ACCT 3325 Tax I Test II
What is the max amount for the home office deduction?
$1,500
What is the deductible amount for medical transportation and lodging?
$50/night/person + transportation expenses. Limited to 2 people
This year, Nadia donates $4,000 to Eastern University's athletic department. The payment guarantees that Nadia will have preferred seating at football games near the 50-yard line. Assume that Nadia subsequently buys four $100 game tickets. How much can she deduct as a charitable contribution to the university's athletic department?
0
Belinda was involved in a boating accident in 2020. Her speedboat, which was used only for personal use and had a fair market value of $28,000 and an adjusted basis of $14,000, was completely destroyed. She received $10,000 from her insurance company. Her AGI for 2020 is $37,000. Belinda's tentative casualty loss before any limitations is what? Is it deductible?
4,000; only to the extent to offset any personal gains
Ronaldo contributed stock worth $12,000 to the Children's Protective Agency, a qualified charity. He acquired the stock 11 months ago for $7,000. He may deduct $_____ as a charitable contribution deduction. What if it was held for 12 months and 1 day?
7,000; he would be able to deduct the $12,000
Herman purchased undeveloped land for $75,000 on July 10, 2014, and has held it as an investment since then. On May 9, 2020, when the land is worth $140,000, he donates it to a private nonoperating foundation. What would his charitable contribution be? What if it was a public charity?
75,000 to a private foundation 140,000 to a public foundation
Dave uses the second floor of a building for his residence and the first floor for his business. The uninsured building is destroyed by fire. Are the tax consequences the same for each part of the building? If the casualty occurs in a Federally declared disaster area, the casualty loss on the residence portion is treated as a deduction A ; otherwise the loss is B . The casualty loss on the business portion is C and is a deduction D.
A- From AGI B- Not deductible C- Allowed as a business loss D- Deduction for AGI
Tim, a single taxpayer, operates a business as a single-member LLC. In 2020, his LLC reports business income of $225,000 and business deductions of $584,000, resulting in a loss of $359,000. a. What are the implications of this business loss? Tim has an excess business loss of $. b. Can this business loss be used to offset other income that Tim reports? If so, how much? If not, what happens to the loss? Tim may use $ of the $359,000 LLC business loss, to offset nonbusiness income . The excess business loss is treated as part of Tim's NOL carryforward. c. How much would the rollforward be?
A. 100,000 B. 259,000 (Single) C. 100,000
Modified taxable income is taxable income __________ the deduction for qualified business income reduced by any net capital gain. Before or After?
Before
Schedule D
Capital Gains and Losses from capital assets
Explain covered employees
Covered employees are the top five highest paid employees in a company. Only $1 million of their salary is deductible
Deductible or Not? Mortgage insurance
Deductible
How do you know if an activity is a hobby or profit motivated?
Does the taxpayer conduct the activity like a business? What are the elements of personal pleasure or recreation from the activity? What is the history of income or losses in the activity?
An exception to the economic performance requirements allows certain recurring items to be deducted if the taxpayer receives IRS permission. True or False?
False
Hobby related income is not included in the taxpayer's taxable income. True or False?
False
Reserves for estimated expenses generally are allowed for tax purposes because the economic performance test has been satisfied. True or False?
False
Schedule F
Farmer report farm revenues and expenses here and the net income flows to schedule 1, then 1040 line 8a. Again, before the AGI making expenses here "for" AGI deductions
Explain the difference between a for and from AGI deduction. Which would you rather have? Why?
First determine if an item is deductible and then determine if it is a for or from AGI deduction. Most (not all) for AGI deductions are business or investment expenses and most from AGI deductions are personal expenses. You want for AGI deductions because you can deduct them without having to itemize
Expenses of self-employed taxpayers, to the extent allowable, are classified as deductions ___________ AGI
For
Mia pays alimony to Bill in accordance with their separation agreement which was signed in 2018. For or from AGI?
For AGI
Rex, who is self-employed, contributes to his pension plan. For or from AGI?
For AGI
for or from or neither AGI? Contributions to HSAs
For AGI
for or from or neither AGI? Interest on student loans
For AGI
for or from or neither AGI? Penalty for early withdrawl from savings
For AGI
Albert pays Dr. Dafashy for medical services rendered. For or from AGI?
From AGI
for or from or neither AGI? Investment interest expense
From AGI
for or from or neither AGI? State Income Taxes
From AGI
Explain the tax implications of a Primary rental property
Greater than or equal to 15 days rented out of the year Property must not be personally used for greater than 14 days or 10% of rental days Typical housing deductions are not allowed (Ex mortage interest)
Qualified Business income (QBI) is defined as the ordinary income __________ ordinary deductions a taxpayer earns from a "qualified trade or business" conducted in the United States by the taxpayer.
Less
Explain the tax implications of a Primary personal rental property
Less than or equal to 14 days rented out of the year No rental income included and no expenses allowed (other than typical expenses like mortgage interest) Pocket the cash and move on
What QBI deduction could a SSB over the floor threshold get?
NOTHING
Does the limits on the deductibility of executive compensation apply to all types of business entities?
No; Only to publicly traded companies
Deductible or Not? Life Insurance premiums
Not Deductible
Roberto gives cash to his father as a birthday gift. For or from AGI?
Not Deductible
On May 9, 2018, Calvin acquired 250 shares of stock in Aero Corporation, a new startup company, for $68,750. Calvin acquired the stock directly from Aero, and it is classified as small business stock since at the time Calvin acquired his stock, the corporation had $900,000 of paid-in capital. On January 15, 2020 Calvin sold all of his Aero stock for $7,000. Assume that Calvin is single.
Ordinary Loss: 50,000 (Max) LT Capital Loss: 11,750
Explain the tax implications of a personal/rental property
Property is rented for more than 14 days Taxpayer personally uses it for greater than 14 days or 10% of days it was rented out Deductions related to rental are for AGI deductions, but only up to the amount of gross income generated and the deductions cannot create a loss
Itemized deductions that relate to personal (not business items). From AGI
Schedule A
Owners of rental property and partners in partnerships report their income here and it flows to schedule 1 then the 1040 line 8a. Again, before the AGI making expenses here "for" AGI deductions
Schedule E
Schedule 1
The additions are additions to income that aren't listed on the main page of the 1040
What QBI deduction could a non-SSB below the floor threshold get?
The lesser of 20% of QBI or MTI
What QBI deduction could a non-SSB over the floor threshold get?
The lesser of 20% of QBI or MTI, but it is limited to the greater of 50% of W-2 wages or 25% W-2 wages + 2.5% of qualified property
What happens to a loss with a related party?
The origional seller does not revieve a tax deduction for the loss but when the purchaser sells the land, he can claim a loss up to the amount of his gain.
An expense is ordinary if it is normal,usual, or customary in the type of business conducted by the taxpayer and is not capital in nature. True or False?
True
Casualty and theft losses incurred by an individual in connection with a trade or business are deductible for AGI. T or F
True
Expenses may be deducted immediately by a taxpayer engaged in a similar trade or business regardless of whether the business being investigated is acquired. True or False?
True
Neither ordinary nor necessary is defined in the Code or Regulations. True or False?
True
If an business asset such as a vehicle was completely destroyed, then how do we determine the deduction?
We use the Adjusted Basis less amount reimbursed by the insurance company. After that, it is subject to the $100 floor per event and the 10% of AGI if for PERSONAL use only
Self-employed persons __________ have to be included in various fringe benefit programs (e.g., group term life insurance and retirement plans). Because they are _______ covered by FICA and FUTA, these payroll costs are _________ by the employer.
do not have are not avoided
Deduction for student loan interest. For or from AGI?
for AGI
The purpose of the excess business loss limitation is to limit the amount of income that can be "sheltered" from tax as a result of business losses. What goes in the blank?
nonbusiness
Explain Schedule C
self-employed taxpayer reports revenues and expenses from their business resulting in Net Income, which is the amount that gets taxed. This makes business expenses a "for" AGI deduction.
