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REG M2 Gross Income Pt 2 > REG M3 Gross Income PT 2 > Flashcards

REG M3 Gross Income PT 2 Flashcards

(60 cards)

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1
Q

Are business meals deductible

A

Yes

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2
Q

Is the salaries paid to owner’s deductible

A

No (Withdraw)

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3
Q

Is automobile expense deductible

A

Yes

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4
Q

what are direct and indirect expenses for an automobile

A

Direct

-Incurred for client specifically

-Directly related to business usage

-Parking, bridges fees, tolls

Indirect

-Related to the total usage of the vehicle

-not from directly interacting with a client

-Insurance, inspection, repairs, depr, gasoline, parking ticket

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5
Q

What form is business income calculated on

What form is business income reported on

A

Schedule C

Schedule 1

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6
Q

What is Business Income and types

A

Income from the taxpayer’s trade or business

Cash, Property (FMV), Cancelation of debt

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7
Q

Types of flow through entities

A

Partnership

Sole proprietor

S corp

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8
Q

Are office expenses deductible

A

Yes

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9
Q

What business meals are deductible and how much

A

Meals and beverages with current or potential clients

Meals and beverages consumed by employees during work related travel

50%

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10
Q

Are taxes related to the business deductible

A

Yes

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11
Q

Rules for a qualified home office

A

Space can only be used for business purposes

Space is used consistently

Space is used by clients, patients or customers

Taxpayer carries out admin and management tasks

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12
Q

What is the additional medical tax

A

extra .9% tax for individuals who made more then 250,000 MFJ, 200,00 HH, QW, S and 125,000 MFS.

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13
Q

what are the qualifications and taxability/math of a primary rental use property

A

Qualifications

-Rented for more than 15 days

-And was NOT used for personal use for MORE than the greater of 14 days or 10% of the total rental days

Taxability/math

-Full rental income is taxable

-to find deductible amounts, take the total of rental and personal use days and divide only the rental days by that number to get the prorate %

-multiply expenses by the % to get the allowed deductible amounts

-subtract income by the total deductible amount this is your rental income

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14
Q

Is interest on business loans deductible

A

Yes

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15
Q

Are salaries, wages and bonuses paid to employee’s deductible

A

Yes

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16
Q

Is the personal share of state and local taxes, investment interest or mortgage interest deductible

A

No

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17
Q

Is depreciation of business assets deductible

A

Yes

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18
Q

What is a hobby and is the income taxable

A

engaging in an activity for personal pleasure or recreation

Yes, income is taxable

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19
Q

How are flow through entities taxed

A

No corporate tax

Income flows through to individuals where it is taxed

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20
Q

Math for income hit by self-employment tax

A

SE Income

x 92.3%

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21
Q

What can be done with a net business loss

A

Deducted against other sources of income

LIMIT

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22
Q

Regular method for office space calculation

A

-start by categorizing direct and indirect exp for the office space

-Direct exp full amount can be deducted

-Indirect exp (Utilities, taxes and insurance) can only be deducted based on the % of the house the office space takes up

-Amounts you can itemize (Mortgage int, taxes) must be deducted first

-carryover of a loss is allowed

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23
Q

Is entertainment exp deductible

A

No

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24
Q

Do limited partners pay an SE tax

A

No

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25
Is bad debt expense deductible?
Yes (no estimated)
26
What are the separately stated items for a FTE
Rental Real Estate Income Interest income Dividend Income Royalties Net short-term capital gain or loss Net Long-term capital gain or loss Net Section 1231 Gain or loss Charitable Contributions Section 179 exp deductions Guaranteed payments to partners
27
What are the qualifications and taxability/math of a hybrid personal and rental use property
Qualifications -Rented for more than 15 days -And was used for personal use for MORE than the greater of 14 days or 10% of the total rental days Taxability/math -Full rental income is taxable -to find deductible amounts, take the total of rental and personal use days and divide only the rental days by that number to get the prorate % -multiply expenses by the % to get the allowed deductible amounts -subtract income by the total deductible amount this is your rental income -NOT allowed to have a loss in a year. If loss amount carryforward to future years -Can itemize personal use for property taxes and mortgage int
28
Items included in transportation exp
parking, taxi fare, tolls, automobile exp
29
is commuting from home to work deductible
No
30
List the classifications for rental income
Primary personal use residence Primary rental use Hybrid personal/rental use
31
What types of commuting is deductible
Commuting between jobs Self-employed and visiting people from home office that qualifies as a principal place of business
32
What is the profit rule
If an activity does not show a profit in 3 out of 5 consecutive years, then it is probably a hobby
33
If you are employed but work from home can you have a qualified home office
Yes But there can't be any other alternative
34
What are the methods to determine deductions for a home office space
Regular or actual exp method Simplified or safe harbor method
35
Is rental expense deductible
Yes
36
Can you still take a misc itemized deduction
No not from 2018-2025
37
Are charitable contributions deductible
No
38
Is insurance expense related to the business deductible
Yes
39
Do s corps have to pay SE tax
-No because they are considered employees -Therefore, Corporation pays half, and they pay half
40
What is the % of self-employment tax
-15.3% is self-employment tax (2.9% Medicare 12.4% Social Security 168k cap 2024) -92.35% of SE income will be hit by the self-employment tax -once you hit the cap NO additional income will be taxed to social security
41
What are the qualifications and taxability of a personal use property
Qualifications -Property is rented for less than 15 days Taxability -Not required to report an income -Not allowed any deductions related to the exp -Can itemize property taxes and mortgage interest
42
What is a business in tax law
Activity Entered into by a taxpayer in order to make a profit
43
Is self-employment health insurance premiums deductible
No
44
What is the court approach to find deductions for rental property
-Same setup -for ONLY mortgage int and property taxes related to your rental home take the values and multiply it by the rental days/365 -Opp exp stay the same -Better if you're taking the itemized deduction
45
Is commission paid to employees deductible
Yes
46
Calculation for simplified method (Home office space)
-$5 per sq foot of the office space -Limit to 300sq feet ($1,500) -No carryover of a loss is allowed
47
What is the exp order for hybrid rental and personal use property
Start with real estate taxes + mortgage. then deduct Utilites, maintenance insurance and depreciation
48
Is COGS deductible
Yes
49
How much interest can a cash basis taxpayer deduct
Only the amount of interest actually incurred during the year
50
what is the limitation for business interest and who qualifies for it
30% businesses who have made over 27m dollars in the past 3 years
51
methods and math calculating Automobile exp
Actual Cost Method -Actual cost incurred to opp vehicle -Direct and indirect exp -Total Direct Cost + Total Indirect Cost x % of miles used for business Automatic Mileage Method (Miles used for business x IRS Rate) + Total Direct Exp
52
Are federal income taxes deductible
No
53
Are hobby expenses deductible
No
54
9 questions IRS uses to determine a hobby
-Is the activity conducted in a businesslike manner: Keeping books, business insurance, written business plans -What is the expertise of the taxpayer: Are they an expert in the field they are working in -Time and effort: Does the taxpayer spend most of his or her time doing the activity -Is there an expectation that assets will appreciate in value -Taxpayer prior success: Has the taxpayer turned past activities from not profitable to profitable -History of loss: Does the activity have a history of loss -Does the activity have occasional large profits -Does the taxpayer have other major sources of income -Personal pleasure or recreation: is the pleasure only limited to the individual's family and friends
55
Guaranteed payment to a partner FTE
-Reduce partnership's ordinary income/loss -Considered self-employed income so is hit by income tax and self-employment tax
56
What are the math steps for the business interest limitation
Take income from last three years and divide by 3 If that number is over 27m, look at the year you want to deduct and take operating revenue - depr exp - other opp exp multiply that number by 30% This is the max amount of business interest you can deduct for that year
57
What taxes is business income subject too
Income tax and self employment tax
58
Definition of business expenses
Ordinary exp incurred during the normal course of the business needed to develop and maintain the business
59
Flow through entities distributions to partners and shareholder taxed
Not taxable Income
60
Tax basis in an FTE and Loss rules
-Basically, the amount the taxpayer has invested into the flow through entity -Loss can only be as much as the tax basis in the FTE excess is carried forward indefinitely to future years

REG M2 Gross Income Pt 2 (4 decks)

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