Reg 3

Question 1

Itemized Deductioin: Casualty & Theft Loss Calculation

Answer 1

1) Smaller of:
A Loss Cost/adjusted basis OR
B Decrease in FMV

2) Random $100 deduction

3) 10% of AGI Test - 10% * AGI

Question 2

SEP IRA Maximum Contribution Calculation

Answer 2

1. SEP: Lesser of 20% of:
   Self-Employment Income
   - 50% of SE Tax deduction
   = Amount applied to limitation
   X 20%
   = Maximum Contribution

or $61,000 or $67,500 for taxpayer 50 or older - Changes every year

Question 3

Deductible Medical Expense Calculation

Answer 3

Qualified Medical Expenses - Insurance Reimbursement = Qualified medical expenses paid

Qualified Medical Expenses Paid - 7.5% AGI = Deductible Medical Expenses

Question 4

Itemized Dedictions: Taxes

Answer 4

Real Estate Taxes

State & Local income taxes

Sales Taxes

Question 5

Itemized Deductions: Interest

Answer 5

Home Mortgage interest - Limited to $750,000 (Principal)

Investment Interest - (Limited to Net Investment Income)

Prepaid Interest - Must be allocated to the Correct Period

Question 6

Donation of Property Treatment: Held less than 12 months/

Ordinary Income Property

Answer 6

Ordinary Income Property is:
Property held less than 12 Months
Inventory
Personal-use assets that have depreciated
Depreciation Recapture on L/T, business use assets

Ordinary Income Property will be treated as the LESSER OF PROPERTY’S FMV OR ADJUSTED BASIS

Question 7

aDOPTION cREDIT

Answer 7

All necessary expenses and required fees during the adoption process

Limitation - $ 14,080

Medical expenses for adopted child DO NOT QUALIFY as eligible adoption expenses

Question 8

What are Refundable Tax Credits

Answer 8

W-2 (Withholding credit)
Child Tax Credit
Earned Income Credit
Excess Social Security Paid Credit
American Opportunity Credit

Question 9

American Opportunity Credit

Answer 9

$ 2,500 Maximum Credit

40 % Refundable ($2,500*.40) =
60% Non-Refundable ($2,500 * .60)

Question 10

Mom & Pop Exception Calculation

Answer 10

Step 1) Determine AGI Excess over $100,000

TaxPayers AGI - $100,000 (Minimum threshold)

Step 2) Determine Reduction of $25,000 Loss

Excess AGI (Step 1) X 50 % = Total Reduction to $25,000 Deduction

Step 3) Calculate Total Deduction
$25,000 - Step 2 = Total Deduction

If AGI = $100,000 or less taxpayer may take maximum $25,000 deduction

$25,000 Phases out when AGI is btw $100,001 - $150,000

AGI Greater than $150,000 cannot take this deduction

Question 11

Sec 1244 Stock Loss- Deduction rules

Answer 11

Single: $50,000

Maried: $100,000

Treated as Ordinary Losses

ex: Startups and small businesses can be considered a risky investment

-For Orginal owners only

Question 12

Costs not required to be capitalized under Sec 263A

Answer 12

1. Selling & Admin Expenses
   Distribution Costs are selling expenses
   Office Maintenance is admin expense
2. Marketing Costs

3.Advertising

4. Research Costs
5. Executive Compensated

Question 13

Capital Loss Deductions for individuals

Answer 13

1. Net Capital Losses will first offset All Net Capital Gain
2. Net Capital Losses in excess of Net Capital Gains will Offset Ordinary Income up to $3,000
3. Net Capital Losses in Excess of Net Capital Gains & $3,000 of Ordinary Income will be carried forward Indefinetly

Question 14

Nondeductible Losses

Answer 14

Cannot Deduct “Personal Use” Losses

Personal Residence

Persoanl-USe Vehicle

Hobbies

Question 15

Deductible Losses

Answer 15

Rental Homes

Business Vehicles

Capital Losses - $3k Loss

Question 16

Passive Income

Answer 16

Rents

Royalties

Stakes in Limited Partnerships/ S Corps

Question 17

Calculate Basis to C Corporation

Answer 17

1. Cash Received
   +
2. Property: GREATER OF

a) NBV of property received + Any Gains recognized by shareholder from transaction
OR
b) Debt Associated W/ Contributed Property

3. Calculate Gain Recognized by Shareholder

a) Boot Received
b) Property: Excess Debt Over NBV of Property Contributed
Debt assumed by Coporation - NBV of Property Contributed = Excess Debt ( Gain to Shareholder)

Question 18

What does Boot consist of?

Answer 18

Cash Received

Cancellation of debt

Marketable Securities

Question 19

Dividends Received Deduction

Answer 19

0-20% Ownership (Unrelated Company) = 50% Deduction

20-80% Ownership = 65% Deduction

80% Plus ownership = 100% Deduction

Deduction is limited to the lesser of:

1. 50% (or 65%) of Div Received
   OR
2. 50% (or 65%) of the corps CALCULATED TAXABLE INCOME W/ OUT REGARDING THE DRD, ANY NET OPERATING LOSSES, ECT

Question 20

Deductible Taxes (Corporations)

Answer 20

State Income Taxes

Real Estate Taxes

City Income Taxes

Payroll Taxes (Federal, State & PAYROLL)

Question 21

Deductible Taxes (Individuals)

Answer 21

State Income Taxes

Real Estate Taxes

Sales Taxes

Question 22

Included Deductible Organizational & Start-Up Costs

Answer 22

1. First $5,000 of Qualified Expenses
2. Remaining Deductible Expenses amortized over 180 months (12 years)

Included costs:

Minutes of an organizational meeting

Accounting Fees

Legal Fees when Drafting the Corporate Charter

Bylaws

Incorporation Fees

Question 23

Excluded Start up Costs

Answer 23

Underwriter Fees

Issuance Costs

Sales & Commissions

Capital Raising Campaigns

Other Transfer Costs

Question 24

Corporations

Deductible: Life Insurance Premiums

Answer 24

Deductible If: Employee (or family) is the Beneficiary

Nondeductible if: Company is the beneficiary - Company Pays the Cash

Question 25

Nontaxable: Life insurance Proceeds

Answer 25

Nontaxable if: Company is the Beneficiary

Question 26

Deductible Casualty Losses (Corporations)

Answer 26

Step 1)
Determine if partially or Fully Destroyed

Step 2a) If Fully Destroyed:
Adjusted Basis (NBV) - Insurance Reimbursement = Deductible Loss

Step 2b) If partially Destroyed:
Lesser of: decrease in FMV OR Adjusted basis (NBV) - Insurance Reimbursement = Deductible Loss

No Random $100 deduction or 10% AGI Test for Corps

Question 27

Personal Holding Company (C-Corp) requirements

Answer 27

More than 50% Owned by 5 or less owners
&
More than 60% of taxable income from:
Net Rent
Royalties
Taxable Interest
Dividends

Question 28

Personal Service Companies

Answer 28

Health, Law, Engineering, accounting, consulting, architecture