REG SIMs REVIEW

Question 1

GENERAL PARTNER

Answer 1

Is Responsible for all recourse debt

Accounts Payable is considered recourse debt

Limited partner will NOT be responsible for ANY recourse debt

Loans Payable to Partner bc they made a loan to partnership, the partner who made the loan is responsible or allocated to

Question 2

Know the differences between when asking Partner Basis and what is Taxable

It may say “what is partner’s Tax Basis”

Answer 2

Calculate:

Int Income
Life Insurance Payment and Bene is business (non-deductible)
Penalties (non-deductible)
Increases from Cash Contribution
Decreases from Cash Distributions

All these reduce or increase Partner’s Basis

Question 3

ONLY 92.35% of Business Income

Answer 3

Is defined as net earnings from Self Employment

12.4% Social Security
2.9% Medicare
15.3% in Total

(if employed: 7.65% employee/7.65% employer)

Adjustment to get to AGI

Question 4

S - Corporations

Answer 4

Exam will try to trick you

MACRS is NOT a separately stated item but has been included in Ordinary Business Income - DO NOT COUNT IT TWICE

BUT

SEC 179 is a separately stated item

Question 5

Surety & Co - Surety

4 Different Rights’

Answer 5

Exoneration - Compel ‘P’ Before to Pay (Court order demanding that the debtor pay - Right is available to the surety prior to payment (BEFORE)

Subrogation - Surety is the Creditor (surety makes good on loan) (AFTER)

Reimbursement - Compel ‘P’ to pay (AFTER) “pay me back”

Contribution - Between Sureties (hey, pay me back, saying to other sureties)

Question 6

Whenever we deal with related parties we have to look at the %’s of OWNERSHIP

Answer 6

If it’s over than 50%, then its considered a related party

Cannot recognize loss remember to WRAP

Wash Sale
Related Party transactions (50% and greater)
Personal Losses

Question 7

DEALING WITH PARTNERSHIP

Answer 7

ASK:
Is it ordinary business item?

If it is NOT Ordinary Business Item
It must be separately stated (income or deduction to the partner/partners)

Question 8

GET THIS DOWN:

IF FMV is greater than the NBV at the time of gift use “ROLLOVER”

Answer 8

1. Donee’s Basis = Donor’s Basis (NBV)
2. Donee’s Beginning holding date = Donor’s holding date

Question 9

GET THIS DOWN:

IF FMV is less than the NBV at time of gift

Answer 9

Basis and holding date depend on future sale price of stock

If sale price is greater than Donor’s Basis (NBV), use Donor’s basis and Rollover holding date

If sale price is less than FMV (at time of gift) use FMV basis and day of gift as holding period

If Sale Price is between NBV and FMV then NO GAIN OR LOSS, or HOLDING DATE is necessary

Question 10

INHERITED PROP

Answer 10

Holding period will always be Long Term

Use DoD if AVD is NOT selected

If AVD is selected need to use that as Tax Basis

If DISTRIBUTED BEFORE AVD use that date for Tax Basis
(Earlier of 6 months or Date of Distribution)

Question 11

TAXABLE INCOME BEFORE THE QBI DEDUCTION

Answer 11

Need to add the Guaranteed payment plus share of all business according to Ordinary Business Income

Question 12

Rules for Section 199A

Answer 12

20% deduction for eligible “flow-through” US entities with Qualifying Business Income (means that C-Corporations are NOT included)

Includes: Individuals, Partnerships, S-Corpus, most LLCs , and Trusts

“below the Line” deduction

Is it a QTB (Qualified Trade or Business) or SSTB (Specified Service Trade or Business)

How do I know?
SSTB: Health, Law, Accounting, Actuarial Science, Performing Arts, Consulting, Athletics, or Financial Services

QTB: Any business other than an SSTB

BUSINESS MUST BE CONDUCTED IN US

Question 13

3 CATEGORIES FOR QBI DEDUCTION

Answer 13

CAT 1:
If QTB or SSTB&raquo_space; Full 20% QBI deduction (easy peasy)

CAT 2:
Taxpayers with TI above $241,950 (single) or $483,900 (MFJ)
IF QTB&raquo_space; “Full W-2 wage and property limitation” applies
If SSTB&raquo_space; No deduction allowed

CAT 3:
They do NOT test on CAT 3!!!

Question 14

The Total Section 199A Deduction is:

Answer 14

The lesser of:
1) Combined QBI Deductions = (busi A QBI Ded) + (busi B QBI Ded) +(etc)
or
2) 20% of the Taxpayer’s Taxable Income in excess of net capital gain
20% X Taxable Income - Net Capital Gain

Question 15

Items are that are deductible from AGI

Answer 15

Loss to house bc of casualty losses (must be federally declared area)

Medical Insurance Payments or premiums paid are deductible FROM AGI

Homeowners insurance on rental prop FROM AGI

Alimony before 2019 is deductible for AGI

Sales tax From AGI (TP can deduct the higher of state and local income tax payments OR Sales Tax Payments) Limited to $10k

Interest Expense deductible From AGI (Limited to Net Investment Income)

Penalties for early withdrawal from a CD or bank Deductible for AGI

Education loan is deductible for AGI ( Limited to $2.5k and AGI limitations)

Question 16

Medical Expenses Paid

Answer 16

Due to a PERSONAL (PHYSICAL) INJURY are excluded from gross income

Question 17

American Opportunity Credit

Answer 17

Available against Federal Income Taxes for Qualified tuition, fees, and course materials.

used for First 4 Years of postsecondary ( College ) education institution.

Can be applied to multiple students
Max Credit $2,500 per child

25% of the next $2,000, Have to spend $4,000 in order to qualify for AOC

Question 18

Lifetime Learning Credit & American Opportunity Credit

Answer 18

AGI is $160,000 - $180,000 for married taxpayers filing jointly

Question 19

Lifetime Learning Credit

Answer 19

Available for an unlimited # of years.

NOT for books only qualified tuition and related expenses at eligible educational institutions

Once per family

Max is $2k per year per family spend $10k, applies to 20% of first $10k in qualified expenses

Phase out begins at $160k

Question 20

IRA Taxable Distribution

Answer 20

Roth - the distribution comes out of the nontaxable contributions FIRST

Question 21

Tax Return Preparer

Answer 21

*Who prepares for compensation (gets paid) OR hires 1 or more persons to prepare for compensation ALL or a substantial portion of the return

*DOES NOT include typing or mechanical assistance, Preps return or claim for refund of the employer, PREPS as a FIDUCIARY a return for any other person (NOT A TAX RETURN PREPARER)

*Signing as A TAX RETURN PREPARER has the primary responsibility for the overall substantive accuracy of the return

*Even if you don’t sign but offer substantial advice to a taxpayer, you are considered a TAX RETURN PREPARER

Question 22

HEALTH INSURANCE PREMIUMS

Answer 22

Need to be added to W-2 as income if Shareholder is greater than 2%

Question 23

DIVIDEND INCOME

Answer 23

Separately stated item

Question 24

CORPORATE BOND INTEREST

Answer 24

MUST STAY IN ORDINARY BOOK INCOME

(not separately stated)

Question 25

When the question asks what is the tax basis?

Answer 25

Then they are looking for the basis for that particular partner

They are asking for the basis