Income Tax

Question 1

Gross income inclusions

Answer 1

Schedule B:
Ordinary dividends
Taxable interest

Schedule C:
Business income (and losses)

Schedule D:
Capital gains

Schedule E:
Real estate

Punitive damages ( except wrongful death)
Wages, salaries, tips
IRA distribution
Pension and annuities
Alimony received before 2019
Unemployment income.
Taxable social security

Question 2

Gross income exclusion

Answer 2

Gift
Inheritance
Child support
Municipal bond interest
Worker’s compensation payments
Compensatory damages

Question 3

Tax calculation

Answer 3

Gross income
- adjustments

AGI
-deductions

Taxable income
* appropriate tax rates

Taxable calculations
-(credit + other taxes )

Tax liability
- quarterly payment and witholdings

Next tax due for refund

Question 4

Scholarships for tuition and books are excluded from income but portions attributable to room and board are taxable income.

Answer 4

True

Question 5

Fringe benefits- taxable

Answer 5

Healthcare (heavily tested)
- healthcare insurance premium paid for S/E, partners, and more than 2% owners of an S Corp are taxable income. However, 100% is deductible as an adjustment to income the front of 1040 to the extent that such costs do not exceed the net income from the business. This can include all types of health insurance like medical, dental, long term care. It DOES NOT include disability insurance premiums.

Insurance premiums employer pays on a group life in excess of $50K of death benefit if the plan is non discriminationary are taxable ( generally per table I)

Question 6

Adjustments on 1040

Answer 6

IRA contribution
Student loan interest
SEP
Self-employment tax (0.07066, total is 14.13%)
Certain alimony paid

100% S/E health insurance
Moving expenses(active military)
Penalty for early withdraw
HSA
$4000 educational expense.

Question 7

Itemized deduction schedule A

Answer 7

medical dental and qualified LLC expenses

State and local, sales taxes
Personality property tax
Real estate tax
(Tax limitation 10k. )

Mortgage insurance qualified residence (100K AGI or below )

Home mortgage interest
Charitable gifts
Investment interest

Casualty losses (must be claimed as federal disaster area)

Question 8

Calculation of deductible loss

Answer 8

-use lesser of basis or FMV
-subtract any insurance coverage
-subtract $100 floor
-subtract 10% of AGI

Question 9

Self-employment income does not include:

Answer 9

• dividends or interest on investment
• gains from property, security or commodity
• real estate income or rent paid
• distributive share of income or loss of a limited partner
• wages from a S corp
• distribution (K-1 income) from S corp

Question 10

Self-employment income DOES include

Answer 10

-net schedule C income
-general partnership income (K-1) income
-board of director’s fee
-part time earnings (1099)

Question 11

Calculation

Answer 11

The taxable wage base provided in tax question will not exceed 147,000

Question 12

Tax credit related to child

Answer 12

1) dependent care for kid under 13:
Credit = 300020% per child
600020% maximum

2) child tax credit
Credit of $2000 for any child under 17
$1,400 per child is refundable

Question 13

QBI

Answer 13

Include: rental income presuming rental activities qualifies as a business; income from public traded partnership and REIS

Maximum deduction is 20% of their QBI. If QBI is 0c no pass through deduction is available for that tax year. However, any loss may be carried forward to the next year and is deducted against any QBI that year

Question 14

trust taxable income( exemptions for deduction)

Answer 14

• charitable deduction only allowed for complex trusts
• depreciation, cost recovery and depletion are calculated in the same manner as for individuals. If income is distributed, it must be allocated between the trust and the beneficiary.

-net operating carry forwards are allowed

-administration expenses are allowed

-trust is allowed a deduction for all income that is required to distribute. It does not matter whether or not that income is actually distributed. The trust is still allowing a corresponding deduction

Question 15

Distributable net income(DNI)

Answer 15

Limit the amount that trust beneficiary must report as gross income for income tax purpose. Allow trust to do the followings:
1) claim a deduction for the amount distributed
2) limit the portion of the distribution that is taxable to the beneficiary
3) ensure that the character of the distribution remains the same for the beneficiary as it was to the trust

No double taxation.

Deduction is equal to the lesser of the amount distributed to the beneficiaries or the DNI

Question 16

MACRS (modified accelerated cost recovery system)

Answer 16

Apply to all recovery property (not land or intensively) placed after 1986.
Prior to 1986, ACRS was used.
Straight-line is an option under MACRS; but a half-year convention must be used.

Question 17

Property class

Answer 17

Question 18

179 election

Answer 18

Only section 1245 business personal property qualify for the section 179 election

Question 19

Like-kind exchange calculations

Answer 19

1. FMV of property received
   2 adjusted basis of property given up
   3 boots

Question 20

Like-kind exchange calculation

Answer 20

Question 21

Hobby loss

Answer 21

Income is reportable as miscellaneous but loss is NOT deductible.

Not a hobby:
Biz generate net income 3 out of 5 consecutive years
Horses: 2 out of 7 consecutive years

Question 22

Tax research sources

Answer 22

RIA and CCh

Informative publications. Not law. Not be cited in tax court

Question 23

Triads of income taxation

Answer 23

Active income-
portfolio income
Passive income

These three does not commingle.

Question 24

3 types of assets

Answer 24

Capital assets
Ordinary income assets
IRC section 1231 assets

Section 1231 property is real or depreciable business property held for more than one year. A section 1231 gain from the sale of a property is taxed at the lower capital gains tax rate versus the rate for ordinary income. If the sold property was held for less than one year, the 1231 gain does not apply.

Question 25

The IRS code and treasury regulations have the rule of law

Question 26

Fringe benefit: tax free

Answer 26

Premium the employer pays to a health plan
Insurance premiums an employer pays on a group life policy up to 50K on employee’s life
Company car for business use ONLY
Commuter highway vehicles a d transit pass(280/ month cap)
Parking/subsided parking (280/month cap)
$5000 dependent care assistance(2500if separate filling)
Education assistance up to $5250
Qualified adoption go to $10,000
Discount on company products if does not exceed employer gross profit percentage
** occasionally overtime meal money, cab fare, theater or sporting event tickets (not season tickets )
** discount on service are limited to 20% of selling price to customers

Question 27

Adjustment to calculate adjusted gross income

Answer 27

Ira contributions
Sep or Keith
Self-employment tax (.07065)
Certain alimony paid
Student loan interest
100% self-employment health insurance
Moving expenses (active military only)
Penalty for early withdrawal of savings
Health savings account
$4000 educational expenses (AGI limited apply)

Question 28

Casualty losses deduction

Answer 28

Note : only aggregate loss in excess of 10% AGI is deductible.

Question 29

Self-employment tax include

Answer 29

Net schedule C income
General partnership income (K-1 income)
Board of directors fees
Part-time 1099

Question 30

Exceptions for installment sale

Answer 30

If all payments received are in the year of sale
If property is publicly traded securities
If sold at a loss
If property is sold to a related party who sells the property within two years of original purchase ***

Question 31

Net operating losses(NOL)

Answer 31

Firm’s business operation for a taxable year result in An excess of deductible expenses over gross income, excess generated a net operating income — reported on tax return.

An NOL sustained in one year may be used to reduce the taxable income for a future year. —-indefinite carry forward

Question 32

QBI: generally includes rental income presuming rental activity qualify as a business. Also income from publicly traded partnership and REITs

Answer 32

Individual who earn income through pass-through business may qualify to deduct up to 20% of their “QBI” from EACH pass-through business they own.

Question 33

Pass-through business

Answer 33

Tire 1
Single payers<170,050; joint < 340,100 taxable income may claim FULL 20% deduction.
No matter business is personal service or not.

Tire 2. Single > 220,050 or couple over 440,100 taxable income: no deduction whatsoever type of business.

If own other pass-through, may still claim but may be limited.

Tire 33 between threshold; eligible for partial tax benefit regardless type of their business. Amount of business income eligible for deduction phase out for PERsonal service firms.

Question 34

DNI(distribution net income)

Answer 34

Limited the amount that trust it estates beneficiaries must report as gross income for income tax purpose. DNI allow the trust to do following:
Claim deduction for amount distributed
Limit the portion of distribution that is taxable to the beneficiaries
Ensure that the character of the distributions remains the same for the beneficiary as it was to the trust.

There is no double taxation. - trust received deduction.
Deduction is qual to the lesser of amount distributed to the beneficiaries or the DNI

Question 35