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REGULATION > R2 > Flashcards

R2 Flashcards

1
Q

What is the calculation of SEP IRA Deduction?

A

Net self employment income
- 50% SE tax
——————————————–
SE earnings before SEP IRA

*20%
__________________________________
SEP IRA Deduction

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2
Q

What is the calc of Medical and Dental exp for itemized deduction?

What is the impact of medical insurance reimbursement on amt reported?

A

Qualified medical expenses
LESS: Reimbursements
____________________________________
Qualified medical expenses paid

LESS: 7.5% of AGI
________________________________
Any excess is included in itemized deduction

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3
Q

What costs are NOT deductible as Medical expenses? (6)

A
  1. Cosmetic/elective surgery
  2. non prescription medications/vitamins, herbs
  3. Health club dues - gym membership
  4. Life insurance premiums
  5. Funeral expenses
  6. Disability policy that provides income if become disabled / loss of earnings
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4
Q

If a Credit card is used to pay medical expenses in Yr1 but the CC bill is not paid till yr2 - when is the expense taken?

A

In Yr1 - when expense occured

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5
Q

What is the impact of changes to tax payers house (wheelchair ramp, elevator, etc) on the medical deduction?

(i.e install elevator for medical purpose of cost of $75k and adds $50k in value, what is the impact on the deduction?)

What if their was no increase in value to the house?

A

The difference b/n cost of renovation and amt added in value to house is deduction

$75k costs - $50k value added = $25k deduction

The amount of expense can be added to the deduction (i.e $80k cost - 0 value added = $80k deduction)

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6
Q

What is the maximum amount of State and local taxes that can be claimed as an itemized deduction?

A

$10K (MFJ)/$5k(MFS)

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7
Q

How are State And Local Taxes (SALT) paid as an W2 employee compared to Self employed individual?

A

Employee has SALT withheld from paycheck (still deductible on taxes)

SE individual has to pay through Estimated Taxes (not deductible until paid)

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8
Q

When calculating state and local taxes itemized deduction - how do you calc the state income vs state sales tax?

A

Higher of : State income tax OR state sales tax

is taken , not both

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9
Q

What are the 6 categories of itemized deductions? (TMI CCM)

A

Medical
Taxes
Interest
Charity
Casualty
Misc.

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10
Q

What is the limit on deducting interest on home?

A

Can treat no more than $750k of acquisition indebtness (home mortgage principal) for interest deduction

So if mortgage is > $750k –> can deduct up to first $750k

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11
Q

What is the Home Equity Loan interest (deductible acquisition indebtness) itemized deduction?

A

When you own a home and decide to take a loan out on the equity of the house

You can deduct loan int ONLY IF you use the loan proceeds to fix up the home

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12
Q

What are Mortgage points and how are they included to itemized deduction?

A

Mortgage points are paid when acquiring/refi loan on house to pay down the interest.

1 point = 1% of loan

If paying for points on acquisition = deduct in year

IF paying for points on refi = deducted over life of the new mortgage

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13
Q

What is investment interest and how is the amount calculated for itemized deduction?

A

Borrowing money to invest - the interest paid on loan is deductible ONLY IF the income from investment is taxable @ ord income tax rates

can only deduct UP TO the amount of investment income

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14
Q

What is Personal interest and what amount is included in itemized deduction?

A

Person int = life int loan, bank CC, Auto loan

NOT DEDUCTIBLE

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15
Q

What is prepaid interest and what amount is included in itemized deduction?

A

Prepaid int is amount paid in adv - must be allocated over the pd of the loan

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16
Q

What is education loan int and what amount is included in itemized deduction?`

A

int on educational loans –> Adjustment NOT DEDUCTION

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17
Q

What are NONdeductible Charitable contributions (3)?

A
  1. CC to Foreign Charities
  2. Gifts to political campaigns
  3. gift to needy families
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18
Q

How much of items other than cash eligible for a Charitable Contribution? (ST cap prop and LT cap prop)

A

Deductible at the LOWER OF: Tax basis OR FMV @ date of donation

LTCG deductible @ FMV of donation

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19
Q

What are the Charitable contribution limit for cash and and LTCG property for deduction?

A

Cash = 60% of AGI
LTCG prop = 30% of AGI

20
Q

What are the CFWD rules for Charitable contributions?

A

If over CC limits (60% cash) –> CFWD 5 years, no BCK

21
Q

When is it needed for substantion of prop for Charitable contribution?

A

MUST be obtained for deduction of prop (clothing, furniture) to Charitable org. Deduction would be lower of FMV or cost basis

22
Q

What is the rule of services for Charitable contribution?

A

Services itself donated to org is NOT deductible

Cash paid OOP while donating time = deductible

23
Q

When are casualty losses deductible?

A

ONLY in presidential declared disaster

24
Q

What are the 5 refundable tax credits?

A

Child Tax credit
Earned Income Credit
Fed Income Tax Withheld
Excess SS tax Paid
American Opportunity Credit (40%)

25
Q

Define the following for the Child Tax Credit:

  1. How much is the General credit?
  2. Requirements
  3. Phase out
  4. Refundable amount
  5. MFJ, AGI of $407,368, 2 children (QC) - what is the credit
A
  1. $2k per Qualifying child (under 17) AND $500 for each dependent for nonqualifying child
  2. Must be qualifying child
  3. $50 p/o on the $2K overall credit every $1k over $200K(S/MFS)/$400k(MFJ)
  4. LESSOR OF:

A. Excess Child tax credit over tax liab
B. Earned Income in excess of $2.5k *15% (375)
C. $1.6K per child

  1. $407,368 - 400,000(P/O) = 7,368
    7,368/1,000 = 7.37 –> round to 8
    8 x $50 = 400
    $4,000 (2 kids) - 400 = $3,600 Credit
26
Q

What is the calculation of Foreign Tax Credit?

A

LESSOR OF:

  1. Foreign Taxes Paid

OR
2. TI from all foreign operations * U.S tax
________________________________
TI WW

27
Q

How are legal expenses deducted in the tax formula?

A

Trade or biz expenses deductible on Schedule C to be deducted FOR AGI

Not deductible for individual

28
Q

When can an employee claim a credit for excess SS tax withheld?

A

Can claim credit when excess SS was withheld over the max amt IF that excess was correctly withheld by 2+ employers

29
Q

In a incentive stock option –> when is the income/gain realized?

A

In the year the stock was sold

30
Q

How do you calc the deductible amount of SE tax?

A

SE income
* 92.35% SE tax on income
———————————————
SE income subject to SE Tax
15.3% (7.652) SE Tax rate
————————————-
SE tax liability
*50% is deductible
______________________________________
deductible amount

31
Q

What types of taxes are allowed to be deducted as an Itemized deduction?

A

RE Tax, Property tax, SALT

32
Q

How much can a K-12 teacher deduct up to in OOP costs for supplies?

A

$300

33
Q

How much of student loan interest can be deducted per year? Are there any limitations?
Where is this included in the tax formula?

A

$2,500 per year –> excess is not deductible
P/O begins $70k/140k

Deduction to arrive at AGI

34
Q

Can a dependent of another take the std deduction and in what amount?

A

Yes

GREATOR OF:
$1,250 OR EI + 400

35
Q

What types of interest are included in the calculation of interest of itemized deduction? (HIPPE)

A

Home mortgage interest (first and second home) up to 750k up mortgage OR home equity loan (IF loan is to rennovate home)

Investment interest - only up to the investment income, cannot be negative,

Personal - NOT deductible

Prepaid - included only when incurred AND paid

Educational interest - NOT deduction (it is adjustment)

36
Q

What are the 4 taxes included for itemized deductions?

A

Property tax
income tax
RE tax
LESSOR OF: State and local OR sales tax

37
Q

In an nonqualified stock option plan - when does a stockholder recognize income?

A

Stockholder recognizes ORD income @ FMV * # shares purchase

At date granted (received the option)

38
Q

How are unreimbursed business meals as employee classified in TI?

A

NOT included/not deductible

39
Q

If an individual files a tax return with 0 liability in the prior tax year - what is the min amount of payment due in the current year to avoid tax payments?

A

Lessor of:

  1. 90% of CY tax or 100% of PY tax
40
Q

What is the max qualified expenses for the lifetime learning credit and what is the max credit? How is the credit calculated?

A

$10K expenses
$2K credit

Credit = Expenses * 20%

41
Q

How is the American Opportunity Credit Calculated?

A

1st 2K of expenses * 100%
2nd up to 2K * 25%

Max is 2,400

42
Q

When calculating Medical expense for deduction - what is the exception in dependency qualifications?

A

If providing over 50% of another individual AND paying for medical expenses –> can include amount paid REGARDLESS of the amount of gross income the supported individual has

43
Q

Do you pay tax in a coverdell interest income?

A

No, no interest is taxable - coverdell is tax free

44
Q

What is the latest date that an IRA contribution can be made in order to qualify as a deduction on prior year return?

A

April 15

45
Q

When calc taxes allowed for itemized deductions - how are special assessments treated?

A

Not deductible

46
Q

Under a Section 529 education savings plan - what is the max withdrawal per year?

A

$10k

47
Q
A

REGULATION (8 decks)

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