REG (CPA) - Indivdual Taxation

Question 1

Taxable Income Calculation

Answer 1

AGI = gross income - adjustments

Taxable income before QBI = AGI - SD/Itemized deduction - exemptions

Taxable income = TI before QBI - QBI

Tax Liab. = TI * federal rate

Total tax due/refund = tax liab. - tax credits

Question 2

Life Insurance Premiums

Answer 2

Premiums in excess of the first $50k of coverage are taxable to the recipient & included in W-2 wages.

Employer: Pays $65,000 for employee life insurance (premiums)

Employee: $15k is taxable to employee

Question 3

Tax Refunds

Answer 3

If TP itemized deductions last year, tax refunds (SALT) are taxable

If TP took SD last year, then tax refunds are nontaxable

Question 4

Alimony Rules

Answer 4

Alimony payments to a former spouse are adjustments to arrive at AGI for divorces executed on/before 12/31/18 – taxable to recipient

After 12/31/18 – not deductible

Child support payments are not considered alimony & thus nontaxable to recipient

Question 5

Contributions and Distributions: Traditional IRA (401K)

Answer 5

Contributions: deductible

Dist. of principal & earnings = taxable

Question 6

Contributions and Distributions: Nondeductible traditional 401K

Answer 6

Contribution: nondeductible
Dis. of principal: nontaxable
Dist. of earnings: taxbale income

Question 7

Contributions and Distributions: Roth IRA

Answer 7

Contributions: nondeductible

Dist. of principal & earnings: nontaxable

Question 8

Workers compensation vs. unemployment compensation

Answer 8

Workers comp: nontaxable to recipient– paid to employee for getting hurt on job

UE Comp: taxable on 1099-G

Question 9

Social Security Income

Answer 9

Lower - middle income: nontaxable to TP
Middle income: 50% of SS beenfits are taxable
Upper-middle: 50-85% of SS benefits taxable
Upper income: 85% of SS benefits are taxable

Question 10

Business Recoveries
Punitive Damages
Prizes & Awards

Answer 10

Taxable income to TP if recoveries are considered comp for biz interruption or lost profits

Fully taxable if received in a biz context or defamation

Prizes & awards: taxable at FMV

Question 11

Portfolio Income

Answer 11

Interest income – taxable portion reported on Schedule B of 1040

Interest from federal, corporate, industrial bonds
Interest from fed. & state governements for late payment of a tax refund
Interest from life insurance proceeds

Question 12

Nontaxable interest income

Answer 12

Interest from state & local bonds

Interest from bonds of US possession (Guam & Puerto Rico)

Interest from Series EE savings bond

Question 13

Dividend Income: Taxable v nontaxable

Answer 13

Taxable: cash, property (FMV)
Nontaxable: stock dividends, stock splits, return of capital, life insurance dividend

Question 14

Qualified v Nonqualified Dividends

Answer 14

Qualified: taxed at capital gains rates – must be held over 60 days during 120 day period

Nonqualified: taxed as ordinary income – from REITs, master limited partnerships, dividends paid on employee stock options, and paid by exempt companies

Question 15

Nontaxable fringe benefits: Meals & lodging