REG - Individual

Question 1

What are the requirements for a qualifying child?

Answer 1

Close relative
Age limit - younger than the taxpayer, & Under 19 (or 24 FT student)
Residency and Filing Requirements - must have the same principal place of abode as the taxpayer for more than 1/2 of yr. ; must be a citizen of North America.
Eliminate the Gross Income Test
Support Test - must not contribute more than 1/2 of own support.

Question 2

What are the requirements for a qualifying relative?

Answer 2

Support Test
Under Gross Income Limitation of gross income less than $5,050 2024
Precludes dependent filing a joint return
Only Citizens of North America
Relative
Taxpayer lives with individual if non-relative for whole yr.

Question 3

Requirements that enable a taxpayer to be classified as a ‘qualifying widow(er)’

Answer 3

1. The taxpayer’s spouse died in one of the two previous years and the taxpayer did not remarry in the current tax year;
2. The taxpayer has a child who can be claimed as a dependent;
3. This child lived in the taxpayer’s home for** all of the current tax year**;
4. The taxpayer paid over half the cost of keeping up a home for the child; and
5. The taxpayer could have filed a joint return in the year the spouse died.

Question 4

Who qualifies as Head of Household?

Answer 4

1. Unmarried, legally separated, or married and has lived apart from his or her spouse for the last 6 months of the yr as of the close of the taxable yr.
2. Not a qualifying widow(er)
3. Not a nonresident alien
4. Maintains as his or her home a household that, for more than 1/2 of the taxable yr is the principal residence of a qualifying person, including a dependent child, parent or relative.

Question 5

What is the formula to calculate Individual Income?

Answer 5

Gross Income
less: Above the line Adjustments
= Adjusted GI
Less: Std Deduction
or Itemized Deductions - below the line deduction
= TI before QBI deduction
Less: QBI Deductions
= Taxable Income

Question 6

What is constructive receipt of income?

Answer 6

Constructive receipt of income occurs when a party obtains income that is not yet physically received but has been credited to the taxpayer’s account and over which they have immediate control. The taxpayer is liable to pay taxes on all income constructively received.

Question 7

Consideration to arrive at AGI for the recipient of Alimony on or before 12/31/2018 requirement?

Answer 7

1. Payment must be in cash or cash equivalent.
2. Payments cannot extend beyond the death of the payee-spouse.
3. Payments must be legally required pursuant to a written divorce (or separation) agreement.
4. Payments cannot be made to members of the same household.
5. Payments must not be designated as anything other than alimony.
6. The spouses may not file a joint tax return.

Question 8

Exceptions to the penalty on premature distribution before age 59 1/2 from a traditional IRA?

Answer 8

HIM DEAD
Home buyer (first time) $10,000 max if used toward first home
Insurance (medical)
Medical expenses in excess of the percentage of AGI floor
Disability
Education
Adoption or birth of a child made within one year from the date of birth or adoption ($5,000 maximum exclusion)
Death

Question 9

How is the amount of social security benefit that is taxed determined?

Answer 9

If the combined income is < the threshold, the amount taxed is the lesser of 1) 50 percent of the benefits; or 2) 50 percent of the excess of the combined income over the threshold.
If the combined income is > the threshold, the amount taxed is the lesser of 1) amount calculated above plus 85 percent of the excess of the combined income over the threshold; or 2) 85 percent of the benefits.

Question 10

What are the deductions or adjustments for AGI?

Answer 10

Adjustment for AGI - above the line deductions TIM- SHEAP
Traditional IRA contribution
Moving expense for members of the US armed forces.

SE tax 50%, Health Insurance, Retirement Plan
HSA
Educator expenses - includes interest on education loan
Alimony - if paid for a divorce or separation agreement executed on or before December 31, 2018.
Attorney fees paid in certain discrimination & whistle blower cases.
Penalty on early withdrawal of savings

Question 11

What are the itemized deductions from AGI,reported on Schedule A?

Answer 11

Below-the-line deductions from AGI - personal expenses (Cash Basis)
SIM CEM
State, Local & Foreign Taxes (SALT) - limit to $10,000 in aggregate
Interest Expense - Home Mortgage, Investment , Personal, Prepaid, Educational Loan
Medical Expenses
Charitable contribution
Casualty Losses - the aggregate of the excess losses (over $100) exceeds 10% of AGI.
Eucation Loan Interest - limited to $2,500
Misc. such as gambling losses

Question 12

What are the limits for charitable contributions?

Answer 12

Cash contribution 60% of AGI.
Ordinary income property (held for less than 1 yr) 50% of AGI
Property 30% of AGI,
Capital gain property 30% of AGI,

Question 13

What are the types of business used in the calculation for QBI Deduction, Section 199A?

Answer 13

SSTB - Specified Service Trade or Business - involves direct services in the fields of health, law, accounting, actuarial science, performing arts, consulting, athletics, financial services, and brokerage. Engineers and Architects are specifically excluded.
QTB - Qualified Trade or Business - Any business other than SSTB

Question 14

What are the limitations of QBI Deduction?

Answer 14

The basic calculation is 20% of QBI if below taxable income limits
Single & all others - TI $191,950 - $241,950
Married filing jointly - TI $383,900 - $483,900
if QTB is above income limit
use the greater of - Limited to 50% of W2 wages for the business or
25% of W2 wages for the business plus 2.5% of the unadjusted basis immediately after the acquisition (UBIA) of all qualified property. Compare to 20% QBI and choose lesser number.
If SSTB and above income limit - No QBI deduction is allowed.

Question 15

What are the different categories for the calculation of the QBI Deduction?

Answer 15

Category 1
Category 2

Question 16

List the non-refundable tax credits.

Answer 16

Child and dependent care credit - limited to min of 20% of eligible expenses AGI > $43K
Adoption Credit
Retirement Savings Contribution Credit
Education Credit - American Opportunity tax credit (60%);

Lifetime Learning Credit
Elderly and Permanently disabled
General Business Credit

Foreign Tax Credit

Question 17

List the refundable tax credits.

Answer 17

‘FEECAP’
Child Tax Credit ($2,000 per child under age 17, with limits)
Earned Income Tax Credit (EITC)
Excess Social Security tax paid
American opportunity tax credit (40%)
Federal Income Tax Withheld
Premium Tax Credit 100% health insurance

Question 18

What is the Net investment income tax (NIIT) and how is it applied?

Answer 18

Applicable to US residents with investment income above statutory threshold. The net investment income (NII) tax is 3.8% of the lesser of (1) the taxpayer’s net investment income; or (2) the excess of modified AGI over a threshold amount of $250K.

Question 19

How is self-employment tax calculated?

Answer 19

Only 92.35% of business income is considered net earnings from self-employment.
If the full amount of net earnings from self-employment is below the Social Security maximum for the year of $160,200 (2023), the entire amount is subject to the full 15.3%.

Question 20

How to calculate Casualty loss?

Answer 20

Subtract any insurance proceeds.
Subtract $100 per casualty event.
Combine the results from the first two steps and then subtract 10% of your AGI for the year you claim the loss deduction.

Question 21

How is the child and dependent care credit determined?

Answer 21

Eligible expenses are limited to the the lesser of Earned income of the 1. Earning spouse or 2. Total expense or 3. Max allowable amount of $3K per child.

The credit is the qualified amount from above x the applicable % based on AGI.
- 35% AGI $15K or less
- 20% AGI >$43K
- 35% - 20% credit decrease by 1% for each $2K of AGI over $15K

Question 22

How does the Retirement contribution credit work?

Answer 22

The non refundable credit depends on the taxpayers filing status and can range from 0, 10%, 20%, 50%. Max allowable credit is $2K per tax payer.

Question 23

How is the Foreign Tax credit calculated?No

Answer 23

There is no limit on foreign taxes used as a deduction. Credit is limited to the lesser of foreign taxes paid or TI from all foreign sources/Total Taxable worldwide income X U.S. Tax

Question 24

What is the requirement for a Savings Contribution Credit?

Answer 24

• At least 18 yrs by the close of he tax year
• Not a full time student
• Not a dependent of another

Question 25

What is the Child Tax Credit and how is it applied?

Answer 25

It is $2K per qualifying child.
Eligibility
- CARES rule apply
- Child must be under age 17
Credit is reduced by $50 for each $1K over AGI limit for high earners of $400K MFJ.

Question 26

What is the Kiddie Tax Rule?

Answer 26

Net Investment Income of a dependent child under age 18 yrs. or child 18-24 who does not provide own support and is a FT student is taxed at the parents marginal tax rate.

Question 27

How is unearned income taxed under the Kiddie tax rule?

Answer 27

Unearned Income of child Tax Rate
$0 - $1.3K < 0%
> $1.3K - 2.6K Childs rate
>$2.6K Parent’s rate

Question 28

What is the limit for employee reimbursement on tuition

Answer 28

For 2024 an employee tuition is provided a tax break of up to $5,250 annually per employee.

Question 29

What is QBI and when used?

Answer 29

QBI is ordinary business income less ordinary business deductions earned from a sole proprietorship, S Corp. LLC or Partnership connected to business conducted within the US.

Question 30

How is withdrawal and contribution treated for Traditional IRA

Answer 30

Like traditional 401(k)s, traditional IRAs are tax-deferred until the funds are withdrawn. Contributions to a Roth IRA, on the other hand, work just like a Roth 401(k): they’re made with after-tax dollars.

Distribution of Traditional IRA both contributions are taxable if the taxpayer took a deduction for for the contribution when made. Contribution is broken out between taxable and non taxable. Distribution of earnings are taxed as ordinary income and may be subject early withdrawal penalty if not over 59 1/2 yrs. Distribution is allocated between taxable and non taxable portions based on the relative amounts in the account at the time of distribution.

Question 31

What is the general rule in regards to the donee basis in a gifted property?

Answer 31

General: The Donor’s basis becomes the Donee’s basis. i.e. donor’s roll over cost basis.

Question 32

What are the exceptions to the general rule regarding gifted property?

Answer 32

When the FMV at the date of gift is less than the donor’s NBV.
- The basis of the donee depends on the future sale price of the asset.
- We wont know the donee basis until the gift property is sold.
- Three possible scenarios can occur.
1. FMV at the date of the gift is < donor NBV; Use NBV as the basis; gain is recognized
2. When sale price < FMV; use FMV as basis and loss is recognized
3. Sale price is between NBV and FMV; use sales price as basis; no gain or loss is recognized

Question 33

What is depreciation basis for a gifted property?

Answer 33

The depreciation basis is the lesser of:
1. The donor’s adjusted basis at the date of the gift or
2. The FMV at the date of the gift

Question 34

What is the holding period for a gift and the exceptions?

Answer 34

LT property sold at a gain ~ pay tax at capital gain rate
ST property sold at a gain ~ pay tax at ordinary income rate

Question 35

What is the general rule and the exceptions for the holding period for gifted property?

Answer 35

GR: The recipient of a gift gets to absorb the donor’s holding period
Exceptions:
1. when donee sells at a price higher than NBV; the donor will use the donee’s holding period.
2. When sale price is < FMV; holding period begins at the date gift; donee cannot claim donor holding period; loss is recognized.
3. when sale price is between NBV and FMV; holding period not relevant; no gain or loss is recognized.

Question 36

What is the general rule for inherited property?

Answer 36

GR: FMV of the property at the date of death. Property acquired by inheritance normally have a stepped up (or down) basis to the FMV at the date of death of the decedent.
The IRS allows us to use the FMV instead of NBV to pay less tax on inheritance.

Question 37

What is the basis of gifted property for depreciation purpose?

Answer 37

It is the lesser of
1. The donor’s adjusted basis at the date of the gift or
2. FMV at the date of the gift.

Question 38

What is the mid month convention under MACRS?

Answer 38

It is used to calculate depreciation of real property.
27.5 yrs for residential
39 yrs for non-residential
The real property is treated as placed in service in the middle of the month for acquisition and disposition.

Question 39

What is mid quarter convention under MACRS?

Answer 39

Mid qtr. convention replaces the half year convention if > than 40% of taxpayers personal property (3- 20 yr classes) PIS during the last 3 month of the tax year.
It treats property PIS during each qtr. of tax yr. as PIS at midpoint of the qtr.

Question 40

What is the half year convention under MACRS?

Answer 40

This is when 6 months of depreciation is taken in the year of acquisition and the year of disposal.

Question 41

What is Bonus Depreciation for federal tax purpose?

Answer 41

For 2024 it is 60% of the cost of qualified property PIS.
Qualified property is personal property and qualified improvements with a class life of 20 yrs or less.

Question 42

How is distribution from a Roth IRA treated?

Answer 42

Distribution of contribution from a Roth IRA are never taxable because taxpayers are not allowed to deduct Roth IRA contributions. Distributions of earnings are nontaxable if the distribution is a qualified Roth distribution. These are
- Distribution made 5 years after taxpayer made contribution and taxpayer is either
1. At least 59 1/2
2. Disabled
3. First time homebuyer who use funds to purchase home (Max $10K)
4. Deceased and distribution is made to beneficiary after death.
Note: Distributions are taken 1st from non-taxable contributions and then from taxable earnings.

Question 43

What is the American Opportunity Credit (AOC)?

Answer 43

Tax Credit available for qualified tuition, fees and course materials including books. It is used for Students 1st 4 yrs of post secondary school (college) at an eligible educational institution. Each qualifying student is allowed $2,500 per child per yr. 100% of 1st $2,000 + 25% of next $2,000

Question 44

Lifetime Learning Credit (LCL)

Answer 44

Tax credit available for unlimited no. of yrs for qualifies tuition and fee but not books. Can be used for postsecondary (college) and graduate.
It is used one per family per annum. $2000. Must spend up to $10in tuition to get full tuition (20%)
No phase out.

Question 45

How to determine the tax basis for depreciation of a property converted from personal to business use?

Answer 45

It is the lesser of
1. The original cost basis as adjusted for any improvement.
2. FMV of the property on the date of the conversion.
Tax basis used for determining a gain or a loss may be different from the tax basis for depreciation.

Question 46

How is wash sales treated?

Answer 46

A wash sale occur when an investor sells a security at a loss and then repurchase it 30 days before or after the sale. The loss from the transaction is disallowed.
The amount is broken out between realized and recognized if applicable.