Income Tax: Basics Flashcards
1
Q
Basic tax formula
A
2
Q
What are the two accounting period methods?
A
- Cash basis
- Accrual basis
*you can use one for business and one for personal without an issue
3
Q
What is the cash basis account method?
A
- taxpayer received income when it is credited to the taxpayers account, set apart for the taxpayer or made available to be taken into the taxpayers possession.
- include in gross income, all items of income you actually constructively receive during the tax year.
- recognition of income must be consistent with the constructive receipt doctrine.
4
Q
What is the constructive receipt doctrine?
A
- states that when income is readily available to the taxpayer that income is not subject to substantial limitations or restrictions, that income is deemed to be constructively received and should be taxed.
- Substantial limitations or restrictions include:
Any substantial limitation or restriction on either the time or manner of payment, and
If the financial condition of the devote makes payment of income in question impossible there is no constructive receipt.
5
Q
What is the accrual basis method?
A
- recognition of income when earned.
- most business are accrual basis
- report an amount in their gross income on the following dates:
When payment is received
When income amount is due to the taxpayer
When the taxpayer earns the income
6
Q
What is the assignment of income doctrine?
A
-taxpayer cannot assign income earned by themselves to another party
7
Q
What is a taxable year?
A
- a taxable year is an annual accounting period for keeping records and reporting income and expenses
- two types
Calendar year
Fiscal year - only can be elected if adequate records are maintained
8
Q
What form must a taxpayer file to change from a calendar year to a fiscal year?
A
Form 1128!
9
Q
What are the five filing categories for individuals?
A
- Single
- Married filing jointly
- Must be married on last day of year
- may still file joint if spouse died during the year
- Married filing separately
- Head of Household
- Qualifying widower with qualified child
- eligible to file qualifiying widower for two years following the year in which a taxpayers spouse died, have to meet certain requirements
10
Q
What are the requirements to file as head of household?
A
- available for individuals who are either unmarried or considered unmarried on the last day of the taxable year.
- required to have paid more than half of the cost of keeping up a home during the year
- qualifying person generally must have lived with the taxpayer more than half of the year.
11
Q
What are the requirements to file as a qualifying widower with qualified child?
A
- The taxpayer was eligible to file a joint return with his or her spouse in the year in which the taxpayer’s spouse died,
- The taxpayer has not remarried,
- The taxpayer has a child or stepchild for whom the taxpayer can claim as qualified,
- The child lived in the taxpayer’s home all year, and
- The taxpayer paid more than half the cost of keeping up a home during the year.
12
Q
What are the requirements to receive an additional standard deduction?
A
- Age 65+, or
- Blind
If you are both than you receive two standard deductions
13
Q
Who is not eligible for the standard deduction?
A
- if a couple is married filing separately and one itemizes, they both must itemize
- non resident aliens
- individuals filing returns for tax year of less than 12 months
14
Q
What is a dependents standard deduction?
A
Greater of $1,150 or $400 plus earned income (cannot exceed normal standard deduction)
Age 65 older and blind additional deductions still apply
15
Q
What are the four test a qualifiying child must meet?
A
-relationship test
Taxpayers child (stepchild, adopted,foster), grandchild, brother, sister, step bro/sister, half bro/sister.
Descendant of all of those lifted above
-abode test
Qualifiying child must live with the taxpayer more than half of the year. (Absences due to illness, education, business, vacation, or military service do not count.)
-age test
Child must be under the age of 19 at the end of the calendar year or a full time student (5 months) under the age of 24 at the end of the calendar year.
-support test
Parents must provide more than half of their child’s support throughout the year. (Scholarships don’t count)
-joint return test
Married dependent must not file a joint return with a spouse, unless a return is filed only to claim a refund for tax withheld.
-citizenship or residency test
Dependent must be a U.S. citizen or a resident of us, Canada, or Mexico during some part of the year (does not apply to adopted children
*The rules for qualifying child relate to the definition of a child for purpose of head of household filing status, the earned income tax credit, the child tax credit, and the crdit for child and dependent care services.
16
Q
Tie Breaker Rules - qualifiying child
A
17
Q
What test must be met to for a qualifying relative to be claimed as a dependent for the child tax credit?
A
-Relationship test
Pretty much any potential family member except for cousins
Any other individual who has the same place of abode as the taxpayer.
-gross income test
Dependent cannot have gross income exceeding $4,400 (exemption for scholarships)
-support test
Taxpayer must provide more than one half of the support of a dependent.
-not a qualifying child test
To be claimed as a qualifying relative, person cannot be qualifying child of the taxpayer for the tax year
-joint return test
Married dependent must not file a joint return with a spouse, unless a return is filed only to claim a refund for tax withheld.
-citizenship or residency test
Dependent must be a U.S. citizen or a resident of us, Canada, or Mexico during some part of the year (does not apply to adopted children
18
Q
Summary of test for qualifying dependent and qualifying child
A
19
Q
What is included in gross income?
A
Annuity payments,
Compensation for services (including certain fringe benefits),
Gross income derived from business,
Gains derived from dealings in property,
Interest & dividends,
Rents & royalties,
Alimony and separate maintenance payments for divorce decrees finalized by 12/31/18 (repeal
divorce decrees after 12/31/2018),
Income from life insurance and endowment contracts,
Pensions,
Discharge of indebtedness,
Distributive share of partnership gross income,
Income in respect of a decedent, and
Income from an interest in an estate or trust.
20
Q
How is income treated in community property states?
A
-one half of earnings of each spouse is considered owned by the other spouse
50/50
21
Q
How is income of a trust or estate taxes?
A
-income of a trust or estate is generally taxable to the beneficiary.
If the income is not distributed, it will be taxable to the trust or estate
22
Q
How are annuity payments taxed?
A
An annuity taxation is broken down into two types of taxation
-a portion is taxed as a return of capital - this is tax free
A portion of interest, which is taxable as ordinary income
23
Q
What is the exclusion ratio?
A
The exclusion ratio determines the portion of each annuity payment that is excluded from taxation
Calculated at the starting date of the annuity
Exclusion Ratio = investment in contract/expected total return
- if annuitant outlives their life expectancy, all annuity payments after that time will be 100% taxable
- if annuitant passes before their life expectancy, they will get a misc itemized deduction not subject to AGI limitation for any principal they didn’t receive.
24
Q
How are distributions from retirement plans taxed?
A
Distributions from qualified retirement plans are subject to ordinary income tax.
Participant will have an adjusted basis in distributions received from a qualified plan if either have occurred:
- made after tax contributions to a contributory qualified plan
- participant was taxed on premiums for life insurance held in the qualified plan.
- see example for how to calculate taxable portion of a plan distribution with adjusted basis
25
How are traditional IRAs taxed?
Taxed at ordinary income unless;
Distribution consist of a combination of tax-deferred earnings and the return of adjusted basis that results from non deductible it’s contributions or rollovers of contributions from qualified plan balances that include after tax contributions.
To solve amount that is tax free:
Ratio = adjusted basis before withdrawal/ FMV of account at withdrawal
26
How are SSN benefits taxed?
- tax ability of SSN benefits is based on the taxpayers Modified AGI (MAGI)
- MAGI for SSN is the taxpayers AGI plus:
Tax exempt interest
Interest earned on savings bonds used for qualified education
Income earned in a foreign country, a US Possession, or puerto rico, that is excluded from income.
- to calculate, MAGI plus one-half of the taxpayers SSN benefits must be compared to the hurdle amounts.
* see other flash cards for how to calculate if benefits exceed 1st hurdle and 2nd hurdle
27
Taxation of SSN benefits that exceed first hurdle (50%)
For SSN - MAGI = Taxpayers AGI + Tax exempt interest, interest earned on savings bonds used for higher education, income earned in a foreign country, a US Possession, or puerto rico, that is excluded from income.
If MAGI plus half of SSN benefits exceed the first hurdle and not the second, taxable SSN benefits is the lesser of:
- 50% of SSN benefits or
- 50%[MAGI + .50(SSN benefits) - hurdle 1]
28
Taxation of SSN benefits that exceed the second hurdle (85%)
If MAGI plus half of SSN benefits exceed the second hurdle, the taxable amount of SSN benefits is the lesser of:
- 85% if SSN benefits
- 85%[MAGI + .50(SSN benefit)-hurdle 2], plus the lesser of:
$6,000 MFJ or $4,500 all others, or
Taxable amount calculated under 50% formula only considering hurdle 1
29
How are Below-Market Loans taxed?
- require lender to impute interest income on the loan that they would have been earned if it was lent at market rates.
- the amount of imputed interest is also treated as a gift from the lender to the borrower.
- loans of less than $10,000 are not required to impute any interest.
- if borrower has less than $1000 in net investment income for the year no imputed interest.
- see chart for how imputed interest is calculated
30
What are the two specials below market loans?
1. Below-market rate loans by a corporation to a shareholder in that corporation are treater
dividend to shareholder. As the shareholder makes loan payments, the payments are treated
corporation as interest income.
2. Below-market rate loans from an employer to an employee are treated as paid compensa
employee and are subject to employment taxes. As the employee makes loan payments,
employer must treat the payments as taxable interest income.
31
What are some high level exclusions from income?
- gifts, bequest, devise or inheritance
- life insurance proceeds
- Scholarships
- gain on sale of personal residence
- distributions from Roth IRAs and 401ks
- compensation for injuries and sickness.
- employer sponsored accident and health plans
- Meals and lodging
- other employee fringe benefits
- foreign earned income
- interest on certain state and local government obligations
- discharge of indebtness
32
Exclusion - Gift & Inheritances
- amounts received by gift, bequest, devise or inheritance are excluded from income.
- payment or gift must be made as a result of:
Detached and disinterested generosity
Constraining force of any moral or legal duty or from the incentive of anticipated of an economic nature
- amounts transferred by an employer to an employee are not treated as a gift.
- exclusion applies only to property, not income that is later generated on that property.
33
Exclusion - life insurance proceeds
-death benefits paid to the beneficiary of a life insurance policy are not included in income.
If proceeds are received in installment payments, interest is taxable to the beneficiary.
- when life insurance cashed out prior to insureds death, owner of the policy must recognize income in excess of what owner paid in premiums.
34
How are life insurance policies transferred for value treated for income tax purposes?
- the amount received is includable in the owners gross income to the extent the amount exceeds the owners basis in the policy. (Amount payed in premiums)
- death benefits taxable to the new owner (buyer)
- transfer for value is excluded from gross income if:
Policy transferred to the insured
Policy transferred to a partner of the insured
Policy transferred to a partnership in which the insured is a partner
Policy transferred to a corporation in which insured is shareholder or officer
Policy transferred by a tax free exchange
35
How are viatical settlements treated for income tax purposes?
- viatical settlement is the sale of a life insurance policy by a terminally Ill or chronically Ill policy owner.
- they are excluded from income
- terminally Ill = certified by physician as having illness that will result in death 24 months or less after date of certification
- chronically Ill = certified by a licensed health care practitioner as being unable to perform at least two activities of daily living (bathing, toileting, transferring, eating, dressing, continence) for at least 90 days
36
How are modified endowment contracts (MECS) treated for income tax purposes?
- MEC fails to meet the 7 pay test:
| - withdrawals from MECS are treated in a LIFO basis. Basis is recovered last.
37
How are scholarships treated for income tax purposes?
- amounts received as a qualified scholarship are not included in gross income.
- room and board do not count and are taxable income to the recepient.
38
Personal Residence sale gain exclusion
- Exclusion of $250,000 (single) & $500,000 (MFJ) on the sale of a primary residence
- two requirements ownership & use
Ownership - property has been owned and used by the taxpayer as taxpayers principal residence for two of last 5 years
Use- cannot have used the exclusion within last two years.
* One spouse can meet the ownership, but both must meet the use requirement.
- can use MFJ status for up too two years after the death of a spouse
39
Exclusion: compensation for injuries and sickness
Following are excluded from gross income:
- workers compensation for personal physical injury or sickness
- damages received on account of personal injury or sickness
- payments from accident or health insurance that is personally owned by the tax payer
40
How are employer sponsored medical plans taxed?
-contributions by any employer to an accident or health plan to provide compensation, through insurance or directly to the employee for personal injuries or sickness are excluded from gross income
41
How are group term life insurance plans taxed?
- employer paid premiums are deductible as ordinary and necessary business expense to the employer.
- death benefit is excluded from federal income tax when provided to a group of employees by employer.
Exception = group term issued to the trustees of a qualified pension plan, amount paid by employer is taxable to employees.
- the first $50,000 of coverage is not taxable to the employee
- employee contributions are subtracted from annual cost to arrive at taxable income
42
What are some common employee fringe benefits excluded from income?
1. Dependent care - up to $5,000 if dependent care cost paid by employer
2. educational assistance programs - employer provided educational assistance is excluded up to $5,250 per year
3. Adoption assistance Programs - employer paid adoption expenses are excludable from gross income. $14,890 for 2022 subject to phase out
MAGI $223,410-263,410
4. Cafeteria plans - allow employee to choose between cash and nontaxable benefits
Cash - amount is taxable
Non taxable benefit - nontaxable
5. No additional cost services, non taxable if:
Employer incurs no substantial cost
Services are offered within the line of business
Benefit is offered on a non discriminatory basis
6. Qualified employee discounts, non taxable if:
Discount is from same line of business
Discount is not in realty or investments
Benefit is offered on non discriminatory basis
7. Qualified moving expense reimbursements:
- only can deduct unreimbursed moving expenses if you are a member of the armed forces on active duty and your move was due to military order.
43
How is foreign earned income taxed?
foreign earned income exclusion - $112,000 for 2022, also foreign housing exclusion and deduction
-to claim this exclusion, you must have foreign earned incomes your tax home must be in a foreign country and you must be one of the following:
A US citizen who is a bona fide resident of a foreign country or countries for an uninterrupted period
that includes an entire tax year,
A US resident alien who is a citizen or national of a country with which the United States has an income
tax treaty in effect and who is a bona fide resident of a foreign country or countries for an uninterrupted
period that includes an entire tax year, or
A US citizen or a US resident alien who is physically present in a foreign country or countries for at
least 330 full days during any period of 12 consecutive months
44
What state and local government bonds are not tax exempt?
- private activity bonds that are not qualified bonds
- Arbitrage bonds
- bonds that do not meet all of the requirements of section 149
45
How is discharge of indebtness taxed?
- Discharge of indebtedness is taxable only to the extend that the FMV of the debtors assets exceeds the debtors total liabilities immediately after forgiveness.
Gain is the lower of:
- amount of indebtedness canceled, or
- excess of assets over liabilities after the debt is canceled.
Exceptions to inclusion include:
- debt discharged in bankruptcy
- student loan debt that is forgiven for public service
46
What are Above the Line Deductions (Adjustments)?
- above the line deductions are subtracted from a taxpayers gross income in order to compute the taxpayers adjusted gross income (AGI)
47
What are some deductions for AGI?
Deductions for AGI include:
- Trade or business expenses
- Deductions from losses on sale or exchange of property
- Deductions from rental and royalty property
- Alimony payments (for divorce decrees prior to 12/31/2018)
- One-half of self-employment tax paid
- 100% of health insurance premiums paid by a self-employed individual
- Contributions to pension, profit sharing, annuity plans, IRAs, etc.
- Penalty on premature withdrawals from time savings accounts or deposits
- Interest on student loans - Up to $2,500, Phaseout 70-85k individual, 145-175k joint
- Health Savings Accounts
- Teacher Expense Deduction (up to $300 deduction for qualified expenses for primary an and secondary education professionals) (made permanent by PATH 2015)
48
Above the line deduction - trade or business expense
In order for trade or business expense to be deductible, they must be:
Ordinary - normal, usual, or customary for others in similar business.
Necessary - prudent business person would incur the same expense
Reasonable - question of the fact
49
Above the line deduction - Alimony
- only alimony for divorces finalized prior to 12/31/2018 is deductible by the payor and income to the payee.
- alimony payments cannot extend beyond death of payee and must be paid in cash.
- cannot occur between spouses filing jointly or in the same household.
- no deduction for child support payments and not included in income of the recipient.
50
What above the line deductions are available for self employed individuals?
1. Half of self employment tax payed
2. 100% of health insurance premiums payed
3. Education expenses if:
To maintain or improve existing skills, or
Meet requirements if the employer profession, licensing, or state law
4. Business gifts - limited to 25$ each cannot be made to employer/superior
5. Entertainment expenses - meals are 100% deductible until 2023, after that 50% deductible
6. Home office expenses
51
What are Below the line or itemized deductions?
Below the line deductions are taken from AGI to arrive at taxable income.
Taxpayer can either take the standard deduction or itemize
52
What are some itemized deductions?
- unreimbursed medical expenses (exceeding 7.5% AGI Floor)
- state and local taxes ($10,000 Max)
- contributions to qualified charitable organizations
- casualty & theft losses
- investment interest expense
- qualified personal residence interest
53
Itemized deduction - Medical expenses
-may deduct unreimbursed medical expenses for themselves and dependents in excess of 7.5% of AGI floor.
Eligible expenses include:
Prescriptions
No cosmetic surgeries
Some qualified long term care services
Insurance premiums
Tuition for special schools (deaf or blind)
Capital expenditures ( physician recommended - handicap rail, stairway, etc…)
54
Itemized Deduction - state and local taxes
Taxpayer may deduct property taxes on US property
May deduct state income tax paid, or state and local sales tax.
-deduction capped at $10,000
55
Itemized Deduction - charitable contributions
Non itemized tax filers : cash contributions can be deducted up to $300 ($600 MFJ)
Itemized tax filers: deduction depends on type of property and type of charity. (See chart)
-any charitable contributions disallowed due to AGI limitations is carried over for up to 5 years and used in FIFO order.
56
What is Deduction clustering?
-taxpayers cluster itemized deductions together in one year and take the standard deduction the following year.
Eligible itemized deductions:
- early payment of state income or property taxes
- early payment of mortgage interest
- medical expenses
- charitable donations
57
Itemized Deduction - Casualty losses
- Casualties are deductible in the year in which the loss is sustained. Personal Casualty losses are only deductible if national disaster declared by the president.
- loss is lesser of decline in value or adjusted basis, less $100 Per Incident, subject to 10% AGI Floor.
- if it is a complete loss, use adjusted basis.
58
Itemized deduction - investment interest expense
-investment interest expense (exmp: margin interest) is only deductible up to investment interest income (ordinary Income)
Special election can be made to treat long term gains as ordinary income to allow for more deduction.
Excess investment interest can be carried forward indefinitely.
59
Itemized deduction - qualified personal residence interest
- limited to $750,000 of mortgage indebtedness
| - limited to two houses (primary and secondary)
60
Qualified Business Income Deduction (QBI)
- deduction of for pass through entities from 2018-2015. ( sole proprietorships, partnerships, LLCs, S corps, REITS, Master Limited Partnerhips (MLPS)
- can take deduction regardless if you are itemizing or taking the standard deduction.
- generally 20% of the taxpayers Qualified Business Income.
Qualified Business Income does not include investment income, reasonable compensation paid to an S Corp Owner, or guaranteed payments to a partner or LLC member for services.
61
When are Estimated Tax Payments required to be paid?
If both of the following Apply:
A. Taxpayer expects to owe at least $1,000 in tax for 2022 after subtracting withholding and credits.
B. The taxpayer expects his withholding and credits to be less than the smaller of:
- 90% of the tax to be shown on our 2022 return, or
- 100% of the tax shown on your prior years tax return. your prior year return must cover all 12 months.
62
Charitable Contributions from IRA's?
- QCD's cannot exceed $100,000 in the year.
| - Contributions count torward the RMD.
63
What are the tax credits that can be taken from taxable income?
- Earned Income Credit
- Adoption Expense Credit
- Child Tax Credit
- Family Credit (qualifying dependent credit)
- Child and Dependent Care Credit
- American Opportunity Tax Credit
- LifeTime Learning Credit
64
What is the Earned Income Credit?
- Must Have earned income and a qualifying child.
- Credit Amount determined by IRS Tables, dependent on Income and number of qualifying children.
- Taxpayers aged 25-64 can still earn the credit without having any children.
65
What is the Adoption Expenses Credit?
- Credit for qualified Adoption Expenses, incurred in adoption of eligible child.
- Maximum credit is $14,890, credit is phased out for modified AGI between $223,410 and $263,410. (dont need to memorize)
- Eligible child must be under age of 18, or physically or mentally handicapped.
- non-refundable, but excess can be carried forward for 5 years.
66
What is the Child Tax Credit?
- $2,000 credit for each dependent child under age of 17 and a us citizen.
- includes stepchildren and foster children.
- Credit is phased out for Modified AGI above specified levels.
- Up to $1,400 per child may be refundable.
67
What is the Family Credit (Qualifying dependent credit)?
-a $500 credit for those who would qualify as a dependent.
68
What is the Child and Dependent Care Credit?
-Must have employment related care cost for either dependent child under age 13, or
handicapped dependent or spouse.
- Credit amount = Eligible care costs x applicable percentage
- expenditures that qualify are the lesser of actual costs or $3,000 for one qualified individual and $6,000 for two or more qualified individuals. you get 20% of either of those depending on the number of dependents.
- amount of eligible credit cannot exceed taxpayer or spouses earned income.
69
what is the american opportunity tax credit?
-maximum credit per eligible student is $2,500, per year for first 4 years of post secondary education.
100% of first $2,000 in expenses
25% of next $2,000 in expenses
Refundable tax credit up to 40% or $1,000
- Student must take at least 1/2 of full time course load
- income phaseouts provided on on the exam sheet.
70
What is the lifetime learning credit?
- Maximum Credit per taxpayer is 20% of qualifying expenses up to $10,000 = $2,000
- Cannot be claimed in the same year as the American opportunity tax credit.
- Income Phaseout Limits provided on the CFP Exam.
71
What is the kiddie tax?
- Applies to income of a child under age of 19 or age 24 if the child is a full time student.
- Unearned for the child in excess of $2,300 is taxed to their parents rate.
Standard Deduction of $1,150
Next $1,150 is taxed at the childs marginal rate
anything above that is taxed at the parents rate.
```
-Kiddie tax unearned income:
interest
dividends
capital gains
royalties
rents
pension and annuity income
unearned income from trust
```
72
What is the Alternative Minimum Tax (AMT)?
- taxpayer is liable for the greater of his regular tax liability or the AMT
- all deductions still apply except for state and local taxes up to $10,000
Preference items can only be positive and increase AMTI
1. Percentage depletion:
The amount of percentage depletion taken for regular tax in excess of the adjusted basis of the property at the end of the year is a preference item.
2. Intangible drilling cost:
3. Interest on private activity bonds:
This interest is not taxable for regular tax purposes but is included in income for AMT purposes.
73
How is Non Vacation Rental Property Treated for Tax Purposes?
-generally considered a trade or business all ordinary and necessary business expenses are deductible against income.
Rental income included in gross income
Rental expenses deductible FOR AGI.
- Some rental activities are deemed passive losses and are only deductible to the extent of passive income.
- There are two exceptions to this rule:
1. rental activities by dealers are considered active.
2. residential losses up to $25,000 are deductible to tax payers with AGI less than or equal to $100,000. Phase out is between $100,000-150,000
74
What determines if it is a rental vacation home vs nonvacation rental property?
- Fewer than 15 rental days (personal property): No gross income from rentals and no deductible rental expenses. mortgage interest and property taxes are treated as if on personal residence.
- More than 14 rental days (Nonvacation/Vacation Rental): treatment depends on amount of personal use. If personal use days are NOT more than the greater of 14 days or 10 percent of fair rental days, then the taxpayer can deduct all expenses allocated to rental use even if loss results.
Non vacation: taxes deductible FROM AGI, mortgage interest non deductible.
75
For Vacation Rental Properties what gets deducted and how?
Mortgage Interest and Real Estate Taxes - are deductible by the number of days in the year that you are renting the property.
Deduction = (Mortgage + Real Estate Taxes) x (number of days rented/ 365)
Deduction for other costs (Utilities, trash, depreciation, etc..) = Cost x (rental day/Total days rented + Stayed in)
76
What are the Hobby Loss Rules?
- A hobby is an activity not entered into for profit.
- if an activity is entered into for profit, taxpayer can deduct expenses FOR AGI even in excess of income from the activity.
- if an activity shows profit 3 out of 5 years, it is presumed that taxpayer has profit motive.
- if it is a hobby and there is no profit motive, hobby income is taxed and hobby losses are not deductible.
77
What are the three types of income?
1. Active
2. Passive
3. portfolio.
78
What are the at-risk-rules?
- These rules apply before the passive activity rules.
| - losses can only be deducted to the extent of property/money that is at risk.
79
What are the passive activity rules?
- Passive losses can only offset passive gains.
- What is a passive activity?
No material Participation
Rental Activities:
Exception for real estate rental activities if the client actively participates. Active participation requires at least 10% ownership and management decisions.
if real estate is activitely managed, the taxpayer can deduct up to $25,000 against ordinary income. phaseout for $1 for every $2 AGI exceeds $100,00.
80
What is considered active participation for the Passive Activity rules?
-Material Participation - taxpayer must meet one of the following
participates greater than 500 hours per year, or taxpayer participation constitutes all participation.
greater than 100 hours and the most of any participant.
tax payer participates for 100 hours in this activity and their total participation such activities exceeds 500 hours.
-Active income includes, wages salaries, schedule C income, and trade or business income.
81
What to do if your losses are suspended for at-risk-rules or passive activity loss rules?
At-Risk-Rules - Losses are suspended until the at-risk amount is positive from additions or income.
Passive losses are suspended until passive income comes in to recognize the loss.
82
How are publicly traded partnerships (PTP's) treated?
- you can only offset deductions from passive activities of a PTP against income or gain from passive activities of the same PTP.
- nonpublicly traded partnership deductions cannot be offset against the gain of PTP.
83
Are personal exemptions allowed?
No, personal exemptions are no longer allowed due to the tax cuts and jobs act.
84
Miscellanous below the line deductions not subject to AGI floor
Income in respect to descedent
Gambling losses to the extent of gambling winnings
impairement related work expenses for handicapped
annuity losses for decenedent annuitant
85
What are some adjustments for AMT?
- Acclerated depreciation for real and personal property, that is allowable for regular tax purposes.
- the standard deduction if itemized deductions are not used.
- Taxes (state, Local, property)
- Incentive Stock Option bargain element.
positive adjustment for exercise
negative adjustment for sale.
86
What are some preference items for AMT?
- Percentage Depletion Costs
- intangible drilling costs
- private activity bonds - most likely to be tested.
