R1 - Individual Taxation: Part 1

Question 1

What is CARES?

Answer 1

It is the test for QC:
C= Close Relative
A= Age
R= Residency
E= Eliminate Gross Income Test
S= Support Test

Question 2

What is SUPORT?

Answer 2

It is the test for QR:
S= Support their own over 50%
U= Under $4,300 T.I
P= Precludes MFJ - Can't be claimed as a dependent
O= Only US citizen or NAFTA
R= Relative Test; or
T= TP lives with individual

Question 3

What is the basic QBI deduction?

Answer 3

The basic QBI deduction is QBI * 20%

Question 4

What is the overall QBI limitation?

Answer 4

The overall QBI limitation is the LESSER of:
1. Combined QBI deductions for all businesses.
OR
2. Taxable income - Cap Gain * 20%

Question 5

How do you calculate QBI for taxpayers in between taxable income ranges?

Answer 5

A. Determine overall QBI limitiation.
B. Determine if W2 + PPE limitation applies.
C. Determine W2 + PPE limitation.

1. Limited QBI = QBI deduction - Limitation
2. Limitation = Excess * Phase In %
3. Excess = QBI deduction - W2 PPE limitation
4. Phase-in % = Taxpayer’s T.I - Lowest tier of T.I/ Total Range

Question 6

What is the amount in which taxable income starts to phase-out for single taxpayers?

Answer 6

Single: $164,900 - Range is 50K

MFJ is x2 - Range is 100K

Question 7

How are casualty losses calculated?

Answer 7

Casualty losses = Lesser of Decline in FMV OR Prop Basis.

Question 8

How do you calculate deductible casualty losses?

Answer 8

Deductible casualty losses = Casualty loss - Insurance Recovery - 100 - (AGI*10%)

Question 9

What rate do you use to calculate tax liability?

Answer 9

Marginal Rate

Question 10

When can you aggregate QTB business for purposes of obtaining a better QBI deduction?

Answer 10

When the same person owns at least 50% of each QTB and at least two of POC criteria is met:

1. P = QTBs provide services that are offered together.
2. O = QTBs are operated in coordination with other QTBs in the group.
3. C = QTBs have centralized business elements.

Question 11

Do scholarships count for the support test?

Answer 11

Scholarships are not considered for the support test as long as the dependent is direct child from TP. Descendants MUST include scholarships as part of support.

Question 12

What is the AGI limitation for mom and pop exception?

Answer 12

AGI must be less than $100K.

Range is 50K

Question 13

What is the condition for mom and pop exception to apply?

Answer 13

TP must ACTIVELY participate.

Question 14

What is considered passive activity?

Answer 14

Any activity in which TP does not MATERIALLY participate.
Ex: If TP materially participates in activity A; but does not materially participate in activity B, then PAL can’t offset passive activity income.

Question 15

What is an accrual expense?

Answer 15

An accruable expense is one is which the services have been received/performed but have not been paid for by the end of the reporting period.