taxpayer must furnish over one-half of the cost of maintaining the household.
The spouse must not be a member of the household during the last six months of the tax year.
Head of household.
The five elements of the Qualified Dependent Test are:
Gross income. Support. Member of household or family (not a qualifying child). Citizenship or residence. Joint filing return test.
A qualifying child must be from a lower _______ than the taxpayer.
Generation.
_____ property used in a trade or business is generally a Section 1231 asset, not a capital asset.
Depreciable.
Which of the following is not an above-the-line deduction?
A. Medical expenses.
B. A contribution to an HSA.
C. A contribution to a traditional IRA.
D. Student loan interest.
Solution: The correct answer is A.
Medical expenses in excess of 7.5% (Taxpayer Certainty and Disaster Relief Tax Act 2020 made 7.5% permanent) of AGI are deductible below-the-line. All of the other options are above-the-line deductions.
All business deductions are ___ AGI.
FOR AGI.
Above the line.
Student loan interest is an “____-the-line” deduction. The amount that can be taken is limited to $_____of interest paid.
Above-the-line.
$2,500.
Can money paid for child support be structured in a divorce as to be deductible to the payor spouse for divorces prior to 2019?
Yes, if the money to be considered as child support is included in deductible alimony
If an agreement is reached (prior to 12/31/18) between former spouses where the decreed amount of alimony is increased to include child support, then the additional alimony would be taxable to the recipient and deductible to the payor. The additional money cannot be based on any contingency such as with the child reaching the age of majority or death.
If personal use property is converted to business use the adjusted basis is the _____ of the taxpayer’s adjusted basis or the fair market value on the date of conversion.
Lower.
The ____ inventory method is concerned with movement of costs through inventory, not goods. The cost of the last units purchased will be the first costs to be transferred to cost of goods sold when the goods are sold.
LIFO.
