Unit 6. Other Business Dedcutions and Credits

Question 1

Net operating Loss

Answer 1

Option to carryforward indefinitely , but not carryback

NOL deduction cannot exceed 80% of taxable income
Losses prior 2018 are not subject to 80% limit and subject to carryback of 5 years

Question 2

Exceptions to NOL

Answer 2

Noncorporate Farmers have a 2 year carryback. Can elect to waive it. The election is irrevocable.

Property and casualty insurance companies allowed a 2 year carryback. But their carryforward is limited to 20 years and the 80% limitation doesn’t apply

Carryback the NOL by filing an amended tax return

Question 3

Can partnerships and S corporations use NOL?

Answer 3

No, but their partners and shareholders can due to pass-through of the losses too

Question 4

What form is for Tentative Refund (carryback) of individuals, estate or trusts

Answer 4

Form 1045

Question 5

How NOL applied is the taxpayer is self-employed

Answer 5

NOL doesn’t change the amount of self-employment tax to any of the years it is carried forward to

Question 6

What form is for Tentative Refund (carryback) of C corporations?

Answer 6

Form 1139, filed no later than 31 December

Question 7

What form to attach in order to make an election to waive the carryback?

Answer 7

Form 1120

Question 8

What is an annual limit for business losses of noncorporate taxpayers

Answer 8

$270,000 (540,000 for MFJ)

Question 9

What is Section 199A Qualified Business Income Deduction?

Answer 9

Allows a deduction for individuals, estates and trusts up to 20% of qualified business income. This deduction expires in 2025. Available only to US businesses.

Question 9

How to claim for QBI deduction?

Answer 9

To fill out Form 8995 or Form 8995-A

Question 10

Two components of QBI deduction

Answer 10

QBI Component - 20% of taxable income
REIT/PTP component (The real estate investment trust (REIT) or publicly traded partnership (PTP) )

Question 11

What is Qualified Business Income

Answer 11

Only itemsconnected with a business within the US (incl Puerto Rico)
Only items included in determining taxable income for the year

Question 12

What is not included in QBI?

Answer 12

• employee wages
• capital gains
• interest and dividend income
• hobby income
• non-taxable income
• rental income where the owner is not engaged in a boda-fide real estate
• reasonable compensation paid to an S shareholder
  income earned by a C Corporation

Question 13

What is a Safe Harbour Rule for rental activities

Answer 13

To qualify for the safe harbor 250 hours or more must be provided per year

Also should meet the test:
- maintain separate books and records for each enterprise
- 250 hours or more
- sufficient records (logs, hours, description of all services)

Doesn’t apply to property partially used for the personal residence and to NNN leases (triple net leases - a commercial lease where the lessee pays rent and utilities as well as three other types of property expenses: insurance, maintenance, and taxes)

Question 14

199A Deduction Limitation Threshold

Answer 14

Pre-QBI should be below:
MFJ - 340,100 - 440,100
All others - 170,050 - 220,050

Question 15

If a pre-QBI is above the threshold then there are some limitations. What limitations

Answer 15

1) Specified Service Trade or Business (SSTBs)
2) Wage and Property Limitation

Question 16

SSTB

Answer 16

If the taxpayers income is above the threshold and the business is SSTB then the deduction is completely disallowed

Question 17

Which business is not included in SSTB?

Answer 17

Architecture and engineering

Question 18

Wage and Property Limitation

Answer 18

If pre-QBI > threshold and not SSTB then
QBI deduction = 50%* wages if grater 25% of wages+2.5%*unadjusted tax basis of certain depreciable business property

Question 19

What is qualifying wages for QBI

Answer 19

Wages + amounts paid to tax-defereed retirement plan

Question 20

Qualified property

Answer 20

is held by business at the close of the taxable year
has a remaining depreciable period (wasn’t more than 10 years)
land and intangible assets are not included

Question 21

What does UBIA stand for?

Answer 21

Unadjusted Basis Immediately after Acquisition

Question 22

SSTB de Minimis Rule #1

Answer 22

if gross receipts < 25 million and <10% of gross receipts in SSTB business => not subject to SSTB limitation

Question 23

SSTB de Minimis Rule #2

Answer 23

if gross receipts > 25 million and <5% of gross receipts in SSTB business => not subject to SSTB limitation

Question 24

Why credits are more valuable than deductions?

Answer 24

Because they are subtracted directly from a business tax liability

Question 25

What is GBC

Answer 25

General Business Credit (Form 3800)

applied on FIFO basis
can be forwarded up to 20 years

Question 26

Investment Credit

Answer 26

Claimed on Form 3468
Available to business that engage in specific projects on their property:
- rehabilitation credit
- energy credit
- qualifying advanced coal
- qualifying gasification
- q advanced energy project

Question 27

Work Opportunity Tax Credit

Answer 27

when hire specific employee groups:
- unemployed veterans
temporary assistance for need families
food stamp recipients
designated community residents
vocational rehabilitation referred ind
ex-felons
supplemental security income recipients
summer youth employees
q long-term unemployment recipient

calculated on Form 5884 and reported on Form 3800

Question 28

Disabled Access Credit

Answer 28

Expenses incurred to provide access to persons with disabilities - 50% of all expenses up to $5,000. First 250 dollars os expenses are subtracted from calculation.
Business should have <1 million receipts and less than 30 employees

Question 29

Credit for Employer Social Security and Medicare Taxes on Employee Tips

Answer 29

Used in restaurant business (FICA tip Credit)

• having tips for serving food and beverage
• pay employer SS and Medicare taxes on these tips

Form 8846

Credit = amount of employer’s SS and medicare taxes paid - tips used t o meet federal minimum wage rate (5.15)

Question 30

What is FMLA Leave

Answer 30

Credit for Paid family and Medical Leave = percentage of wages they pay to employees while they are on family and medical leave

Should be at last 2 weeks of leave
rate of payment >50% of wages

The employee must have earned < 78000 (60% of HSE 130,000 in 2021)

The credit has a lookback provision (the prior year)

Question 31

What is Small Employer Health Insurance Premiums

Answer 31

Refundable credit to small employers to encourage them to offer their employees health insurance:
- < 25 fulltime employees
- annual wage of q employees < 58,000
- >50% premium costs paid by employer
-coverage through the SHOP marketplace

Credit can be claimed only for max two consecutive years

It is refundable - paid even if the employer doesn’t have income

Question 32

R&D Credit

Answer 32

develop new or improve business processes
develop of commercial software
new drugs

100% is credited if R&D done by itself and 65% if outside

Question 33

Credit for Employer-Provided Child Care Facilities and Services

Answer 33

25% of childcare facility expenditures +10% child care resource

Max limit is 150,000 per tax year

no discrimination to HCE

Question 34

Credit for Small Employer Pension Plan Startup Costs and Auto-enrollment

Answer 34

50% of startup costs for those who established retirement plan

Max $500 per year for the first credit year and each of the following two tax year

Must:
<100 employees
>1 plan participant who is non HCE

Question 35

Foreign Tax Credit for Corporations

Answer 35

Income Taxes paid in foreign countries

Form 1118

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