REG Becker

Startup costs (and organization costs)

$5k expense maximum 180 months amortization of remainder

Section 1244 (Qualified Small Business Stock)

- First million dollars of stock ( C or S ) issued after incorporation - Loss of 100,000 per year on a joint return considered ordinary not capital loss -Up to $100,000 of loss is treated as an ordinary loss. -Any loss in excess of the maximum annual ordinary loss is treated as a capital loss.

Uniform Capitalization Rules

- Inventory Apply to: - Property produced for use - Property produced for sale - Acquired for resale Costs that are capitalized: - DM, DL, indirect costs

Income Recognition Exemptions (percentage of completion)

- Small contractors: projects that are expected to last no more than 2 years and are performed by a taxpayer who as average annual gross receipts not exceeding $27 million for the three years that precede the tax year in question -Home Construction Contractors: Where at least 80% of the total contract costs are related to the construction or rehabilitation of certain dwelling units, which do not include hotels, etc., where the majority of use is on a transient basis

Section 199A

-20% deduction for eligible "flow-through" US entities with QBI -Includes: individuals, partnerships, S Corps, most LLCs and trusts -Deduction is taken "below the line" or FROM AGI -Determine if business is QTB or SSTB

Phase 3 QBI

-Calculate Phase In percentage -calculate tentative QBI deduction -calculate wage and property limitation -calculate excess QBI deduction over limitation -calculate reduction amount -calculate QBI reduction

Qualifying Widow(er with Dependent Child)

-Can file MJ for 2 years following death (unless remarries) -Surviving spouse must pay over HALF OF COSTS of maintaining household where dependent child lives for the whole taxable year

personal property (cost recovery)

-Half year convention -mid quarter convention

Head of Household

-Individual is unmarried, legally separated, or married and has lived apart from his or her spouse for the last six months of the year as of close of the taxable year -Individual is not a Qualifying Widow(er) -Individual is not a resident alien -The individual maintains as his or her home a household that, for more than half the taxable year, is the principal residence of a qualifying person, including a dependent child, parent, or relative

Separately Stated Items

-Rental real estate income or loss -interest income -dividend income -royalties -net STCG -net LTCG -Net section 1231 gain or loss -charitable contributions -Section 179 expense deduction

Real property (cost recovery)

-mid-month convention

S Corp Eligibility

1. Domestic 2. No more than 100 shareholders (spouses and family count as one) 3. Only one class of stock 4. Unanimous consent from shareholders (>50% consent for revocation of S-Corp). 5. File form 2553

Nondeductible expenses (on Schedule C)

1. salaries paid to the sole proprietor (they are considered a draw) 2. federal income tax 3. personal portion of: a. automobile, travel and vacation expenses b. health insurance of a sole proprietor - while this is not reported on Schedule C as a expense, it is reported as an *adjustment* to arrive at AGI c. bad debt expense of a *cash basis* taxpayer

residential rental property (depreciation)

27.5 yr straight line includes apartment buildings and rental homes

maximum business loss (individual)

270k

Interest deduction limitation

30% of business income excluding interest income and expense

nonresidential real property

39 year straight line includes office buildings and WHs

modified AGI

= AGI + 50% of SS benefits + tax exempt interest

affiliated group

A common parent directly owns: -80% or more of the voting power of all outstanding stock; AND -80% or more of the value of all outstanding stock of each corporation.

mid quarter convention

A cost recovery convention that assumes that property placed in service during the year is placed in service at the middle of the quarter in which it is actually placed in service. The mid-quarter convention applies if more than 40 percent of the value of property (other than eligible real estate) is placed in service during the last quarter of the year.

Married Filing Separately

A married taxpayer may file a separate return even if only on spouse has income for the year. In a separate property state, spouses who elect to file using the _____ _____ _______ status must separately report their own income, credits, and deductions on their own individual tax returns. In a community property state, most of the income, deductions, credits, etc are split 50/50.

Child and Dependent Care Credit

A nonrefundable tax credit of 20-35% of employment-related child and dependent care expenses for amounts of up to $6,000, available to individuals who are employed and have a qualifying child or disabled spouse or dependent. Limited to the lowest earned income of either spouse

Bonus Depreciation

Accelerated deduction in the year placed in service of 50 percent or 100 percent of the cost of qualified tangible personal property. Only allowed if taxpayer had not previously used the property and it wasn't acquired from a related party

OAA (Other Adjustments Account)

Account with record of items that affect S corp shareholders stock basis but do not affect AAA: -Tax exempt interest on muni bonds and related expenses -Tax exempt life insurance proceeds and related nondeductible premiums -Fed taxes paid or accrued in an S corp year that relate to C corp years

capital assets (taxpayer)

All property held by the taxpayer EXCEPT: 1: Inventory held for sale to customers in ordinary course of business 2: depreciable property and RE used in business 3: AR and NR arising from sales or services in business 4: Copyrights, literary, musical, or artistic compositions held by the original artist 5: Treasury stock

Section 1244

Allows deduction of capital loss for small business stock (if original owner) to be taken as ordinary loss up to $100,000 -Married / $50,000 -Single. Any excess loss will be a capital loss.

purchased goodwill (covenants not-to-compete, franchises, trademarks, and trade names)

Amortized on a straight line basis over 15 years

291 recapture

Applies to section 1250 real property sold at a gain 20% of the lesser of the gain recognized or the prior depreciation taken on the asset is recaptured as ordinary income. The remaining 80% of gain is treated as 1231 gain

Qualified Employee Discounts

Are nontaxable if: -Discount is not on realty or investment property -Item discounted is from same line of business in which employee works -Discount cannot exceed gross profit on property or 20% of the customer price on services -Benefit is offered on nondiscriminatory basis

MACRS 5 year (property includes)

Automobiles, light trucks, computers, and copiers

DRD (dividends received deduction)

Based on percentage of investee corporation owned by the investor corporation Percentage Deduction Allowed: Ownership Tax Rate 0% to <20% 50% 20% to < 80% 65% 80% or more 100% Limited to 50% (or 65%) of dividends received or 50% (or 65%) of taxable income computed without regard to DRD or NOL carryfoward/back

Qualifying Child

CARES C - Close relative A - Age limit (19/24) R - Residency and filing requirement E - Eliminate gross income text S - Support test changes

Corporate NOl

Cannot offset any ordinary income Generated BEFORE 2017: -Carryback 2 Carryforward 20 Generated BETWEEN 2017 and 2021: -Carryback 5 Carryforward Indefinitely Generated AFTER 2020: -Carryback 3 years Carryforward 5

PHC (personal holding company)

Corporations more than 50% owned by five or fewer individuals and having 60% of ordinary GI consisting of investment type income: NIRD N - Net rent (if less than 50% of OGI) I - Interest that is taxable R - Royalties (but not mineral, oil, gas, or copyright royalties D - Dividends from an unrelated domestic corporation

deductions from AGI

Deductions "below the line" Deducted from adjusted gross income to determine taxable income Greater of standard deduction or itemized deductions Personal and dependency exemptions

section 1231 (assets)

Depreciable assets and land used in a trade or business held for more than one year

Section 1245 (Personal Property)

Depreciable personal property used in a trade or business for more than 12 months -lesser of gain recognized or acc dep taken on the asset is recaptured as ordinary income under Section 1245 and... -any remaining gain is a Section 1231 gain

Basis in like kind property (boot received)

FMV of LKP Received - deferred gain + deferred loss

Rental Income

Fewer than 15 Days: Treated as a personal residence, rental income is excluded from income, and mortgage interest and real estate taxes are allowed as itemized deductions. Depreciation, utilities, and repairs are NOT deductible 15 or more Days: If rented for 15 or more days and is used for personal purposes for the greater of i. more than 14 days or ii. more than 10% of the rental days, it is treated as a personal/rental residence. Expenses must be prorated between personal and rental use. Rental use expenses are deductible only to the extent of rental income

installment sale

Gain recognized (taxable income) = cash collections (excluding interest) * GP % Revenue is reported over the period in which the cash payments are received

HIDE IT

Gains Not taxable: Homeowner exclusion (500,000 MJF) Involuntary exchange (no gain recog) Divorce property settlement Exchange of like-kind Installment sale Treasury & capital stock

NOLs

Generated before 2018 = offset 100% of future year's taxable income but only carried forward 20 yrs Generated after 2017 = Can be carried forward indefinitely. Starting in 2021 only 80% of net income can be offset

individual income tax formula

Gross income < Deductions for AGI > = AGI < Deductions from AGI (greater of itemized or standard deduction) > < Exemptions > = Taxable Income x Tax rate = Gross tax liability < Tax credits and prepayments > = Tax due or refund

rental income (equation)

Gross rental Income Prepaid Rental Income Rent cancellation payment Improvement in lieu of rent (Rental Expenses) = Net rental income or loss

40%

Half year convention is used UNLESS more than ______ of depreciable personal property is placed in service in the last quarter of the year

adjustments to AGI

IMDOPEASSSHIT I IRA (5.5k, P/O) M Moving Exp (Trav/Lodg Mov) D Domestic Prod O 1/2 of SE tax P Paid Attorney Fees E Educator Exp (250/per) A Alimony Paid S SE Health Ins S SE Retir (Keog, L of 53k or E) S Stud Loan i Exp (2.5k, P/O) H Health Saving (3.3k) I Interest w/d penalty T Tuit/Fee Deduc (4k, P/O)

Single (use EOY test)

If on the last day of the year, you are unmarried or legally separated from your spouse under a divorce or separate maintenance decree and you do not qualify for another filing status.

Bargain Purchases

In an employer sells property to an employee for less than its FMV, the difference is income to the employee

Joint Returns (use EOY test)

In order to file a _______ ________, the parties must be: -married at the end of the year -living together in a legally recognized common law marriage or -married and living apart but NOT legally separated or divorced Special Cases: -If married during the year, a joint return may be filed provided the parties are married at year end -If divorced during the year, a joint return may NOT be filed -If one spouse dies during the year, a joint return MAY BE filed

Deductible Expenses (on Schedule C)

Include items that one would expect to find in business, such as: 1. COGS 2. Salaries and commission paid to others 3. state and local business taxes 4. Office expenses 5. Auto Expenses 6. Meals for business at 50% (100% for 2021 and 2022) 7. Depreciation of business assets 8. Interest expense on biz loans 9. Employee benefits 10. Legal and prof services 11. Bad debts directly written off

Shareholder Basis (in S corp stock)

Initial basis + income items (separately and nonsep stated) +additional investments - distributions - losses/deductions/expense items =ending basis

series EE (savings bonds)

Interest on US ________ ______ savings bonds issued after 1989 is tax exempt when: -used to pay for higher ed (reduced by tax free scholarships) of taxpayer, spouse, or dependents -taxpayer is over age 24 when bond is issued -a married taxpayer files a joint return; and -the taxpayer meets certain income requirements sing/HOH: Modified AGI 85,800-100,800 Married FJ: 128650-158,650

QBI Overall Limit

Lesser of: -Combined QBI deductions OR -20% of taxpayer's taxable income in excess of net capital gain

Depreciation Recapture

Loss = section 1231 loss; net 1231 loss treated as ordinary loss ordinary income = gain to extent of accumulated dep, and net 1231 gain to the extent of unrecaptured net 1231 losses in previous years Capital gain = net section 1231 gain after depreciation recapture and five year look back

WRaP

Losses not Recognized: Wash sale losses Related Party losses and Personal Losses

charitable contribution (corporate deduction)

Maximum deduction of 10% of their taxable income

SEP IRA (max deduction)

Maximum deduction: Lesser of $58k or 20% of net earnings (note net earnings, not net income)

gross income includes

Money Property (FMV) Bargain Purchase (difference in cost and FMV) Guaranteed payment to a partner Taxable fringe benefits Portion of life insurance premiums

HIMDEAD

No penalty if premature distribution of IRAs is used to pay: H - Homebuyer (first time): used to purchase a home within 120 days of dist. max 10k I - Insurance M - Medical expenses in excess of percentage of AGI floor D - Disability (permanent or indefinite disability but not temp) E - Education : tuition, books, fees, etc A - Adoption or birth of child made within one year from the date f birth or adoption (max 5k) D - Death

Portion of Life Insurance Premiums

Premiums paid by an employer on a group term life insurance policy covering his employees are not income to the emploees up to the cots on the first $50k of coverage per employee. Premiums above the first $50k are taxable income to the recipient and normally included in W-2 wages. (calculated from an IRS table)

CARES

Qualifying child tests C - Close relative A - Age limit (19/24 only for FT students) R - Residency and filing requirement E - Eliminate gross income text S - Support test

Section 1250

Real business property: over 12 months (warehouse) Gains only

AAA (accumulated adjustments account)

S CORP ACCOUNT Increases to account: -Ordinary business income -Separately stated income and gain items EXCEPT tax exempt income Decreases to account: - OB losses - separately stated losses and deductions -nondeductible expenses (other than those relating to tax exempt income) -Distributions (cannot go below 0 because of dist. but can because of business losses)

Qualifying Relative

SUPORT S- Support- (over 50%) U -Under personal exemption of TAXABLE gross income ($4,400) P - Precludes dependent filing a joint tax return test O - Only citizens of US or residents of the US, Mexico, or Canada R - Relative (half year) OR... T - Taxpayer resides with full year

half year convention

Tax rule that requires recognizing six months of depreciation expense on an asset both in the year of purchase and in the year of disposal regardless of the actual purchase date, so long as it was placed in service or disposed of the in the year.

QBI phase out (SSTB)

Taxable income before deduction of $220,050 or more is not eligible for deduction from a specified service trade or business

Mom and Pop (Exception)

Taxpayers may deduct up to $25K per year of net passive losses attributable to passive losses ONLY IF the individuals are ACTIVELY PARTICIPATING and own AT LEAST 10% off the rental activity Carried forward indefinitely P.O. reduced by 50% of the amount over 100,000, phased out at 150k

Mom and Pop Exception

Taxpayers may deduct up to $25K per year of net passive losses attributable to passive losses ONLY IF the individuals are ACTIVELY PARTICIPATING and own AT LEAST 10% off the rental activity Carried forward indefinitely P.O. reduced by 50% of the excess taxpayer's AGI over $100k. Allowance is eliminated completely when AGI exceeds $150k

Taxable Fringe Benefits

The FMV of a fringe benefit not specifically exclude by law is includable in income. I.E, an employee's personal use of a company car is included as wages in income.

S corp taxes

Three taxes S Corps pay if it was previously a C-Corp -LIFO Recapture Tax -Built-in Gains Tax -Tax on passive investment income

Form 1120

U.S. Corporation Income Tax Return

Unrecaptured 1250 gain

a gain from the sale of real estate held by a noncorporate taxpayer for more than one year in a trade or business or as rental property <attributable to tax depreciation> deducted at ordinary tax rates. This gain is taxable at a maximum 25% capital gains rate.

recourse debts (partnership allocation)

allocated only to partners of LLC members who have personal liability for the debt

nonrecourse debts (partnership allocation)

debt allocated to all partners or LLC members based on their profit sharing ratio

intangibles

definite lives are amortized over 15 years includes goodwill, licenses, franchises, and trademarks

section 179

depreciation method where entire purchase price of an asset can be depreciated in one year for tax purposes -reduced dollar for dollar by amount of property placed in service during taxable year that exceeds $2.7m - Limited to taxable income BEFORE the deduction but AFTER DEPRECIATION

Dividend income

distribution of property by a C corp out of the company's earnings and profits -Corporate earnings + profits = taxable dividend -No earnings and profits and taxpayer has basis = nontaxable and reduces basis -No earnings and profits and no stock basis = taxable capital gain income

Defenses to a contract

fraud, duress, undue influence, mistake, misrepresentation, illegality Lack of an agreement and lack of consideration are also ________

Real Estate Professional (PAL Exception)

if taxpayer is a real estate professional, rental real estate activities are considered passive rather than active. A taxpayer is a real estate professional if: -over 50% of the taxpayer's personal services during the year are performed in real estate businesses AND -the taxpayer performs more than 750 hours of services in real estate businesses during the year

MACRS 10 year

includes boats and water transportation equipments

MACRS 20 year

includes certain farm buildings and municipal sewers

MACRS 7 year

includes furniture and fixtures, machinery, and equipment

MACRS 15 year

includes qualified improvements to the interior of existing nonresidential buildings and certain improvements made directly to land

MACRS 3 year

includes special tools and certain race horses

Separately Stated Items

income, expenses, gains, losses, credits, and other items that are excluded from a partnership's or S corporation's operating income (loss) and disclosed to partners in a partnership or shareholders of an S corporation separately because their tax effects may be different for each partner or shareholder.

net earnings (self employment)

net self-employment income - 50% of S/E taxes

Adoption Assistance

nontaxable fringe benefit Can exclude from taxable income up to $14,890 of qualified _________ ____________ paid by an employer. Exclusion is phased out for taxpayers with MAGI of 223,410-263,410.

dependent care (assistance)

nontaxable fringe benefit Employees can exclude from GI up to $5k of benefits paid or reimbursements by an employer for _________ ______ expenses. Qualifying dependents include children under age 13 and a spouse or other dependent physically or mentally incapable of self care.

Life insurance

nontaxable fringe benefit May exclude from income the value of life insurance premiums the employer pays on an employee's behalf for up to 50k of group term

Qualified tuition reduction

nontaxable fringe benefit employees of educational institutions studying at the undergrad level who receive tuition reduction may exclude the tuition reduction from income. Graduate students may exclude tuition reduction only if they are engaged in teaching or research activities and only of the tuition reduction is IN ADDITION to the pay for the teaching or research.

health insurance

nontaxable fringe benefit employer paid insurance premiums are excludable from employees income but amounts paid to employee are includable unless: 1) reimbursement for medical expenses actually incurred by employee OR 2) compensation for the permanent loss or loss of use of a member or function of the body

employer provided parking

nontaxable fringe benefit up to $280 per month may be excluded in 2022, even if the parking benefit is taken by employee in place of taxable cash comp same amount (280) for transit passes

education expenses (employer payment of employee's)

nontaxable fringe benefit up to $5,250 may be excluded from GI of payments made by the employer on behalf of employee's _______ _____ and/or student loans.

depletion limitation

percentage depletion deduction is limited to 50% of taxable income before depletion. NOTE: always use units SOLD during year

repurchases security (basis)

purchase price + disallowed loss

Guaranteed Payments (to a Partner)

reasonable compensation paid to a partner for services rendered without regard to the partners ratio of income. - are taxable - are deductible by partnership - separately stated and included in business net income - do not affect their basis - ordinary income

phase in percentage

taxable income in excess of threshold amount/phase in range

corporate cap gains (losses)

taxed at the same rate as ordinary corporate income, losses can ONLY OFFSET LOSSES, no ordinary income deduction at all. Excess losses can be carried back 3 years and forward 5 years

kiddie tax

the tax on a child's unearned income based on the child's parents' marginal rate

net unearned income (unearned income - 2300)

unearned income in excess of a specified threshold amount of a child under the age of 19 or under the age of 24 if a full-time student taxed at the parent's marginal rate