REG05

Question 1

Are state and local income taxes, as well as Federal income taxes, paid or withheld during the year fully deductible as itemized deductions?

Answer 1

State and local income taxes paid or withheld during the year are fully deductible as itemized deductions. Federal income taxes are not deductible.

Question 2

What are properly substantiated cash contributions by individuals to qualified charities limited to?

Answer 2

Properly substantiated cash contributions by individuals to qualified charities are limited to 60% of the taxpayer’s AGI.

Question 3

Does the IRC allow a deduction for interest on debt incurred to purchase or carry tax-exempt securities?

Answer 3

No, the IRC disallows a deduction for interest on debt incurred to purchase or carry tax-exempt securities. So if 2/3 of the loan are used to purchase tax-exempt securities, 2/3 of the interest on the loan is disallowed as a deduction.

Question 4

What is the basic standard deduction amount of a student under age 24 who is claimed as a dependent on another individual’s income tax return?

Answer 4

The basic standard deduction amount is limited to the > of either $1,050 or the dependent’s earned income for the year + $350 up to the otherwise applicable basic standard deduction amount…Single Standard Deduction is $12,000.

Question 5

Where would mortgage interest paid on commercial rental property be deducted?

Answer 5

Mortgage interest paid on commercial rental property must be deducted on Schedule E.

Question 6

When is home equity indebtedness deductible?

Answer 6

Home equity indebtedness is all debt for a qualified residence to the extent that it does not exceed the FMV of the residence reduced by any acquisition indebtedness is deductible if used to buy, build, or improve the qualified residence.

Question 7

Are there any AGI limitations regarding deductible interest expenses?

Answer 7

No

Question 8

Pre 2019 Alimony paid is shown on what schedule?

Answer 8

Deductible on Schedule 1 of Form 1040 to arrive at AGI.

Question 9

Where are personal medical expenses shown on the tax return?

Answer 9

Deductible in Schedule A - subject to threshold of 7.5% of AGI. A deduction for expenses paid for the medical care of the taxpayer, spouse, or dependent is allowed. Only to the extent they exceed 7.5% of the taxpayer’s AGI.

Question 10

Can a penalty paid to bank on early withdrawal of savings be deducted?

Answer 10

Yes, deductible on Schedule 1 of Form 1040 to arrive at AGI.

Question 11

Is there a deduction for self-employment taxes?

Answer 11

Deductible on Schedule 1 of Form 1040 to arrive at AGI. A self-employed person may deduct 1/2 of the self-employment taxes. It is treated as a trade or business expense deductible to arrive at AGI.

Question 12

Are charitable donations limited?

Answer 12

Yes, The overall limitation on cash charitable deductions is 60% of AGI.

Question 13

The donation of stock to the charitable organization occurred only 2 months after the month of purchase, how is this accounted for?

Answer 13

Thereby subjecting it to ST capital gain treatment. For charitable donations, short-term capital gains are ordinary income property. Ordinary income property deductions are limited to the lower of FMV or AB.

Question 14

What are the IRA limits for 2018?

Answer 14

5500 or 6500 if over 50

Question 15

What is the maximum amount deductible as a contribution by a self-employed individual to a qualified retirement plan?

Answer 15

Is limited to the lesser of $55,000 or 25% of his or her self-employed earned income from the trade or business, which includes the deductions for self-employment tax and the contribution.

Question 16

Is student loan interest an above the line deduction?

Answer 16

Yes

Question 17

What is the limit for contributions to private operating foundations?

Answer 17

Limited to 30% of the taxpayer’s AGI. But contributions of LT capital gain property are limited to 20% of the taxpayer’s AGI. The total charitable contribution is equal to lower of FMV or AB. Any remaining amount over the 20% limit can be carried forward for up to 5 years.

Question 18

When does substantial understatement of income tax occur and what is the penalty?

Answer 18

Occurs when the understatement is more than the larger of 10% of the correct tax. Generally, the penalty is equal to 20% of the underpayment.

Question 19

What courts are bound by the IRC?

Answer 19

The IRC is the body of tax statutes enacted by Congress as the law of federal taxation and it is binding on all federal courts.

Question 20

What are the 3 qualifications to be eligible for the Earned Income Credit?

Answer 20

• must have his or her principal place of abode in the US for more than 1/2 of the taxable year;
• must be at least 25 years old and not more than 64 years old;
• can’t be claimed as a dependent of another taxpayer

Question 21

For real estate tax, state income tax and medical expenses how would the the amount of AMT add-back adjustment be computed for AMT?

Answer 21

Adjustments include state income and real property taxes and the difference between the 7.5% AGI floor for regular tax and the 10% AGI floor for AMT for medical expenses.
Medical = (AGI x 10%) - (AGI x 7.5%)

Question 22

Can Earned Income Credit result in a refund even if the individual had no income tax liability?

Answer 22

Yes.

Question 23

Is the minimum tax the excess of the tentative minimum tax over the regular tax?

Answer 23

Yes.

Question 24

What is the statutory exemption available for single taxpayers under the minimum tax?

Answer 24

$70,300

Question 25

How do you compute the AMT income?

Answer 25

Taxable Income and add back adjustments and tax preferences.
Examples of adj are taxes, passive activity loss, depreciation.
Then subtract exemption ($70,300 for S) to get AMT base x tax rate.
Then subtract regular tax to get AMT.

Question 26

Does “passive activity” loss limitations apply to a rental real estate activity when the individual performs more than 50% of the personal services during the year in real property trades or businesses in which (s)he materially participates and when at least 750 hours of service is performed in those real property trades or businesses in which (s)he materially participates?

Answer 26

No

Question 27

What is the credit and the phase outs for the Child Tax Credit?

Answer 27

Child must also be under the age of 17 and be claimed as a dependent by the taxpayer. The credit is for $2,000 per qualifying child. Also, a credit of $500 is allowed for each qualifying relative.
Phase out when modified AGI reaches $200,000 for S. The credit is reduced by $50 for each $1,000 of modified AGI above the thresholds.

Question 28

Does suspended and current-year losses from passive activities become deductible in full in the year the taxpayer completely disposes of all interest in the passive activity?

Answer 28

Yes

Question 29

Are taxes allowed in computing AMT?

Answer 29

No, only certain itemized deductions are allowed in calculating the AMT. Taxes are not allowed.

Question 30

What amount is excess of capital losses over capital gains (net capital loss) deductible against ordinary income?

Answer 30

Excess of capital losses over capital gains (net capital loss) is deductible against ordinary income, but only up to $3,000 in the current tax year.