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REG M2 Gross Income Pt 2 > REG M3 Gross Income PT 2 > Flashcards

REG M3 Gross Income PT 2 Flashcards

1
Q

Are business meals deductible

A

Yes

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2
Q

Is the salaries paid to owner’s deductible

A

No (Withdraw)

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3
Q

Is automobile expense deductible

A

Yes

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4
Q

what are direct and indirect expenses for an automobile

A

Direct

-Incurred for client specifically

-Directly related to business usage

-Parking, bridges fees, tolls

Indirect

-Related to the total usage of the vehicle

-not from directly interacting with a client

-Insurance, inspection, repairs, depr, gasoline, parking ticket

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5
Q

What form is business income calculated on

What form is business income reported on

A

Schedule C

Schedule 1

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6
Q

What is Business Income and types

A

Income from the taxpayer’s trade or business

Cash, Property (FMV), Cancelation of debt

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7
Q

Types of flow through entities

A

Partnership

Sole proprietor

S corp

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8
Q

Are office expenses deductible

A

Yes

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9
Q

What business meals are deductible and how much

A

Meals and beverages with current or potential clients

Meals and beverages consumed by employees during work related travel

50%

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10
Q

Are taxes related to the business deductible

A

Yes

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11
Q

Rules for a qualified home office

A

Space can only be used for business purposes

Space is used consistently

Space is used by clients, patients or customers

Taxpayer carries out admin and management tasks

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12
Q

What is the additional medical tax

A

extra .9% tax for individuals who made more then 250,000 MFJ, 200,00 HH, QW, S and 125,000 MFS.

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13
Q

what are the qualifications and taxability/math of a primary rental use property

A

Qualifications

-Rented for more than 15 days

-And was NOT used for personal use for MORE than the greater of 14 days or 10% of the total rental days

Taxability/math

-Full rental income is taxable

-to find deductible amounts, take the total of rental and personal use days and divide only the rental days by that number to get the prorate %

-multiply expenses by the % to get the allowed deductible amounts

-subtract income by the total deductible amount this is your rental income

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14
Q

Is interest on business loans deductible

A

Yes

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15
Q

Are salaries, wages and bonuses paid to employee’s deductible

A

Yes

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16
Q

Is the personal share of state and local taxes, investment interest or mortgage interest deductible

A

No

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17
Q

Is depreciation of business assets deductible

A

Yes

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18
Q

What is a hobby and is the income taxable

A

engaging in an activity for personal pleasure or recreation

Yes, income is taxable

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19
Q

How are flow through entities taxed

A

No corporate tax

Income flows through to individuals where it is taxed

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20
Q

Math for income hit by self-employment tax

A

SE Income

x 92.3%

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21
Q

What can be done with a net business loss

A

Deducted against other sources of income

LIMIT

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22
Q

Regular method for office space calculation

A

-start by categorizing direct and indirect exp for the office space

-Direct exp full amount can be deducted

-Indirect exp (Utilities, taxes and insurance) can only be deducted based on the % of the house the office space takes up

-Amounts you can itemize (Mortgage int, taxes) must be deducted first

-carryover of a loss is allowed

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23
Q

Is entertainment exp deductible

A

No

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24
Q

Do limited partners pay an SE tax

A

No

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25
Q

Is bad debt expense deductible?

A

Yes (no estimated)

26
Q

What are the separately stated items for a FTE

A

Rental Real Estate Income
Interest income
Dividend Income
Royalties
Net short-term capital gain or loss
Net Long-term capital gain or loss
Net Section 1231 Gain or loss
Charitable Contributions
Section 179 exp deductions
Guaranteed payments to partners

27
Q

What are the qualifications and taxability/math of a hybrid personal and rental use property

A

Qualifications

-Rented for more than 15 days

-And was used for personal use for MORE than the greater of 14 days or 10% of the total rental days

Taxability/math

-Full rental income is taxable

-to find deductible amounts, take the total of rental and personal use days and divide only the rental days by that number to get the prorate %

-multiply expenses by the % to get the allowed deductible amounts

-subtract income by the total deductible amount this is your rental income

-NOT allowed to have a loss in a year. If loss amount carryforward to future years

-Can itemize personal use for property taxes and mortgage int

28
Q

Items included in transportation exp

A

parking, taxi fare, tolls, automobile exp

29
Q

is commuting from home to work deductible

A

No

30
Q

List the classifications for rental income

A

Primary personal use residence

Primary rental use

Hybrid personal/rental use

31
Q

What types of commuting is deductible

A

Commuting between jobs

Self-employed and visiting people from home office that qualifies as a principal place of business

32
Q

What is the profit rule

A

If an activity does not show a profit in 3 out of 5 consecutive years, then it is probably a hobby

33
Q

If you are employed but work from home can you have a qualified home office

A

Yes

But there can’t be any other alternative

34
Q

What are the methods to determine deductions for a home office space

A

Regular or actual exp method

Simplified or safe harbor method

35
Q

Is rental expense deductible

A

Yes

36
Q

Can you still take a misc itemized deduction

A

No not from 2018-2025

37
Q

Are charitable contributions deductible

A

No

38
Q

Is insurance expense related to the business deductible

A

Yes

39
Q

Do s corps have to pay SE tax

A

-No because they are considered employees

-Therefore, Corporation pays half, and they pay half

40
Q

What is the % of self-employment tax

A

-15.3% is self-employment tax (2.9% Medicare 12.4% Social Security 168k cap 2024)

-92.35% of SE income will be hit by the self-employment tax

-once you hit the cap NO additional income will be taxed to social security

41
Q

What are the qualifications and taxability of a personal use property

A

Qualifications

-Property is rented for less than 15 days

Taxability

-Not required to report an income

-Not allowed any deductions related to the exp

-Can itemize property taxes and mortgage interest

42
Q

What is a business in tax law

A

Activity Entered into by a taxpayer in order to make a profit

43
Q

Is self-employment health insurance premiums deductible

A

No

44
Q

What is the court approach to find deductions for rental property

A

-Same setup

-for ONLY mortgage int and property taxes related to your rental home take the values and multiply it by the rental days/365

-Opp exp stay the same

-Better if you’re taking the itemized deduction

45
Q

Is commission paid to employees deductible

A

Yes

46
Q

Calculation for simplified method (Home office space)

A

-$5 per sq foot of the office space

-Limit to 300sq feet ($1,500)

-No carryover of a loss is allowed

47
Q

What is the exp order for hybrid rental and personal use property

A

Start with real estate taxes + mortgage.

then deduct Utilites, maintenance insurance and depreciation

48
Q

Is COGS deductible

A

Yes

49
Q

How much interest can a cash basis taxpayer deduct

A

Only the amount of interest actually incurred during the year

50
Q

what is the limitation for business interest and who qualifies for it

A

30%

businesses who have made over 27m dollars in the past 3 years

51
Q

methods and math calculating Automobile exp

A

Actual Cost Method

-Actual cost incurred to opp vehicle

-Direct and indirect exp

-Total Direct Cost + Total Indirect Cost x % of miles used for business

Automatic Mileage Method

(Miles used for business x IRS Rate) + Total Direct Exp

52
Q

Are federal income taxes deductible

A

No

53
Q

Are hobby expenses deductible

A

No

54
Q

9 questions IRS uses to determine a hobby

A

-Is the activity conducted in a businesslike manner: Keeping books, business insurance, written business plans

-What is the expertise of the taxpayer: Are they an expert in the field they are working in

-Time and effort: Does the taxpayer spend most of his or her time doing the activity

-Is there an expectation that assets will appreciate in value

-Taxpayer prior success: Has the taxpayer turned past activities from not profitable to profitable

-History of loss: Does the activity have a history of loss

-Does the activity have occasional large profits

-Does the taxpayer have other major sources of income

-Personal pleasure or recreation: is the pleasure only limited to the individual’s family and friends

55
Q

Guaranteed payment to a partner FTE

A

-Reduce partnership’s ordinary income/loss

-Considered self-employed income so is hit by income tax and self-employment tax

56
Q

What are the math steps for the business interest limitation

A

Take income from last three years and divide by 3

If that number is over 27m, look at the year you want to deduct and take operating revenue - depr exp - other opp exp

multiply that number by 30%

This is the max amount of business interest you can deduct for that year

57
Q

What taxes is business income subject too

A

Income tax and self employment tax

58
Q

Definition of business expenses

A

Ordinary exp incurred during the normal course of the business needed to develop and maintain the business

59
Q

Flow through entities distributions to partners and shareholder taxed

A

Not taxable Income

60
Q

Tax basis in an FTE and Loss rules

A

-Basically, the amount the taxpayer has invested into the flow through entity

-Loss can only be as much as the tax basis in the FTE excess is carried forward indefinitely to future years

REG M2 Gross Income Pt 2 (2 decks)

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