R1 Flashcards
Qualifying Widower
Two years after spouse dies & dependent CHILD living in the home for the WHOLE year
Head of Household
If dependent child/relative must live w the taxpayer for more than half the year unless a parent (doesn’t have to live w the taxpayer)
For divorced parents, what is their filing status?
doesn’t matter who pays majority of the support, it’s who the child lives with for the greater part of the year
Married Filing Jointly
This is the default for couples who are not legally separated as of the end of the year. Yes they have the option of MFS but they are not required to elect it.
Qualifying Child (CARES)
Close Relative
Age of <19 or <24 if FT college student
Residency and filing req. (same principal place of abode as taxpayer for > half year)
Eliminate gross income test
Support Test - child must not have provided > half of their own support
Qualifying Relative (SUPORT)
Support Test - more than 1/2 is provided by taxpayer
Under Gross Income of 4400 (taxable income) - nontaxable income is ok
Precludes dependent filing a joint return
Only citizens or resident of US,MX,CA
Relative or
Taxpayer lives with the individual for the whole year
Under a nonaccountable plan
expenses are not reported to the employer
Non-cash services should be reported at FMV or NBV?
FMV
For tax exemption of accumulated interest on bonds:
The purchaser of the bonds must be the sole owner of the bonds (or joint owner with his or her spouse), the taxpayer is over the age of 24 when issued and is used to pay for higher education reduced by tax free scholarships of the taxpayer, spouse or dependents.
If the standard deduction is taken in the PY, state tax refund is or is not included in gross income?
state tax refund is NOT included in gross income if std deduction taken in PY.
Note: If itemized in PY, would need to include in current year Gross Income
Taxable Income Formula
Gross Income
- Adjustments
= AGI
- Standard or Itemized Deduction
= TI before QBI deduction
- QBI deduction
= Taxable Income
Tax Due or Refund
Federal Income Tax (regular or AMT)
- Tax Credits
+ Other Taxes
- Payments
= Tax due or refund
Nontaxable Items
Child Support
Inheritance
Whether on the cash or accrual basis, taxpayers who sell stock on an established securities market must recognize gains and losses on which date
trade date
Nondeductible Traditional IRA distribution
Principal - Nontaxable
Earnings - Taxable
Deductible traditional IRA distribution
Principal - Taxable
Earnings - Taxable
Qualified Roth IRA distribution
Principal - Nontaxble
Earnings - Nontaxable
Non qualified Roth IRA distribution
Principal - Nontaxable
Earnings - Taxable
A qualified distribution meets one of the following req.
Withdrawal made at least 5 years after first day of the year contribution made
Taxpayer is:
age 59.5 or older
disabled
first time homebuyer (max of 10,000)
Distribution is made to a beneficiary after the taxpayer’s death
Early withdrawal from and IRA results in
Regular tax + a 10% penalty
Exceptions to 10% penalty on tax for early withdrawal (HIMDEAD)
Note: still have to pay regular tax for early withdrawal
Homebuyer (first time and max of 10k)
Insurance (medical) - unemployed with 12 consecutive weeks of unemployment comp or self employed
Medical expenses in excess of % of AGI floor
Disability (permanent/indefinite)
Education (college tuition, books, fees)
Adoption or birth of child (5000 max)
Death
Annuity Exclusion Calc (nontaxable portion)
Original Investment/Expected Value or Original Investment/Expected Recovery in Months
How much can be excluded from GI for payments made by an employer on behalf of an employee for the employees educational expenses?
5,250
Is workers compensation taxable?
No if for work related personal injury or sickness
Medical expenses paid and damages received due to personal physical injury are included or excluded from gross income?
excluded
Note: damages received for emotional distress are included in gross income
Gambling losses
Gambling losses to the extent of gambling winnings are an itemized deduction (they do NOT offset against winnings, all winnings are taxable)
Uniform Capitalization Rules with regard to inventory
Capitalize direct materials, direct labor, and factory overhead as part of the cost of inventory (warehousing costs, quality control, taxes excluding income taxes are all all FOH)
Note: research should be expensed
Net self employment earnings calculation
self employment income * 92.35%
Self Employment Tax is
15.3% - 12.4 for social security + 2.9 for medicare
Adjustment for self employment tax paid
self employed taxpayers are allowed to take a deduction of 50% of self employment tax paid
Amount of charitable contribution that is deductible on Schedule A, Itemized Deductions
the amount contributed in excess of the FMV of any goods or services received in exchange for the contribution
Business meals must be
ordinary and necessary to the business and provided to a current/potential client or customer
GR: 50% deductible
Note: temporarily 100% deductible in 2021/2022
How much can a taxpayer deduct for business gifts
$25 per client
Note: if the taxpayer attends, then it is a non deductible entertainment expense. If given solely to client then treat as a business gift
Is a deduction allowed for club dues or membership fees?
No
Business Interest Expense Deduction
Limited to the sum of business interest income + 30% of adjusted taxable income + floor plan financing interest expense
Disallowed business interest expense can be carried forward indefinitely
Limitation does not apply to taxpayers with <27million in average annual gross receipts for 3 prior years (when this happens you can deduct all business interest expense including any PY carry forward)
What is adjusted taxable income
all taxable business income for the year excluding all interest income and interest expense
What is floor plan financing?
Debt used to acquire motor vehicles held for sale or lease where the debt is secured by the acquired inventory
Are guaranteed payments from a pship subject self employment tax?
Yes, earned compensation is subject to self employment tax
Who can be an employee…a shareholder in an SCorp or a partner in a partnership?
Shareholder in an S Corp
What is the qualified business income deduction
20% * QBI
Note: QBI does not include wages earned as an employee or guaranteed payments to partners
What is a Qualified Trade or Business (QTB)
Any business other than a specified service trade or business
What is a Specified Service Trade or Business?
Involves direct services in the fields of:
health, law, accounting, actuarial science, performing arts, consulting, athletics, financial services, brokerage and any trade in which the principal asset is the reputation or skill of one or more of its employees or owners.
Note: Engineering and architectural services are specifically excluded from SSTBs
What are the three categories of taxpayers:
Category 1: TI at or below 170,050 single (340,100 MFJ) - full 20% QBI ded.
Category 2: TI above 220,050 single (440,100 MFJ) - QTB: limited ded. SSTB: no deduction allowed
Category 3: TI between 170,050 and 220,050 single (340,100 and 440,100 MFJ) - phase in of limits
Limitation based on TI level (phased out within threshold dollar for dollar)
Single: 170,050 - 220,050
MFJ: 340,100 - 440,100
W-2 Wage and Property Limitation
QBI deduction is limited to the greater of:
50% of W-2 wages for the business or
25% of W-2 wages for the business + 2.5% of the unadjusted basis after acq. (UBIA) of all qualified property
Overall TI Limitation to Section 199A QBI deduction
Total 199A QBI deduction limited lessor of:
combined QBI deductions for all qualifying business or
20% of the taxpayers TI before the QBI deduction in excess of net capital gain
Mom and Pop Exception to PALs
Taxpayers who own more than 10% of the rental activity, have modified AGI under 100,000 and have active participation (managing the property qualifies) may deduct up to 25,000 annual of net PAL attributable to real estate
Is interest income included in business income (loss)?
No, it is considered non-business income
Maximum business loss to be deducted is limited to:
270,000 single (540,000 MFJ)
At risk basis
typically the same as the owners tax basis but excludes the owners share of nonrecourse debt
