INDIVIDUAL - TOTAL INCOME Flashcards

Question

Define Passive Activity Loss.

Answer 1

Passive Activity Loss is the loss that comes from the conduct of a passive business. One that the taxpayer does not materially participate in. Any passive activity losses can be carried forward indefinitely, or until the property is sold. When it is sold, the passive losses are recognized. Rental Activity Exception: If the taxpayer actively participates in the rental activity, $25,000 of rental losses are deductible from regular income. Real Estate Professional Exception: Real estate professionals are able to offset NO passive income with their rental real estate losses.

Answer 2

Health Savings Accounts (HSA) Archer Medical Savings Accounts (Archer MSA) Coverdell Education Savings Programs Qualified Tuition Program (529s)

Answer 3

If the employee did not report tips to the employer as required, the employee may be charged a penalty equal to 50% of the Social Security and Medicare tax due on those tips. IRS Form 4137.

Answer 4

False. Tips that are reported, as required by the 10th day of the month following the month they were received, are considered income in the month they were reported. Therefore, tips received in December and reported before the 10th of January, are considered income for January.

Answer 5

False. Child support is excluded from gross income.

Answer 6

Use Form 4137 only to figure the social security and Medicare tax owed on tips you did not report to your employer, including any allocated tips shown on your Form(s) W-2 that you must report as income. However, Form 4137 should not be used to report tips received for work covered by the Railroad Retirement Tax Act. In order to get railroad retirement credit, the taxpayer must report these tips to his or her employer.

Answer 7

An employer must assign Allocated Tips only if: 1. an employee worked in an establishment (restaurant, cocktail lounge, or similar business) that must allocate tips to employees 2. the tips reported to your employer were less than your share of 8% of food and drink sales 3. an employee did not participate in the employer's Attributed Tip Income Program (ATIP).

Answer 8

2. Tips that your employer assigned to you in addition to the tips you reported to your employer for the year. Explanation: Allocated tips are tips that your employer assigned to you in addition to the tips you reported to your employer for the year. Your employer will have done this only if: 1. You worked in an establishment (restaurant, cocktail lounge, or similar business) that must allocate tips to employees 2. The tips you reported to your employer were less than your share of 8% of food and drink sales 3. You did not participate in your employer's Attributed Tip Income Program (ATIP).

Answer 9

1. Received Explanation: Tips the employee did not report to his or her employer on time or did not report at all are considered income in the month actually received. For example, tips received in December 20X1 that are not reported to the employer by January 10, 20X2, are considered income in 20X1 because they were not reported to the employer on time. IRS Form 4137.

Answer 10

2. Marge's tips are subject to social security and Medicare tax. Explanation: Tip income is subject to social security and Medicare tax. The taxpayer must give his employer a written report of cash and charge tips if he receives $20 or more in tips during a month. A taxpayer uses Form 4137 to figure the social security and Medicare tax owed on tips he did not report to his employer, including any allocated tips shown on Form(s) W-2 that he must report as income.

Answer 11

3. She does not have to report the $15 in tips to the first employer, but does have to report the $50 in tips to the second employer. Explanation: If, in any month, you worked for two or more employers and received tips while working for each, the $20 rule applies separately to the tips you received while working for each employer and not to the total you received.

Answer 12

2. The tips he reported are considered income for January and will go on next year's tax return and Form 4137. Explanation: Tips that are reported, as required by the 10th day of the month following the month they were received, are considered income in the month they were reported. Therefore, tips received in December and reported before the 10th of January, are considered income for January. A taxpayer must file Form 4137 if they received cash and charge tips of $20 or more in a calendar month and didn’t report all of those tips to their employer. Taxpayer also must file Form 4137 if their Form(s) W-2, box 8, shows allocated tips that they must report as income.

Answer 13

4. Form 8919 Explanation: If you are an employee and you received Form 1099-MISC, Miscellaneous Income, instead of Form W-2, Wage and Tax Statement, because your employer did not consider you an employee, use Form 8919 to report Uncollected Social Security and Medicare Tax on Wages. TIPS NOTE: You must file Form 4137 if you received cash and charge tips of $20 or more in a calendar month and did not report all of those tips to your employer. You must also file Form 4137 if box 8 of your Form(s) W-2 shows allocated tips that you must report as income.

Answer 14

2. She does not have to report the tip to her employer if her tips total less than $20 for the month. Explanation: All tips received are income and are subject to federal income tax. Employees must give their employers a written report of cash and charge tips if they received $20 or more in tips during the month. Employees should use Form 4137 to figure social security and Medicare taxes on tips not reported to the employer.

Answer 15

1. $81,500 Explanation: Under the cash method, a taxpayer receiving advance commissions or other amounts for future services must include these amounts as income in the year received.

Answer 16

4. $2000 Explanation: A taxpayer must include in income amounts received as severance pay. If the taxpayer chooses to accept a reduced amount of severance pay so she can receive outplacement services (such as training in resume writing and interview techniques), she must include the unreduced amount of the severance pay in income. Noelle must include the full $2,000 severance pay in her income.

Answer 17

1. He needs to file Form 4137 for the allocated tips. Explanation: You must file Form 4137 if box 8 of your Form(s) W-2 shows allocated tips that you must report as income. You must also file Form 4137 if you received cash and charge tips of $20 or more in a calendar month and did not report all of those tips to your employer.

Answer 18

Form 8919 is used to report Uncollected Social Security and Medicare Tax on Wages that are reported on a 1099-MISC.

Answer 19

True. Taxpayers who are not employees must include payments for services on Schedule C (Form 1040) and complete Schedule 1. This applies to babysitting, even if only periodically or just for relatives.

Answer 20

Any passive activity losses can be carried forward indefinitely, or until the property is sold. When it is sold, the passive losses are recognized. NOTE: Real Estate Professional Exception: Real estate professionals are NOT able to offset passive income with their rental real estate losses.

Answer 21

Salaries, Wages, tips, professional fees, taxable scholarships, and fellowship grants.

Answer 22

- Unemployment compensation - Taxable Social Security benefits - Taxable Pensions - Annuity Income - Cancelled Debt - Unearned Income from a Trust - Taxable Interest - Dividends, and - Capital gains.

Answer 23

``` Single = $12,200 Single >65 = $13,850 MFJ both = $24,400 MFJ one > 65 = $25,700 MFJ both >65 = $27,000 MFS = $5 HOH = $18350 HOH >65 = $20,000 QW = $24,400 QW >65 = $25,700 ```

Answer 24

To get a refund of any Federal Income Tax withheld. ``` Or, if you're eligible for any of the following: EIC (Earned Income Credit) ACTC (Additional Child Tax Credit) AOTC (American Opportunity Tax Credit) PTC (Premium Tax Credit) HCTC (Health Coverage Tax Credit) Credit for Federal Taxes Paid on Fuels ```

Answer 25

1. W-2 EXPLANATION: Form W-2 will include the tips reported by the employee to his or her employer, as well as the taxes withheld. If there was not enough money to cover the Social Security and Medicare tax (or railroad retirement tax), the Form W-2 will also show the tax due in box 12 with codes A and B. IRS Form 4137.

Answer 26

1. $20 per month EXPLANATION: If the taxpayer received cash and charge tips of $20 or more in a calendar month, he or she must report the amount received to the employer. IRS Form 4137.

Answer 27

4. All of the above EXPLANATION The taxpayer must report any tip exceeding $20 per month to his or her employer. This includes all tips, including cash tips received from customers, charged tips distributed by the employer, and tips received from other employees under any tip-sharing arrangement. IRS Form 4137.

Answer 28

2. Child support from her son's father EXPLANATION Child support is excluded from gross income. Wages, even if a tipped employee, babysitting earnings and severance pay are all included in gross income.

Answer 29

3. Form 4137 EXPLANATION A taxpayer uses Form 4137 to figure the social security and Medicare tax owed on tips he did not report to his employer, including any allocated tips shown on Form(s) W-2 that he must report as income.

Answer 30

2. $60,000. EXPLANATION For income tax purposes, Rev. Wilson excludes $31,000 from gross income ($24,000 fair rental value of the parsonage plus $7,000 for utility costs). The portion of salary not designated for utility costs is $59,500. Out of the $7,500 for utility costs he only spends $7,000, and must include the $500 difference in income. For income tax purposes, he reports $60,000 ($59,500 salary plus $500 of unused utility allowance). His income for SE tax purposes is $91,000 ($67,000 + $24,000 fair rental value of the parsonage.)

Answer 31

3. Randy has to pay both income tax and self-employment tax on his salary, but only self-employment tax for the housing allowance. The housing allowance is not subject to income tax. EXPLANATION Members of the clergy must include in income any salary and fees received for masses, marriages, baptisms, funerals, etc. Payments to the religious institution are not taxable. The rental value of a home (including utilities) or any designated housing allowance provided is not income. However, the exclusion cannot be more than the reasonable pay for services rendered. Exclude an allowance designated for utility cost only up to the actual utility cost. The home or allowance must be compensation for services rendered as an ordained, licensed, or commissioned minister. However, the rental value of the home or the housing allowance must be included as earnings from self-employment (on Schedule SE) if self-employment tax is applicable.

Answer 32

3. Sarah has to pay self-employment taxes on her earnings. EXPLANATION Employees of international organizations or foreign governments within the United States are exempt from Social Security and Medicare employee taxes. However, such an employee must pay self-employment taxes on earnings from services performed in the United States, even though the employee is not self-employed.

Answer 33

4. $31,050 EXPLANATION This question asks on what amount Reverend Markham must pay self-employment taxes. The amount Reverend Markham must pay self-employment taxes on is $31,050 ($15,000 salary + $12,000 rental value of home + $4,050 meals provided) In most cases, you must pay SE tax on salaries and other income for services you performed as a minister. You must include the rental value of a home or an allowance for a home furnished to you and the value of meals and lodging provided to you, your spouse, and your dependents. The rental value of the home or the housing allowance must be included as earnings from self-employment (on Schedule SE) if self-employment tax is applicable. The rental value of a home (including utilities) or any designated housing allowance is excludable from income (for income tax purposes) provided it is not more than reasonable pay for services rendered. Any allowance designated for the cost of utilities is excludable, up to the actual utility cost. The home or allowance must represent compensation for services rendered as an ordained, licensed, or commissioned minister.

Answer 34

2. Emilio has to pay self-employment taxes on his earnings. EXPLANATION While FICA and SECA both pertain to social security and medicare payments, FICA is administered on employer/employee relationships and SECA applies to self-employed taxpayers. Employees of an international organization or a foreign government in the United States are exempt from Social Security and Medicare employee taxes. For U.S. citizens the income paid for services rendered to an international organization is reportable as self-employment income on their U.S. federal income tax returns, and is subject to self-employment tax to the extent such services are performed within the United States.

Answer 35

3. Form 1099-INT; Schedule K-1 for partnerships and S corporations EXPLANATION A taxpayer must report taxable interest from Form 1099-INT and/or Schedule K-1 for partnerships and S corporations.

Answer 36

3. She reports it with the rest of her taxable interest income on Form 1040. EXPLANATION If a taxpayer is due a refund, the IRS may pay interest on it. The interest rates are adjusted quarterly. If the refund is made within 45 days after the due date of the return, no interest will be paid. If the refund is not made within the 45-day period, interest will be paid from the due date of the return or from the date you filed, whichever is later. Interest received on tax refunds is taxable income. The interest is reported with other taxable interest on Form 1040.

Answer 37

2. $2,000 EXPLANATION OID is defined as the difference between the stated redemption price at maturity and the issue price. $10,000 – $8,000 = $2,000

Answer 38

2. $1,500 EXPLANATION Because Matthew is participating in a dividend reinvestment plan, he must report as dividend income, the fair market value of the stocks as of the day the dividend (along with any related fees paid for purchasing the stocks if paid out of the dividend declared by the company) was received. All $1,500 of the purchase price and service charges were paid out under the dividend reinvestment plan and all $1,500 is reportable as dividend income.

Answer 39

4. All of the above EXPLANATION Distributions by a corporation of its own stock or stock rights (also known as stock options) are generally not taxable, and a holder of such options need not report them on a return. Distributions of stock dividends and stock rights are taxable if any of the following apply: Shareholders have the choice to receive cash or other property instead of stock or stock rights. The distribution gives cash or other property to some shareholders and an increase in the percentage interest in the corporation's assets or earnings and profits to other shareholders. The distribution is in convertible preferred stock, resulting in a change of ownership. The distribution is preferred stock for some common shareholders and common stock to others. The distribution is on preferred stock.

Answer 40

3. $1,000 taxable income to each employee EXPLANATION Distributions of stock dividends and stock rights are taxable if employees have the choice to receive cash or other property instead of stock or stock rights. Since the employees were offered a choice of cash or the stock dividend, $1,000 is taxable income to each employee.

Answer 41

1. Reinvested dividends are not taxable if not removed from the plan EXPLANATION Dividends are taxable as income when received. The fact that they are re-invested does not matter. The question contains the word EXCEPT, which is intended to trick you. All are correct EXCEPT implies that the answer is the only one that is FALSE. Don't fall for this trick.

Answer 42

2. Modified endowment contracts EXPLANATION A qualified retirement plan includes: A qualified pension, profit-sharing, or stock bonus plan (including 401(k) plan) Tax-sheltered annuity contract Qualified annuity plan NOTE: A modified endowment contract is a life insurance contract.

Answer 43

Modified Endowment Contracts are life insurance contracts. They are NOT a Qualified Retirement Plan

Answer 44

3. Attach only the 1099-R from her IRA because income tax was withheld. EXPLANATION The recipient of an informational return does not send copies to the IRS unless required. A taxpayer must attach (or transmit if filing electronically) Form W-2 to the front of a Form 1040 series tax return. A taxpayer should also attach (or transmit if filing electronically) Forms W-2G and 1099-R, but only if federal income tax was withheld.

Answer 45

4. $0 EXPLANATION Their total income from sources other than Social Security is $18,000 (taxable pension $12,000 Dean + $6,000 Cathy). Total Social Security income is $15,000 (each received $7,500 Social Security benefits), one-half of which is $7,500. Combine one-half of Social Security benefits and total income from other sources to arrive at provisional income. Social Security benefits are not taxed when provisional income is below $32,000 on a joint tax return. This is the case for Dean and Cathy ($18,000 + $7,500 = $25,500 provisional income), therefore $0 of the Social Security benefits received by Dean and Cathy are taxable.

Answer 46

Provisional income is a measure used by the IRS to determine whether or not recipients of Social Security are required to pay taxes on their benefits. Provisional income is calculated by adding up a recipient's gross income, tax-free interest, and 50% of Social Security benefits. If Provisional Income is $25,000 or less for a single filer, or $32,000 or less for joint filers, no tax is owed on Social Security benefits.

Answer 47

4. $12,000 EXPLANATION Social Security benefits are not taxed if provisional income is less than the lower base amount. For single taxpayers, this threshold is $25,000. Provisional income is one-half of Social Security benefits, plus all other income, including tax-exempt interest. Hector's provisional income is less than $25,000, so none of his social security benefits are included in income. His AGI of $12,000 does not include the tax-exempt interest. $5,000 wages + $4,000 taxable interest and dividends (does not include the portion $1,500 that is tax-exempt) + $3,000 unemployment benefits = $12,000.

Answer 48

2. the exclusion for foreign earned income. EXPLANATION A taxpayer cannot exclude foreign income from the calculation for Social Security benefits. Thus, the taxpayer does not take into account the "exclusion for foreign earned income". A taxpayer must include in income a portion of social security benefits received when provisional income exceeds a specified base amount. Determine provisional income as follows: One-half of Social Security benefits, plus All other income, including tax-exempt interest. A taxpayer cannot exclude income received from interest from qualified U.S. Savings bonds, employer-provided adoption benefits, foreign earned income or foreign housing or earned as a resident of American Samoa or Puerto Rico. §86(b)(2); Publication 17

Answer 49

3. $71,400 EXPLANATION At low-income levels, social security benefits payments are tax-free. However, when the taxpayer has a reasonably high-income level (such as Johnson has in this case), social security is 85 percent taxable. Thus, Johnson has to pay tax on 85 percent of $4,000 or $3,400. There is a relatively small transitional level of income where 50 percent of social security is taxable. His adjusted gross income is $71,400 ($68,000 earned income + $3,400 taxable social security).

Answer 50

2. Marilyn, who is given money by a real estate developer to influence her vote as a city council member for a new municipal football stadium. EXPLANATION The bribe paid to Marilyn is income. In fact, all income from illegal activities must be reported on a taxpayer's Form 1040, either on Schedule 1 as Other Income or on Schedule C. -The money Dean receives from carpool passengers is a reimbursement. -The subsidy paid to Joey by a public utility for energy conservation is excluded from income. - Bequests, such as the one Peter receives, are also excluded from income—even if the bequest is cash.

Answer 51

1. Increases taxable income by $2,000 EXPLANATION The winnings from gambling activities are reported as taxable income. Losses are shown separately as miscellaneous itemized deductions. However, Mr. Lucky is taking the standard deduction rather than itemizing his deductions. Therefore, the losses have no impact. Only the winnings appear on the tax return for this year.

Answer 52

Federal Income Tax (FIT) - tax assessed on adjusted gross taxable income. - Salary/ Wages/ Fees for services Self-Employment tax (SE) -Social Security and Medicare tax on earnings of self-employed. - Salary/ Wages/ Fees for services - Housing Allowance/ parsonage - Utilities Allowance

Answer 53

A series of payments under a contract made at regular intervals over a period of more that 1 year.

Answer 54

$120,000 / 240 = $500 is tax free, out of the $600 payment.

Answer 55

0% - on any amount that otherwise would be taxed below the 15% rate, 15% - on any amount that otherwise would be taxed at rates between 15% ad 37%, 20% - on any amount that otherwise would be taxed at a 37% rate.

Answer 56

The dividends must be paid by a U.S. corportation or a qualified foreign corp, and the taxpayer must hold the stock for more than the 60 days during the 121-day period that begins 60 days before the ex-dividend date.

Answer 57

The first date following the declaration of a dividend on which the buyer of a stock will not receive the next dividend payment. Instead, the seller will get the dividend.

Answer 58

Yes. Even in this case the dividends must be reported as income.

Answer 59

A "Non-Dividend Distribution" is a distribution that in NOT a payment from the earnings and profits of a corporation. This is not a dividend, rather it is a return of an investment in the stock of a company, and it reduces the basis of the stock. It is NOT taxable until the taxpayer fully recovers their basis. When the stock basis reaches zero, report any additional non-dividend distribution as a capital gain.

Answer 60

A distribution by a corporation of its own stock or stock rights. Stock Options are generally not taxable and not necessary to report. Taxable Exceptions: 1. Shareholders have the choice to receive cash or other property instead of stock. 2. If some shareholders get cash and others get stock. 3. The distribution is in convertible preferred stock, resulting in a change of ownership. 4. The distribution is preferred stock for some and common stock for others. 5. The distribution is preferred stock.

Answer 61

Form 1099-INT or 1099-OID.

Answer 62

Individuals can deduct capital losses to the extent of capital gains + $3,000 per year against ordinary income. Any losses that are not deductible because they exceed the limit in the current year can be carried forward indefinitely.

Answer 63

Yes, Royalties are taxable when received.

Answer 64

Gambling winnings are fully taxable. Gambling losses are deductible only to the extent of winnings as an itemized deduction.

Answer 65

A TP with over $1,500 of taxable interest or ordinary dividends must attach Schedule B to Form 1040

Answer 66

A certificate of deposit (CD) is a time deposit, a financial product commonly sold by banks, thrift institutions, and credit unions. CDs differ from savings accounts in that the CD has a specific, fixed term (often one, three, or six months, or one to five years) and usually, a fixed interest rate.

Answer 67

Series EE Bonds are often referred to as PATRIOT BONDS. - Series EE Bonds are interest-bearing U.S. government savings bonds guaranteed to at least double in value over their typical 20-year initial terms. - Some Series EE bonds pay interest beyond the original maturity date, up to 30 years from issuance. - There is a $25 minimum investment requirement for EE bonds. - Every investor may purchase up to $10,000 in these bonds each calendar year. - Interest is credited at maturity. TPs who use the cash-method of accounting may elect to defer reporting interest until maturity; those using the accrual method must report interest on US Savings Bonds each year as it accrues. Interest may be tax free if used for qualified education expenses.

Answer 68

Series I Bonds are: - non-marketable, interest-bearing U.S. government savings bonds - Series I bonds give investors a return plus protection on their purchasing power and are considered a low-risk investment. - The bonds cannot be bought or sold in the secondary markets. - Series I bonds earns are a fixed interest rate for the life of the bond for an inflation rate that is adjusted each May and November. ** In effect, the interest on Series I bonds is variable and changes over time, making it difficult to forecast the value of the bonds years from today. Series I bonds are considered low risk since they are backed by the full faith and credit of the U.S. government and their redemption value cannot decline. But with this safety comes a low return, comparable to that of a high-interest savings account or certificate of deposit (CD). Corporate and municipal bonds, however, can lose value; with this risk comes a higher return.

Answer 69

Interest from Series I or EE bonds may be tax-free is used to pay for qualified education expenses the same year. it is NOT available when MFS. A TP uses Form 8815 to figure the exclusion and attaches the form to Form 1040.

Answer 70

If you receive interest that belongs to another person shown on a Form 1099-INT, report the full amount shown as interest on Schedule B. Below a subtotal of all interest income listed, enter "Nominee Distribution" and the amount of interest income that belongs to the other person. Anyone who receives interest as a nominee must file Form 1099-INT along with Form 1096 (Annual Summary and Transmittal of U.S. Informations Return" by Feb 28.2020 (March 31 if filing electronically). When Dividends are received as a nominee, the same process applies, but on Form 1099-DIV.

Answer 71

OID is a form of interest. TPs include a portion of the discount as income as it accrues over the term of the debt instrument. OID is the difference between the stated redemption price at maturity and the issue price. The IRS presumes that all debt instruments that do not pay interest before maturity are issued at a discount. Zero-coupon bonds are one example of these instruments.

Answer 72

A TP can treat the OID as zero if it is less than one-fourth of 1% (.0025) of the stated redemption price at maturity multiplied by the number of full years from the date of original issue to maturity. This small discount is known as "de minimis" OID.

Answer 73

- Tax-Exempt Obligations - U.S. Savings Bonds - Short Term Debt Instruments - Obligations inssued by an individual before Marcdh 2, 1984 - Loans between individuals if ALL the following are true: 1. The lender is not in the business of lending money 2. All outstanding loans between the same individuals total $10,000 or less. 3. Avoiding any Federal Tax is not one of the principal purposes of the loan.

Answer 74

A Dividend is a distribution of property paid by the corporation to its stockholders. It is the most common type of corporate distribution. Dividends are paid out of the earnings and profits of a corp.

Answer 75

On a Schedule K-1.

Answer 76

Ordinary Dividends Qualified Dividends

Answer 77

The calculation should include the day the stock was disposed of, but NOT the day acquired.

Answer 78

Funds from Money market Funds are reported as Dividend Income. Money Market Funds are a type of MUTUAL FUND, and are not to be confused with Bank Money Market Accounts that pay interest.

Answer 79

A qualified distribution is any payment or distribution from a taxpayer’s Roth IRA that meets the following requirements. 1. It is made after the 5-year period beginning with the first taxable year for which a contribution was made to a Roth IRA set up for his benefit, and 2. The payment or distribution is: a. Made on or after the date the taxpayer reaches age 59 1/2, b. Made because the taxpayer is disabled, c. Made to a beneficiary or to the taxpayer’s estate after his death, or d. One that meets the requirements for a First home If it is a qualified distribution, the earnings and contributions are tax free when withdrawn. The text notes that earnings inside of the Roth IRA are tax deferred, and qualified distributions are tax free when removed. Distributions from a Roth IRA are qualified only if made after the 5 year anniversary of establishing and funding the account.

Answer 80

FALSE. Dividends on a life insurance policy are not taxable; they are treated as a reduction in the expense of the policy. Note: However, Cash Dividends from corporations and mutual funds are taxable even if they are reinvested. Dividends in a company's own stock are usually tax-free unless the owner also had the option of taking cash instead.

Answer 81

No. EXPLANATION The 10% tax will not apply if distributions before age 59.5 are made as part of a series of substantially equal periodic payments (SOSEPP under IRS Rule 72t) beginning after separation from service and made at least annually for the life or life expectancy of the employee or the joint lives or life expectancies of the employee and his designated beneficiary. (Payments, except in the case of death or disability, must continue for at least five years or until the employee reaches age 59.5, whichever is longer.)

Answer 82

Filed to report nondeductible contributions to a Traditional IRA. NOTE: You can not deduct a contribution to a Traditional IRA if your income exceeds the limit when covered by a retirement plan at work.

Answer 83

When the exchange takes place during the "accumulation phase" under Section 1035.

Answer 84

The surviving spouse may elect to treat an inherited IRA or qualified retirement plan as their own by rolling the account into their name. All other beneficiaries generally must withdraw the entire balance of the retirement account within 10 YEARS or over a specified period, depending on several factors, including the age of the decedent, age of the beneficiary, and the type of beneficiary (i.e., individual, trust, or estate). TIP: A portion of funds within retirement plans or annuities has never been taxed or has accumulated free of tax. This amount, if withdrawn by the original account owner, would be subject to income tax. If the account owner dies this amount becomes "Income In Respect Of A decedent" (IRD) and is taxable to the beneficiary of the account upon withdrawal.

Answer 85

True. EXPLANATION A taxpayer cannot exclude foreign income from the calculation for Social Security benefits. Thus, the taxpayer does not take into account the "exclusion for foreign earned income". A taxpayer must include in income a portion of social security benefits received when provisional income exceeds a specified base amount. Determine provisional income as follows: 1. One-half of Social Security benefits, plus 2. All other income, including tax-exempt interest. A taxpayer cannot exclude income received from interest from qualified U.S. Savings bonds, employer-provided adoption benefits, foreign earned income or foreign housing or earned as a resident of American Samoa or Puerto Rico.

Answer 86

True. The $25,000 MFS threshold does NOT apply if they live together at any time during the year. In that case, 85% of benefits are taxed. NOTE: If living apart for the entire year, the base amount for each spouse is the same as that of a taxpayer with a status of single.

Answer 87

True. EXPLANATION A taxpayer must report gambling winnings as income. A taxpayer may take gambling losses as an itemized deduction on Schedule A but only to the extent of gambling winnings.

Answer 88

Yes. In fact, all income from illegal activities must be reported on a taxpayer's Form 1040, either on Schedule 1 as Other Income or on Schedule C.

Answer 89

Usually not One reason that the recipient of a bequest is usually not taxed on the bequest is because the donor may be taxed on it. Donors of bequests may be taxed through other mechanisms such as federal wealth transfer taxes. Wealth Transfer taxes, however, are usually imposed against only the very wealthy.

Answer 90

Passive losses from rental real estate activities which are not allowed in the current year are carried forward indefinitely until used up.

Answer 91

Painting is typically a repair, but if the taxpayer makes repairs as part of an extensive remodeling or restoration of the property, the whole job is considered an improvement.

Answer 92

Schedule E However, if the TP provides substantial services in conjunction with the property, or the rental is part of a trade or business, then the Income and Expenses would be reported on a Schedule C. NOTE: The big difference when reporting Real Estate Rental on Sch C is that losses are NOT subject to the passive activity limits, AND income is subject to SE tax.

Answer 93

The IRS treats rental real estate property as a 2nd home if it is used for personal purposes for more than the greater of 14 days or 10% of the total days rented to others.

Answer 94

The normal rule is that if a taxpayer receives prepaid rent, it is immediately taxable unless it is likely that it will have to be returned. She received $12,000 in Year One and that amount is taxable at that time. Advance rent is any amount received before the period that it covers. For tax purposes, include advance rent as rental income during the year the taxpayer receives the income, regardless of the period covered or the method of accounting used.

Answer 95

True. The cost of improvements is recovered through depreciation. Repainting a property is considered a repair (unless done as part of an extensive remodeling or restoration of the property). The other items are improvements to the property. Improvements add to the value of the property, prolong its useful life, or adapt it to new use.

Answer 96

Allows a deduction for all the ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business. NOTE: Section 262, however, provides that NO deduction is allowed for personal, living, or family expenses. Problem: Section 262 does NOT provide a definition of a trade or business!!

Answer 97

1. Basis Rules 2. At-Risk Limitations 3. Passive Activity Limitations 4. Excess Business Loss Limitations

Answer 98

A TP may not claim a loss greater than the adjusted basis of his S Corp or Partnership interest. The disallowed losses and deductions due to the Basis limit may carry forward indefinitely, and can be deducted subject to the basis limit for that year.

Answer 99

Any loss from an activity subject to the At-Risk Rules is allowed ONLY to the extent of the total amount at risk in the activity at the end of the tax year. A TP is at-risk in any activity for: 1. The money and adjusted basis of property he contributes to the activity 2. Amounts borrowed for use in the activity if - He is personally liable for repayment - He pledges property as security for the loan.

Answer 100

A TP with a loss from a passive activity can offset the loss with income from other passive activities. Generally a TP is unable to deduct a loss from a passive activity. Carry forward any excess passive activity loss (PAL) or credit to the next tax year and use to offset only passive income. ``` Passive Activity Rules apply to: - Individuals - Estates - Trusts (other than grantor trusts) Personal Service Corporations - Closely Held Corporations ``` TIP: Even though the rules don't apply to Grantor Trusts, Partnerships, and S Corps directly, they do apply to the owners of these entities. For a Closely Held Corporation, the passive activity loss is the excess of passive activity deductions over the sum of passive activity gross income and net active income.

Answer 101

The TCJA limits the amount of losses from the trades or business of noncorporate TPs that the TPs can claim each year. TPs can't deduct overall net business losses that are more than a threshold amount in the current year. For 2019, the MAXIMUM net business loss an individual TP may deduct is $255,000 ($510,000 MFJ). The amount of Excess Business loss is treated as a Net Operating Loss Carryforward in the subsequent year.

Answer 102

Yes. A TP treats any excess business loss as part of the TP's Net Operating Loss (NOL) Carryforward in subsequent years. The IRS now limits the amount of NOL a TP may claim the following year to 80% of taxable income determined without regard to the NOL deductions. Prior to this new law, a TP could reduce taxable income to zero in subsequent years.

Answer 103

Net Operating Loss A TP with annual business deductions that exceed business income may have a Net operating Loss. Some typical losses that may produce a NOL are: - A trade or business - A casualty or theft - Moving Expenses (for Military only) - Rental property

Answer 104

A net operation loss may be carried forward indefinitely and used as a deduction in the future period. TCJA NOTE: The general 2-year net operating loss (NOL) carryback rule does NOT apply to NOLs arising in taxable years beginning after Dec 31, 2017. The TP may carry the loss forward indefinitely. Exceptions apply to certain farming losses (2-year carryback) and NOLs of property and casualty insurance companies.

Answer 105

An excess business loss is the amount by which the total deductions from taxpayer's trades or businesses are more than total gross income or gains from taxpayer's trades or businesses plus the threshold amount.