Unit 6: Other Business Deductions and Credits

Question 1

NOLs arising in 202 and beyond may on be carried:

Answer 1

Forward, they no longer can carryback a net operating loss

Question 2

A NOL deduction cannot exceed more than

Answer 2

80% of taxable income

However, losses generated prior to 208 are not subject to the 80% limitation.

Question 3

Rules: NOLs arising in 2018-2020

Answer 3

• 5-year carryback period
• Unlimited carryforward period
• NOL deduction is limited to 100% of taxable income

Question 4

Rules: NOLs in 2021, 2022, and beyond

Answer 4

• No carrybacks are permitted
• All losses must be carried forward (unlimited)
• NOL deduction is limited to 80% of taxable income

Question 5

Rules: NOLs for farmers

Answer 5

-Farmers are allowed a 2-year carryback and an unlimited carryforward period

Question 6

Rules: NOLs for Casualty insurance companies

Answer 6

• Allowed a 2-year carryback
• NOL carryforward is limited to 20 years and the 80% limitation does apply

Question 7

Can partnerships and S corporations use NOLs?

Answer 7

Generally not, but their partners and shareholders may have an NOL due to the pass-through of these business losses.

Question 8

1139

Answer 8

Used by a C corporation to apply for an NOL refund

Question 9

1045

Answer 9

Used by individuals, estates, and trusts to apply for an NOL refund

Question 10

For an individual, estate, or trust to have a NOL, the loss must be caused by:

Answer 10

• A trade or business that results in an overall loss
• Casualty or theft losses
• Losses from rental property
• Moving expenses
• Farming expenses

Question 11

The following items are not allowed when figuring an NOL:

Answer 11

• Capital losses in excess of capital gains
• The exclusion of gain from the sale of qualified small business stock
• A net operating loss from another year ( a carryback or a carryforward)
• A SE taxpayer’s contribution to their own retirement plan.

Question 12

Excess business losses of noncorporate taxpayers are subject to an annual limit of:

Answer 12

$270,000 0r $540,000 MFJ

Question 13

461

Answer 13

Limitation on Business Losses

• Is used to figure the excess business loss that is reported on a taxpayer’s return. Excess business losses must be carried forward, and are treated as a net operating loss to the following year.

Question 14

199A has two components:

Answer 14

QBI Component: This component of the deduction equals 20% of qualifying business income from a domestic business operated as a sole proprietorship, or through a partnership, S corporation, trust, or estate

Question 15

QBI: Qualified items of income, gain, deduction, and loss include:

Answer 15

• Only items effectively connected with the conduct of a trade or business within the United States
• Only items included or allowed in determining taxable income for the year

Question 16

QBI does not include:

Answer 16

• Wages
• Capital gains
• Interest and dividend income
• Hobby income
• Non-taxable income, (such as muni bond interest)
• Rental income where the owner is not engaged in a bonafide real estate “trade or business”. Any guaranteed payment from a partnership for services rendered with respect to the trade or business
• Reasonable compensation paid to an S corporation shareholder
• Income earned by a C corporation.

Question 17

QBI: Safe Harbor rule for rental real estate income (three tests):

Answer 17

• The taxpayer maintained separate books and records for each enterprise
• At least 250 hours of rental services are performed per year by owners, employees, contractors, or agents for the enterprise;
• The taxpayers maintain sufficient, contemporaneous records, including time reports, logs, or similar documents, regarding the following: hours of all services performed; description of all services performed; dates on which such services we performed; and who performed the services.

Question 18

199A: SSTB Limitation

Answer 18

This limitation is based on the type of trade or business activity

Question 19

199A: Wage & Property Limitation

Answer 19

For a non-SSTB business whose income exceeds the phaseout ranges, the 20% deduction against QBI is limited to the greater of:

• 50% of allocable W-2 wages paid by the business, or
• 25% of W-2 wages, plus 2.5% of the unadjusted basis immediately after acquisition (UBIA) of all qualified property

Question 20

199A: Qualified property includes the original unadjusted basis of depreciable, tangible property that:

Answer 20

• Is held by the business and available for use at the close of the taxable year (i.e., the asset is not sold or disposed of during the year)
• Has a remaining depreciable period. The term “depreciable period” means that (1) its regular depreciable life has not ended prior to the end of the tax year of the business or (2) if it has not been more than 10 years since it was first placed in service

Question 21

What is UBIA?

Answer 21

Unadjusted basis immediately after acquisition

Question 22

SSTB De minimis rule #1

Answer 22

If a business’ gross receipts are less than $25 million, and less than 10% of the gross receipts are from the performance of services in a specified service trade or business, then the trade or business is not considered a specified service trade or business, and thus the owner(s) of the business are not subject to the SSTB limitation

Question 23

SSTB De minimis rule #2

Answer 23

If a business’ gross receipts are more than $25 million, and less than 5% of the gross receipts are from the performance of services in a specified service trade or business, then the trade or business is not considered an SSTb, and owner(s) of the business are not subject to the SSTB limitation

Question 24

What is GBC

Answer 24

General Business Credit

Question 25

3800

Answer 25

Used to report the general business credit

Question 26

GBC: Carryover period

Answer 26

1 year back
20 years forward

Question 27

GBC: The order in which the credits are used in any tax year is:

Answer 27

-. Carryforward to that year, using the ones that were generated the earliest
- The general business credit earned in that year, and
- The carryback to that year.

Question 28

3468

Answer 28

Used to claim the investment credit

Question 29

Rehabilitation Credit:

Answer 29

Designed to encourage businesses to restore or preserve an older building or one that qualifies for historic status. A 20% credit for qualified expenditures applies to rehabilitation costs incurred on certified historic structures. The credit must be claimed ratably over a 5-year period beginning when the structure is placed in service

Question 30

Energy Credit:

Answer 30

Designed for businesses that use certain types of alternative energy, such as solar, or geothermal energy and shale oil production

Question 31

Qualifying advanced coal project credit:

Answer 31

This is for businesses that generate electricity using coal, while still reducing carbon dioxide emissions

Question 32

Qualifying gasification project credit:

Answer 32

The credit is for qualifying gasification projects that combine coal, petroleum residue, biomass, or other materials with steam under high pressure to create synthetic gas while reducing carbon dioxide emissions

Question 33

Qualifying advanced energy project credit:

Answer 33

The is a 30% credit of the qualified investment in certain renewable energy projects.

Question 34

In general, a business cannot claim the investment credit for property that is:

Answer 34

• Used outside the United States
• Used by a governmental unit or foreign entity
• Used by a tax-exempt organization
• Used for lodging or in the furnishing of lodging
• Any property that has already been expensed under section 179

Question 35

Work Opportunity Tax Credit: 10 targeted groups:

Answer 35

• Unemployed Veterans (including disabled veterans)
• Temporary Assistance for needy families (TANF) recipients
• Food stamp recipients
• Designated community residents (Those living in empowerment zones)
• Vocational rehabilitation referred individuals
• Ex-felons
• Supplemental security income recipients
• Summer youth employees (living in empowerment zones)
• Qualified long-term unemployment recipient

Question 36

How is the WOTC reported;

Answer 36

Calculated on 5884
Reported on 3800

Question 37

Disabled Access Credit: Calculations

Answer 37

50% of expenditures over $250, not to exceed $10,250, for a maximum benefit of $5,000

Question 38

Disabled Access Credit: Rules

Answer 38

Nonrefundable

To be eligible, a business must have gross receipts of $1 million or less or had no more than 30 full-time employees during the preceding tax year.

Question 39

Credit for Employer SS and Medicare Taxes on Employee Tips: Requirements

Answer 39

• Have employees who received tips from customers for serving food or beverages, and
• Have paid employer SS and Medicare taxes on these tips

Question 40

FMLA Credit: Employer requirements:

Answer 40

Employers must have a written policy in place that meets certain requirements, including providing:

-At least two weeks of paid family and medical leave (annually) to qualifying employees who work full-time (or prorated for employees who work part-time), and
- The policy must require a rate of payment of at least 50% of the employee’s normal wages

Question 41

FMLA Credit Amounts:

Answer 41

• An employer can claim a credit of 12.5% if the rate of payment is 50% of normal wages
• An employer can claim a credit of 25% if the rate of payment is 100% of normal wages

Question 42

FMLA Credit: Income threshold:

Answer 42

If an employee earns more than $78,000 per year, the employer cannot claim the credit for them.

Question 43

Credit for Small Employer Health Insurance Premiums Requirements

Answer 43

• The employer must have fewer than 25 full-time employees
• Average annual wages of qualifying employees must be less than $58,000
• The employer must pay at least 50% of the employee’s premium costs
• The employer must offer coverage through the SHOP marketplace in order to qualify

Question 44

The R&D credit is allowed to offset

Answer 44

AMT, in addition to regular income tax

Question 45

R&D credit: Qualified research activities?

Answer 45

• Technological research to develop new or improved business processes, or improve product reliability or quality
• Development of commercial software in connection with the taxpayer’s trade or business activity
• Research incurred by a pharmaceutical company to introduce a new drug or develop a new piece of technology

Question 46

R&D Credit: Costs of qualifying research

Answer 46

• If done by employer = 100%
• If outsourced: 65%

Question 47

Credit for Employer-Provided Child Care Facilities and Services: Main points

Answer 47

• Credit is 25% of the qualified facility expenses plus 10% of the qualified child care resource and referral expenditures paid or incurred during that tax year
• Maximum credit of $150,000

Question 48

Credit for Small Employer Pension Plan Startup Costs and Auto-Enrollment: Main Points

Answer 48

• Credit is 50% of qualifying costs

Employers may be eligible for this credit if:
- The business had 100 or fewer employees who received at least $5,000 in compensation in the preceding year
- THe business had at least one plan participant who was a non-highly compensated employee