Income Tax Flashcards
Deductibility of Medical Expenses
Personal Itemized
- Qualified medical expenses are an allowable schedule A deduction to the extent they exceed 7.5% of the taxpayer’s AGI
- Health insurance premiums are deductible if you itemize
Is child support included in gross income?
No, it is not.
Is municipal bond interest subject to federal income tax?
No, it is not.
Standard Deduction for Kids
Take the GREATER of earned income + $400 OR the total amount of their unearned income.
How does one arrive at taxable income?
- Calculate gross income
- Subtract adjustments to arrive at AGI
- Then, subtract the GREATER of the standard deduction OR itemized deductions
Always start with standard deduction! Don’t forget.
Accrual Method Requirements
- Greater than $29 million in revenues
- Carry Inventory
Net Operating Loss Components
- NOL sustained in one year may be used to reduce taxable income in future years.
- Indefinite Carryforward
How does a regular corporation report distributions to employees?
W2 for earned income
1099-div for dividends
What business entity would help a business owner reduce personal taxes?
Corporation. It is taxed as a separate entity.
Cost basis for S Corp, LLC, LLP, & Partnerships? Which one can you personally deduct more from?
- S Corp: Cash Contributions + Personal Loans
- LLC; LLP; Partnerships: Cash Contributions + Personal Loans + 3rd Party Loans
What business entities file tax returns with the federal government?
All entities. However, partnerships merely file an “informational return”
Does being the general partner in an LLP limit your liability?
NO, not as the general partner. Limited partners receive limited liability.
Purpose of distributable net income in a trust`
DNI determines the amount of income to be distributed to the beneficiary as well as the corresponding deduction by the trust.
Implications of selling Section 1244 stock
- Losses up to $100,000 for married filing jointly ($50,000 single) can be treated as an ordinary loss
- Losses in excess of $100,000 can be counted as a capital loss
Can a 1031 exchange be used for equipment?
NO, not anymore. 1031 exchanges are reserved exclusively for real property.
What happens to real estate, whether rental or residence, when a spouse dies in a community property state?
No matter if the property is a rental or residence, the basis will receive a FULL step-up in basis upon the death of one spouse.
Are entertainment costs a deductible expense?
No, they are not deductible.
What counts as the cost basis for an S-Corp?
Personal contributions AND personal loans.
NOT 3RD PARTY LOANS
Gross Income Components
- W2 Income
- K1 Income
- Retirement Distributions
- Social Security
- Real Estate Income
- Self-Employment Income (C)
~ Dividends (B) & Interest
~Capital Gains (D)
! Punitive Damages
! Alimony received for a divorce pre 2019
! Loan Forgiveness
! Unemployment (Sch 1)
Gross Income Exclusions
- Inheritance
- Gifts
~Compensatory Damages
~ Child Support
~ Muni Bond Interest
~WORKER’S COMPENSATION
Adjustments for AGI
Self Employment
- 100% Health Premiums
- Keogh or SEP contributions
- 1/2 SE Income
Everyone
- Deductible IRA Contributions
- Student loan deduction (One Time $10k)
- HSA Contributions
- Alimony Paid (Pre-2019 Divorce)
Itemized Deductions
- Medical, Dental, LTC Expenses (Including health premiums) in > 7.5% AGI
- SALT up to $10,000
- Home Mortgage Interest
- Charitable Gifts
- Personal Property Tax (10k)
- Real Estate Tax (10k)
- Margin Interest
Mortgage Insurance (Only if AGI < $100k) - Casualty Loss in Federally Declared Disaster
What type of business entity is best for a company funded by personal contributions and loans? Business will incur losses.
S Corporation
Recapture of 1245 Property
- Sole Proprietor must sell for a gain
1st: Lesser of CRD & Gain
2nd: Recover excess gain as a 1231 gain (Capital Gain)
