R1 Flashcards
Gross Income (for employees)
A trip paid for or given to an employee is considered an award and is included in Gross Income
Compensation for Services Delivered
Is considered taxable compensation
Self-Employment Income is subject to:
Federal income tax and Self-Employment Tax
Self-Employment Tax is made up of Social Security (12.4%) and Medicare (2.9%, for a total of 15.3%)
Charitable Contribution for Artwork
Is considered ordinary income if held for short-term
The deduction for ordinary income property is the
LESSER of the property’s adjusted basis or
Its FMV at the time is is contributed
To Avoid Penalty for the Underpayment of estimated tax
90% of CY tax
OR
100% of Prior Year Tax
110% of Prior Year tax liability ONLY if AGI is in excess $150,000
Income subject to Self-Employment includes:
Amounts from an unincorporated sole prop (Schedule C)
AND
General Partnerships
Student Loan Interest Expense
AGI Limitation to take a deduction
$5,250 can deduct if qualifies
Gifted Stocks
Sold at less than FMV:
Selling price is less than donor’s basis BUT greater than FMV at the time of gift (BETWEEN)
Then donee’s basis is what they sell it for and
NO GAIN OR LOSS to record
Selling price is less than FMV at the time of gift, then record LOSS recognized using the FMV as the basis
Selling price greater than donor’s adjusted basis then
Donee’s basis is same as Donor’s Basis
ITEMS that are taxed at Preferential Tax Rate
LTCG & Qualified Dividends (Box 1b) on 1099-Div = Preferential Income
Total Taxable Income
Less: Preferential Income
= Ordinary income (which is taxed at regular income tax rate)
Passive Income
NOTE: Passive losses are only to be used to offset passive income, NOT active income
Earned from activities in which the taxpayer does NOT materially participate
Income from Royalties (like patents, trademarks, copyrights)
Rental Income
Business Activities (where the taxpayer doesn’t materially participate)
Dividends and Interest
Capital Gains
Investment Income
Interest Income
Dividend Income
Capital Gains
Rental Income
Royalty Income
Mutual Fund Dist
REIT (Real Estate Investment Trust)
FOR QBI LIMITATIONS
20% OF TAXPAYER SHARE OF ORDINARY INCOME IS DEDUCTED WHEN BELOW LIMITATIONS
If Taxpayer share of Ordinary Income is more than limitations then use the Greater of:
50% of Wage portion of Owner
OR
25% of Wage portion of Owner + 2.5% of UBIA Qualified Prop
Investment Interest Expense is
Deductible to extent of Net Investment Income
It does not apply to Tax Exempt Interest
Prop Tax are deductible to Primary and Secondary Homes
State and Local taxes are limited to $10k
Home Owners Insurance
Is NOT deductible on Form 1040
Value of Services Performed (like to a charity, or anything)
Is not deductible on Form 1040
Apply NII - Net Investment Income to
Lesser of Investment Income or Excess of AGI over threshold:
Investment Income - Taxable Income
REMEMBER:
Partnership Losses
Can only be taken up to the amount of basis in the partnership
Long-Term Property is deductible as a Charitable Contribution
It’s 30% of AGI
BUT
Use FMV at time of contribution (if appreciated)
The max deduction for appreciated prop is the FMV of prop
Marginal Tax Rates and Dependent Child under 18
Net Unearned Income is taxed at Parent’s Marginal Tax Rate
Take Net Unearned Income - Standard deduction for Dependents ($1,300) - Childs Marginal Tax Rate ($1,300)
So, “Kiddie Tax” applies to Unearned Income of $2,600
Guaranteed Payments
Can be a salary or other payment to a partner
A certain % of interest with respect to partnership profits is NOT a guaranteed payment
Vacation Residence is rented:
Rented than 15 days per year:
Treat as though its a personal residence
Any rental income gained is excluded from income
Sch E is NOT filed
Taxes can be reported as an itemized deduction
Maintenance & Utilities are NOT deductible
For Schedule C
State and Local Business taxes are fully deductible on Sch C
State and Local Income Taxes are ALWAYS a personal exp and can be deducted on Sch A
AND
Direct write-off are only for accrual basis taxpayers
Bad Debt Loss (Allowance) is not an allowed expense for Sch C
Charitable Contribution %’s for deduction
60% of AGI for Cash
30% of AGI for Capital gains property ( Like a Stock )
20% of AGI for Appreciated Capital Gains (Like Artwork)
But careful with the question, it be a ST item, if it is then it would ordinary income, YOU have to use the lesser of the cost or FMV
30% of AGI for Private foundations, Vet Org, Fraternal Societies, Cemetery Orgs (Like cash)
Rules to Withdraw IRA and Penalties
SEP IRA Calculation
Net Self-Employment Income -
50% of Self-Employment Taxes
= Self-Employment Earnings
X 20% For the SEP IRA Deduction =
Calculated SEP IRA Deduction
Max Amount of Taxable Social Security Benefits is 85%
Of Social Security Benefits Received
If MAGI is:
$25k Single
$32k MFJ
NOT Taxed
$25-34k Single
$32-44k MFJ
50% of MAGI is taxed
Over $34k Single
Over $44k MFJ
85% of MAGI is taxed
What should be Included in Ordinary Dividends?
They are a type of income that shareholders receive from their investments in a Corp Stock.
Paid out of Corp earnings and profits are taxed
Cash Dividends
Stock Dividends
Property Dividends
Non-Qualified Dividends
Dividends Reinvestment Plans (DRIPs)
Special Dividends
Interest on Dividends
Qualified Dividends
AFTER-TAX MEDICAL INSURANCE PREMIUMS PAID
ARE Qualifying Medical Expenses
Withdrawals from deductible traditional IRAs (for which contributions were deducted)
ARE TAXED AS ORDINARY INCOME
UP TO $5,250 may be excluded
For an employee’s educational expenses
STATE & LOCAL TAXES ARE LIMITED TO
$10,000
When you itemize deductions.
QUALIFYING SURVIVING SPOUSE
Dependent Child lives with taxpayer the whole taxable year.
For an Annuity
In an annuity, if the annuitant dies you must calculate
then the Unrecovered portion can be deducted on final return as an itemized deduction
