REG 2 Flashcards
What is the additional medicare tax from the Affordable Care Act?
Additional 0.9% Medicare tax withheld on wages above $200,000 ($250,000 MFJ, $125,000 MFS)
Should employers pay FICA tax for household employees?
Yes, employer must pay FICA tax if paid more than $2,300 in 2021
What is net investment income tax?
Investment income in excess of allowed deductions.
Subject to tax equivalent to the Medicare tax rate of 3.8%
What is the self-employment tax?
Imposed on net earnings from self-employment at twice the FICA rate for employers.
What are the various FICA taxes?
Are IRA contributions deductible?
Contributions to a traditional IRA are deductible (limit $6,000).
Contributions to a Roth IRA are not deductible
What are medical and dental expenses?
Medical and dental expenses are itemized deductions in excess of 7.5% of AGI. The following expenses are included:
- For diagnosis, cure, mitigation, treatment, or prevention of any disesase.
- Transportation for medical care
- Medical insurance
- Qualified long-term care premiums, services
What is the charitable contribution for individuals who do not itemize?
Below the line deduction of up to $300 ($600 if MFJ)
What is qualified residence interest?
Below the line deduction. Can deduct no more than $750,000 of the sum of acquisition and home equity indebtedness that is secured by a qualified residence.
What types of charitable contributions property are subject to the 50% limit? Itemized deduction for individuals.
What is the qualified business income (QBI) deduction? Section 199A.
The deduction for QBI is 20% for QBI generated by a sole proprietorship, partnership, or S corporation. The deduction is the lesser of:
- 20% of QBI
- 20% of (Taxable income - net capital gains)
What does qualified business income include?
Qualified business income (QBI) is defined as the ordinary income less ordinary deductions a taxpayer earns from a qualified trade or business. It also includes the distributive share of these amounts from each partnership or S corporation interest held by the taxpayer
Qualified business income does not include certain types of investment income, such as:
* Capital gains or capital losses;
* Dividends;
* Interest income (unless “properly allocable” to a trade or business, such as lending);
* Certain other investment items
* The “reasonable compensation” paid to the taxpayer with respect to any qualified trade or business, or
* Guaranteed payments made to a partner
What are refundable tax credits?
- Taxes withheld
- Earned income credit
- Child tax credit
- Credit for other dependents
- Child and dependent care credit
- American opportunity credit
- Premium tax credit
How do you calculate the Earned Income Credit?
What is a qualifying child for the Earned Income Credit?
Three tests must be met:
* Relationship - the child must be related by birth, adoption, eligible foster child, or stepchild.
* Residency - the child lives with taxpayer for more than 6 months
* Age - Child must be under 19, be permanently disabled, or student under age 24
How much is a person that actively participates in rental activity allowed to deduct?
- Entitled to deduct up to $25,000 of losses from passive activity from other passive activity income.
- Deductible against portfolio or active income.
- Phase out for MAGI above $100,000; reduce $25,000 by 50% of MAGI above $100,000
How much is a person that actively participates in rental activity allowed to deduct?
- Entitled to deduct up to $25,000 of losses from passive activity from other passive activity income.
- Deductible against portfolio or active income.
- Phase out for MAGI above $100,000; reduce $25,000 by 50% of MAGI above $100,000
What types of transactions are excluded from the installment sale method?
Installment sales do not apply to the following:
Inventory personal property
Revolving credit personal property sales
Items regularly sold on installment plans (dealer)
Real property held for sale for trade or business (dealer)
Publicly traded securities
Sales on agreement to establish irrevocable escrow account
What is the annual exclusion for gift tax?
The first $16,000 of gifts of present interest to each donee is excluded from taxable gift amounts.
What is the marital deduction for gift tax?
The amount of gift transfer to a spouse is deducted in computing taxable gifts. Must be married at the time of the gift and donee must be a U.S. citizen for the unlimited amount. For noncitizen spouses, the deduction is limited to $164,000. Deduction is the gift amount reduced by the $16,000 exclusion.
What is the charitable deduction for gift tax?
The FMV of property donated to a qualified charitable organization is deductible. The amount of the deduction is the amount of gift reduced by the $16,000 exclusion with respect to the donee.
In a complete liquidation how does a corporation recognize gain or loss?
Gain: FMV - Adjusted Basis*
Loss: Adjusted Basis - FMV
*If related liability is greater than FMV use the liability amount
How do you calculate the charitable contribution deduction for corporations?
Deductions are limited to 10% of Taxable Income before any:
* Charitable contributions
* Dividends received deduction
* Capital loss carryback
* Deduction allowed for bond premium
For S Corporations what is non-separately stated (e.g. corporate level income)?
- Organizational costs
- Utilities
- Noninvestement interest expense
- Other ordinary items of interest or expense
What is the failure to file penalty for S corporations?
No. of shareholders x $220 x no. of months the return was late
Does an S corporation recognize gain or loss on distributions of property?
- Recognizes gain on distribution of appreciated property (FMV > basis); shareholders basis in his stock is increased
- Loss on property may not be distributed (Basis > FMV); loss passed on to shareholders; shareholders reduce their basis and take a basis of FMV of the distributed property
What is the shareholder treatment of distributions from an S corporation?
How are death benefits treated for tax purposes?
Employer paid death benefits are included in gross income.
Death benefits from a life insurance company are excluded.
What are positive adjustments to E&P?
Interest from municipal bonds
Injury compensation
Life insurance proceeds
Dividends received deduction
Capital and NOL carryover
Depreciation in excess of straight line
Income per completed contract method
Deferred income from an installment sale
What are negative adjustments to E&P?
Penalties
Fines
Life insurance premiums
Municipal bond expense
Federal income taxes
Excessive compensation
Meals and entertainment
Charitable contribution in excess of AGI limit
