REG 1 BK

Question 1

Nontaxable Misc. items?

Answer 1

PAMWLG– Persona Injury/Illness Award, Accident/Health Insurance premiums paid by employer, Medicare, Worker’s Comp., Life Ins Proceeds, Gifts

Question 2

How is inventory considered for farmers?

Answer 2

It’s expensed.

Question 3

Passive activity losses and carry forward?

Answer 3

Indefinitely, to offset passive income in future years.

Question 4

Are distributions from a traditional non-deductible IRA deductible?

Answer 4

Principal—yes Earnings— No

Question 5

Household maintenance requirements for qualifying widow?

Answer 5

Must maintain household for dependent for whole year, and must pay more than 1/2 cost of keeping home for the child.

Question 6

Net unearned income of child under 18 and taxability?

Answer 6

Taxed at parents’ higher rate

Question 7

Net unearned income of full time student 24 or younger and taxability?

Answer 7

Taxed at parents’ higher rate, if the kid pays less than half of his own support

Question 8

Can employer’s payment of employee’s educational expenses be deducted? What is the limit?

Answer 8

Yes, up to $5250

Question 9

Limit on employee business expenses deduction?

Answer 9

2% of AGI floor

Question 10

How are ISO’s taxed to the employee? To the employer?

Answer 10

Employee– Not taxable as compensation, capital gain/loss when sold. Employer– Not deductible.

Question 11

Is SSI taxable?

Answer 11

Low income– Nontaxable. Upper income– 85% of SSI is taxable.

Question 12

3 main requirements for alimony?

Answer 12

1. Payments must be made pursuant to divorce decree 2. Payments must be in cash 3. Payments can’t extend beyond life of spouse

Question 13

Examples of inventoriable indirect costs?

Answer 13

Insurance, supervisory wages, design expenses, repairs and maintenance (“RIDS”)

Question 14

2014 tax rates

Answer 14

0%– low income, 15%– most, 20%– high income

Question 15

GR for taxation of interest income?

Answer 15

All interest income is taxable unless specifically excluded

Question 16

When can you file as a qualifying widow?

Answer 16

For the 2 years after the year of death

Question 17

What is the “Mom and Pop” passive loss exception?

Answer 17

If you actively participate in managing a rental property, a passive loss can offset any type of income (up to $25,000)

Question 18

Is child support taxable to the recipient? How about alimony?

Answer 18

Child support—no. Alimony—yes.

Question 19

Conditions for scholarship/grant to be excludable?

Answer 19

1. Must be made to degree-seeking student. 2. No services to be performed as a condition of receiving it. 3. Only amounts for tuition, fees, etc. are excludable. Amounts for room and board are not excludable.

Question 20

Nondeductible expenses on schedule C?

Answer 20

Salaries paid to sole propietor, federal income tax, health insurance of sole propietor, bad debt expense of cash-basis taxpayer.

Question 21

Full-time student definition for tax purposes?

Answer 21

Must be enrolled full-time student at least 5 out of the 12 months of the year.

Question 22

What is an ESPP?

Answer 22

A grant of options to employees to purchase stock in a corporation.

Question 23

Are charitable contributions deductible for the self-employed?

Answer 23

No.

Question 24

How is interest on federal government obligations treated? How about state government obligations?

Answer 24

Federal– taxable. State– nontaxable.

Question 25

When does a dependent child not need to meet the residency requirement?

Answer 25

When he attends school full-time.

Question 26

What are the ownership and use requirements for spouses to meet the Homeowner’s Exclusion?

Answer 26

Both spouses must meet use requirement. Either spouse can meet ownership requirement.

Question 27

Name the criteria for classification as a like-kind exchange.

Answer 27

Tangible real or personal property, used in a trade or business

Question 28

When is gain not recognized with involuntary conversions?

Answer 28

If insurance proceeds are reinvested in property that is similar or related in service or use within 2 years for personal property or 3 years for business property.

Question 29

How is the holding period for a gift determined?

Answer 29

Normally includes holding period of donor. However, if FMV is used to value the gift, then holding period begins at date of gift.

Question 30

What point in time is used to determine if taxpayer can file MFJ or MFS?

Answer 30

End of year.

Question 31

What is required to file MFJ?

Answer 31

Must still be married. If separated and living apart, this counts as married for tax purposes.

Question 32

Is money put into a qualified retirement plan by the employer and for the employee deductible to employee? Are the benefits deductible to the employee?

Answer 32

Payments made by employer are nontaxable to the employee. Benefits received are taxable to the employee.

Question 33

Are Series EE bonds deductible?

Answer 33

Yes, when used to pay for higher education (less tax-free scholarships) for the taxpayer, the spouse, or a dependent.

Question 34

Exceptions to IRA penalty tax for premature distribution?

Answer 34

“HIMDEAD”—Home buyer, Insurance (medical), Medical expenses above 10% AGI, Disability, Education, Death

Question 35

When is a gain not taxed?

Answer 35

“HIDE IT”–Homeowner exclusion, Involuntary conversions, Divorce property settlement, exchanges of like-kind, installment sale, Treasury stock

Question 36

Describe employer and employee taxation of nonqualified stock options.

Answer 36

If the option has a readily ascertainable value– this amount is ordinary income and deductible to the employer. The value at grant date is used. If the option does not have a readily ascertainable value– the employee is taxed on the value at exercise date in this case. He recognizes ordinary income based on the fair value of the stock purchased less any amount paid for the option on the exercise date.

Question 37

Who is eligible for the retirement savings contribution credit?

Answer 37

Must be at least 18 by end of tax year, must not be a full-time student, must not be a dependent.

Question 38

What are the 2 types of qualified stock options?

Answer 38

Incentive Stock Options (ISO’s) and Employee Stock Purchase Plans (ESPP’s)

Question 39

How are ISO’s and ESPP’s taxed to the employee? To the employer?

Answer 39

Generally, ISO’s and ESPP’s are not taxed as compensation to the employee. Gain/loss on subsequent sale is capital. Employers do not get tax deduction for ISO’s and ESPP’s. No ordinary income is recognized by the employee. The fact that it is “qualified” exempts the employee from having to recognize ordinary income.

Question 40

How to calculate basis for nonqualified options?

Answer 40

Ordinary income recognized + exercise price

Question 41

How to calculate basis for ISO’s and ESPP’s?

Answer 41

Basis is exercise price plus any amount paid for the option.

Question 42

Holding period requirements for ISO’s and ESPP’s?

Answer 42

Once exercised, they must be held for at least 2 years after the grant date and at least one year after the exercise date.

Question 43

How are gains treated for ISO’s and ESPP’s?

Answer 43

Generally, any gain on subsequent sale is capital. If the holding period requirements are not met, any gain is ordinary, up to the amount that the stock’s FMV on the exercise date exceeded the option price.

Question 44

Exception to gain recognition for ESPP’s?

Answer 44

If the option price is less than the FMV of the stock on the grant date, then ordinary income is recognized as the lesser of the difference of the FMV of the stock when sold and the exercise price, or the difference between the FMV of the stock on the grant date and the exercise price.

Question 45

Does a corporation recognize gain on a property dividend?

Answer 45

Yes, it’s treated as if they sold the property.

Question 46

What happens if the holding period requirements for ISO’s/ESPP’s are not met?

Answer 46

Ordinary gain, rather than capital gain, is recognized upon sale.

Question 47

What are the requirements for a qualifying child?

Answer 47

dependent child, age limit (19/24 if full-time student), residency requirement (must live with taxpayer more than half the year), eliminates gross income test, support test changes (kid can’t provide over half of his own support)

Question 48

What are the requirements for a qualifying relative?

Answer 48

Support test– taxpayer must provide over 1/2 of the relative’s support, under gross income limit ($3,950), precludes dependent filing joint return, only U.S. citizens, must be a relative or live with the taxpayer the whole year if non-relative

Question 49

Is money received from an inheritance taxable?

Answer 49

No.

Question 50

What expenses are deductible from Schedule C?

Answer 50

Business expenses only, not personal expenses.

Question 51

What is the deductibility of alimony to the payor? To the payee?

Answer 51

Deduction to arrive at AGI for payor. Income to payee.

Question 52

What is the main requirement for filing head of household?

Answer 52

Must maintain as his home a household that, for more than half of the year, is the principal residence of a dependent child, parent, or relative. Parents living in a nursing home still count as dependents, even though they don’t live with the taxpayer.

Question 53

What are the rules on a rental of a vacation home?

Answer 53

If rented less than 15 days, the rental income is excluded from taxable income. If rented more than 15 days, then expenses are prorated between personal use and rental use. Rental use expenses are deductible only to the extent of rental income.

Question 54

What are the taxation rules for property settlements in the case of divorce?

Answer 54

The paying spouse does not get a deduction, while the settlement is deductible to the recipient spouse.

Question 55

What is the taxability of employer group term life insurance premiums?

Answer 55

The premiums on the first $50,000 of coverage are deductible. After that, they are taxable.

Question 56

How are gains treated for ISO’s and ESPP’s if the holding period requirements are not met?

Answer 56

If the holding period requirements are not met, any gain is ordinary, up to the amount that the stock’s FMV on the exercise date exceeded the option price.