Final Notes:

R1:

R1-M1:

Qualifying relative taxable gross income test (less than $5,050 in

2024).

Qualifying surviving spouse = entire year

Qualifying child age limit = under 19 or full-time student under 24.

R1-M2:

Alimony rules: Alimony received from divorces executed on or before

December 31, 2018, is taxable.
Distributions of earnings from a Roth IRA are nontaxable if it is a qualified
distribution. This distribution is a qualified Roth IRA distribution because it was
made at least five years after the first day of the year in which the taxpayer made
his first contribution and the taxpayer was at least age 59½ when he received the
distribution.
Life insurance coverage of and medical insurance paid by employer are
nontaxable fringe benefits.
Employees may only exclude the value of life insurance premiums paid by the
employer for up to $50,000 of group-term life insurance.
Employees may exclude up to $5,250 of payments made by the employer on
behalf of an employee's educational expenses (including student loans).
Employees may exclude the value of employer-provided parking up to $315 per
month (2024). The maximum amount per year would be $3,780 ($315 × 12
months).
Accruable expense: services received/performed but not
paid by end of the reporting period.
Cash or Accrual” TP’s who sell stock or securities must recognize gains and
losses on the trade date.
No Social Security benefits are taxable for lower income taxpayers with modified
AGI of $25,000 or less ($32,000 MFJ). Up to 50% of SS benefits ate taxable for
middle-income taxpayers, and up to 85 percent of SS benefits are taxable for
higher income taxpayers.
R1-M3:
Rule: Partnership income is taxable to a partner whether or not it is distributed.
Distributions do not affect taxable income of the partners. Distributions are
merely a reduction of basis.
Prepaid interest must be prorated over the time for which payment is made.
A residence is treated as a personal/rental residence if it is rented for more than
14 days, and is used for personal purposes for the greater of (1) more than 14
days, or (2) more than 10 percent of the rental days.
Income is based on the total value in money for fair value of property received not
billed.
A shareholder in an S corporation can be an employee of the corporation. The
individual shareholder-employee would receive a salary for the services rendered
to the S corporation. Payments classified as deductible wages reportable on
Form W-2.
A partner in a partnership cannot be an employee of the partnership, so a partner
cannot receive a salary for the services rendered. The partnership gives the
partner a guaranteed payment as compensation for the services rendered.
Guaranteed payments are reported on the partner’s Schedule K-1 and included as
ordinary income on the partner’s individual income tax return, rather than being
reported as wages.
S-Corp: income is passed through to the shareholder and included in taxable
income whether or not it is actually distributed.
C-Corp = distributed total & S-Corp = taxable income  not distribution included.
STCL from a partnership can only be flowed through for deduction on the
partner’s individual income tac return to the extent of the partner’s tax basis in
the partnership interest. The remaining loss is suspended until the partner’s
basis is reinstated in future years. Individual TP’s are allowed to deduct $3,000 of
net capital losses each year, after netting all the capital gains and losses for the
year together. The STCL from the partnership is offset against the LTCG
dividends.
R1-M4:
If a taxpayer (and spouse, if any) is not a participant in another plan, there is no
AGI phase-out for the deduction for contributions to traditional IRAs.
$300 for educator expenses (2024 maximum allowed), and $2,500 (maximum
allowed) for student loan interest.
**Itemized deductions vs adjustments to arrive at AGI. (Arrive From vs Arrive At)
Qualified mortgage interest paid is deductible on Schedule A as an itemized
deduction.
Alimony payments are deductible to arrive at AGI if the payments are made
pursuant to a divorce settlement executed on or before December 31, 2018.
Deductible from AGI as itemized deductions (below the line):
Charitable contributions, Personal casualty losses, mortgage interest, moving
expenses for active duty, prescription drugs,

Deductible to arrive at AGI as an adjustment (above the line):

Alimony payments before 2018, Trade or business expenses, capital losses in
excess of capital gains, qualified education loan interest, health saving account,

R1-M5:
Able to deduct for cash charitable contributions to church, a public charity, is 60
percent of AGI. Charitable contributions subject to the 60% limit that are not fully
deductible in the year made may be carried forward five years. A charitable
contribution is not allowed for the value of services rendered to a charity.
Individual TP’s may deduct the FMV of property donated to charity. The limit is
30% of the TP’s AGI.
Medical AGI Floor  AGI x 7.5
Additional standard deductions: $1550  65+ or older, blind.
A medical expense paid by credit card is deductible in the year the amount is
charged to the credit card not when the bill is paid.
Current year state and local income tax paid in the following year is not
deductible until paid  cash-basis taxpayer.
Casualty losses are generally computed as the decline in the FMV, except that the
FMV is limited to the property’s basis.
Each casualty loss must be reduced by $100 and then all casualty losses in the
aggregate must be reduced by 10% of AGI.
Casualty losses: Take the lesser of FMV or Adjusted basis - insurance proceeds -
$10 – 10% of AGI.
Gambling losses are deductible as a miscellaneous itemized deduction (from AGI)
limited to gambling winnings.
For a personal residence that is not used for rental purposes, no deduction is
allowed for utilities costs or insurance only mortgage interest.
Interest paid on debt not used to acquire or substantially improve a home is not
deductible. (ex: interest on home equity loans only deductible is using to improve
home).
Interest on auto loans (consumer interest) is not deductible.
The deduction for investment interest expense is limited to net taxable
investment income.
When a contribution is charged to a credit card, the contribution is deductible in
the year the charge is made.
In order to be deductible, all charitable contributions must be substantiated (ex:
by a canceled check, receipt, etc).
A stock is ordinary income property if held for one year or less.
The contribution of ordinary income property to public charities is limited to 50%
of AGI.
The deduction of appreciated long-term capital gain (LTCG) property is limited to
30% of AGI. The TP can deduct long-term capital gain property at the higher
FMV )higher than cost basis) without paying capital gains tax on the appreciated
portion.
R1-M6:
QBI deduction is 20% x QBI.
QTB and SSTB are treated the same for TP’s under the taxable income thresholds
for the QBI deduction.
SSTB = Accounting Firm
QTB = Manufacturing company, Engineering firm, Architectural services.
Once the QBI deduction is calculated on the TP’s eligibility, the overall deduction
is limited to the lesser of the combined QBI deductions or 20% of the TP’s taxable
income in excess of net capital gain.
A single TP with taxable income before the QBI deduction of $241,950 or more is
not eligible for the QBI deduction on income from a specified service trade or
business (SSTB).
R1-M7:
The foreign tax credit is the lesser of the foreign taxes paid or the foreign tax
credit limitation, which is the ratio of taxable income from all foreign operations
to total taxable worldwide income, multiplied by the U.S. tax paid. If foreign taxes
paid exceed the foreign tax credit limitation, the excess can be carried back one
year and/or carried forward 10 years.
Eligible expenses for the child and dependent care credit include childcare for
children under age 13.
The American opportunity credit is available to taxpayers for education costs for
the first four years of postsecondary education and provides 100 percent of the
first $2,000 of qualified expenses plus 25 percent of the next $2,000 of expenses
paid during the year. 40% of allowable credit is refundable, subject to certain
restrictions.
The lifetime learning credit is available for an unlimited number of years for
qualified tuition and related course fees equal to 20 percent of qualified expenses
up to $10,000. Does not result in a refund is the credit amount is more than the
TP’s tax liability.
If the balance due after withholding is not over $1,000, there is not penalty for
underpayment of estimated taxes but there would be a penalty for failure to pay
taxes.
The retirement savings contribution credit is a nonrefundable credit for
contributions of up to $2,000 to either a traditional or Roth IRA by an eligible TP.
Child tax credit: $2,000 per child under the age of 17. The full child tax credit is
available for MFJ TP’s with AGI up to $400,000.
An employee who has SS tax withheld in an amount greater than the maximum
for a particular year may claim the excess as a credit against income tax, if that
excess resulted from correct withholding by two or more employers.
A TP may avoid the penalty for the underpayment of estimated tax if the timely
estimated tax payments equal the required annual amount of:
- 90% of the tax on the return for the current year paid in four equal
installments.
- 110% of prior year’s tax liability paid in four equal installments (If AGI
exceeds $150,000)
- ^ if AGI is less than $150,000 = 100% of PY’s tax liability in four equal
installments.
The net investment income (NNI) tax is 3.8% of the lesser of the taxpayer’s net
investment income or the excess of modified AGI over a threshold amount.
Partnership investment income and expenses passed through to the individual
partners may be subject to the net investment income tax on the partners’
individual income tax returns.
The net unearned income of a dependent child under 18 years of age or a child
18-24 who does not provide over half of his or her own support and is a full-time
student is taxed at the parent’s marginal rate under the “kiddie tax” rules.
Net unearned income is calculated by taking the child’s unearned income and
reducing it by the dependent child’s allowable standard deduction of $1300 plus
an additional $1300 that is taxed at the child’s marginal tax rate.
Net unearned income of a dependent child is taxed at the parent’s marginal rate
(“kiddie tax”).
The student’s salary income is earned income and not subject to the kiddie tax.