REG 1

Question 1

Included in taxable gross income:

Answer 1

• Interest income on a fed & state refund
• Unemployment compensation
• General investment accounts
• Compensation for services and damages received for non-physical injury
• Grants paid for participation in research projects
• Employee achievement awards not in the form of tangible personal property (staying is bosses condo)
• Treasure troves to the extent of its value in the US currency ( money found somewhere)
• Any tuition reimbursement from an employer over 5,250.
• Any scholarship money spent on anything other than tuition, books, material (room and board are not tuition)

Question 2

If a couple has been legally separated and maintained separate households for the entire year, what is their filing status?

Answer 2

Single

Question 3

What amount of group term life insurance is taxable?

Answer 3

amount exceeding $50,000 taxed based on IRS tables.
i.e. $200,000 coverage
Less: $50,000
Div: 1,000 (2.76 per $1,000 of coverage)
Times: 2.76

Question 4

Which costs are included in inventory under the Uniform Capitalization rules for goods manufactured by the taxpayer?

Answer 4

• Warehousing costs
• Quality control
• Taxes excluding income taxes
  Or
  DL, DM, and Factory OH (the above are OH costs)

Question 5

What is included in self-employment tax?

Answer 5

Guaranteed payment from services rendered to a partnership.
- Ordinary income from S-Corp is not included

Question 6

Is the State tax refund, interest or both taxable?

Answer 6

Interest only

Question 7

Where is the deduction for QBI applied in the individual tax formula?

Answer 7

As a deduction from AGI separate from the standard and itemized deduction

Question 8

Cash contribution limitations

Answer 8

limited to 60% of AGI, the excess is carried forward 5 years and must be donated to a charity (needy family doesn’t count)
- Property needs to be substantiated (check, receipt, etc.)
- Services, cash for tuition, or cash donated outside the US are not deductible.

Question 9

Property contribution limitation

Answer 9

• Held for more than one year = FMV limited to 30% of AGI
• Help for less than one year = lesser of the adjusted basis or FMV limited to 30% of AGI
• If the charity immediately sells the property, the deduction is limited to the gross proceeds the charity receives from the sale or the cost basis

Question 10

What is the transaction loss deduction calculation for casualty loss?

Answer 10

• only deductible if qualified as casualty or theft

(Lesser of the adjusted basis or decrease in FMV)
Less: Insurance Recovery
Less: $100
Less: 10% of AGI

Question 11

Itemized items include:

Answer 11

• Mortgage interest
• State taxes paid
• Medical expenses
• Property tax on automobile
• Estimated tax liability paid

Question 12

Taxable interest on insurance policy received (deceased loved one)

Answer 12

Amount received in the current year
Less: (death benefit / years)

Question 13

S-Corporation passive income deduction limitation

Answer 13

Passive losses are offset by passive income. The remaining loss is carried forward until utilized.

Question 14

“mom and pop” exception for S-Corps passive income deduction

Answer 14

• AGI under $150,000. can deduct max $25,000
  Phase out
  25,000 max
  Less: (AGI - 100,000 Threshold x 0.5)

Question 15

QBI for single taxpayers within the limitation phase-in range (182,100 - 232,100) calculation:

Answer 15

Taxable income
Less: Threshold
Divide: 50,000 (Phase-in range)
Times: Excess amount ( QBI x 20% - W2 wages limit (W2 wages x 50%)
Equal: Reduction amount
QBI deduction (QBI x 20%) - reduction amount

Question 16

Basis of gifted securities sold

Answer 16

• If the sales price exceeds the donor’s cost basis, donee’s basis equals the donor’s cost basis
• If the sales price is less than the donor’s bases but greater than FMV at the gift, the donor’s basis equals the sales price
• If the sales price is less than the donor’s basis and the FMV, donee’s basis equals FMV
• No gain or loss is recognized when stock sold for less than basis but higher than FMV

Question 17

When can a taxpayer claim a parent as a dependent

Answer 17

When the taxpayer provides more the half support and the parent’s gross income meets the limitation (SS income is nontaxable and not included in gross income)

Question 18

What are the dependent rules under CARES?

Answer 18

• under the age of 19
• or under 24 at end of year AND a full-time student during the year
• Or permanently and totally disabled at any time during the year, regardless of age or if they live with you, if you provide more than 50%, support.
  (A non-relative you provide more than 50% support and doesn’t make any money, counts as a dependent under SUPPORT)

Question 19

Filing status for a guy unmarried and provides all the support for his girlfriend who lives with him but has no taxable income.

Answer 19

Single
- the girlfriend is not a qualifying child, parent, or relative.

Question 20

Gain on sale of personal residence excluded from gross income

Answer 20

• The gain on the sale of up to 250,000 for a single taxpayer is excluded from gross income if the taxpayer used the home as a personal residence for 2 of the 5 prior years before the sale.
• any amount over 250k for a single taxpayer will be included in gross income

Question 21

Taxable amount of an annuity calculation

Answer 21

original investment
div: expected value ($ per month x months)
equal: exclusion ratio
100% Less: exclusion ratio
Times: Total payments received in the current year
Equal: taxable annuity

Question 22

Taxable social security benefits

Answer 22

Lessor of 50% of SS benefits
Or 50% of modified AGI ((AGI + tax-exempt interest + one-half SS benefits - 25,000?) x 50%)

Question 23

Business interest expense deduction calculation:

Answer 23

• Limitation applies to taxpayers with average annual gross receipts of $29 million or more for the prior 3 years.

Adjusted taxable income
Times: 30%
Plus: business interest income
Plus: floor plan financing interest expense
Equal: deduction limitation
Interest expense
Less: deduction limitation
Equal: Amount disallowed; Carryforward indefinitely

Question 24

Adjustment to self-employment tax paid calculation?

Answer 24

Self-employment income (gains from sales are not included)
Times: 92.35% (built into Sec. SE)
Equal: Net earnings
Times: (Social Security tax up to $160,200 income + Medicare tax)
Equal: Self-employment tax
Times: 50%
Equal: Self-employment tax deduction

Question 25

QBI for taxpayers above the threshold calculation

Answer 25

The greater of:
- 50% of business W-2 wages
or - 25% of the W-2 wages + 2.5% of the taxpayer’s share of the UBIA qualified property

The deduction is limited to the amount of the QBI x 20%
- Sole proprietorship income is excluded for taxpayers over the threshold

Question 26

Contributing Stock to Charity Limitations?

Answer 26

If held more than 1 year, the contribution is the FMV
- If held less than 1 year, the contribution is the lesser of the FMV or cost basis

Question 27

Medical expense deduction

Answer 27

The deduction is the excess of qualifying expenses paid during the year over 7.5% AGI

Question 28

Qualifying medical expenses include:

Answer 28

Necessary expenses charged in the current year.
- Premiums paid on GROUP life insurance. (disability premiums and normal life not included)
- Lodging, meals, and treatment at a treatment center
- Contacts, glasses
- Job-related injuries
- Transportation to and from
- co-pays
- home improvements deemed necessary in excess spent over increase value of the home. plus operation and upkeep expenses

Question 29

Maximum itemized deductions allowed for taxes paid?

Answer 29

$10,000
- includes state income taxes and real estate taxes (fed taxes not included)

Question 30

Stock included on W-2 calc

Answer 30

Salary
Plus: Bonus (can be in the form of stock)
Plus: stock purchased from the company (value of stock per share - stock option plan price)

Question 31

Dependent’s income taxed at parent’s marginal rate calc

Answer 31

income
Less: dependent standard deduction
Less: 1,250 taxed as child’s marginal rate

Question 32

What is the basis of inherited assets?

Answer 32

The FMV at date of death

Question 33

How may taxes paid by an individual to a foreign country be treated?

Answer 33

As a credit against federal income taxes due

Question 34

What is the basis of gifted securities/ assets resold?

Answer 34

• If the sales price exceeds the donor’s cost basis, donee’s basis equals the donor’s cost basis
• If the sales price is less than the donor’s basis but greater than FMV of the gift, donor’s basis equals the sales price. no gain or loss recognized
• If the sales price is less than the donor’s basis and the FMV, donee’s basis equals FMV

Question 35

What tax credit can offset tax liability but cannot result in a refund?

Answer 35

Lifetime learning credit