R1 - Individual Taxation Part 1

Question 1

Schedules

Answer 1

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

Question 2

Rental Property Rules

Answer 2

Rental Property

1. <15 days–> exclude from income
2. > 15 days–> income, no loss all owed since personal residence
3. nonresidence (rental property) passive loss deductible to extent of passive income

Question 3

Individual Income tax formula

Answer 3

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

Question 4

Contracts

Answer 4

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

Question 5

QBI

Answer 5

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

Question 6

Net Operating Loss schedule C

Answer 6

*After 12/31/ 17, no CB, CF forever, up to 80%

Prior 12/ 31/ 17 CF 20 years, no 80%

Question 7

Loss Limits: Capital Losses Individual

Answer 7

• 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%.

Question 8

Adjustments Deductions for AGI

Answer 8

• 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)

Question 9

SE Tax

Answer 9

• 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%

Question 10

Annuities

Answer 10

Excludable amount in CY =
(investment in contract/ age factor in months)
-lives longer: pmts fully taxable
-Dies younger: misc. itemized deduction

Question 11

Farmers

Answer 11

1. Cash basis: you expense inventory (deduct)

2. Accrual method: inventories used must be used & maintained.

Question 12

Types of Income

Answer 12

1. Oridinary: salaries & wages
2. Portfolio: interest & dividends, cap assets
3. Passive: rental real estate income & invest­ ments inlimited partnerships, LLC’s, & S corps

Question 13

HOH Qualifying Dependent

Answer 13

1. Qualifying Child
2. Father or Mother (not required to live with TP): nursing home
3. Dependent relatives (must live with taxpayer) must be relative, not friend
   * ** Note cousins, foster parents & unrelated do not qualify

Question 14

Partnership - K-1, 1040 Sch E

Answer 14

• 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)

Question 15

s corporation - K-1, 1040 Sch E

Answer 15

• 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

Question 16

Business Interest Expense

Answer 16

• 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

Question 17

Interest Rules for taxation

Answer 17

GR: All Interest is taxable, unless it is specifically excluded, including:

1. State & Local government bond/obligations
2. Bonds of a US possession (guam, puerto rico)
3. Series EE (US bonds), if used to pay for higher education
4. Veterans Admin Insurance

Question 18

Tax Free Distributions

Answer 18

1. Return of capital: when corp distributes divs in excess of E&P, reduces basis
2. Stock splits: split basis between shares
3. Stock dividend: nontaxable unless given choice between this or property/cash
4. Life insurance dividend

Question 19

Rental income or loss: Schedule E: Passive activity

Answer 19

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

Question 20

Qualifying Child CARES

Answer 20

Close Relative
Age Limit
Residency and Filing Requirements
Eliminate Gross Income Test
Support Test

Question 21

Qualifying Relative (SUPORT)

Answer 21

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