r1-m3/4 Flashcards
(48 cards)
Where is net income from self employment computed?
Schedule C
-net income from sole proprietorship is then transferred to Form 1040 as one amount
Gross Income
Schedule C
-cash = amount recieved
-property = fair market value
-cancellation of debt
Expenses
Schedule C
- Cost of goods
- salaries and commissions paid to others
- state and local business taxes paid
- office expenses
- actual automobile expenses
- business meal expenses at 50%
- Deprectiation of assets
- Employee benefits
The business interest expense deduction is limited to the sum of:
-business interest income
-30% of the adjusted taxable income (ATI)
-floor plan financing interest expense
What are some nondeductible expenses on a Schedule C?
*salaries paid to the sole proprietor
*federal income tax
*personal portion of: automobile, travel, meal expenses, interest expense
*bad debt expense of a cash basis taxpayer
*charitable contributions: report as itemized deduction on Schedule A
What is adjusted taxable income?
Taxable business income for the year excluding all interest income and interest expense.
What are the two federal taxes on net business income?
- income tax
- self employment (SE) tax
Self employment tax
-92.35% of self employment income
-15,3% of ^
What is the formula for rental income or loss?
Gross rental income
+prepaid rental income
+rent cancellation payment
+improvement in lieu of rent
-rental expenses
=Net income or loss
*Reported on schedule E
What if the residence is rented for fewer than 15 days per year?
it is treated as a personal residence.
-rental income is excluded from income
-mortgage interest and real estate taxes are allowed as itemized deductions
-depreciation, utilities, repairs are not deductible
How is rental property income treated?
Includes income recieved from property in gross income and deducts all expenses allocated to the rental property on schedule E form 1040.
What are some common separately stated items?
Flow Through
-rental real estate income (loss)
-interest income
-dividend income
-royalties
-net short term capital gain (loss)
-charitable contributions
Guaranteed Payments to Partners
Compensation paid to a partner, either for services rendered or for the use of capital, that are determined without regard to the partnerships income.
-payments are a business expense that reduces partnership ordinary income
-they flow through as a separately stated item of income on the recipient partners schedule k-1
Are guaranteed payments subject to a self employment tax?
flow through
Yes, and therfore subject to a self employment (social security and medicare) tax in addition to income tax
Adjustments for AGI include:
-Educator expenses
-Traditional IRA contribution deduction
-Student loan interest deduction
-Health savings account deduction
-moving expenses
-deductible part of self employment tax
-self employment health insurance deduction
etc
How much can an eligible educator deduct?
$300 qualified expenses paid
$600 if filing jointly and spouse in an educator
Qualified expenses must be reduced by the following:
Educator expenses
-excludable US series EE and Savings Bonds interest from Form 8815
-Non taxable qualified state tuition program earnings
-nontaxable earnings from Coverdell education savings accounts
-any reimbursements received for these expenses that were not reported on for W-2
The three types of individual retirement accounts (IRA) are:
-deductible traditional IRA
-Roth IRA
-nondeductible traditional IRA
The annual maximum contribution to IRAs is limited to the lesser of:
Unmarried
Under 50: $6500 or earned income
Over 50: $7500 or earned income
The annual maximum contribution to IRAs is limited to the lesser of:
Marries
Under 50: $1300 or earned income
Over 50: $1500 or earned income
Earned income includes:
-salary and wages
-commissions
-alimony
-net earnings from self employment
-non tuition fellowship and stipend payments treated as taxable compensation
Earned income does not include:
-interest and dividends
-Annuity income
-Pensions
-Alimony
The adjustment for education loan interest is limited to
$2500
-all interest payments qualify for the adjustment
-deduction is completely phased out at AGI equal to or more than 90k
What do health savings accounts do?
Health savings accounts (HSAs) enable workers with high deductible health insurance plans to make pretax contributions of up to $3,850 to cover health care costs. (PRETAX)
