Exam 1

QBI

1. Business income - S.E. expenses

2. 1 × 20% (potential QBI deduction)

3. if SSTB then see if it is in phase out range

4. find % of income in the phase out range and multiply by 2

   1. wage test

   2. property test

   3. taxable income test : if 20% of taxable income > than qbi than we allow qbi, if < then we take the 20% of taxable income

wage test

QBI decution can not be greater than 50% of wages paid by the business

property test

QBI decution can not be greater than 25% of wages paid by the business + 2.5% of basis of property with the buisness

taxable income test

QBI deduction can not be greater than 20% of taxable income

if SSTB?

there is a phaseout, look at example if confused

LLC “articles of x”

organization

corporation “articles of x”

 incorporation

which business entities need to file agreements within the state they are going to reside in?

which business entities do not need to file agreements within the state they are going to reside in?

need: corp, llc, lim partnerships

not need: sole, gen partnerships

why do limited partnerships need to file for articles of organization and not general partnerships

special legal benefit from the state: limited liability

debts and business entities

The corporation and the LLC are liable to pay down debts, does not flow to owner’s personal assets

can a corporation be an LLC? can a sole proprietorship be an LLC? can tax and legal classification differ?

yes, yes, yes

can c corp change to s corp

yes

why choose a c corp

retain and reinvest profits, issue multiple classes of stock, accept unlimited and foreign shareholders, attract outside investors, and eventually go public. The disadvantage is potential double taxation, but shareholders are only taxed personally when they receive cash, in an s corp, the income flows to the shareholders every year and is taxed regardless

are the owners of sole proprietorships considered self employed

yes

can losses within a c corp offset personal income

no

is the wage based limitation of QBI a set cap or a proportion of wages?

proportion or percentage

Income (Tax:Book)

If less income taxed 🟢 Favorable

Expense (Tax:Book)

If more deduction 🟢 Favorable

taxable income ____ and taxable expense ___

low, high

self employment income (SP, P, S corp, C corp?)

(SP, P) corps are their own entities

2018 & NOL

pre-2018 NOL equals a potential 100% offset; post-2017 NOL equals an 80% limitation.

If an active S corporation shareholder has sufficient stock basis, can they always deduct the entire loss?

No. The loss may still be limited by the at-risk and excess-business-loss rules.

what type of liability do general partners have

personal

least flexible legal arrangement

corporation

can flow through entities elect c corp taxation? and why would they?

yes, to reinvest profits, they made no cash they might be getting phantom taxed

in c corps, what $ does the dividend rate apply to?

post corporate tax earnings

is the QBI deduction income sensitive

yes, wage based limit and SSR

what is SE tax rate

92.345 of income

SS and medicare rate combined

15.4%

partner, s corp, wages and guaranteed pmt

partner: pmt

s corp: wages

carryback and carryforward and 2018, corps

pre 2018: 2 year carryback 20 year carryforward

post 2017: no carryback indefinite carryforward

Post-2017 NOL offset %

pre-2017 NOL offset%

80% offset, no back, forward indefinite

100% offset, back 2 forward 20 years

can shareholders of a c corp deduct business losses against personal income?

no

can shareholders of an s corp deduct business losses against personal income?

yes, indirectly because loss flows through too personal income through a k-1

c corp losses (deductibility)

NOL and the 2017 2018 rule applies

flow through entity losses (deductibility)

1. basis

2. at risk

3. passive

4. excess business loss

SP (deductibility)

everything flows to the personal return (wages, pmt, losses)

What kind of deduction is the qualified business income deduction

from AGI deduction that is not an itemized deduction

does the excess business loss limitation apply to all business entities?

no not c corp

excess business loss limitation

256000

does federal income tax create a perm or temp difference

permenant

net capital loss rules (corp)

back 3 and forward 5

does nol create temp or perm differences

temp

for accrual corps, can they deduct charitable contributions if not paid in full

yes, as long as 3.5 months after approval

drd percentages

50, 65, 100

m1

diff between book and tax

m3

detailed schedule listing all perm and temp differences

Calendar-year C corporation (due date and extension date)

4/15 and 10/15

drd percentages and deduction % based on ownership of company that pays dividend

<20 : 50%

20-80: 65%

>80: 100%

is DRD perm or temp diff

perm

if depreciation expense is larger on tax, and the asset is sold, what kind of difference is it?

temp u

are book-tax differences with goodwill always favorable?

no

when do we deduct bargain at exercise?

NQO

can iso stock options be perm and fav?

ISO →

NQO →

ISO → perm

NQO → both

does NOL stack?

no, they are seperated by year

can u add to NOL or does carrybacks from previous years stack on?

no

can drd increase nol

yes

DRD NOL exception

if drd creates or increases an NOL u can take full deduction, if not you can only take up to taxable income

where does the M-1 and M-3 stop

before NOL and special deductions