REG 1-2

Question 1

Who qualifies for the child and dependent care credit and what amount is the credit?

Answer 1

• Qualifying child (dependent) under the age of 13
• Disabled spouse

Max= 50% of eligible expenses; up to a max. expenditure of $8K

Question 2

What is the treatment for a cash-basis taxpayer who pays interest in advance?

Answer 2

The interest must be both paid and incurred to be deducted; must amortized the balance over rest of period

Question 3

What is the formula to calculate deductible losses for casualty losses?

Answer 3

Smaller loss (adjusted basis vs decreased FMV)
- Insurance proceeds
\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_
= Taxpayer's loss
- $100
\_\_\_\_\_\_\_\_\_\_\_\_\_\_
= Eligible loss
- 10% AGI
\_\_\_\_\_\_\_\_\_\_\_\_\_\_
= Deductible loss

NOTE: *Loss may NOT exceed the adjusted basis of property. If so, then 0 deductible

Question 4

What are the applicable kiddie tax rates for the different ranges of the child’s unearned income?

Answer 4

Child’s unearned income Tax rate
———————————— ——————-
$0- $1,100 0%
$1,101- $2,200 Child’s rate
$2,201 and over Parent’s rate (net unearned income)

Net unearned income = unearned income - $2,200

Question 5

Who does the kiddie tax apply to and on what income does it apply to?

Answer 5

Children under 18 (or child age 18-24 who does not provide > 50% of support and is a full-time student)

Applies to unearned income (dividends, interest, rents, royalties..)

Question 6

What is a child’s standard deduction relating to kiddie tax?

Answer 6

Standard deduction: $2,200

OR

If child has earned income of more than $750, standard deduction= earned income + $350

Question 7

What are the limitations applied on the ability of INDIVIDUAL taxpayers to deduct various losses?

Answer 7

-Limitation on the deduction of net capital losses

• Limitations on the deduction of business and rental activity losses:
  
  1. Tax basis limitation
  2. At-risk limitation
  3. Passive activity loss (PAL) limitation
  4. Excess business loss limitation

Question 8

What is the Excess Business Loss limitation and what is the threshold?

Answer 8

Taxpayers are not allowed to deduct an overall “excess business loss”

Threshold: *$262K (all others); $524K (MFJ)

Question 9

What are the requirements for U.S. Series EE Savings Bonds to be tax-exempt?

Answer 9

• Used to pay for higher education of taxpayer, spouse, or dependents
• Taxpayer is over age 24 when bond is issued
• Married files MFJ
• Registered under taxpayer and/or spouse’s name (child can be a beneficiary, but NOT an owner)

Question 10

What are adjustments to AGI (above-the-line)?

Answer 10

• Educator expenses
• Traditional IRA contribution
• Student loan interest
• Health savings account*
• Moving expenses (military)
• 1/2 self-employment tax
• Self-employed health insurance
• Self-employed retirement contribution
• Penalty of early withdrawal of savings*
• Alimony paid (before 12/31/18)
• Attorney fees in whistle-blower cases*
• Qualified charitable contributions by non-itemizers

Question 11

Are expenses for business meals deductible for employees?

Answer 11

Unreimbursed business meals incurred as an employee are not deductible.

Question 12

How are employee stock options and what are they characterized as?

Answer 12

Valued on the grant date if a readily ascertainable FMV available

Recognized as ordinary income (equivalent to compensation)

Question 13

For income to be taxable on a tax return, it must be:

Answer 13

BOTH realized and recognized

Question 14

How is the homeowner’s exclusion calculated?

Answer 14

The exclusion applies to the GAIN on sale, not on the sale proceeds.
Gain= sale price - adjusted basis

Max of $250K (all other taxpayers); $500K (MFJ)

Requirement: Must have owned and used the property as a primary residence for 2 years or more over a five-year period ending on the date of sale

Question 15

How long does a student have to be full-time to qualify as a qualifying child?

Answer 15

5 months out of the year

Note: If they are a part-time college student (under 19), they qualify as a qualifying child

Question 16

How much can a person earn to qualify as a qualifying relative?

Answer 16

Under $4,300

Note: Social security income is nontaxable and NOT included in this test

Question 17

How much is can be excluded from gross income for payments made by an employer on behalf of an employee for educational expenses? (i.e. reimbursed exp)

Answer 17

Up to $5,250 may be excluded

Question 18

What is the difference between how workers’ comp and unemployment comp are taxed?

Answer 18

Workers’ comp: not taxable

Unemployment comp: fully taxable

Question 19

What is the tax treatment of inherited items?

Answer 19

Inherited items are NOT taxable

Question 20

How are prizes/awards taxed?

Answer 20

Prizes/awards are taxable at their cash or FMV

Question 21

What are QTBs and SSTBs?

Answer 21

Specified Service Trade or Business (SSTB): health, law, acct, actuarial science, performing arts, consulting, athletics, financial services, etc.

Qualified Trade or Business (QTB): anything other than an SSTB

Question 22

What are the capital loss limitations for individuals vs for corporations?

Answer 22

A corporation may deduct capital losses only to the extent of capital gains. Excess is carried back 3 years and forward 5 years.

An individual may only deduct $3,000 capital loss against other income. Loss is carried forward indefinitely.

Question 23

What is the exception to the rental losses rule and what does it entail?

Answer 23

“Mom-and-pop exception”: provides that up to $25,000 of net passive losses from the rental of real estate may be deducted against income from nonpassive sources IF:

• taxpayers are actively involved
• AGI does not exceed $100K (phases out at $150K)

Question 24

How long must a parent live in an assisted living home for their children to claim them?

Answer 24

They must live there for the entire year

Question 25

An employee receiving a nonqualified stock option must recognize gross income on the grant date of how much and of what type?

Answer 25

Recognize as ordinary income at FMV on the grant date

Question 26

How much can a taxpayer deduct on student loan interest paid and for how long?

Answer 26

Up to $2,500 and there is no limitation for this adjustment (duration of time that interest is paid)

Question 27

What is the allowed amount of deductible medical expenses?

Answer 27

Deductible medical expenses are limited to the amount that exceeds 7.5% of AGI

Question 28

At what amount are bonuses taxable?

Answer 28

At FMV

Question 29

When is an SSTB not eligible for a QBI deduction?

Answer 29

SSTB not eligible when they have taxable income of $214,900 or more

Question 30

How much can a couple deduct if one spouse is covered by their employer’s qualified retirement plan?

Answer 30

Covered spouse phase-out: $105K
Not covered spouse phase-out: $198K

If under phase-out, can deduct full amount paid up to $6K per spouse

Question 31

How long does a vacation residence need to be rented out for it to require a Schedule E for rental income/expenses?

Answer 31

15 days or more: Schedule E required

Less than 15 days: treated as personal residence; rental income is excluded and rental expenses are not deductible