Individual Taxation: Adjustments/Schedules

Question 1

List out the Adjustments to AGI (There are 8 of them):

Answer 1

1. Student Loan Interest
2. 1/2 SE Taxes Paid; SE health insurance; SE SEP/SIMPLE/qualified plans (KEOGH)
3. Moving Expenses (Only for Military)
4. Educators Expenses
5. Alimony (but only for divorce contracts before 2018 - will probably be tested on law after 2019, which has removed Alimony as an adjustment)
6. 401K Contributions
7. Early Withdrawal Penalty
8. Jury Duty income remitted back to your employer
9. HSA Contributions

Question 2

What qualifies a “business” to file a Schedule C

Answer 2

To be considered a “business” (reported on Schedule C), the taxpayer would have to make money from the venture in 3 out of the last 5 years.

If this is not met, then it is considered a hobby

Question 3

If an individual’s business has made income in 2 out of the last 5 years, where does the taxpayer report the business expenses.

Answer 3

To be considered a business, there has to be income made in 3 out of the last 5 years.

In this scenario, the business does not qualify to file Schedule C since it is considered a hobby. As such, no expenses can be taken.

Question 4

What is the IRS limit for Schedule C gifts expense?

Answer 4

Limited to $25 per recipient

Question 5

What is the IRS limit for Schedule C promotional items expense?

Answer 5

Limited to $4 per promotional item

Question 6

What is the limit for Schedule C Travel and Meals and Entertainment under the new law?

Answer 6

100% Travel (no limit)

50% of Meals

Entertainment expenses is no longer deductible under TCJA

Question 7

What is the IRS limit on interest and rent paid in advance for Schedule C expenses?

Answer 7

Interest and rent paid in advance is not deductible (not even under Cash basis)

Question 8

When is rental income paid in advance (unearned income) recognized on Schedule E for an accrual based taxpayer?

Answer 8

For a cash basis or an accrual basis taxpayer, rents paid in advance (unearned income) is always included in taxable income in the period it was received.

Question 9

A taxpayer owns a rental property and participates in the activity for more than 500 hours (materially participating). What type of income is this considered?

Answer 9

ALL rental activity (regardless of material or not materially participating) is considered passive. It is reported on Schedule E

The only exception is if the taxpayer is a “real estate professional”, in which case the income would be reported on Schedule C

Question 10

A taxpayer owns a rental property and materially participates. What is the loss limitation for this activity?

Answer 10

Losses can be taken against ordinary income up to $25,000

The $25,000 gets reduced by 50% of the excess income over $100,000

Question 11

A taxpayer owns a rental property but does not materially participate. What is the loss limitation for this activity?

Answer 11

If not materially participating, a taxpayer can only take rental passive losses to the extent of passive income.

Question 12

How long is the carry forward period for PALs?

Answer 12

Unused PALs get carried forward forever.

Any remaining PALs get written off in the year of disposal.

Question 13

A taxpayer rented out their home for 14 days in the current tax year. Where does the taxpayer report this income and expenses?

Answer 13

When a personal home is rented for less than 15 days, the revenue from this activity is excluded from the taxpayer’s income. Rental expenses cannot be taken on schedule E.

Expenses, if eligible, can be taken on Schedule A.