R1, M1-M4 Flashcards
What is the individual income tax formula?
Gross Income
(Adjustments)
= AGI
(Standard Deduction or Itemized Deduction)
= Taxable Income Before QBI Deduction
(QBI Deduction)
= Taxable Income
Federal Income Tax
Less: Tax Credits
Less: Payments
Plus: Other Taxes
Equals: Tax Due or Refund
A taxpayer must file if their taxable income is equal to or greater than the sum of what two numbers or their self-employment income is ___ or more?
Sum of: Regular Standard Deduction + Additional Standard Deduction
$400 or more of SE income
What is the due date for an individual tax return?
April 15
What is the extended due date for an individual tax return?
October 15
T/F: If you file for an extension, you do not need to pay your taxes until October 15.
False, the extension is an extension to file, not an extension to pay.
What is the end of the year test for filing status?
Generally, the taxpayer’s status as of the end of the year determines their filing status (married or unmarried).
You file as single if at the end of the year you are either ___ or ___.
unmarried or legally separated
Under what three scenarios may you file a joint return?
- married at the end of the year, or
- living together in a common law marriage, or
- married and living apart (but not legally separated or divorced)
What filing status do you use in the year of your spouse’s death?
MFJ
Can you file MFS if only your spouse has income and you do not?
Yes.
In a separate property state, how are items on the tax return divided amongst spouses?
separately report your own income, credits, deductions, etc.
In a community property state, how are items on the tax return divided amongst spouses?
most income, credits, deductions are split 50/50
For how many years can the surviving spouse status be used?
the 2 years after the death of your spouse
What three things must be met to qualify for the surviving spouse status?
- pay over half the cost of maintaining a household
- where a dependent child
- lives for the whole tax year
For surviving spouse, does a dependent child include your biological child? An adopted child? A step-child? A foster child?
It includes biological, adopted, and step, but NOT foster.
What must be true of an individual (in terms of their relationships) to be a head of household (3)?
- unmarried, OR
- legally separated, OR
- married and living apart from spouse for last 6 months of the tax year
Can a qualifying surving spouse use the head of household status?
No!
In terms of citizenship, a person using head of household cannot be a …
nonresident alien
What three things must be met to use head of household status?
- maintains his or her home a household that
- for more than half the taxable year,
- is the principal residence of a qualifying person
What three categories of people are qualifying persons for the head of household status?
- child
- parent
- relative
The child for head of household status must meet what criteria to be a qualifying person?
CARES (Qualifying Child Criteria)
T/F: The parent for head of household status must live with the taxpayer for the entire year.
False. The are not required to live with them, but the taxpayer should maintain a home that is their residence for the entire year.
What three groups of people for not qualify into one of the three groups for head of household status?
cousins, foster parents, unrelated dependents
Can you claim someone as your dependent in their year of birth? What about their year of death?
Yes to both.
What acronym tells you the criteria for a qualifying child?
CARES
What acronym tells you the criteria for a qualifying relative?
SUPORT
A SSN is needed for a dependent who has reached the age of __ as of the end of the taxable year.
one
What does the C stand for in CARES?
close relative
What does the A stand for in CARES?
age limit
What does the R stand for in CARES?
residency and filing requirements
What does the E stand for in CARES?
exclude gross income test
What does the S stand for in CARES?
support test
What does the S stand for in SUPORT?
Support test
What does the U stand for in SUPORT?
Under a specific amount of gross income
What does the P stand for in SUPORT?
Preclude dependent filing a joint return
What does the O stand for in SUPORT?
Only citizens or residents of US/Canada/Mexico
What does the R stand for in SUPORT?
Relative test
What does the T stand for in SUPORT?
Taxpayer lives with the individual whole year
If the parents of the child do not claim the child as their dependent, another person can as long as what criteria is met?
Claiming taxpayer’s AGI is higher than the AGI of highest-earning parent.
To be a qualifying child, the child must be the taxpayer’s … (9)
- son/daughter
- stepson/daughter
- brother/sister
- stepbrother/stepsister
- any descendent of these
- legally adopted child
- foster child
What is the age limit for a qualifying child (2)?
(1) must be younger than the taxpayer, AND
(2) under 19 or under 24 if a full-time student
What is the age limit for a qualifying child if an individual is totally and permanently disabled during the tax year?
No age limit.
What is a “full-time student”?
attends an educational institution for at least part of 5 months during the taxable year
To fulfill residency requirements, the child must have the same principal place of abode as the taxpayer for more than _____ of the year?
half
In terms of citizenship, a qualifying child must be a citizen of ____, or a resident of _____.
Citizen of US
Resident of North America (US, Canada, Mexico)
Can a dependent child file a joint tax return that year?
No, unless it was filed only for a refund.
What is the support test for a qualifying child or relative?
They cannot contribute more than half of their own support.
Are social security and state welfare payments included in total support?
Yes, but only to the extent they are used for necessities.
Are scholarships included in total support?
No, but only if the two criteria below are met.
(1) Full-Time Student, and
(2) Biological Child or Step-Child only
A qualifying relative’s gross income must be below what amount to be considered a qualifying relative?
$5,050
What income amount is used in calculating the income limitation for a qualifying relative?
the total taxable income
When can someone still be considered a qualifying relative even if they filed a joint return (2 AND)?
(1) no tax liability on joint return, AND
(2) no tax liability if they filed separately
Who all are included in the definition of a relative?
- children (step, adopted, and foster)
- grandchildren
- parents
- grandparents
- siblings (including steo)
- aunts and uncles
- nieces and nephews
- in-laws
More easily, who is NOT considered to be a relative?
cousins, foster parents
When can a non-relative still be considered a qualifying relative?
if they live with the taxpayer for the entire year
What gives rise to a multiple support agreement?
2+ taxpayers contribute more than 50% of someone’s support, but no one individually contributes more than 50%
Who gets to claim the person supported in a multiple support agreement as their dependent (2)?
must have contributed over 10% of the support + meet other dependency tests
For children of divorced parents, which parent gets to claim the child as their dependent?
the parent that has custody of the child for a greater part of the year
If divorced parents have equal custody of a child, which parent gets to claim the child as a dependent?
the one with the higher AGI
Does the parent that paid for more of the child’s support get to claim them as a dependent?
No, the test is based on time.
What does gross income include?
all income from whatever source derived, unless specifically excluded
Does income need to be earned to be included in gross income?
No.
To be taxable, a gain must be both ___ and ___.
realized and recognized
What is realization?
In the real world, a sale or exchange has occurred.
What is recognition?
Included on the tax return
When is revenue recognized for tax in the accrual method?
Revenue is taxable when earned.
When is revenue recognized for tax in the cash method?
when revenue is actually or constructively received
An employer sells property to its employee for less than its FMV. What amount is recognized as income to the employee?
the difference (savings)
What is the definition of a guaranteed payment?
(1) compensation paid to a partner for services rendered or use of capital
(2) without regard to a partner’s income or loss sharing percentage
Are guaranteed payments subject to self-employment tax?
Yes.
Are guaranteed payments deductible to the partnership?
Yes.
The value of employee benefits includable in income is subject to which taxes?
FICA and Income Tax
When are employer contributions to a Roth 401(k) taxable income to the employee?
The year they are contributed. Pay no tax later upon withdrawal.
Are premiums paid by employer’s for a group term life insurance policy considered taxable income?
Not quite. The premiums paid on coverage up to $50,000 per employee are non-taxable.
Premiums paid on coverage over $50K are taxable.
Are premiums paid by employers for accident, medical, and health insurance includable in employee income? What is the treatment for the employer?
- Premiums paid are NOT taxable to the employee.
- Premiums paid are deductible by the employer.
Are amounts paid to the employee under an accident, medical, or health insurance policy includable in employee income?
Yes, if they are reimbursemenet for medical expenses incurred.
What are de minimis fringe benefits?
benefits that are too small to be included in income
When are meals and lodging furnished to an employee excluded from employee gross income (3)?
- paid for the convenience of the employer
- on the emeployer’s premises
- Loding only: required as a condition of employment
What amount of employer payment for employee educational expenses are excludable from gross income?
up to $5,250
Are employer payments for graduate education excludable from gross income?
Yes.
What amount of employer payment for adoption expenses are excludable from gross income?
$16,810 (2024)
In what general range is the exlusion phased out for employer adoption expenses paid?
AGI of $250K to $300K
What amount of employer payment for dependent care are excludable from gross income?
$5,000
Qualifying dependents for dependent care paid by the employer and the dependent care credit include what two groups?
(1) dependent children under age 13 non-teenagers
(2) spouse or other dependent physically or mentally incapable of self-care
If an employee/student working for an educational institution receives tuition reduction, is this reduction included in income for an undergraduate student?
Not included in income.
If an employee/student working for an educational institution receives tuition reduction, is this reduction included in income for a graduate student?
Excluded only if:
(1) engaged in teaching or research activities, AND
(2) tuition reduction is in addition to pay
If an employee gets discounts on merchandise, what amount of the discount is excludable from income?
up to the employer’s gross profit percentage (their cost)
If an employee gets discounts on services, what amount of the discount is excludable from income?
20% of the FMV of the service
The value of employer-compensated parking and employer-provided transit passes that is excluded from income is ___ per month?
$315
Contributions to a non-Roth retirement plan by an employee or employer are (taxable/nontaxable) in the year of contribution.
nontaxable
In the year that an amount is distributed from a non-Roth IRA, what type of income is it?
treated as ordinary income (even if there are capital gains in the distributed amount)
What is a flexible spending arrangement with an employer (3 steps)?
- Part of your salary is set aside for qualified costs.
- Submit claims for pre-tax reimbursement of costs.
- You are not taxed on this reimbursement amount.
What amount of money can be put into an FSA? When does it need to be used by?
up to $3,200
use within 2.5 months after year end
Interest paid to you on a federal or state tax refund is taxable or not taxable?
not taxable
Amortization of a bond premium is (addition/reduction) of the interest received and (addition/reduction) to the bond’s basis.
reduction, reduction
Amortization of a bond discount is (addition/reduction) of the interest received and (addition/reduction) to the bond’s basis.
addition, addition
Is a gift given by a bank for opening a bank account taxable or not taxable?
taxable
What three types of interest are not taxable?
- State and Local Bond Interest
- Bonds of a U.S. Possession
- U.S. Series EE Savings Bonds
What does the EE in U.S. Series EE Savings Bonds stand for?
educational expenses
When is interest on U.S. Series EE Savings Bonds nontaxable?
- used to pay for …
- taxpayer is over ___ when the bond is issued
- if married taxpayer, …
- pay for higher education
- over 24
- file a joint return if married
What is the AGI phaseout (rounded) for interest income on EE Savings Bonds (single and MFJ)?
Single: 97 to 112K
MFJ: 145 to 175K
If the EE bonds are used to pay for a child’s education, whose names do the bonds need to be in?
the taxpayer’s (and/or their spouse’s) name, but not the dependent’s name
Let’s say you deposit your money with a bank and tell them you will keep it there for 3 years in exchange for a higher interest rate. You then take the money out, but now the bank wants to take that interest back. What is the tax treatment?
The total interest earned stays in gross income.
The penalty on early withdrawal is an adjustment to income.
What is the tax result of a dividend paid to you from corporate E&P?
taxable dividend income
What is the tax result of a dividend paid to you if the corporation has no E&P but taxpayer has basis in the stock?
return of capital (non-taxable)
What is the tax result of a dividend paid to you if the corporation has no E&P and taxpayer has no basis in the stock?
taxable capital gain income
Qualified dividends come from what two sources?
domestic or certain qualified foreign corporations
What is the required holding period for dividends to be considered “qualified”?
held for more than 60 days in the 120 day period around the ex-dividend date
What are the three possible preferential tax rates for qualified dividends?
0%, 15%, and 20%
At what taxable income amount does a single taxpayer get phased out of the 0% tax rate?
around 50K
At what taxable income amount does a single taxpayer get phased out of the 15% tax rate?
around 520K
At what taxable income amount does a MFJ taxpayer get phased out of the 0% tax rate?
around 95K
At what taxable income amount does a MFJ taxpayer get phased out of the 15% tax rate?
around 580K
What is the tax treatment of a stock split?
allocate the oiginal basis over the total number of shares held after the split (no taxable income)
Stock dividends are generally not taxable, unless the shareholder has the option to:
receive cash or other property
What is the basic formula for determining gain or loss?
FMV of Amount Realized - Adjusted Basis of Sold Asset
For a traditional deductible IRA, what is the tax treatment of a distribution (principal and earnings)?
taxable as ordinary income
For a traditional non-deductible IRA, what is the tax treatment of a distribution (principal and earnings)?
Principal is tax-free (because you already paid tax on it before contribution).
Earnings are taxable ordinary income.
For a Roth IRA, what is the tax treatment of a distribution (principal and earnings)?
Principal is tax-free (because you already paid tax on it before contribution).
Earnings are nontaxable as long as they are qualified.
How do you allocate what amount is principal and earnings for a distribution from a traditional IRA?
Allocate pro-rata based on the relative amounts in the IRA account at the time of the distribution.
Taxpayers are required to start taking required minimum distributions by _____ (M/D) of the year following the year in which the taxpayer reaches age ___.
April 1, 73
How do you allocate what amount is principal and earnings for a distribution from a Roth IRA?
Distributions from Roth IRAs are first considered to come out of principal and then from earnings.
Broadly, what are the two criteria to be met for a distribution to be a qualified distribution from a Roth IRA?
(1) distributed at least 5 years after the first year that contributions were made, AND
(2) meets one of four other requirements
What are the four other requirements to be a qualified distribution (OR)?
- age 59.5 or older,
- disabled,
- first-time homebuyer,
- distribution is made after taxpayer’s death
A premature distribution from a Roth IRA before age 59.5 is subject to what two taxes?
- 10% penalty tax
- income tax
The homebuyer exception for the penalty tax is for the purchase of a first home within ___ days of distribution, up to a ____ maximum.
120, $10K
The insurance exception for the penalty tax applies to medical insurance if unemployed with ___ consecutive weeks of unemployed compensation.
12
The medical expenses exception for the penalty tax applies to medical expenses in excess of …
the 7.5% AGI floor
The disability exception for the penalty tax applies to what types of disabilities?
permanent, but not temporary disabilities
The adoption or birth of child exception for the penalty tax applies to amount paid within ___ ___ of the date of birth or adoption, up to a $___ limit.
1 year, $5K
The disaster exception for the penalty tax applies to qualified natural disasters up a maximum of ___ per disaster.
$22,000
The emergency expenses exception for the penalty tax applies to what types of emergencies, and is up to what amount per year?
personal and family emergencies; up to $1,000 per year
The domestic abuse victimes exception for the penalty tax applies to the lesser of ..
$10,000 or 50% of retirement account
The withdrawal of money from a traditional IRA to a Roth IRA is not subject to a 10% withdrawal penalty if the (net amount after tax, entire amount) is contributed within ___ days after the withdrawal.
entire amount, 60 days
What are the two types of annuities?
- fixed period annuities
- life annuities
Each annuity payment consists of what two parts? What is the tax treatment of each of these?
- return of investment (non-taxable), and
- earnings (taxable as ordinary income)
How do you determine which amount of each annuity payment is considered a return of investment (non-taxable), give the calculation.
Original Investment / Period of Time (whether fixed-period, or according to IRS tables if life-annuity)
How do you determine which amount of each annuity payment is considered taxable earnings?
The excess payment left after subtracting the non-taxable portion.
How do you calculate the annuity exclusion ratio?
Original Investment / Expected Value aka Sum of All Annuity Payments
The IRS factor for life expectancy ranges from ___ months for taxpayers 55 and under to ____ months for taxpayers 71 and older.
360, 160
What is the tax treatment of a life annuity payment if a taxpayer lives longer than the IRS expected life?
fully taxable
What is the tax treatment of a life annuity payment if a taxpayer dies before the IRS expected life?
remaining unrecovered investment is deducted on the final income tax return
What does the tax treatment of a state or local income tax refund depend on?
whether the taxpayer claimed the itemized deduction (benefitted from the state and local taxes paid) or not
If the itemized deduction was taken in the prior tax year, is the refund taxable or not?
Taxable, to the extent that the itemized deduction > standard deduction only.
If the standard deduction was taken in the prior tax year, is the refund taxable or not?
Not taxable because no benefit was conferred the prior year.
Alimony payments made for a divorce agreement executed on or before [answer with date] are treated how for tax purposes?
12/31/2018; taxable income to receiver, adjustment (deduction) to the payor
What is the tax treatment of alimony for divorce agreements executed after 12/31/2018?
Alimony is not includable in taxable income or deductible.
If you got a divorce in 2015 and are still making alimony payments into 2020, which rules do you follow?
Taxable income and deduction, because it is based on the date of the divorce agreement, not the date of the payment.
What are the three categories of payments in a divorce?
alimony, child support, and property settlement
What is the tax treatment for child support payments made?
Not income and not deductible (regardless of date of agreement).
What is the tax treatment for property settlement payments made?
Not income and not deductible (regardless of date of agreement).
What are the six requirements for a payment to be considered alimony (AND)?
- legally required pursuant to written agreement
- paid in cash or equivalent
- cannot extend beyond death of the recipient
- cannot live together
- cannot file joint return
- not designated as anything else (like child support)
If a total of $10,000 is paid each year to a party in a divorce, but that will decrease to $8,000 after the child turns 18, what amount is considered to be alimony and what amount is child support? What is the tax treatment for each of these?
- $8,000 is alimony. Rules are based on the date of the divorce.
- $2,000 is child support. Not deductible and not income even in years before the child turns 18.
If payments designated for both alimony and child support are falling short of the entire amount due, how do you allocate these payments to determine the tax treatment?
First allocated to child support until the ENTIRE child support obligation is met, then to alimony.
Net rental income is calculated on which schedule?
Schedule E
Is unemployement compensation taxable or non-taxable?
taxable
How do you calculate modified AGI for the social security limitation?
AGI + tax-exempt interest + 50% of SS benefits
What part of SS benefits must be included in taxable income? The lesser of…
(1) 50% or 85% of SS benefits received, OR
(2) 50% or 85% of excess modified AGI over the threshold
At what MAGI level do you get to exclude all SS benefits from income (single and MFJ)?
Single: $25K or less
MFJ: $32K or less
At what MAGI level are 50% of SS benefits included in income (single and MFJ)?
Single: 25K to 34K
MFJ: 32K to 44K
At what MAGI level are 85% of SS benefits included in income (single and MFJ)?
Single: over 34K
MFJ: over 44K
What income amounts are included in the final tax return for someone who died during the year?
the amounts earned or received while the taxpayer is alive
Where do amounts received after the date of death get reported in the year of a taxpayer’s death?
federal estate return
What is the tax treatment for prizes and awards?
FMV is included in taxable income
When can prizes and awards be excluded from income?
- selected without entering into a contest, AND
- assigned award directly to government or charity
How are gambling winnings treated on the tax return?
included in income
How are gambling losses treated on the tax return?
an itemized deduction, only to the extent of gambling winnings
Expenses incurred in connection with gambling activity is treated how for tax purposes?
just like gambling losses
Damage awards in a lawsuit are included in taxable income if they are compensation for …
lost profits.
Are damages received in a personal injury case taxable or nontaxable?
Taxable, unless this is a wrongful death case.
Punitive damages are taxable in which two situations?
- received in business context OR
- for loss of personal reputation
If a lendor cancels/forgives part of someone’s debt obligation, is this included in taxable income?
Yes, generally.
Scholarships received are excludable from income only for amounts spent on what things? What is specifically excluded?
tuition, fees, books, supplies
NOT room and board
Scholarships are excludable from income if what two criteria are met?
- degree-seeking student, AND
- no services are performed to receive the scholarship
If you are non-degree seeking student, are scholarships taxable or nontaxable?
fully taxable at FMV
Proceeds from a life insurance policy because of the death of the insured are or are not included in taxable income?
are not taxable income. Think of this as the one area where the IRS is nice to you. Someone close to you died and you received this money from their policy - not taxable.
If life insurance proceeds are taken out in advance to pay for someone who is terminally ill, is this included or not included in taxable income?
Not included in taxable income.
If the company is a beneficiary of a life insurance policy, is the payout from the life insurance taxable to the employer?
Not taxable if they are the beneficiary.
Does gross income include the value of property received from gift or inheritance?
No, not to the recipient!
Are Medicare benefits received under SS included or excluded from gross income?
basic Medicare benefits are excluded from income
Is worker’s compensation received included or not included in taxable income?
not included in taxable income
If payments are received from accident insurance, are payments included or excluded from taxable income?
excluded if the indiivual paid the premiums
A taxpayer working abroad can exclude from gross income up to ____ (2024) of their foreign-earned income.
$126,500
What are the two possible tests that can be met to qualify for the foreign-earned income exclusion (names only)?
- bona fide residence test, or
- physical presence test
What does the bona fide residence test entail?
taxpayer must have been a bona fide resident of the foreign country for the entire taxable year
What does the physical presence test entail?
must have been present in foreign country for 330 full days out of any consecutive 12-month period
Business income or loss is subject to which two taxes?
income tax and SE tax
Net income from self-employment is computed on Schedule …
C.
Can depreciation and/or mileage on vehicles be used as a business deduction for a self-employed individual?
Yes, but only for the portion used for the business.
Is a sole proprietor’s income a business deduction allowed on Schedule C?
Nope!
The business interest expense deduction is limited to the sum of what three items?
- business interest income
- 30% of adjusted taxable income, and
- floor plan financing interest expense
What is special about the treatment of prepaid interest expense?
It cannot be deducted until is both incurred and paid (treated like accrual, even if you are a cash-basis taxpayer).
What is adjusted taxable income for the business interest expense limitation?
Taxable Business Income - Interest Income + Interest Expense
The limitation on business interest expense does not apply if what criteria is met?
average annual gross receitps over the past three taxable years is $30M or less
What is the carryforward policy for disallowed business interest expense?
CF indefinetely
What does the CF look like for disallowed business interest expense if you are limited in one year and not limited in the next?
You can deduct the entire CF in the year that you are not limited.
Can health insurance costs paid be deductible by the sole proprietor to get to net business income?
No, but this is an adjustment to arrive at AGI.
What is the total self-employment tax percentage?
15.3%
What is the social security portion of the self-employment tax? Note any limitations.
12.4%, taxed only on the first $168,600 of self-employment earnings
What is the Medicare portion of the self-employment tax? Note any limitations.
2.9%, with an additional 0.9% based on AGI limits
How do you calculate the SE tax base?
self-employment net profits * 92.35%
What are two potential limitations to offsetting a net business loss against your other income?
- NOLs
- excess business loss limitations
What is the tax treatment of hobby income?
taxable as ordinary income
What is the tax treatment of hobby losses?
cannot be deducted
What is the general definition of a hobby?
an activity that is not engaged in for profit
What is the most commonly used test to determine whether something is a hobby or a business?
If the activity is profitable for 3 out of 5 consecutive years, it is presumed to be a business.
Who has the burden of proof to determine whether something is a hobby or business?
The IRS does to prove that it is a hobby (if the 3/5 year requirement is met).
What is the tax treatment of prepaid rental income?
included in the year when paid, regardless of whether accrual or cash basis
What is the tax treatment of rent cancellation payments?
included in the year when paid, regardless of whether accrual or cash basis
What is an improvement in lieu of rent?
a tenant makes renovations to a space, and the landlord provides a discount on rent in return
If you rent for fewer than 15 days, what is the tax treatment of rental income?
Rental income is excluded from income.
If you rent for fewer than 15 days, which rental expenses are allowed as itemized deductions?
mortgage interest and real estate taxes
If you rent for fewer than 15 days, which rental expenses are not deductible?
Utilities, Depreciation, Repairs
If you rent for 15 or more days, what criteria must be met to deduct rental expenses and include rental income? Hint: Used for personal purposes for the (lesser/greater of)…
Used for personal purposes for the greater of:
- more than 14 days, or
- more than 10% of rental daysH
How do you pro-rate rental itemized deductions?
based on the period of time treated as a rental over the entire 12 months of the year
How do you pro-rate regular rental deductions (utilities, insurance, depreciation)?
based on period of time treated as a rental over the total amount the property was used (rental plus personal days)
Rental use expenses are deductible to the extent of …
rental income; they cannot create a loss.
If a property is purely a rental property (no personal use), what is the tax treatment of income and expenses?
include all income and deducat all expenses allocable to the rental property on Schedule E
(Nonresidence) Rental losses are deductible only to the extent of …
passive income.
An (active/passive) participant in a rental activity can deduct up to ______ of rental losses against nonpassive income.
active, $25,000
What is the default entity type of a single-member LLC, where the member is an individual?
disgregarded entity (sole proprietor)
What is the default entity type of a single-member LLC, where the member is a corporation?
treated like extra income of the corporation)
What is the default entity type of a two-plus member LLC? (taxed like…)
taxed like a partnership
On which schedule is income from flow-through entities shown?
Schedule E
What is the tax treatment of distributions in a flow-through entity?
Not taxable income, just a return of capital that reduces basis.
What amount of income from a partnership is subject to SE tax to an active (general) partner?
the share of ordinary business income (Box 1) and guaranteed payments
What is the tax treatment of ordinary business income to a limited partner?
Trated as passive income, not subject to the SE tax.
What amount of income from a S-corp is subject to SE tax the partner?
None. The amount that is designated as the SH’s salary is subject to 1/2 of the payroll tax.
What is the tax basis loss limitation (conceptually)?
Loss can be flowed to an owner’s individual income tax return, but only to the extent of the owner’s tax basis. Basis cannot be reduced below 0.
What happens to excess business losses that cannot be deducted due to the basis limitation?
carryforward indefinetely until basis is restored
What happens to your suspended losses due to insufficient tax basis when an owner disposes of their interest?
The suspended losses are gone!
What is the first step for the excess business loss limitation?
Combine your aggregate business income and the threshold amount.
What is the second step for the excess business loss limitation? (If the loss is greater than …)
If the loss is greater than the value from the first step, the excess is treated like an NOL.
If the loss is less than the value from the first step, the entire amount is deductible.
What are the three time periods that have varying NOL rules?
(1) 2017 and earlier
(2) 2018, 2019, 2020
(3) 2021 and later
What is the tax treatment of NOLS from 2017 or earlier? (CF, CB, offset amount)
can offset 100% of TI; CB 2 years, CF 20 years
What is the tax treatment of NOLS from 2018-2020? (CF, CB, offset amount)
can offset 100% of TI; CB 5 years, CF indefinitely
What is the tax treatment of NOLS from 2021 and later? (CF, CB, offset amount)
can only offset 80% of TI (after deducting pre-2018 CFs); no CB, CF indefinetely
Where on the return are these items deducted:
Deductible Part of SE Tax
Self-Employed Health Insurance Deduction
Deduction for Contribution to Certain Self-Employed Retirement Plans?
Deducted as adjustments to AGI, not on Schedule C.
Adjustments are also referred to by what other name?
above-the-line deductions
What is the “line” referring to in the income tax formula?
Adjusted Gross Income
Can a dependent claim the adjustment for student loan interest expense?
No.
The adjustment for student loan interest expense is limited to $____.
2,500
What is the phaseout for the student loan interest expense (single and MFJ)?
Single: 80K to 95K
MFJ: 165K to 195K
Educator expenses are an adjustment to AGI up to what amount?
up to $300
What is a health savings account (HSA)?
allows workers with high-deductible health plans to make pre-tax contributions to cover healthcare costs
What the total pre-tax contribution allowed into an HSA (single and family)? What about if a taxpayer is age 55 or older?
- $4,150 (single), $8,300 (families)
- additional $1,000 if 55 or older
No contributions are allowed into a HSA when a taxpayer becomes covered by …
Medicare Parts A or B
What is the tax treatement of amounts paid out of an HSA that is used to pay for qualified medical expenses?
non-taxable
What is the tax treatment of amounts paid out of an HSA not used for qualified medical expenses?
taxable (gross income) and subject to additional 20% penalty tax
A high-deductible plan has at least a ____ deductible for self-only coverage and ___ deductible for family coverage.
$1,600 and $3,200
Annual out of pocket expenses paid under the HSA plan are limited to ___ for self-only coverage and ___ for family coverage.
$8,050 and $16,100
When did Archer MSAs stop?
2008
What are Archer MSAs?
similar to IRAs, but for health care
Annual out of pocket expenses paid under the Archer MSA plan are limited to ___ for self-only coverage and ___ for family coverage.
$5,550; $10,200
Deductions are allowed for moving expenses only for what group of people?
memebers of the armed forces who move pursuant to a military order (permanent change of station)
The adjustment for attorney fees paid is limited to what amount?
the amount claimed as income from the judgement
What is the maximum IRA contribution for a single and married individual under age 50?
Single: $7,000 or earned income
MFJ: $14,000 ($7K each) or earned income
What is the maximum IRA contribution for a single and married individual 50 and up?
Single: $8,000 or earned income ($1K in catch-up contributions)
MFJ: $16,000 or earned income
At what age do catch up contributions to IRAs begin?
50
How does the contribution limit work if you have multiple types of IRAs (deductive, nondeductible, Roth)?
The limit applies to the combined contributions to all of these. If you contribute $7,000 to a Roth IRA, you cannot also contribute more to a Traditional IRA.
Earned income (for IRA contributions) does not include which four things?
- interest
- dividends
- pensions
- annuity income
A traditional IRA contribution is deductible as an adjustment only if the contribution is made by what date?
April 15
A traditional IRA contribution is deductible as an adjustment only if the contribution is made by April 15. What if there is an extension to file?
You still need to contribute by April 15.
What two things could limit the taxpayer’s deduction for a traditional IRA contribution?
(1) Taxpayer also participates in an employer-sponsored plan, AND
(2) AGI is too high.
For an unmarried individual, what is the AGI phaseout range for the deductibility of contributions?
77K to 87K
For a married individual, what is the AGI phaseout range for the deductibility of contributions?
123K to 143K
If you are married to someone who participates in an employer-sponsored retirement plan, what is the general treatment for the deduction for the spouse who is NOT in the employer-sponsored retirement plan?
The non-ESP spouse can use the other spouse’s income to make a deductible contribution with a much higher AGI limit before phaseout.
What is the AGI phase out to contribute to a Roth IRA for someone who is unmarried?
146K to 161K
What is the AGI phase out to contribute to a Roth IRA for someone who is MFJ?
230K to 240K
What is the AGI phase out to contribute to a Roth IRA for someone who is MFS?
0-10,000
For self-employed health insurance, this is a deduction on health insurance premiums paid for which individuals and not which others?
Deduction for: taxpayer, spouse, and dependents
Not Deduction for: employees (Sch. C)
What are the three most common self-employed retirement plans?
SEP IRAs, SIMPLE IRAs, Solo 401Ks
What is the 2024 maximum contribution to an SEP IRA? The lesser of…
(1) 20% * (SE Net Income - 1/2 SE Tax Deduction)
(2) 69,000
What is the 2024 maximum contribution to a SIMPLE IRA? The lesser of…
(1) SE Net Income - 1/2 SE Tax Deduction
(2) 16,000 (or 19,500 for taxpayers 50 and older)
What is the 2024 maximum contribution to a Solo 401K? The lesser of…
(1) (20% * SE Net Income) - 1/2 SE Tax Deduction
(2) 69,000 (76,500 for taxpayers 50 and older)
