Income
There are two main categories of income, service income, and income from ______
Property
Tax Basis, At Risk Basis, Passive Activity Loss Limitation (PAL)
What is reported on Schedule A?
Itemized Deductions
What is an exclusion?
Name two types of taxes which are deductible:
What is Portfolio Income?
Income which typically comes from interest, dividends and capital gains.
Explain how losses from the sale of capital assets are limited:
Losses from the sale of capital assets can fully offset capital gains, any amount past capital gains the loss is limited to $3,000 per year, with any additional amount carrying forward.
What is reported on Schedule C?
Business Income/Loss
Explain what Form 8949 reports:
Form 8949 shows individual sale of capital asset transactions, and supports the Schedule D
How did the deduction for Mortgage Interest change after the Tax Cuts and Jobs act?
The interest was limited to the first $1 Million of principle, now, for loans entered into after 12/31/2018, you are limited to the interest on the first $750,000 of principle.
What is the difference between ordinary income and capital income?
Ordinary income is taxed at ordinary rates, and capital income is taxed at preferential rates and typically comes from the sale of non-business assets
Explain Tax Basis, and how it can limit the ability of a taxpayer to deduct losses coming through from an investment:
Tax Basis is the amount paid for an asset (or investment interest). For an investment in a business, that includes the original contributions and any later contributions, and can also include your proportional share of business liabilities. You are only allowed to deduct losses up to the amount of your tax basis.
What is reported on Schedule B?
Interest and Dividends
A wash sale occurs when a stock is bought within 30 days before or after that same stock is sold. Any losses resulting from the sale are disallowed.
How is the charitable contribution of cash allowed as a deduction?
It is allowed as a deduction of up to 60% of AGI, any additional amount carries forward.
What is the difference between realized and recognized income?
Realized income occurs when the transaction occurs, Recognized income is taxed when it is realized.
Explain At Risk Basis, and how it can limit the ability of a taxpayer to deduct losses coming through from an investment:
At Risk Basis is similar to tax basis, except you are only allowed to include your share of liabilities which you would be personally responsible for if the business does not settle them. You are only allowed to deduct losses up to your At Risk Basis.
What is reported on Schedule D?
Capital Gains/Losses
The first $500,000 (MFJ) of gain on the sale of a personal residence is an exclusion (is not taxed). $250,000 for single.
How is the charitable contribution of capital gain property treated?
You are allowed a deduction for the fair market value of the property up to 30% of AGI, any amount disallowed carries forward.
What is Passive Income?
Income which comes from an income-producing enterprise, like a rental property or investment in a business.
Explain the Passive Activity Loss Limitations, and how it can limit the ability of a taxpayer to deduct losses coming through from an investment:
What is reported on Schedule E, page 1 AND Schedule E, page 2?
Page 1 - Rental Property Income/Loss
Page 2 - Passthrough Income/Loss
Explain what Form 8252 shows?
Form 8252 calculates the limitation on any passive investment losses, and supports the Schedule E
What other miscellaneous itemized deductions are still allowed after the Tax Cuts and Jobs Act?
None!