REG Module 1

Question 1

Married filing jointly or separately

Answer 1

If they are married before midnight on December 31st then they are considered married filing jointly. They must be married at the end of the year. The exception to this is if they are legally separated under the laws of the state.

Question 2

What qualifies someone to be a “qualified Widower”? What would the filing status be the year the spouse dies?

Answer 2

1. Spouse died in one of the two previous years and they did not remarry in current tax year
   AND AND AND AND AND AND AND
2. Has a child that can be claimed as a dependent
3. Child lived in the home ALL of the current tax year
4. Paid over half the costs of keeping up a home for the child
5. Taxpayer could have filed a joint return in the year the spouse died

They would still be filing jointly the year the spouse died. They have to file the taxes on what was earned prior to the person passing away. The next year they would file as single.

Question 3

Where is the deduction for qualified business income (QBI) applied?

Answer 3

An adjustment taken from Adjusted Gross Income (“Below the line”). It is not part of itemized deductions.

Question 4

Head of Household Filing Status

Answer 4

A taxpayer must be unmarried as of the last day of the year, and maintain a home that is the principal residence of a qualifying person for more than half of the year. A qualifying person includes a dependent child, parent, or relative. A dependent parent is not required to live with the taxpayer, provided the taxpayer maintains a home that was the principal residence of the parent for the entire year.

Question 5

Receipt of State income tax refund and interest on FEDERAL taxes.

Answer 5

If you itemized, then state or local refund IS taxable. If standard deduction, state or local refund is NOT taxable. Interest (unless from state or local govt bonds) is fully taxable.

Question 6

Tax Cut and Jobs Act

Answer 6

This relates to alimony. Prior to December 31, 2018 Alimony would have been included on the payee and receivers taxes. Deduction for payee, income for receiver.

Question 7

Prizes and Awards

Answer 7

Generally, Fair Market Value of prizes and awards is taxable income. HOWEVER/EXCEPTION - 1. Winner is selected for award without entering into contest (no action on the individuals part). 2. Assigns the award directly to a govt unit or charitable organization.

Question 8

Group Term Life Insurance

Answer 8

The first 50,000 is non taxable.

Question 9

Non cash Income/Trade Services

Answer 9

Income to be reported is the FMV of the property or services RECEIVED.

Question 10

Defined Contribution Plan and income

Answer 10

Employer contributions to a qualified traditional defined contribution retirement plan and earnings on the amounts contributed are not taxable income to the employee until distributed

Question 11

Interest earned on Series EE bonds issued after 1989.

Answer 11

One requirement for exclusion is the interest is used to pay for tuition and fees for the taxpayer, spouse, or dependent enrolled in higher education. The interest exclusion is reduced by qualified scholarships that are exempt from tax and other non taxable payments received for educational expenses (other than gifts and inheritances).

Conditions:
1. Sole owner or joint owner with spouse
2. Over age 24 when issued and used to pay for higher education
3. Reduced by tax-free scholarships of the taxpayer, spouse, or dependents

Question 12

Interest from bonds and inclusion in income

Answer 12

US Treasury bonds are not municipal bonds so they ARE included in income. Municipal bonds (state and local govt bonds) are NOT included in income.

Question 13

Withdrawal of traditional IRA

Answer 13

Unless an exception applies, retirement money cannot be withdrawn until the individual reaches the age of 59.5. If they are withdrawn before, then they are subject to a 10% penalty tax.

EXCEPTION - HIM DEAD
H - Home buyer first time $10,00 max if used towards first home
I - Insurance (medical)
M - Medical expenses in excess of percentage of AGI Floor

D- Disability
E - Education
A - Adoption or birth of child made within one year from the date of birth or adoption ($5000 maximum exclusion).
D - Death

Question 14

Gain or loss on a year end sale of listed stock

Answer 14

This happens at the trade date. Regardless of if they are using accrual or cash tax basis.

Question 15

When a company bills an individual/company and then the pay a portion, and do something else in return. What amount is reported as income?

Answer 15

The fair value of whatever money or property was received. I.e. Billed $600 for dental services. Paid $200 cash and built bookcase worth $350 to settle bill. Company records income of $550.

Question 16

How much of business meals are deductible?

Answer 16

Only 50% is deductible.

Question 17

Deductible Expenses on Schedule C, Profit or Loss from Business

Answer 17

Those related to the operation of the business itself. These are business expenses. They don’t include your investment expenses.

Question 18

How many days must a person occupy a second residence personally to deduct the net loss?

Answer 18

Less than 14 days. Anything over 14, they aren’t able to deduct it and they have to allocate between rental and personal use.

Question 19

If a vacation residence is rented for fewer than 15 days per year, how is it treated?

Answer 19

As a personal residence and the income is excluded.

Question 20

SUPORT and CARES Test for Dependents

Answer 20

SUPORT
S- More than 50% support
U - Under Gross Income of $4700
P - Precludes dependent filing a joint return. If they’re married then this wont apply.
O- Only US Citizens, Mexico or Canada
R - Relative
T- Taxpayer lives with the individual for the whole year

CARES
C- Close relative
A- Age limit under 19 or 24 if full time student
R- Residency and filing requirement tests. Live in the residence for more than one half of the year.
E- Eliminate Gross Income test ($4700)
S- Support test. If they contributed more than half the support.

Question 21

For purposes of self employment tax, what is included in net earnings from self-employment? How much of it is deductible?

Answer 21

Income subject to self employment includes amounts from unincorporated sole proprietorship (schedule c) and general partnerships. One half (50%) is deductible.

Question 22

Adjustments to AGI

Answer 22

Self employed health insurance, alimony paid pursuant (prior) to Dec 2018, and Self employment tax (50%).

Question 23

Phase out ranges for traditional IRA deduction.

Answer 23

Joint Return - One spouse active participant in plan. Contribution is phased out. The Phase out range is $116K. For a spouse who isn’t active participant but is married to someone who is phase out range is $218K.

Question 24

Student Loan Interest

Answer 24

Maximum of $2500 per year, but can deduct for the duration of time that interest is paid.

Question 25

Amount of SEP IRA deductible amount

Answer 25

The maximum annual deductible for self employed individuals to an SEP IRA is the lesser of $66K or 20% of net earnings. Net earnings is Income - 50% of self employment taxes.

Question 26

What requirements must be met for a single individual to qualify for the additional standard deduction?

Answer 26

Must be 65 or older or blind but the end of the tax year.

Question 27

Threshold for medical expenses

Answer 27

7.5% of AGI. Get over that and the rest is deductible.

Question 28

What is the allowable amount for donated property?

Answer 28

No more than 30% of AGI.

Question 29

What is the additional standard deduction for individuals over 65?

Answer 29

$1500 a person.

Question 30

What is schedule A?

Answer 30

Itemized deductions.

Question 31

Where do state income taxes go?

Answer 31

In schedule a, itemized deductions.

Question 32

Taxes paid and itemized deductions?

Answer 32

Real estate taxes, income taxes, and personal property taxes are all allowable deductions. They would all be included in itemized deductions. Federal taxes paid are not included in this.

Question 33

Home Equity Line of Credit (HELOC) and deductible interest

Answer 33

Interest is only deductible IF the money is used to improve the home.

Question 34

The deduction by an individual taxpayer for interest on investment indebtedness is?

Answer 34

Limited to the taxpayers net investment income (investment income - investment expenses).

Question 35

Items included in taxable investment income?

Answer 35

1. Interest and Dividends (if taxed at ordinary rates)
2. Rents (if the activity is not a passive activity)
3. Royalties (in excess of related expenses).
4. Net short-term capital gains
5. Net long term capital gains if the taxpayer elects not to claim the net capital gains reduced tax rate

Question 36

The deduction of appreciated long-term capital gain (LTCG) property limit?

Answer 36

The limit is 30% of AGI.

Question 37

Charitable contributions subject to the 60% limit that are not fully deductible in the year made may be:

Answer 37

Carried forward 5 years

Question 38

AGI Limitations on Deductions

Answer 38

Cash - 60% of AGI UNLESS Private non operation foundation then 30%.
Ordinary Income Property - 50% of AGI Unless Private non operating foundations then 30%.
Long-Term Capital Gain Property - 30% UNLESS Private non operating foundation then 20%

Question 39

General Rule for Penalty Payments

Answer 39

If you are UNDER $1000 there is no penalty. If you fail to pay then that is a separate penalty

Question 40

What is a refundable credit

Answer 40

Something that could result in you getting a refund back. Earned income credit, Child tax credit, excess social security paid. Retirement savings contribution credit isn’t one of those things. It’s a credit but it is not refundable.

Question 41

What is the threshold of the IRA contribution?

Answer 41

It is $2000 to either a Roth or traditional IRA by an eligible taxpayer.

Question 42

What is the threshold for the child tax credit

Answer 42

It’s $2000 per child. The phase out is $400K for joint return, and $200 for others.

Question 43

Safe Harbor for Taxpayer

Answer 43

1. Payment of 90% of the tax on the return for the current year avoids the penalty
2. Payment of 110% of prior years tax liability avoids the penalty when the taxpayers AGI exceeds $150,000. If it is less than $150, then 100% avoids the penalty.

The lesser of the two

Question 44

How does the kiddie tax work?

Answer 44

You would take their income, and subtract out 1250. The first 1250 isn’t taxed. $1250-$2500 is taxed at the child’s rate. Then anything over that would be taxed at the parents rate.