Unit 7

Question 1

Why was QBID created

Answer 1

Did not want to disadvantage pass thru entities with higher tax liability when reduced c corp tax to 21%

Question 2

Specified Service Trade Buinsess Example

Answer 2

Principle asset is reputation/skill.

Health, Law, Athletic, FInancial Service

Question 3

Qualified Trade Business Example

Answer 3

Not a SSTB .

Architect, enginerr, real estate, insruance

Question 4

QBID Limitation

Answer 4

Lesser of 20% x QBI or 20% (Taxable income - Net Capital Gains)

Question 5

Before applying overall limit for QBID must..

Answer 5

Determine combined QBID before taxable income 3 step process:

1. Determine QBI (k1 or C)
2. Sum of QBI against taxable income
3. add allowed QBID for each entity for total QBID
4. apply overal limitation to total QBID to get correct amount to deduct

Question 6

Where QBID reported

Answer 6

Line 13 Form 1040

Question 7

AMT

Answer 7

Income tax in addition to regular income tax (form 6251)

Question 8

Forumla for AMT

Answer 8

Taxable Income + Tax Preferences + Standard Deduction +- Other Adj. = AMT Income. - Excemption amount = AMT Base x Rate 26% (<197k) = Tentative Min Tax - Reg Income = AMT

Question 9

AMT Phaseout

Answer 9

25% Phaseout if > 72.9 k , 113.4k, MFS 56.7k

Question 10

AMT Carries?

Answer 10

Forward indefiently

Question 11

Tax Preference Items:

Answer 11

Generate tax savings by reducing taxable income: Sec 1202 stock, Private bonds, % depletion, drilling costs

Question 12

Other Adj. when calculating AMT

Answer 12

Add back savings from acc. deductions/deferred income.
INstallment Sales,(gain/loss discarded)
long term contacts
Net operating loss (-to extent increase reg NOL)
Standard Deduction (not claimed)
Certain itemized deductions (State.local/foregin payments)
INcentive stock options

Question 13

AMT Excemtption

Answer 13

Reduces AMTI. Phased out at 25% for each dollar of AMTI above threshold

Question 14

Minimum Tax Credit

Answer 14

Allowed for AMT paid in tax year against reg tax laibility in one or more subsequent years. . MTC = AMT w/out adj for SD, Mis Itemzied D. , depletion, taxes, tax exempt bonds

Question 15

SS FICA TAX

Answer 15

Required to pay tax based on employees pay

Question 16

SS FICA TAX AMount

Answer 16

6.2% for first $137,700 of wages, + 1.45% all wages for medicare.

Question 17

SS FICA TAX wage amount to require pay

Answer 17

$2200

Question 18

Additional Medicare Tax amount and why

Answer 18

.9% if above threshold.
MFJ 250k
SIngle 200k
MFS 125k. Withholding b eings at 200k regardless of filing status.. Self employed cannot take deduction

Question 19

Net Investment Income Tax

Answer 19

Esentially applies FICA taxes to income previously not subject to taxes. Investment income in excess of deductions allowable for income and income of passive activities are subject to 3.8% tax

Question 20

Net Investment Income Tax Thresholds

Answer 20

Lesser of Net Investment Income or excess of MAGI (sum of AGI + excludable foreign earned income after deductions over threshold. ) over threshold.

SIngle 200k
MFJ 250k
MFS 125k

Does not apply to nonresident aliens

Question 21

Self Employment Tax Rate

Answer 21

FICA tax is twice rate for self employes 15.3% Can deduct employer portion.

Question 22

Self Employment Deduction of employer part calcualtion

Answer 22

NE from SE = NI from SE - (.0765 x NI from SE)

Question 23

Minister in SElf Employemtn TAX treatment

Answer 23

Rental value not excluded from SE taxes, wages not subject to SS but included in SE income,

Question 24

Unemployment FUTA TAX rate

Answer 24

6% of first 7k wages paid. Employee deos not pay. Requiredto pay >1.5k for any quarter. .

up to 5.4% is allowable as credit based on state unemployment taxes paid.

Question 25

Household Employee Tax

Answer 25

If paid >2200$ or withheld taxes at emplyee request, or paid >1000$ in quarter.

Question 26

Emoloyee Household Tax Penaltites

Answer 26

2% 1-5 days late
5% 6-15 late
10% 16 days

Question 27

Special Withholding Deposit Deferrals/Credits 2020 ONLY

Answer 27

Refundable paid sick leave from 4/20-12/20 against employers portion of SS tax (>500 employees)

Refundable retention credit for 50% wages against SS tax <10k
Defer SS tax employer

Question 28

Farm Optional Method:

Answer 28

Net earnings from farm SE if GI <8.26k or net profits < 6.1k.

If GI is <8.46k = NE 2/3 of gross income

If GI is >8.46k = $ $5640.

Question 29

Homebuyers Credit Repayment

Answer 29

4/2008-5/2020. Credit for qualifying first time home buyers. After 2008 do not have to repay after 3 years. in 2018 repay for 15 years.
6.67% of original credit, if turns to not primary residence = remaining due

Question 30

FBAR penalty

Answer 30

Need to file if exceed certain thresholds. nonwillful no more than $13,481 per violation.
For willfull, greater of 134k or 50% balance.

Question 31

Specified Foreign Financial Assets

Answer 31

Filed with tax return. in addition to FBAR. Penalty= 10k +10k every months . Not to exceed 50k.