R1 - Individual Taxation Pt 1 Flashcards
What is the passive activity loss (PAL) exception for real estate losses ?
GR: Passive activities can only be deducted against income from passive sources.
Exception: $25K of net passive losses from rental of real estate can be deducted against income from non passive sources if taxpayers are actively managing and AGI does not exceed $100K (phase out between $100K and $150K)
For phase out: Income over $100K X 50% reduces befnefit. I.e. income of $110K, only $20K loss allowed.
What is the SUPORT test for Qualifying relative deduction?
- Support - provide more than 50% of support
- Under gross income - they earn less than $4,300
- Precludes dependent filing joint return - cannot be married filing jointly
- Only US citizens
- Relatives - closer than cousins
- Taxpayer lives with individual (non relative) whole year
What gross income is recognized on a nonqualified stock option?
If the option is sold on the open market, employee recognizes ordinary income for the cost of the option on the year of the grant.
OR difference in the FMV of stock and exercise price.
If value of option is not ascertainable, it is taxed when exercised.
What are the rules for business interest expense deductions ?
Deduction for business interest expense is limited to 30% of adjusted taxable income. (taxable income, excluding interest income, interest expense deduction, and depreciation deduction).
Limitation does not apply to taxpayers with average annual gross receipts of $26m or less for prior 3 taxable years.
For a cash basis taxpayer, what date is the gain or loss of a year end stock sale recognized?
Trade date - NOT settlement date.
If they traded on 12/31/20, but did not settle out cash until 1/4, it would still could count for 2020 income/loss
When is prepaid rent considered income for accrual basis taxpayer?
Prepaid rent is income in year received
What is the definition of earned income for SEP IRA plans?
Net self employment earnings reduced by 1/2 self employment tax.
Maximum deduction is lesser of $57K or 20% of net earnings
Educator Expenses IRA Contributions Student loan interest Health Savings Account Moving Expenses One half self-employment taxes Self-employed health insurance Self-employed retirement Interest withdrawal penalty Alimony paid Tuition and fees deduction Qualified Charitable contributions (up to $300)
What are the Adjustments to Gross Income?
Above the line
What do individuals report for their share of S Corp earnings?
Proportionate share of OPERATING INCOME
Do not worry about the timing of distributions, just focus on operating income
If there is child support and alimony in arrears due, which is “paid” first?
Allocate all current and arrears child support before recognizing any alimony.
What are the rules for child and dependent care credit
- Max allowable expenses are $3K for 1 kid, $6K for 2 or more
- Married taxpayers must both produce earned wages to be eligible
- kids under 13 or disabled dependents
- Maximum 35% for AGI under $15K
- Phase to 20% for AGI over $43K
How long can individual charitable deductions exceeding the 60% limit be carried forward/back?
Carried forward 5 years
Cash - 60% of AGI
Property - 50% of AGI
Capital gain property - 30% of AGI
What is the kiddie tax on interest and dividends?
- Dependent child under 18, or aged 18-24 who does not provide half their own support
- Unearned income (minus $1100 minus $1100) is taxed at parents income tax rate
Beginning in 2013, what is the 3.8% Medicare tax levied on?
LESSER of
1) Taxpayers net investment income
2) excess modified AGI over threshold
What are the contribution limits for deductible IRAs?
$6K each spouse + $1K if you are over 50
or lesser of earned income (If you only earn $4K, deductible IRA contribution is limited)
What are allowable medical deductions for home improvements (i.e. air filtration system)?
Cost of system
Cost of increased utilities
less appraised increase in home value
What is a SSTB in relationship to QBI?
Specified Service Trade or Business
- direct services in health, law, accounting, financial services, celebrities.
- NOT Engineering or architecture firms.
- Harder test, more likely to be phased out
What is the QBI deduction for QTB or SSTB OVER income limits?
164,900-214,900 Single
329,800 - 429,800 MFJ
IF QTB - Lesser of 20% tentative QBI deduct or full wage/property limitation
IF SSTB - No QBI deduction
What is the QBI deduction for QTB or SSTB UNDER income limits?
164,900-214,900 Single
329,800 - 429,800 MFJ
IF QTB - 20% QBI deduction
IF SSTB - 20% QBI deduction
Treated the same if below taxable limit
What is the OVERALL taxable income limitation for QBI deduction?
LESSER OF :
QBI deductions
OR 20% of taxpayers taxable income in excess of net capital gain.
IF QTB - Phase IN of W-2 wage and property limitation
If SSTB - QBI, W-2 wages, and qualified property amounts are reduced, then phase-in of W-2 wage and property limitation using reduced amounts
What are the limitation rules for QBI between the income limits?
164,900-214,900 Single
329,800 - 429,800 MFJ
For the purposes of self -employment tax, what earnings are subject to self employment tax?
Schedule C (unincorporated sole proprietorship) and general partnerships.
DOES NOT include w-2 wages, income from S-Corp, income as limited partner
What types of taxes paid can be claimed as itemized deductions?
state income tax sales tax real estate tax personal property tax foreign taxes CAN deduct State sales tax OR Income tax, but not both
When are the effects of change of accounting method recognized?
For taxpayer-initiated changes in the method of accounting:
- If the change results in a positive adjustment, then the effect of the change will be recognized over four years, beginning in the year of change.
- If the change results in a negative adjustment, then all the effects of the change will be recognized in the year of change.
For IRS-initiated changes in the method of accounting:
All the effect negative or positive adjustment change will be recognized in the year of change.
