REG Flashcards
What is the individual income tax formula
Step 1: Gross Income - Adjustments = Adjusted Gross Income
Step 2: AGI - the larger of Standard Deduction or Itemized Deduction = Taxable Income before Qualified Business Income Deduction
Step 3: Taxable Income Before QBI - QBI deduction= Taxable Income
Step 4: Taxable Income - Tax Credits + other taxed - payments = Tax due or refund
What is the criteria to be considered a qualifying child?
Qualifying Child - CARES
C - Close Relative
A - Less than 19 yos or 24
if a full-time college student
R - Residency: person must live with the taxpayer for at least half the taxable year
E - Eliminates the Gross Income test
S - Support greater than 50% is provided by the taxpayer
***ALL THE CRITERIA MUST BE MET FOR EACH RESPECTIVE DEPENDENT STATUS TO QUALIFY
What is the criteria to be considered a qualifying relative?
Qualifying Relative - SUPORT
S - Support test (see above)
U - under $4.7k of gross income
P - Prevents dependent as filing a joint return unless the MF J or Single would result in zero liability
O - Only citizens of U.S. or residents of U.S., Mexico, or Canada
R - Must be a relative OR
T - Taxpayer lives with individual (IF NON RELATIVE) for the whole year
What are the limitations of QBI and their criteria
Limitation based on Taxable Income
-Category 1: Taxable income is <= $182,100 (Single) or >= $364,200 (Married)
-Category 2: Taxable income is >$232,100 (Single) or > $464,200 (Married)
Limitation based on Qualified Trade or Business (QTB) vs Specified Service Trade or Business (SSTB)
-Category 1: Same as category 1 found in taxable income
-Category 2: Taxable income is >$232,100 (Single) or > $464,200 (Married)
***Taxable Income categories and category 1 of QTB or SSTB are multiplied by 20%
**If flowthrough proceeds come from SSTB, then the QBI deduction is $0
Nuances of Net Business Income (reported on schedule C)
-It is taxable twice: once at the regular tax rate and the other for Social Security and Medicare
-Self-employment tax is calculated on 92.35% of SE income (because you’re only liable for the ER or EE portion NOT both)
-SE Tax = 15.3%
-You can claim a an adjustment up to half of the SE Tax
What is the basic formula for the determination of Net Rental Income (Loss)
Gross Rental Income
+ Prepaid Rental Income
+ Rent Cancellation Payment
+ Improvement (@FMV) instead of rent payments
- Rental Expenses
What’s the calculation to calculate deductible medical expenses?
Qualified Medical Expenses
- Insurance Reimbursement
- 7.5% of AGI
What are the AGI Limitations when it comes to Charitable Contributions made to public charities
Cash = 60%
Ordinary Income Property* = 50%
LT Capital Gain Property** = 30%
*the lesser of the properties adjusted basis (cost) or FMV at the time contributed
**FMV at the time contributed
NOTE: Excess above AGI are allowable for carryforward up to 5 yrs
What is the formula to calculate the amount of loss caused by a declared disaster
The lesser of: Cost of property or Decreased FMV
- Insurance Proceeds
- $100/ occurrence
- 10% of AGI
What is the tax treatment of capital gains/losses for individual taxpayers
Net Capital Losses are deducted up to $3,000/yr against noncapital income and any excess can be carried indefinitely
What is the tax treatment of capital gains/losses for C corporations
Net capital losses:
-Carried back three years, forward five years
- Cannot offset net capital gains in the CY, only during the carryback/carryforward window
What are the nondeductible losses
W - Wash Sales
R - Related Party transactions
A - And
P - Personal Losses
Describe the half-year, mid-quarter, and half-month conventions
Half-year: six months depreciation is taken in the year of acquisition and disposal
Mid-quarter: only used if more than 40% of the assets placed in service during the year were placed during the quarter 4. all property is treated as if its placed in service in the mid-point of the quarter
Mid-month: used for calculating depreciation of REAL property. Residential (27.5 yr) Nonresidential (39) are depreciated using straight-line basis, and treated as if it were placed in the middle of the month
What is section 179
A cost recovery strategy that allows a maximum deduction (of personal property) of $1,160,000.
Note: If the value of the property is > $2,890,000 then the excess is deducted from the limit to arrive at the basis
What is bonus depreciation
Bonus depreciation expenses 80% of the cost of qualified property placed in service during the year. (claimed after section 179 and before MACRS)
What are temporary book/tax differences? Name some
Temporary book/tax differences are income/expense items that are recognized in different periods for book income and taxable income
Examples:
Depreciation Expense
BDE
Business interest expense
Unearned rent/royalty income
What are permanent book/tax differences? Name some
Permanent book/tax differences are income/expense items that are either 1) recognized in for financial but never for tax or vice-versa
Examples:
Interest Income from municipal bonds
Life insurance proceeds on key employees
Fines, penalties
Entertainment expense
What are the general corporation NOL carryforward/backward rules
-NOLs before 2018 can be carried back 5 yrs and carried fwd 20 yrs
-NOLs arising during 2018, 19, 20 can be carried back 5 yrs and carried fwd indefinitely (can offset 100% of future taxable income)
-NOLs arising in 21 cannot be carried back but can be carried fwd indefinitely (can offset only 80% of future taxable income
What is the treatment for corporate capital gains/losses
-Losses are applied against capital gains only NOT taxable income
-Losses can be carried back 3 yrs and fwd 5 yrs
What makes up the apportionment factor used to apportion income to a state?
The weighted average of the corporation’s property, payroll, and sales in the state
What is the basis of a gift for determining a gain or loss in a sale transaction
1) If the selling price is less than the FMV, then use FMV as your basis
2) If the selling price is greater than donors basis, then donors basis as your basis
3) If the selling price is in the middle of donors basis and FMV, then use selling price i.e no gain or loss
How is the basis and holding period of inherited property determined
The basis is the lower of FMV at the time of death or FMV at alternate valuation date (six months after the death or date of distribution/sale if earlier than six months)
*The basis for inherited property is ALWAYS considered long term
What is the formula for a partner’s basis in a partnership
Beginning capital accounts (contributions, less liabilities assumed by other partners
Additions: partner’s share of all income and gains (ordinary business income, separately stated, tax-exempt)
Subtractions: partner’s share of all losses and deductions and distributions
Ending capital
account + partner’s share of partnership liabilities
How are charitable contributions treated by corporations?
Can only take up to 10% of taxable income before charitable contributions, DRD, and capital loss carryback