R1 - Individual Taxation Part 1 Flashcards
Schedules
Sch c•·> self employment income Sch F •· > farm income Sch D •·> G/l disposition of property Sch E •· > Rental income (passive}, Kl Sch A •·> itemized deductions Sch B •· > interest income, dividends
Rental Property Rules
Rental Property
- <15 days–> exclude from income
- > 15 days–> income, no loss all owed since personal residence
- nonresidence (rental property) passive loss deductible to extent of passive income
Individual Income tax formula
Gross Income (Adjustments) =Adjusted Gross Income (AGI} (Standard deduction or Itemized deduction) =Taxable Income before QBI deduction <20% QBI deduction> Taxable Income
Federal Income Tax Other Taxes (Tax Credits) (Tax Payments) =Tax due or refund
Contracts
GR:% of completion method required for LT
Exceptions: you can use completed contract
1. small contractor: <25m, less than 2 years
2. home construction contractor: 80% costs rel ated to rehab of dwelling units
QBI
20% x qualified business income
- qualifies: sole pro, partnership, S corp trust, individuals, estates
- W2 wage & property limit QBI to greater of:
1. 50% W2 wages, or
2. 25% of W2 wages + 2.5% of PPE
Net Operating Loss schedule C
*After 12/31/ 17, no CB, CF forever, up to 80%
Prior 12/ 31/ 17 CF 20 years, no 80%
Loss Limits: Capital Losses Individual
- 3,000 max deduction ST or LT against ord inc
- limited to taxable income. ST ord rates, LT pref
- CF unlimited, no CB, maintains ST or LT
- Netting rules: LT netted. STCL against STCG, then 28%, 25%, 20% or 15%.
Adjustments Deductions for AGI
- Educators exp (up to 250}
- IRA contribution for traditional IRA
- Student loan interest (up to 2,500}
- Health Savings Account (up to 3,500}
- Moving expense ( active military orders)
- 1/ 2 SE taxes
- SE health insurance
- SE retirement - Keogh profit sharing
- Interest withdrawal penalty
- Alimony paid (prior 12/ 31/ 18}
- Attorney fees discrimination case (judge)
SE Tax
- All SE subject to 2.9% Medicare tax
- Up to 128,400 subject to 12.4% SS tax
- Actual SE tax calculated on 92.35% of SE SE ta x = income x 92.35% x 15.3%
Annuities
Excludable amount in CY =
(investment in contract/ age factor in months)
-lives longer: pmts fully taxable
-Dies younger: misc. itemized deduction
Farmers
- Cash basis: you expense inventory (deduct)
2. Accrual method: inventories used must be used & maintained.
Types of Income
- Oridinary: salaries & wages
- Portfolio: interest & dividends, cap assets
- Passive: rental real estate income & invest ments inlimited partnerships, LLC’s, & S corps
HOH Qualifying Dependent
- Qualifying Child
- Father or Mother (not required to live with TP): nursing home
- Dependent relatives (must live with taxpayer) must be relative, not friend
* ** Note cousins, foster parents & unrelated do not qualify
Partnership - K-1, 1040 Sch E
- Income when earned/ reported, not when distributed, tax paid at owner lvl
- Only deduct losses up to your basis
- guaranteed pmts are considered SE income (LP only pays SE tax on guar pmts)
s corporation - K-1, 1040 Sch E
- Income when earned/ reported, not when distributed, taxed at owner lvl
- SH’s treated as employees for tax purposes •·> personal tax rate
- SH who are also employews get reasonable comp, subject to personal tax
Business Interest Expense
- Int exp cannot be deducted until incurred/paid
- Deduction limited to 30% of bus income (excluding depr, int income, int exp)
- Limitation does not apply if you make <25m a year
- Disallowed bus ex can be CF indefinitely
Interest Rules for taxation
GR: All Interest is taxable, unless it is specifically excluded, including:
- State & Local government bond/obligations
- Bonds of a US possession (guam, puerto rico)
- Series EE (US bonds), if used to pay for higher education
- Veterans Admin Insurance
Tax Free Distributions
- Return of capital: when corp distributes divs in excess of E&P, reduces basis
- Stock splits: split basis between shares
- Stock dividend: nontaxable unless given choice between this or property/cash
- Life insurance dividend
Rental income or loss: Schedule E: Passive activity
Gross rental income
Prepaid Rental Income
Rent cancellation payment
Improvement in-lieu of rent (at FMV)
(Rental Expenses)
=Net Rental Income or Loss
- Only deduct passive loss against passive income. CF forever. Deduct in year sold
- Exceptions: allowed to deduct net rental loss if:
1. Mom & pop exception - up to $25K loss & 2) real estate professional
Qualifying Child CARES
Close Relative Age Limit Residency and Filing Requirements Eliminate Gross Income Test Support Test
Qualifying Relative (SUPORT)
Support Test
Under a specific amount (4,200 for 2019) of gross income test
Precludes dependent filing a joint tax return
Only citizens
Relative Test
OR
Taxpayer lives with individual for whole year test
