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Reg > r1-m3/4 > Flashcards

r1-m3/4 Flashcards

1
Q

Where is net income from self employment computed?

A

Schedule C
-net income from sole proprietorship is then transferred to Form 1040 as one amount

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2
Q

Gross Income

Schedule C

A

-cash = amount recieved
-property = fair market value
-cancellation of debt

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3
Q

Expenses

Schedule C

A
  • Cost of goods
  • salaries and commissions paid to others
  • state and local business taxes paid
  • office expenses
  • actual automobile expenses
  • business meal expenses at 50%
  • Deprectiation of assets
  • Employee benefits
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4
Q

The business interest expense deduction is limited to the sum of:

A

-business interest income
-30% of the adjusted taxable income (ATI)
-floor plan financing interest expense

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5
Q

What are some nondeductible expenses on a Schedule C?

A

*salaries paid to the sole proprietor
*federal income tax
*personal portion of: automobile, travel, meal expenses, interest expense
*bad debt expense of a cash basis taxpayer
*charitable contributions: report as itemized deduction on Schedule A

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6
Q

What is adjusted taxable income?

A

Taxable business income for the year excluding all interest income and interest expense.

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7
Q

What are the two federal taxes on net business income?

A
  1. income tax
  2. self employment (SE) tax
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8
Q

Self employment tax

A

-92.35% of self employment income
-15,3% of ^

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9
Q

What is the formula for rental income or loss?

A

Gross rental income
+prepaid rental income
+rent cancellation payment
+improvement in lieu of rent
-rental expenses
=Net income or loss
*Reported on schedule E

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10
Q

What if the residence is rented for fewer than 15 days per year?

A

it is treated as a personal residence.
-rental income is excluded from income
-mortgage interest and real estate taxes are allowed as itemized deductions
-depreciation, utilities, repairs are not deductible

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11
Q

How is rental property income treated?

A

Includes income recieved from property in gross income and deducts all expenses allocated to the rental property on schedule E form 1040.

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12
Q

What are some common separately stated items?

Flow Through

A

-rental real estate income (loss)
-interest income
-dividend income
-royalties
-net short term capital gain (loss)
-charitable contributions

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13
Q

Guaranteed Payments to Partners

A

Compensation paid to a partner, either for services rendered or for the use of capital, that are determined without regard to the partnerships income.
-payments are a business expense that reduces partnership ordinary income
-they flow through as a separately stated item of income on the recipient partners schedule k-1

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14
Q

Are guaranteed payments subject to a self employment tax?

flow through

A

Yes, and therfore subject to a self employment (social security and medicare) tax in addition to income tax

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15
Q

Adjustments for AGI include:

A

-Educator expenses
-Traditional IRA contribution deduction
-Student loan interest deduction
-Health savings account deduction
-moving expenses
-deductible part of self employment tax
-self employment health insurance deduction
etc

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16
Q

How much can an eligible educator deduct?

A

$300 qualified expenses paid
$600 if filing jointly and spouse in an educator

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17
Q

Qualified expenses must be reduced by the following:

Educator expenses

A

-excludable US series EE and Savings Bonds interest from Form 8815
-Non taxable qualified state tuition program earnings
-nontaxable earnings from Coverdell education savings accounts
-any reimbursements received for these expenses that were not reported on for W-2

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18
Q

The three types of individual retirement accounts (IRA) are:

A

-deductible traditional IRA
-Roth IRA
-nondeductible traditional IRA

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19
Q

The annual maximum contribution to IRAs is limited to the lesser of:

Unmarried

A

Under 50: $6500 or earned income
Over 50: $7500 or earned income

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20
Q

The annual maximum contribution to IRAs is limited to the lesser of:

Marries

A

Under 50: $1300 or earned income
Over 50: $1500 or earned income

21
Q

Earned income includes:

A

-salary and wages
-commissions
-alimony
-net earnings from self employment
-non tuition fellowship and stipend payments treated as taxable compensation

22
Q

Earned income does not include:

A

-interest and dividends
-Annuity income
-Pensions
-Alimony

23
Q

The adjustment for education loan interest is limited to

A

$2500
-all interest payments qualify for the adjustment
-deduction is completely phased out at AGI equal to or more than 90k

24
Q

What do health savings accounts do?

A

Health savings accounts (HSAs) enable workers with high deductible health insurance plans to make pretax contributions of up to $3,850 to cover health care costs. (PRETAX)

25
Q

Excludable withdrawals (distributions)

HSA

A

any amount paid or distributed out of an HSA that is used exclusively to pay the qualified medical expenses of any account beneficiary is not includable in gross income.

26
Q

A high deductible plan has at least

A

$1500 annual deductible for self only coverage and $3000 annual deductible for family coverage

27
Q

Out of pocket limitation

A

Annual out of pocket expenses paid under the plan must be limited to:
$7500 for self only converge plans and $15000 for family

28
Q

Archer medical savings account (MSA) contributions

A

-similar to IRAs but used for health care
-used if HSA is unavailable
-no new accounts after 2007
-must be used in connection with a high deductible plan
-max out of pocket is $5300/$9650

29
Q

What are the two conditions that would cause you not to have a deductible IRA?

A
  1. you are rich
  2. already in a pension plan
30
Q

How are earnings taxed?

Deductible Traditional IRA

A

Taxed when withdrawn

31
Q

How are distributions taxed?

Deductible Traditional IRA

A

taxable as ordinay income

32
Q

How is a Roth IRA taxed?

A

-contributions are not deductible when made
-earnings accumulated tax free
-no deduction is allowed, so distributions of principa is tax free (withrdrawn)

33
Q

Why would someone use the Nondeductible traditional IRA?

A

They fail to qualify for the others by making too much money or already in a 401k
-want to save money for retirement and have it accumulate tax free
-non deductible

34
Q

How are distributions from a nondeductible traditional IRA taxed?

A

Taxable: earnings as ordinary income
Nontaxable: Principal contributions (because not deducted when contributed)

35
Q

What are the adjustments to AGI when self employed?

A

-deductible part of self employment tax
-self-employment health insurance deduction
-deduction for contributions to certain self employed retirement plans

36
Q

What are the two taxes for a self employed taxpayer with that has net business income?

A

income tax and self employment (social security and Medicare) tax
**50% of self employment tax is deducted to arrive at AGI

37
Q

How much can self employed individuals deduct for health insurance premiums?

A

All of the health insurance premiums paid for the taxpayer, spouse, and dependents

38
Q

Most common self employment retirement plans are:

A

-Simplified employee pension SEP IRAs
-Savings incentive match plan for employees (SIMPLE) IRA
-Solo 401k

39
Q

SEP IRA

A

Allowed to deduct the LESSOR of
-20% of self employment net income reduced by one half of self employment tax deduction or
-$66,000

40
Q

Simple IRA

A

Allowed to deduct the LESSOR of
-100% of self employment net income reduced by one half of self employment tax deduction or
-$1550

41
Q

Solo 401k

A

Allowed to deduct the LESSOR of
- 20% of self employment income reduced by one half of self employment tax deduction or
-$66,000

42
Q

What are things generally not deductible on the Schedule C?

A

Personal expenses

43
Q

Business meals are deductible up to

Schedule C

A

50%

44
Q

Self employment tax is

Schedule C

A

one half deductible from gross income as an adjustment

45
Q

SEP IRA deduction is the lessor of:

A

$69,000
or
20% of net earnings

46
Q

What is the max amount of AGI that would preclude you from deducting student loan expense?

A

$110,000

47
Q

Can a taxpayer be a dependent and still deduct student loan interest expense?

A

No

48
Q
A

Reg (9 decks)

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