REG 3 Flashcards
Accrual Tax payment
Different than accrual accounting concept.
For tax purposes, income is earned when
(1) all the events have occurred to attach the taxpayer’s right to receive the income and
(2) the amount of income can be determined with reasonable accuracy.
Cash based taxpayers report income when it is actually received or constructively received
In order to qualify for nonrecognition of gain on this involuntary conversion, what is the last date to acquire qualified replacement property?
the replacement period ends three years after the close of the taxable year in which the gain is first realized.
Life Insurance Premiums
Those paid by an employer are excluded on the basis of group-term life insurance UP TO $50,000.
Business expenses accountable plans vs unaccountable plans
If employee business expenses are reimbursed under an accountable plan, then the reimbursement is not taxable
Stock Option Tax Treatment
On the exercise date, the employee-recognized ordinary income is equal to: (FMV of stock − Exercise price) × # of shares exercised.
IRA early withdrawal penalty
10% penalty if withdrawn before age 59.5 on top of marginal tax rate
A single individual with AGI over $78,000 for 2022 would only be entitled to an IRA deduction if the taxpayer is not covered by a qualified employee pension plan.
definition of earned income for determining the amount of income that a self-employed individual may contribute to a Keogh profit-sharing plan
earned income is defined as net self-employed earnings less the deductible Keogh contribution and one-half of the self-employment tax.
Business interest expense tax limit
Business interest expense is limited to 30% of the business’s adjusted taxable income
Deduction for AGI
Deductions for AGI primarily consist of business-related expenses with some exceptions:
Alimony payments for divorces finalized before 2019
Half of the self-employment taxes paid by self-employed taxpayers
100% of the medical insurance premiums (not exceeding self-employment income) paid by a self-employed taxpayer
IRA (Keogh) contributions and other contributions to self-employed retirement plans
Interest on student loans
Contributions to Health Savings Accounts
Attorney’s fees and court costs for discrimination suits
Penalty for early withdrawal of savings
HSA limit 2022
$3,650 single $7,300 families
Standard deduction amounts
Single $12,950
Head of household $19,400
Married—jointly $25,900
Married—separate $12,950
Medical Expense deduction formula
Qualified Medical Expenses
− Reimbursements from Insurance
− 7.5% of AGI
= Deductible Medical Expense
Itemized deduction
- Only greater of state income or sales tax can be deducted
- only medical expenses that exceed 7.5% AGI can be deducted
-Personal property tax on value of cars
-foreign property tax is not deductible
-State/local income taxed withheld/estimated income taxes paid
Noninterest investment expense vs investment interest expense tax deduction (itemized ded)
noninterest investment expense are not deductible (since 2018)
Individual medical expense deduction
- Expenses paid by Credit Card is deductible in the year THE CHARGE WAS MADE
- if not paid by CC, deductible in the year paid
Deductible Business Expenses
- Meal expenses in 2021/2022 are 100% deductible
- Dues are not deductible
- Entertainment expenses are not deductible
-Business gifts are limited to $25/person
maximum amount of contributions to a defined contribution self-employed retirement plan
limited to the lesser o f $61,000, or 25% of self-employment income for 2022
Business Net Operating Loss limitation
Can be used to offset only 80% of income for that year
cannot be rollback.
carry forward indefinitely
maximum amount of business losses for a single individual
$270,000
cannot be rollback.
carry forward indefinitely
Business Limit Deduction: Vacation Home expense
If rented for 15 days or more, and if it is not used for personal purposes for more than the greater of 1) 14 days or 2) 10% of the total days rented, it is treated as rental property.
- ll rent is taxable, net of all regular rental expenses, pro-rated for the percentage of rental days only.
If rented for 15 days or more, and if it is used for personal purposes for more than the greater of 1) 14 days or 2) 10% of the total days rented, it is treated as personal/rental property.
-All regular expenses are pro-rated as above for rental days, but a rental loss is not allowed.
If the number of rental days is less than 14 then the property is treated as if it was used 100% for personal use.
- the rental revenue is ignored
To participate in the business, what is considered non=passive?
materially participate is to work in the business more than 500 hours for a year.
Rental real estate loss limit
$25,000 phases out between modified AGI of $100,000 and $150,000 (at a rate of 50%, $1 deduction for $2 AGI exceeding $100k)
if income exceeds $150,000 can only deduct rental loss to the extend of other passive income source
uniform capitalization method
generally require that all costs incurred (both direct and indirect) in manufacturing or constructing real or personal property, or in purchasing or holding property for sale, must be capitalized as part of the cost of the property. However, these rules do not apply to a “small retailer or wholesaler” who acquires personal property for resale if the retailer’s or wholesaler’s average annual gross receipts for the three preceding taxable years do not exceed $27 million (2022).
Limit of income to be qualified as dependent
$4,300
Self Employment Tax
The first part of the SE rate (Social Security) is 12.4% on the first $147,000 (2022) of SE income (the ceiling)
If wages are earned in addition to SE income, then the ceiling is reduced by the wages subject to OASDI.
The second part of the SE rate (Medicare) is 2.9% on all SE income (no ceiling).
Child Tax Credit
A $2,000 Child Credit is allowed for each qualifying child younger than age 17
The credit is phased out for married taxpayers with AGI in excess of $400,000
The American Opportunity Tax Credit (AOTC)
The credit applies only to postsecondary expenses
maximum of $2,500 per year for each eligible student.
The credit is computed as 100% of the first $2,000 and 25% of the next $2,000 of qualified educational expenses.
The credit is phased out ratably for single taxpayers with AGI in excess of $80,000 ($160,000 in the case of a joint return)
Dependent Care Credit
The credit was refundable in 2021 but is not refundable for 2022 and future years
Adoption Credit
Reasonable expenses up to $14,890 (2022) associated with an adoption qualify for the credit.
qualified adoption expenses will be taken into account in the year the adoption becomes final and include all reasonable and necessary adoption fees, court costs, attorney fees, and other expenses that are directly related to the legal adoption by the taxpayer of an eligible child.
Earned income Credit
The credit is disallowed if unearned income, such as interest, dividends, tax exempt interest and other investment income exceeds $10,300 (2022)
