Wrong Answer Tax

Question 1

Self Employment Tax Shortcut

Answer 1

Take the total self employment tax and multiply it by .1413 and round up.

Question 2

Hybrid Method of Accounting

Answer 2

Combines the accrual method for purchases and sales of inventory with the cash method. Best for companies with over 25 million in revenue

Question 3

NOL Prior to 2019

Answer 3

Not allowed for S Corps or C Corps prior to 2019. Starting in 2019 they are not allowed at all

Question 4

Tax Result of A Home Sale At A Loss

Answer 4

No loss can be taken on taxes

Question 5

Passive Income Loss Phaseout

Answer 5

Losses for passive income activities like real estate can only be taken if your agi is below 150

Question 6

Separate Maintenance Agreements Prior to 2019

Answer 6

Deductible with alimony

Question 7

Public Charities (50% Organizations)

Answer 7

-All churches, schools, and hospitals
-All organizations organized and operated for charitable, religious, educational, or literary purposes, or for the prevention of cruelty to children or animals (united way, Red Cross, humane society)

Question 8

30% Organizations (Private Charities)

Answer 8

Private Non Operating Foundations, fraternal orders, and war veterans organizations

Question 9

Steps for Calculating Charitable Deduction

Answer 9

1. Calculate the maximum amount deductible (60% of AGI)
2. Amount to public charities
   -Up to 60% of AGI for cash donations
   -Up to 30% of AGU for long term capital gains property
   -Up to 50% of AGI but using: basis for inventory, basis for works of art created by taxpayer, basis for short term capital gains property, basis for use unrelated property.
3. amount to private charities
   -up to 30% of AGI for cash donations

Question 10

Ordinary income property donated to charities

Answer 10

Deduction limited to basis. Types include:

-inventory
-a work of art created by taxpayer
-use unrelated property (watch out for art work and collectibles)
-short term capital gains property
-a copyright

Question 11

Loss Property Donated to Charity

Answer 11

Limited to FMV, but FMV is treated as basis.

Question 12

Required Minimum Annual Tax with an AGI over 150k

Answer 12

90% of current year tax liability or 110% of the previous year. If clients AGI is below 150 they only need to pay 100% of previous year

Question 13

Expenses for Self Employed

Answer 13

Above the line deduction against schedule C income.

Question 14

Self Employment Income Includes

Answer 14

-Net schedule C income
-General Partnership Income (k1 income)
-Board of Directors fees
-Part time earnings (1099)

Question 15

Schedule H

Answer 15

Used for Household Employees

Question 16

Basis For 1031 Exchange

Answer 16

Carries over from previous property. If boot is received, then add to basis.

Question 17

Overpayment of Allimony

Answer 17

When alimony is front loaded for the first two years, subtract 37,500 from total alimony paid in both years 1&2 to get recapture amount.

Question 18

Forgiven Loans to a LP

Answer 18

If a loan to a limited partnership is forgiven, the amount of the unpaid portion of the loan becomes taxable phantom income to the LP.

Question 19

STCG and LTCG above the line

Answer 19

Must be netted above the line, disregard the 3k carry over. For example if the question has:

10K LTCG
and
5K STCG.

5K is income for the current year.

Question 20

FICA Taxes

Answer 20

The employee and the employer each pay (6.2% + 1.45%) .

7.65% individually and 15.3% in total.

Up to W2 earnings of 168,600. After 168,600 each pays Medicare taxes or 1.45% or a total of 2.9% unlimited.

Question 21

Employer Provided Dependent Care Assistance

Answer 21

-Amounts that are paid by employer are not included in the employees gross income
-the amount excludable from gross income cannot exceed $5,000. This applies whether the filing status is single or joint
-to qualify for employer provided child care payments, the dependent must be 13 years old

Question 22

LIFO

Answer 22

Inventory cost method

Question 23

Schedule A of the 1040

Answer 23

Itemized deductions

Question 24

Amended Tax Form

Answer 24

1040 Z

Question 25

How are Mutual Fund Distributions taxed

Answer 25

If the fund was bought same year A portion of gain could be short term currently (reinvested dividends and capital gains) and a portion could be long term gains

Question 26

C corp Dividend Received Deduction

Answer 26

A US Corporarion investing in another corporation receives a deduction for dividends received.

50% if dividends received may be excluded if the corporation owns 20% or less of the distributing corporation.

65% exclusion if ownership is between 20-80%

100% exclusion if ownership is greater than 80%

Question 27

Section 1244 qualified small business stock

Answer 27

A section 1244 qualified small business is a corporation that was initially capitalized with no more than $1 million. Loss or 100,000 per year on joint return is considered to be an ordinary, rather than capital loss. $3,000 then carries forward

Question 28

MACRS Table vs Straight Line Table

Answer 28

Year 1:
5 YR 20%
7 YR 14.29

Year 2:
5 YR 32%
7 YR 24.49%

Straight Line YR 1:

5 YR: 10%
7 YR: 7.14%

YR2:

5 YR 20%
7 YR 14.29%

Question 29

Health Insurance Premium for AGI Deductions

Answer 29

Long Term Care premiums can apply, Medicare supplements can apply

Medicare part B is an itemized deduction for expenses above 7.5%

Question 30

Health Insurance Premium for AGI Deductions

Answer 30

Long Term Care premiums can apply, Medicare supplements can apply

Medicare part B is an itemized deduction for expenses above 7.5%