Income Tax Flashcards
Gross income inclusions
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
Gross income exclusion
Gift
Inheritance
Child support
Municipal bond interest
Worker’s compensation payments
Compensatory damages
Tax calculation
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
Scholarships for tuition and books are excluded from income but portions attributable to room and board are taxable income.
True
Fringe benefits- taxable
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)
Adjustments on 1040
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.
Itemized deduction schedule A
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)
Calculation of deductible loss
-use lesser of basis or FMV
-subtract any insurance coverage
-subtract $100 floor
-subtract 10% of AGI
Self-employment income does not include:
- 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
Self-employment income DOES include
-net schedule C income
-general partnership income (K-1) income
-board of director’s fee
-part time earnings (1099)
Calculation
The taxable wage base provided in tax question will not exceed 147,000
Tax credit related to child
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
QBI
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
trust taxable income( exemptions for deduction)
- 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
Distributable net income(DNI)
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
MACRS (modified accelerated cost recovery system)
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.
Property class
179 election
Only section 1245 business personal property qualify for the section 179 election
Like-kind exchange calculations
- FMV of property received
2 adjusted basis of property given up
3 boots
Like-kind exchange calculation
Hobby loss
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
Tax research sources
RIA and CCh
Informative publications. Not law. Not be cited in tax court
Triads of income taxation
Active income-
portfolio income
Passive income
These three does not commingle.
3 types of assets
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.
The IRS code and treasury regulations have the rule of law
Fringe benefit: tax free
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
Adjustment to calculate adjusted gross income
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)
Casualty losses deduction
Note : only aggregate loss in excess of 10% AGI is deductible.
Self-employment tax include
Net schedule C income
General partnership income (K-1 income)
Board of directors fees
Part-time 1099
Exceptions for installment sale
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 ***
Net operating losses(NOL)
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
QBI: generally includes rental income presuming rental activity qualify as a business. Also income from publicly traded partnership and REITs
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.
Pass-through business
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.
DNI(distribution net income)
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
