SU 4 - Self-employment, farming, and adjustments

Question 1

Start-up costs

Answer 1

are costs incurred to prepare to enter into the trade or business, to secure supplier and customer, and to obtain certain supplies and equipment (non-capital)
(Both start-up and organizational are expensed up to 5,000 in the first year. They are then capitalized and amortized over 180 month period. Any amount of startup/organizational greater than 50,000 is reduced)

Question 2

Organizational costs

Answer 2

are legal and accounting fees, costs of state filings, and expenses of meetings with directors, S/H, or partners

Question 3

Domestic production gross receipts (DPGR)

Answer 3

defined by Section 199, as gross receipts from the sale, exchange, or other disposition of: Qualified Production Property that is manufactured, produced, grown, or extracted in the U.S. by the TP in whole or in a significant part.
-Includes qualified film produced, electricity, natural gas, and potable water

Question 4

Domestic activities

Answer 4

Only activities in the U.S.

Question 5

Deduction of income to domestic GI

Answer 5

Lessor of:

• 9% of the qualified production activities income (QPAI)
• ->Take DPGR - sum of COGS - Expenses to DPGR - proportion of expenses not related to DPGR
• 9% of TI of the TP
• 50% of W-2 wages for the year allocable only to QPAI

Question 6

FICA

Answer 6

6. 2% up to the first 118,500 - Social Security
7. 45% no limit - Medicare

Additional tax on Medicare of .9% on wages

• > 200,000 single, HOH
• > 250,000 MFJ

Question 7

Net investment tax

Answer 7

Applies FICA to investment income so (3.8% on net investment income

Question 8

Modified adjusted gross income (MAGI)

Answer 8

=AGI + excludable foreign earned income + exclusion or credit to FI

Question 9

Federal Unemployment Taxes (FUTA)

Answer 9

6% tax on first 7,000. If SUTA is paid then a credit of the amount paid to the state is applied to the FUTA. Most states apply a rate of 5.4%

Question 10

HSA max

Answer 10

Self coverage: 3,350 or 4,350 @ 55

Family coverage: 6,750 or 8,750 @ 55

Question 11

Moving expenses ( front of 1040)

Answer 11

Must be 50 miles away from the further of former residence or principal place of work. Any reimbursements greater than expenses = income

Question 12

IRA deduction max

Answer 12

Single 5,500, MFK 12,000

Over 50: 6500 per TP so 13000 on MFJ

Question 13

Student loan interest deduction

Answer 13

Max 2500. Reduction = {(AGI-65000)/15000 phaseout}

Question 14

Tuition and fees

Answer 14

Max 4,000 up to an AGI of 65000. Between 65000 and 80000 deduction is 2000