Reg 3

Question 1

Can you deduct contributions to a Coverdell ESA, QTP and Roth IRA

Answer 1

No - non of these are deductible

Question 2

Which itemized deduction are not subject to phase-out for taxpayers with high gross income

Answer 2

All itemized exception:

Casualty loss
Gambling loss
Investment Interest
Medical Expenses

GMIC

Question 3

What do you need to be a qualifying child

JARRS

Answer 3

J- Joint return - No can’t file one of these

A - Age - under 19 or full time student under 24

R- residence - live with you 1/2 year

R - Related to you

S - Support them at least 1/2

Must meet all JARRS to be qualified child

Question 4

What do you need to be a qualified dependent CIRSJ

Answer 4

C - citizen if US

I - Income limited to exemption amt - this a for a dependent who is not a qualifying child

R - relationship - yes if live with you all year yes if brother, parent uncle, nephew - not cousin and live with you 1/2 year

S - support - over 50% support them

J - No joint return with spouse

Question 5

What is a the rule about property received in the form of compensation

Answer 5

property received is Yes included in compensation when in the form of stock options and stock Bonus

Example:

Stock Bonus of 100 share worth 13,000 FMV given to an employee (basis doesn’t matter)

Stock options are compensation is the year they are exercised at the price on the date when exercised. the amount taxable is the difference between exercise price and FMV

Buys for $10 when trading at $25 means that you must include $15 per share in income

Question 6

What is the rule on the contribution of property to a charity

Answer 6

The amount you can deduct is the lower of the tax basis or FMV

The exception is if the contribution in a NONBUSINESS property held for more than 1 year and has appreciated in value

In this case it is up to 30% of AGI

Question 7

When can you deduct state sales tax and state income taxes

Answer 7

state sales tax are deductible in lieu of state income tax

So they can not be deducted together in the same year

You can deduct either of these AND real estate taxes,AND property taxes

Question 8

When are you limited on the amount of contribution to a retirement plan that is deducted for AGI

Answer 8

If you DONt participate in another profit sharing program

and if you don’t meet the income limitations

then yes - you can deduct from gross income contribution to a traditional IRA

Question 9

What amount of your SS benefit is taxable

Answer 9

up to 85% is taxable if you have income over 60K

Question 10

What are the rules on when a home is considered a rental and when it is considered a home

Answer 10

If rented for less than 15 days - you do not have to include the rental income as part of your gross income and the rental expenses are not deductible

If you use it personally for greater than 14 days or 10% f the days rented - it is considered a home and rental expenses are not deductible

Question 11

What kind of income is sales commission, annuity income, silent partner, gain on a sale of an asset used in an active trade or business

Answer 11

ACTIVE - Sales commission,

PORTFOLIO - annuity income,

PASSIVE - silent partner,

ACTIVE - gain on a sale of an asset used in an active trade or business

Question 12

What is the early withdrawal penalty for taking out of your 401K

Answer 12

It is 10% of the amount that is not:

amounts used for medical expenses in excess of 10% of AGI

so if your AGI os 100K amounts you use for medical bills about 10,000 are not subject to the 10%

You withdrew 15K and spent 14500 on medical - 15,000 - 4,500 = 10,500 *10% = 1050 is the penalty you pay on the 15k you took out

Question 13

How do you figure out the amount of income from self employment that is subject to self - employment tax

Answer 13

Income munis expenses

10K - 2K = 8K

If you contribute to a retirement plan this reduced AGI, but not the amount subject to self employment tax

Question 14

How do you report your income if your are MFJ and one of you is a nonresident alien

Answer 14

You can report MFJ as long as you consent to filing a joint return reporting the world wide income of both of you

Question 15

can you include meals and lodging in your medical expense deduction if you live in a nursing home?

Answer 15

yes

Question 16

What is taxed if you pay rent in advent for multiple years on schedule c

Answer 16

Although rent received in advance is taxable in the period received, rent paid in advance is not deductible until the period to which it applies.

Question 17

What amount of social security benefit is taxable

Answer 17

Social security benefits become partially taxable to a recipient with adjusted income in excess of a certain amount.

The higher the recipient’s income, above that amount, the greater the portion of social security benefits that will be taxable up to a maximum of 85%

Question 18

When must a sole proprietorship use the accrual system

Answer 18

normally they can use either cash or accrual

If the business carried significant inventories they must use accrual unless they get special IRS permission

Question 19

What is the rule on employee discounts and taxable income

Answer 19

employee discount do not result in taxable income as long as they are 20% of normal charged amount. Anything they get in excess of this is taxable

Question 20

What happens when you sell your life insurance policy to someone else and they then get the benefit

Answer 20

generally life insurance policies are not include din gross income if it is your policy and you paid on it and you dies giving the money to your others

Proceeds are taxable to the amount above what you paid into them if you are the beneficiary and paid the premiums for someone else