REG 1-2 Flashcards
Who qualifies for the child and dependent care credit and what amount is the credit?
- Qualifying child (dependent) under the age of 13
- Disabled spouse
Max= 50% of eligible expenses; up to a max. expenditure of $8K
What is the treatment for a cash-basis taxpayer who pays interest in advance?
The interest must be both paid and incurred to be deducted; must amortized the balance over rest of period
What is the formula to calculate deductible losses for casualty losses?
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
What are the applicable kiddie tax rates for the different ranges of the child’s unearned income?
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
Who does the kiddie tax apply to and on what income does it apply to?
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..)
What is a child’s standard deduction relating to kiddie tax?
Standard deduction: $2,200
OR
If child has earned income of more than $750, standard deduction= earned income + $350
What are the limitations applied on the ability of INDIVIDUAL taxpayers to deduct various losses?
-Limitation on the deduction of net capital losses
- Limitations on the deduction of business and rental activity losses:
- Tax basis limitation
- At-risk limitation
- Passive activity loss (PAL) limitation
- Excess business loss limitation
What is the Excess Business Loss limitation and what is the threshold?
Taxpayers are not allowed to deduct an overall “excess business loss”
Threshold: *$262K (all others); $524K (MFJ)
What are the requirements for U.S. Series EE Savings Bonds to be tax-exempt?
- 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)
What are adjustments to AGI (above-the-line)?
- 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
Are expenses for business meals deductible for employees?
Unreimbursed business meals incurred as an employee are not deductible.
How are employee stock options and what are they characterized as?
Valued on the grant date if a readily ascertainable FMV available
Recognized as ordinary income (equivalent to compensation)
For income to be taxable on a tax return, it must be:
BOTH realized and recognized
How is the homeowner’s exclusion calculated?
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
How long does a student have to be full-time to qualify as a qualifying child?
5 months out of the year
Note: If they are a part-time college student (under 19), they qualify as a qualifying child
How much can a person earn to qualify as a qualifying relative?
Under $4,300
Note: Social security income is nontaxable and NOT included in this test
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)
Up to $5,250 may be excluded
What is the difference between how workers’ comp and unemployment comp are taxed?
Workers’ comp: not taxable
Unemployment comp: fully taxable
What is the tax treatment of inherited items?
Inherited items are NOT taxable
How are prizes/awards taxed?
Prizes/awards are taxable at their cash or FMV
What are QTBs and SSTBs?
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
What are the capital loss limitations for individuals vs for corporations?
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.
What is the exception to the rental losses rule and what does it entail?
“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)
How long must a parent live in an assisted living home for their children to claim them?
They must live there for the entire year
