Lesson 5 (Ch. 8 & 9) Flashcards
Excessive Executive Compensation
For the CEO, CFO and three highest compensated executive salaries, compensation up to $1M is deductible each year, anything above that is not.
Hobby Activities
For years 2018-2025 (TCJA) expenses for hobby related activities are not deductible; however, income must be reported.
Rental Use Classification
- Non-taxable rental use - rented less than 15 days
- Primarily rental use - rented more than 14 days and personal use is less than the greater of 14 days or 10% of rental days.
- Mixed use - rented more than 14 days and personal use is greater than the greater of 14 days or 10% of rental days.
Tax consequences for primarily rental use classification
Income is recognized
All allocable expenses are deductible, even if it results in a loss
Ability to claim loss may be limited by passive activity rules
Tax consequences for mixed use rental classification
Income is recognized
Allocable expenses are deductible to extent of income
Tier rules from hobby loss expenses apply
2% AGI floor does not apply (as is the case with hobby losses) – the expenses are deducted “above the line”
Unused expenses can be carried forward
Penalty for excess retirement contributions
6%
Penalty for early retirement distributions
10%
Penalty for “Too little/Too late” distributions (RMD’s)
50%
What is considered the sale date for worthless securities
Last day of the calendar year in which the security became worthless
The amount of costs that qualify for the child and dependant care credit is the least of the following…
Earned income
Actual costs
$3,000 for one qualified individual and $6,000 for two or more qualified individuals
What the requirements to be a qualifying individual for the child and dependant care credit
Qualifying child under age 13 or a physically or mentally disabled dependent or spouse.
What are the phaseout limits for the child and dependant care credit?
There isn’t one. Ranges from 20-35% based on AGI
American Opportunity Tax Credit
The maximum credit available per eligible student is $2,500 per year for first 4 years of postsecondary education.
100% of first $2,000 of qualifying expenses, plus
25% of next $2,000 of qualifying expenses
Student must be pursuing an undergraduate degree or recognized credential, and be taking at least 1/2 of a full time course load.
Lifetime Learning Credit
The maximum credit available per house household is $2,000 and is calculated by multiplying 20% by the amount of qualifying expenses (up to $10,000 per year)
Cannot be claimed in same year as AOTC for same student.
Must be taking at least one course to be eligible.
Child Tax Credit phaseouts
The credit is phased out by $50 for each $1,000 of AGI above specified thresholds*
$400,000 for married filing jointly (MFJ) taxpayers
$200,000 for married filing separately (MFS) taxpayers
$200,000 for single taxpayers