REG 2

Question 1

Calculate QBI

Taxable income: $192,550
Net Capital Gain: $0
Qualified Business Income (QBI): $80,000
QTB’s W-2 Wages: $20,000

Answer 1

1) Tentative QBI Deduction = (QBI) $80,000 * 20% = 16,000
2) W-2 Wage Limitation = (W-2 Wages) 20,000 * 50% = $10,000
3) Excess Amount = 16,000 - 10,000 = $6,000
4) Calculation of Phase in % = 192,550 (Taxable Income) - $170,050 (Floor) = $22,500
5) 22,500 / 50,000 (Phase in range) always the same = 45%
6) 6,000 (Excess Amount) * 45% (Phase-In %) = 2,700 Reduction amount
7) 16,000 (Tentative QBI deduction) - 2,700 (Reduction Amount) = $ 13,300 (Reduced QBI Deduction)

Question 2

What tax credit cannot be claimed by corporations?

Answer 2

Earned income credit - only individuals can claim this

Question 3

What needs to Exist in order to form a contract?

Answer 3

1. offer
2. Acceptance
3. Consideration

Question 4

Unilateral Contract

Answer 4

Only one promised is made (by the offeror)

Only one party makes a promise

Offeree accepts only by performing the act requested in the offer - cannot be accepted by making a counter offer

Question 5

Examples of consideration

Answer 5

• Money
• A promise
• Acting
• Not acting

Question 6

Fraud in the inducement

Answer 6

means that the victim was deceived as to the reason for the transaction

Question 7

What does fraud require?

Answer 7

Misrepresentation of material fact by an expert

Question 8

What makes a contract void?

Answer 8

Duress through physical harm or the threat of physical harm

Question 9

What makes a contract voidable?

Answer 9

Mutual mistakes

Use of undue influence by a dominant party in a confidential relationship

Question 10

Undue Influence

Answer 10

when a person in a position of trust or confidence takes advantage of the relationship such that th other party’s free will to contract is overcome

Question 11

Parol Evidence Rule

Answer 11

Prohibits evidence of prior oral or written agreements that seek to contradict the terms of a fully integrated contract

ex: One intended as the complete agreement

Does not prohibit introduction of subsequent agreements

Question 12

Novation

Answer 12

Substitution of parties

Agreement is unchanged but one of the original parties is released and a NEW substituted into their place

Question 13

Substituted Contract

Answer 13

Original parties are both released from the original agreement but BOTH bound by a NEW AGREEMENT

Question 14

Liquidated Damage Clause

Answer 14

What damages will be if there is a breach

Enforceable:
- Reasonable in relation to the actual harm done
- Not A Penalty

Question 15

What is the basis for property received as a gift?

Answer 15

The same basis in the hands of the donor before the gift

Holding period of gift rolls over into the hands of the donee

Question 16

Statue of Frauds - what are the special requirements for an oral contract to be enforceable?

SWAP

Answer 16

S - Specially manufactured (custom) goods
W - Written confirmation between merchants
A - Admission in court
P - Performance

Question 17

Chapter 9 Bankruptcy

Answer 17

Municipal debt adjustment

Question 18

Chapter 13 Bankruptcy

Answer 18

adjustment of debts of individuals with regular income

Question 19

Chapter 7 bankruptcy

Answer 19

Provides for liquidation of a debtor’s estate

Question 20

Chapter 11 Bankruptcy

Answer 20

debt reorganization

Question 21

Social Security Benefits - Four major benefit programs

Answer 21

1. (OASI) Old age & Survivors Insurance
2. (DI) Disability Insurance
3. Medicare
4. (SSI) Supplemental Security Income

Question 22

LLCs

Answer 22

No Taxes Paid on earnings

P&L flow through to the partners just like a general partnership

a Partner may be another entity

Question 23

Apparent Agency

Answer 23

Authority that a 3rd party reasonably believes an agent has

Question 24

Formula for selling Real Property - How much is realized

Answer 24

FMV of new property + (Net Debt, Debt Relief) - Adjusted basis of old real property

Question 25

Ordering rules in a liquidating partnership distribution

Answer 25

1. Cash
2. Inventory
3. Land or assets - taken on the remaing basis

Question 26

C - Corp Distributions - ORder

Answer 26

1. Current E&P - Dividend (Taxed at Ordinary income rate)
2. Accumulated E & P - (Taxed at Ordinary income rate)
3. Shareholder Basis - Nontaxable return of capital
4. Remaining is treated as a capital gain

Question 27

Self Employment Tax

Answer 27

1. All seelf-employment tax income is hit with a 2.9% Medicare Tax
2. Self-Employed income tax is hit with a 12.4% Social Security Tax (Subject to threshold limitation) - $147,000

Question 28

Self Employment Tax Calculation

Answer 28

Self Employment Tax:
Step 1) Calculate 92.35% of Self Employment Income
SE Income X 92.35% = SE Tax Basis

Step 2) Calculate 15.3% of Step 1
.029 X SE Tax Basis = Medicare Tax

.124 X SE Tax Basis = Social Security Tax

Question 29

What is non taxable interest

Answer 29

Interest from state & local bonds

Interest from bonds of U.S. possession (Guam & Puerto Rico)

Interest from Series EE Savings bonds

Question 30

What is Taxable to an individual?

Answer 30

Wages, Interest/Dividend income, rental income, royalty income, distributive share of partnership gross income, gross income derived from business, Cancellation of debt, unemployment compensation, income from pensions