STU4

Question 1

Are qualified distributions from a Roth IRA included un gross income?

Answer 1

Qualified distributions from a Roth IRA are not included in the taxpayer’s gross income and are not subject to the 10% early withdrawal tax. To be a qualified distribution, the distribution must satisfy a 5-year holding period and must be (1) made on or after the date an individual attains age 59 1/2; (2) made to a beneficiary (or the individual’s estate) on or after the individual’s death; (3) attributed to the individual being disabled; or (4) used to pay qualified first-time homebuyer expenses.

Question 2

What is the maximum amount that a self employed taxpayer can deduct as a contribution to his/her qualified retirement plan?

Answer 2

Earned income
Less: Self-employment tax adjustment

Net earnings x Contribution rate = Allowable deduction

($earned income × .1530 × 1/2) × .20 = Allowable deduction

Question 3

Are benefits received from an employer compensation for services and included in gross income?

Answer 3

Benefits received from an employer are compensation for services and included in gross income unless provided otherwise. The IRC excludes from gross income contributions to accident or health plans (a medical insurance plan) made by an employer on behalf of the employee. The IRC provides for the inclusion in gross income of the cost of group term life insurance paid by the employer, but only to the extent that such cost exceeds the cost of $50,000 of such insurance provided the plan is not discriminatory.

Question 4

What is domestic production gross receipts (DPGR) deduction for income attributable to domestic activities?

Answer 4

The deduction for income attributable to domestic gross income for 2014 is equal to the lesser of the following:

9% of the qualified production activities income (QPAI),
9% of the taxable income of the taxpayer, or
50% of the W-2 wages allocable only to qualified production activities income for the year. 

QPAI is calculated by taking the DPGR and subtracting the sum of the following from it:

The cost of goods sold allocable to DPGR,
Other deductions, expenses, or losses that are directly allocable to DPGR, and
A proper share of other deductions, expenses, or losses that are not directly allocable to DPGR or another class of income.

Question 5

Nan, a cash basis taxpayer, borrowed money from a bank and signed a 10-year interest-bearing note on business property on January 1 of the current year. The cash flow from Nan’s business enabled Nan to prepay the first three years of interest attributable to the note on December 31 of the current year. How should Nan treat the prepayment of interest for tax purposes?

Answer 5

Deduct the current year’s interest and amortize the balance over the next two years.