Income Tax - Miscellaneous

Question 1

Refundable vs Non-Refundable Tax Credits

Answer 1

Refundable:
- Earned Income Tax Credit
***only fully refundable credit
- Child Tax Credit - up to $1,600 per child
- AOTC -

Non-Refundable:
- Child Care Credit
- Adoption Expenses Credit (excess C/F 5yrs)
- Foreign Tax credit
- Credit for rehab exps
- Disabled Access Credit

Question 2

Earned Income Credit (EIC)

Answer 2

Disregarded losses:
- Net loss from estates and trusts
- Net loss from non-business rents
- Net capital losses

Question 3

Adoption Expense Tax Credit

Answer 3

Limited to the least of:
- $15,950 max credit
- qualifying adoption expenses
- amt of tax due

Question 4

Passive Activity & Income

Answer 4

Passive Income:
- Rental income

Passive Income from a publicly traded limited partnership may not be offset by any other passive losses.

Question 5

Material Participation Rules

Answer 5

1. Participates > 100hrs & no one else spends more
2. Participate > 500hrs
3. Materially participated in any of 5/10 prior years
4. Taxpayer is only one to materially participate
5. The activity is a personal services activity and materially participate 3/6 prior years

Question 6

Summary of Rental Property Exceptions to Passive Loss

Answer 6

1. Customer use less than or equal to 7 days
2. Customer use less than or equal to 30 days and significant personal services provided
3. Extraordinary personal services are provided
4. Rental activities incidental to non-rental activity
5. Rental activity available during business hours for nonexclusive use of customers
6. Rental property used in an activity conducted by partnership, etc. where the taxpayer is the owner and an active participant

Question 7

Rental Activity

Answer 7

Non-taxable if:
- rented out 2 weeks or less (less than15 days)
Mixed-use:
- property rented 15 or more days
- personally used either the greater of 14 days or 10% of rental days

Question 8

Employee Fringe Benefits

Answer 8

• After 2017, no deduction for miles/commuting with
• Meals 50% deductible

Business Travel Expenses:
- Domestic: airfare deductible if primarily business.
- Foreign: airfare fully deductible if less than 7 days or less than 25% personal time spent. Also, must not have control over timing or arrangements of trip.
Meals and lodging pro-rata.

Question 9

Illegal Drug Company

Answer 9

• Can ONLY deduct COGS, but no other expenses
• Other illegal businesses such as gambling operations can deduct COGS and other business exp.

Question 10

FICA Taxes

Answer 10

Federal Insurance Contributions Act (FICA) taxes
- Total FICA: 15.3%
- SSB tax: 12.4%
- Medicare: 2.9%

Question 11

Net Capital Gains & Losses

Answer 11

• Worthless Stocks:
  A fictitious sale on Dec 31st in the year of loss, which allows the stockholder to take the full loss.
• Bad Debt (non-business):
  treated as STCL

Question 12

Kiddie Tax

Answer 12

• Standard Deduction:
  The greater: $1,250 -OR- $400 + Earned income, not exceeding the normal standard deduction ($13,850)
• Unearned Income:
  $2,500:
  first $1,250 excludable (subtracted from std dev)
  second $1,250 taxed to child

If Unearned Income < $1,250 then do not need to calculate separately from Earned Income - include with calculating tax of Earned Income

Question 13

TEY Formula

Answer 13

When calculating the tax-free rate, use the algebraic equivalent of the TEY formula.
- Stupid trick to remember: If I am given the taXable rate, I need to multiple (X) in the formula.

Ex. The equivalent tax-free rate for the taxable bond is [0.05 × (1 - 0.25)] = 3.75%
where 5% is interest rate of taxable bond, 25% marginal tax rate

Question 14

Qualified Dividend Requirements

Answer 14

if the individual meets the requisite holding period, which is more than 60 days in the 121 days surrounding the ex-dividend date.

Question 15

Tax Forms

Answer 15

• Form 1099R: reports amount of rollover
• Form 5498 reflects contributions to the IRA.