Topic 1

Phone Number for questions: 877-315-1772

Email for questions:


3 days per Topic looks about right..



Tax Cuts and Jobs Act: signed by trump in Dec 2017, set to expire in 2025 most comprehensive since 1986.

The IRS is a Federal Government Agency that is a bureau of the US Dept of Treasury responsible for collecting taxes and administering the internal revenue code. The IRS DOES NOT pass tax laws, congress does, the president approves them and the supreme court decides if they are constitutional.


Internal Revenue Code: where tax laws reside, aka title 26.


Graduated tax rates: rising in steps, highest income is the highest tax percentage.


I am studying for 2019 taxes (perfect).


Schedule 1: for Business income, alimony received and adjustments. Capital gains (or losses) are now on 1040 line 6.


Schedule 2: now merged with schedule 4.


Schedule 3: now merged with Schedule 5


2018 Schedule 6: gone, now on 1040.


1040 – SR: for seniors




Who Files?


Depends on

1. gross income

2. status

3. age

4. blindness


Before tcja everyone could claim two deductions (personal exemption and standard deduction) and if they made as much or less than both of these together, they didn't pay taxes. Post tcja, there is only a standard deduction but it's higher (about double) to compensate.

Everyone is paying taxes if their income is higher than the standard deduction based on their age, status and if they're blind.


Even if you aren't paying any taxes, you'll have to file if the tax payer:

- Earned $400+ in self employment money

- Made $108.28+ at a church (exempt from ss and medicare taxes)

- Is owed a refund from previous taxes paid

- Is eligble for a refundable credit

- Had unemployment income

- Owes household employment taxes



US Citizen: born here, has one parent who was born here or was naturalized.

Aliens: Resident aliens, nonresident aliens and dual-status aliens.


Resident aliens: taxed on worldwide income (just like us citizens)

Nonresident aliens: only taxed on money made in us

Dual status aliens: different rules apply for the parts they are in the country.


Alien tax payers either have a green card or meet the presence test -

31 days+ during current tax year

183 days+ in the last 3 years (starting with current tax year)



- MFJ status does NOT mean that spouse is the tax payer's dependent. They're both responsible.

-The new Standard deduction is roughly double what it was.

-Regardless of whether someone filled it out for them, the tax payer is ultimately responsible for the information on the return. 




- The 1040X is for amendments because only one 1040 is to be filed per person.

- No limit to the number of amendments or number of times one can amend.

- Deadline is within 3 years of tax year (two from when tax was paid)

- No interest should be included in the 1040x

- One 1040X CAN NOT be used for two different years

- NOT to be filed for additions, penalty or interest on tax that's already paid (Form 843 instead)

- NOT for one's share of joint overpayment (Form 8379, Injured Spouse Allocation)

- Since amendments are for AFTER filing, you can't use them for changing from filing joint to filing separate because that change can't be made after filing.



- If not part of the same fiscal year, it's due FOURTH MONTHS AFTER CLOSE OF FISCAL YEAR

- Everyone has two extra months (till June 15th) to file without an extension.

- If living in a combat zone at least 180 days from when you left the combat zone (plus the days spent in combat until the due date are added to the 180)

- 6 month extensions are available (Form 4868) Interest and penalties still apply


Accounting Periods and Methods


1. Calendar year – ends on dec 31

2. Fiscal year – ends on a date that's not dec 31

Fiscal year can only be maintained by payers that maintain adequate records

Changing accounting periods can only be done with IRS consent.


Cash Method: all done within the year as the money was made, the expenses were paid, etc..

Accrual Method: Income does not have to be collected and expenses don't have to be paid to be reported. Advanced payment of goods can be deferred. Accounts recievable is the amount that you are supposed tor receive and haven't yet. Cash in the account goes up as you recieve this money and accounts receivable goes down because you've recieved it. 


Hybrid Method (Combination method): Publication 538 states that any combination of accrual and cash can be used as long as it accurately reflects income and is used consistently. If it doesn't, the irs will choose which does.


Constructive Receipt: cash-based taxpayers are taxed on income when it becomes available. So when you get a check, taxes on it are to be paid. But if the bank puts a hold on the check, the taxes aren't to be charged on it because it's not available. It's not 'subject to limitations and restrictions'


Original issue discount: a type of interest that is not payable as it accrues. ie) Bonds sell at a certain price, then you get the money you paid for them back with a little more added to it. For US bonds, you can pay taxes on this throughout the life of the bond or upon it's maturity (when you get money back). With most other bonds, you can only pay upon maturity. 



If one changes their accounting method they must make adjustments to their income in the year of change.




Various taxes..


- Personal Property tax: imposed by state, never irs. If itemizing deductions on federal return, one can deduct personal property taxes.


Federal Unemployment Tax FUTA: only employers pay this tax


-Employment and Self-employment tax:

An employer can deduct Social Security, Medicare, FUTA and State Disability Insurance as expenses. W2 is required by employer at end of year.


- W4 shows home much an employer is to with hold for federal income tax for an employee based on status etc.


- Additional Medicare tax: employer is to hold an additional .9% on employees wages that exceed the threshold.

- Self employment tax – ss and medicare tax

- Payroll taxes: deposits of withheld ss and medicare, semi-weekly or monthly. Pub 51



Estimated Tax payments

- Not subject to with holding. May have to be paid if amount witheld isn't enough.

- Fisherman and farmers (making more than 2 thirds their money from it) pay less in estimated taxes. Don't get a penalty if they pay their taxes by March 2nd.


Quarterly Due Dates: 15th of April, June, September and January of the following year.

*If someone worked as an employee (not independent contractor) and taxes weren't witheld, they need to file a Form 8919



Tax Penalties
150 kinds of penalties in the Internal Revenue Code.


*Underpayment of Estimated tax = Form 2210


Underestimated tax: not paying enough in quarterlies. Since you're expected to predict the future, you won't get a penalty if you pay 90% of the total owed or 100% of the previous year's total owed, whichever is smaller (110% if income is $150k+ or $70k+ if married filing separate). Form 2210 to see if you owe anything. Understatement is considered substantial if over the larger of 10% or $5,000


Failure to pay tax on time: .5% per month of the unpaid amount of tax and interest capped at 25% of the total unpaid tax. Reduced to .25% for those who filed on time.


Failure to pay tax after issuance of notice: usually after an audit determines more is owed, 21 calendar days after issuance of notice, .5% per month or partial month.


Failure to timely file return: late filing penalty of 5% of unpaid tax per month that the return is late (reduced by .5% every month if failure to pay penalty is also incurred), max of 25% (together with failure to pay penalty). If fraud, 15% per month max of 75%. Minimum penalty of $210 if 60 days late.


Information returns: w2, 1099 – returns that don't require payment but can still be late. $50 is the highest penalty for filing these late.


Substantial Understatement: 20% of net understatement of tax. It's 'substantial' if more than 10% of correct tax or $5k for individuals, the lesser of 10% or 10M for corporations.

Negligence of the rules or regulations: 20% of net understatement


Tax Fraud: Jail time. Intentionally filing false tax returns









Filing Status


Lowest Tax Bracket is 10%

Highest tax bracket is 37%


Widower status can be used for two years after spouse death as long as not remarried and has qualifying dependent.



Highest tax rate


Head of household

- Unmarried

- Paid more than ;.5 expenses in household

- More than 50% support for qualifying child or relative who lived with them for more than .5 the year


Unmarried: did not file joint return, paid for more than half household expenses, spouse didn't live with for at least last 6 months qualified dependent lived with for more than half the year, and CAN claim the child, stepchild, or adopted child as dependent.


Abandoned spouse rule: allows a tax payer to file as head of household if spouse has abandoned them, instead of just claiming joint filing separately.


Nonresident alien spouses are considered unmarried for head of household purposes if their spouse was a nonresident alien at any time of the year and they do not choose to treat their nonresident spouse as a resident alien.


Qualifying dependent: (relative or child) must be legally related.

If qualifying dependent is mother or father of tax payer, they may not have to live with them. If tax payer owns the house, they can use market rent for the room as part of half the living expenses.



Married Filing Jointly and Married Filing Separate


Separate Property states: income is only of the spouse who earned it. If filing separate, just the income earned by the person is considered.


Community Property State:

- Both incomes combined are the income of both. If filing separate, half of the combination of the incomes is considered one spouse's income. The higher earner could save by filing joint because their income drops into a lower bracket.

- Property is yours if bought before marriage or inherited or gifted

- Idaho, Louisiana, Texas and Wisconsin – property is community and apportioned half-and-half




- Cannot claim college tuition expenses or student loan interest deduction.

- Must itemize deductions or claim standard deduction.

- The higher each earner makes, the more likely it is that miscelaneous deductions can be made (medical expenses, casualty losses, etc)

- MFS IRA contribution deductions start to phase out at modified adjusted gross income (MAGI) of 10k

- As MFJ you can deduct contributions to a retirement account for your non-working spouse, not as MFS

- Alternative minimum tax: the right to deduct up to $3k of net capital losses (only $1,500 for MFS)

- MFS cannot claim Child Dependent Credit and the Earned Income Credit and adoption credit or educational credits.


Married Filing Joint

Only if

- tax years begin on same date

- married and not legally separated on last day of tax year

- Neither is a nonresident alien during tax year, unless they want to pay worldwide taxes and supply all the info..

- If couple files joint and one is nonresident alien making a ton outside the US, the money made outside the US will be tax as US money so it's better if they file separate when the spouse makes a ton outside US..


Innocent spouse rules: a spouse can fill out form 8857 if an understatement was largely due to the other spouse.


- The marriage penalty: combined income is always more than the individual incomes and, if married, the bracket is based on combined income. In the new tax law, married brackets are exactly double the single thresholds for all but the two highest ($400,000+).

When going from separate to community property, everything purchased from that point on is community and previous remains separate. When going from community to separate, the community property remains so until it's sold- at that point it turns into separate.



Qualifying Widower Status with Dependent Child

Allows for use of Joint for two years after death. Must have dependent child. Highest standard deduction rate.

Must use representative appointed, unless there isn't one or disaffirmed within 1 year of death.

If remarried, deceased is now MFS.




3 qualifying tests:

1. Dependent Test: If taxpayer can be someone else's dependent, they can't claim anyone else as one.

2. Citizen or Resident: must be US citizen, resident alien, national, or resident of Canada or Mexico for part of the year. If dependent is adopted from outside US, they can be dependent if they lived with tax payer for the whole tax year.

4 More tests for QUALIFYING CHILD:

1. Relationship: Legally related, adopted or foster child.

2. Age: Under 19 (24 if fulltime student) [Different if disabled or taking the CTC or Child Credit]

3. Residency: Must live with tax payer for over half the year unless left because of illness, education, vacation, or military service. Noncustodial parent can take the dependent if they have custodial parent give permission in writing.

4. Support: Only if the child has covered over half THEIR OWN expenses will the parent not meet this criteria. Someone random can cover over half the living expenses as long as the child doesn't do it.



1. Qualifying relative cannot be qualifying child of anyone else.

2. Must have lived with taxpayer for entire year unless father, mother grandparent, or other direct ancestor; stepfather or stepmother, Son, daughter of brother or sister; son or daughter of half brother or half sister; aunt or uncle, or something-in-law. (Not foster parent).

3. Gross income must be less than $4,200

4. More than half their support was covered.


- Head of household requires the dependent lived with tax payer for over half the year unless it's their parent. A qualifying relative can live wherever.


Tie-breakers for child dependents:

- Goes to parent first over anyone

- If both parents claim, goes to one who child resided with the longest, then to the one with highest income.



Multiple Support Agreements

When a group who supports one person take turns claiming them as dependent.

Form 2120

Each participant must cover at least 10% each year, together they provide over half.


Earned Income Credit

Children who provide over half their own support are still eligible for EIC



Quiz Notes:

- What are schedule 1 and schedule 2 for (2019) and schedule 3?

- Substantial underpayment is more than the larger of 10% of correct tax or $5,000, whichever is larger (dollar amount)

- If an installment agreement is in place, what is the reduced penalty?

- MFS cannot claim – Earned Income Tax Credit, Student Loan Interest Deduction, college tuition expenses or student loan interest deduction and IRA Contribution deductions CAN be claimed BUT they start to phase out at $10k income.

- Memorize the minimum Filing Requirements.

- Multiple 1040Xs can be filed a year.

- A widower must file MFJ the year the spouse dies, then as Widower the following two years. 

- If an individual is supported by and lives with someone, they can claim them as a dependent even if they're not related.

Topic 2


If not filled out, taxes will be with held as if single. 

No laws about how often to fill one out. 

Should be filled out again if, you just bought a home? Because you can write off the mortgage interest and property taxes

For 2020, there are predetermined amounts instead of allowances. Multiple worksheets or an online calculator can be used. 

Form W-4P is to figure out how much to be withheld by annuities and pensions and other deferred compensations.

Form W-4V is for social security payments and tier one railroad retirements. 

If not withholding from these accounts with a W-4, may be required to pay estimated taxes or face a penalty. 

Form W-7 gets you an ITIN (for those who can't get a SSN)

An ITIN does NOT authorize work, provide benefits or qualify for EITC (earned income tax credit)

It can also be used for a dependent in another country that a US citizen would like to claim.


- Taxpayer should be reporting tips monthly to employer, Form 4070 can be used for this.

- No tax is due or reporting to employer is required on tips $20 or less (for each job if there are more than one jobs) per month

- Non-cash tips (cars, boats, tickets) don't have to be accounted for. 

- Form 4137 is for unreported tips, including the under $20


W-2 shows what the tax payer still owes after the with held is accounted for. If there's enough, tax payer may be required to pay estimates. 

IRS assumes that tips add up to at least 8% of total sales. 


W-4P for pensions and annuities

- If not filled out, tax payer is treated as married and claiming three withholding allowances

- Non periodic distributions have a flat tax rate of 10% unless no withholding is chosen on W-4P.

- For a lump sum from an employer retirement account the fed tax rate is 20% unless it's to be rolled into another account. 

Kiddie Tax

If child makes more than $2,200 in unearned income, they are taxed at their parents tax bracket. Used to discourage parents from avoiding taxes by giving their children the income. 

Must be

-Under 18


- 18 at end of tax year with earned income of half or less of their living expenses


- 19-23, in school fulltime with earned income of half or less than living expenses.

Tax payer can pay the Kiddi Tax as the parent (Form 8814) or the kid can pay it (Form 8615)

- TCJA made it so that the Kiddie Tax is equal to the rate at which trusts and estates are taxed (37%!). Further Consolidated Appropriations Act repeals the new rate for all years, taking it back to the parent's bracket rate. 


- Deadline is Jan 31st. 

- States an employees salary and wage and with holdings. Only for employees

- Box 1 is for all compensation (prizes, wage, salary, etc.)

- Box 2 - withholdings

- Box 3 wages subject to ss tax

- Box 4 - amount of ss tax with held. 

- Box 5 wages subject to medicare tax

- Box 6 with holding for medicare tax

- A copy of w-2 or 1099 must be attached to front of returns.


For gambling

TCJA made it so all winnings are taxed at 24% subject to different winning limits (powerpoint)


- Self employed version of W-2. Also for interest, dividends, government payments, etc

- Payer fills this out and sends to irs

- The one paying the contractor (ie The Principal Broker) sends a 1099-MISC to the contractor (by Jan 31st) and the irs (by Feb 28th or March 31st if filing electronically). 

- 1099-DIV or 1099-INTare for payments from Dividends and Interest

- 1099-G for government payment - unemployment (which is taxable income).

- 1099-R withdrawals from retirement accounts

- 1099-C When a debtor cancels debt the irs treats it as income reported on this form. 

- 1099-V Voucher for payment, not required.

Quiz 2

- What is the 'Joint Return test'? If the child of the tax payer (the dependent child) files MFJ with spouse, It means the child can't generally be claimed as a dependent. Can they have tax liability? Yes.

- a 'qualifying person' doesn't exist, there is only a 'qualifying relative' or 'qualifying child' -ALL THE SAME SHIT

- for the 'tie-breaker' if they'e both parents and it comes down to who makes more money. Is this based on gross income or after losses/taxes?

- Do non-residents have to pay estimates?

- 27 - don't file 1040x if still before original deadline? FILING A 1040X BEFORE A DEADLINE IS FINE

- Is it the larger of the itemized or the standard deduction that is put on line 2 of 1041x?

- 28: do IRA contributions drop your gross income? YES

33: you can't generally change status? TRUE

- w-4v? Voluntary with holdings from Unemployment compensation (10%) or other gov payments





Fringe Benefits

- W2 is from Jan 1st to Dec 31st. 

- IRS compares what employee reports to what the employer reports. w2 vs 1040 line 1

- For Household employment, a w2 doesn't have to include any money made $2,100 and under but the taxpayer DOES include this in their 1040.

- Statutory Employees = Independent contractors

- Line 1 of 1040 does not include money made as an independent contractor

- Bonuses are taxed at 22% (37% if over 1 million) and included in line 1 1040. Even the fair market value of a prize

- If employer maintains an 'accountable plan', the employee does not have to include reimbursements for expenses in their income

    An 'accountable Plan' is basically that

- the expense has to be business related,

- the employee has to report the expense shortly after doing it and

- the employee has to return any excess reimbursement. 

Reimbursement of moving expenses

ReRe-  Because of the TJCA, The money given for moving expenses is now taxable unless the reimbursement is made to an active duty service member.

- Meals are not considered 'qualified' 

- Payments made by the employer to a third party for moving (U-haul, etc) DO NOT  have to be reported to the IRS. Reimbursements to the employee do have to be reported.. in two ways:

     - Qualified - in W2, box 12 Code P (travel from one house to another and physically moving goods [Uhaul])

     - NonQualified - in employees wages

Employee achievement Awards

- Must be tangible. (ring, pen, etc NOT giftcard, cash, etc..)

- Is excluded from employees gross income and deducted from employers tax liability.

- Maximum Exclusion is $1,600 ($400 if not 'qualified plan awards' [established program not favoring high paid employees]) The remainder is included in income.

Combat Pay armed forces don't pay income taxes on what they make while in combat zone BUT do pay social security and medicare taxes. 

Question -- Could I put the few thousand that I may owe to the IRS into an IRA (or HSA) account and start a savings account instead of paying them? YES, that's an elective deferral. The limit is $19,000 in 2019

 - Non taxable fringe benefits are mostly revolving around Health - HSA, MSA, etc

- Cafeteria Benefit Plans - you can choose from things like at a cafeteria lol. Nontaxable unless favoring Highly Compensated employees or Key Employees

 Highly Compensated Employee - owns more than 5% of company or received $125,000+ AND is top 20% earner in company. 

Key Employee: Officer making $180,000+, 5% owner or more than 1% owner AND making $150,000

- Flexible Savings Account set up by employer


- Costs for adoption written off with an adoption tax credit and if your employer helps, the assistance does not count as income. 

Group Term Life Insurance

Generally, if provided by the company not taxable up to $50k if the company isn't paying for it. If over $50k, counts as income to employee on w2 box 12 Code C. If carried by the employer (paid for by them) then there is a tax consequence. 

So, it would be carried by the employer if someone worked for Keiser.. and Keiser paid for portions or all of it.

If for spouse or dependent, it's taxable if over $2000 at 'face value' and the total is taxable as income, not just the exceeding amount. 

De minimis: minimal things. Ham for christmas, a little party for your bday, all too small for irs to care. but if its a gift certificate or cash at regular intervals or if it can be easily traded for cash, it's not minimal anymore. NOT de minimis: season tickets, memberships, company car for over 1 day a month, use of company owned fascilities. The ENTIRE amount is included in income if not de minimis.

No-additional-cost services: An exclusion for a service provided to an employee in the line of business the employee is in. Excess Capacity services (airline, bus, train, hotal rooms, telephone services, etc) provided for free or reduced price to employees in those lines of businesses. 

Working Condition benefits: An exclusion (ie. for a car or office). Can be an exclusion for company (even self employed person) and a deduction for the employee.

Employee discounts: exclusion for something within the industry NOT for investments like stocks or bonds. An employer can exclude the discount from the employees wages.

Employee discountexclusion even for spouses or widowed spouses of employee. Not excluded for High Paid employees

Meals on premises: TCJA made it so that an employer can only deduct %50 of the costs to provide meals on premises.

Transportation: TCJA took away the deduction for companies who provide help with transportation but not for the employees. Bicyclists no longer get $20 a month for riding to work.

Educational Assistance

- Up to $5,250 untaxed even if graduate and even if on leave. Only the excess is taxed if the contribution goes over $5,250.

Health Insurance:

- If employer pays some, the exceeding amount is taxed to employee as income.

- If employee pays everything, nothing that insurance paid for is taxable.

- Sick pay is taxed as normal income.

- If cafeteria plan, the amounts already included as income aren't taxed. The amounts that haven't been added in, should be.

Disability Pensions:

- These are reported as income until retirement age. During retirement, they are reported on lines 4c and 4d of 1040.

Military and Government Disability Pensions

- excluded if injury was resulting from active service.

Military pensions: taxed 

Retroactive Department of Veteran Affairs (VA): if found to later have disability, their pensions aren't taxed and they can file a 1040x for every year they were taxed.

Terrorist attack or military action: disability payments from this aren't taxed.


Veteran Benefits

Not taxed.


Worker's Compensation: Not taxed. Not even for survivors. If they come back and work, the income is taxed. 

Railroad sick pay: taxable unless due to injury

Compensatory damages: not taxable

Disability benefits under no-fault car insurance policy: payments from loss of income due to injury, not taxable. 

Loss of function compensation: loss of body part, not taxable even if employer pays part of healthcare.


An employers contributions are not considered income.

Elective Deferral: a certain retirement plan that allows pretaxed income to be contributed to a retirement plan and these dollars are excluded from income up to a limit. Up to 19,000 in 2019

PeaceCorp: the money given to you during service is not taxed. Anything given to your family, leave allowances and readjustment allowances are.

Volunteers In Service to America: taxed as income.

Clergy If the orginaztion recieves the money, no taxes. If clergy recieves the money, it's income and can only be written off if the clergy donates it to the organization.

If the church pays their rent/utilities, it's excluded up to a 'reasonable amount' unless the clergy is considered self-employed.

 INTEREST (1040 line 2)

-  Box 1 of 1099-INT- used for all interest income as well as clean renewable energy credits, and other income from bonds etc.

Box 3 of 1099-INT: interest income from US savings bonds, Treasury bills, Treasury notes and Treasury bonds

1099 INT also shows deductions (box 2), withholdings (box4), deductable investment expenses (box 5), foreign tax paid (box 6) which can be a credit or deduction, 


Money that the government borrows from the public for projects to manage the economy. The public is paid back at a predetermined time a predetermined interest. 

Series EE Bonds: The most popular bond, the difference between purchase price and amount received is the 'interest' accrued over time. guaranteed to double in value over 20 years

Series HH Bonds: Also 20 years, interest is paid out twice a year.

Series I: Paid out at maturity, over 30 years, interest is based on inflation.


In a cash method, US Savings Bonds can be reported the year they mature or every year by how much they will eventually mature (because the maturity is guaranteed over a certain period of time.)


- Education Savings Bond Program: the year they pay higher education expenses, they can exclude their interest from income. If so, must include info on Schedule B

Interest on US bonds IS taxable, state and municipal bonds aren't. 

Original Issue Discount: (aka interest) The difference between the amount by which a bond is purchased for and the amount that is redeemd upon the maturity of the bond. If that number divided by the number of years is less than .25% of the redeemed price, no taxes are owed.

- If withdrawals are made from a bond account before it matures, penalty incurred and the taxes are as if no penalty was incurred and nothing was withdrawn. 

Schedule B (for bonds/divs and int on seller carries and offshore accounts)

Part 1:

- When using Education Savings Bond Program

- When interest is recieved on seller carried mortgage and buyer uses property as home

- When 1099-INT is recieved for US Savings bond that has amounts from before current tax year

- Interest as a nominee (intrest belonging to someone else)

- Interest recieved on frozen deposits

- Less OID recieved than what shows on 1099-OID

- 1099-INT recieved for bond bought between interest payment dates

- bonds acquired after 1987 and tax payer chose to reduce interest received. 

Part 2: to report ordinary dividends

Part 3: to report transaction related to foreign accounts. "YES" to be checked if 50% or more interest in company with foreign account or if had authority in foreign account. 

This is for "OFFSHORE" accounts. 

- If tax payer lives in the state, state and municipal bonds are free. 

ORDINARY DIVIDENDS (non-qualified dividends): corporate distributions of profit in the form of cash. Shown on box 1a of 1099-DIV then placed in 3b of 1040. Most common. Taxed as income.

Qualified Dividends: taxed at capital gains. 20%, 15% or 0% depending on bracket. Show in box 1b of 1099-DIV, placed in line 3a of 1040. Must be paid by a US corporation or a qualified foreign corporation AND tax payer must have held stock for more than 60 days before the 121-day period that starts 60 days before the ex-dividend date.

Preferred stock: tax payer must have stock more than 90 days during the 181-day period that begins 90 days before the ex-dividend date if the dividends are due to periods totaling more than 366 days. If less than 367 days, the qualified dividend rules apply. 

- Must report dividends no matter what. Line 3b of 1040

- Schedule K-1 is for DIV from trusts, scorp or estate.

- If receiving $10 or more, 1099-DIV should be received.

- DIV that are stock (not 'ordinary dividends') must include FMV in income (but they're 'not taxable') 

- If dividend income is over $1,500, all sources must be reported on part 2 of schedule B and line 3 of 1040. 

Two kinds:

Ordinary and Qualified

Ordinary is taxed at income tax. Line 1a. From tax-exempt corp or bank/credit union or ESOP

Qualified is tax at capital gains tax rate. Line 1b. To be qualified, must've been paid by qualified company and meet a holding period.

Capital Gain Distributions from Mutual Funds

- 1099-DIV box 2a is where they report all the distributions to you. 

- Taxed at capital gains tax rate


Dividends can be taxed, or not:


Box 1a - total Ordinary dividends

Box 1b - Qualified Dividends (a type of ordinary dividend)

Box 2a - report on 1040 line 6 (and schedule d if applicable)

Boxes 2b, 2c and 2d all taxable and should go on Schedule D


- A retirement account. Since the employer usually takes the funds from the employee for the pension before taxes, Pensions are usually taxed when the employee receives the money at the end (it can be in lump sum or monthly.)


Retirement Account purchased by tax payer instead of provided by employee. 

Annuitant - owner of annuity. 

Insurer: the entity that recieves the money, invests it in stocks/mutual funds and guarentees it back to the anuitant. Annuity distributions are only partially taxed. Annuities are said to 'start' when distributions start. They can sometimes be called Keogh or H.R. 10 plan. 

There are two ways to calculate the taxes on annuities:

1. The Simplified Rule: Generally for qualified plans for annuitants that are under 75.

Total contribution / number of anticipated monthly payments (age of person[s]) = nontaxable monthly portion (use Pub 575 to figure this out). Multiply this number by 12 and subtract that from the total amount to be recieved in a year and you have your tax-free amount of distribution. 

2. General Rule: Generally used for unqualified plans (pricvate annuity, commercial, etc) or if annuitant is over 75. 

1099R - sent from custodian to tax payer to report distributions of annuity, pension, IRA, profit-sharing, insurance contracts, retirement plans

Box 1: total distribution for 1040 line 4c

Box 2a: taxable portion of distribution for 1040 line 4d

Rollover: from one plan to another, not taxable.  G or H codes in box 7 of 1099R. Someone can move the funds themselves without incurring income tax payments by getting the funds into the next retirement plan within 60 days. Must be reported on 4c of 1040 even if not taxed. If taxed, it's 20% federal income tax on distribution. 

Qualified Domestic Relations order: when a retirement account is court ordered to pay child support, alimony or marital property rights to a spouse, former spouse, child or other dependent.

Loans (against retirement account): not taxable as a distribution because you're already paying interest on it. If you don't pay some of it back, it'll count as a distribution (Code L)

Early Distributions: before age 59.5. Additional 10% federal tax on them and possible state penalties. Unless:

     - IRA of disabled person

     - IRA was obtained by beneficiary of deceased IRA owner

     - Distributions are used to build, buy or rebuild first home

Take the 1099R and enter the total distributions on line 4c of 1040 then the taxable part on line 4d of 1040. If it's all taxable, enter nothing on 4c.


Income in respect of a decedent: income collected as a beneficiary from distributions from a retirement shared with a deceased person. Taxed as income as well as an estate tax is charged. The taxes on 'IRD' are paid by beneficiary while taxes reported on the beneficiary's final tax return are paid by the decedent's estate.. 

Traditional IRA: taxed as income. NEVER CAPITAL GAINS. The contributions can be deducted from tax payer's income but it's taxed upon distribution if a deduction was taken when contributed. No money can be borrowed or it's considered an early distribution. Additional 10% tax is taken if owner is under 59.5

Required Minimum Distribution: must start taking distri April 1st of year after turning 72 (or 70.5 if turning 70.5 before 1/1/20) 50% tax if no distri taken by then.

 Roth IRA taxes are paid on way in.

 Qualified distributions are:

     - on or after 59.5

     - because owner is disabled

     - to beneficiary or estate upon decease

     - to pay up to $10k (per lifetime) of firstime homebuyer amounts.

Converting Traditional to Roth is treated as a rollover - amount rolled over is taxed as income.

Social Security Tax and Benefits

If single

Under $25k (in provisional income), no tax on ss benefits

between 25k and 34k (in provisional income) - up to 50% tax on ss

If over 34k in prvisional, up to 85%

If married:

Under $32k provisional, no tax on ss benefits

between 32k and 44k provisional, up to 50%  tax on ss benefits

Over 44k (provisional), up to 85% tax

MFS is 85% tax

Unless, If MFS and lived apart for whole year, same as single.


Provisional Income: half of ss benefits and all other income (even tax exempt).




NOW THIS IS LINE 7a (SCHEDULE 1). 7b 1040 is tax payers total income. 


Line 1 is for taxable refunds, credts or offsets from state and local income  

Tax benefit rule: When someone receives their refund, they need to claim it as income for the current year if it was used as a deduction the previous year.  Either the deduction is taken and the refund is taxed or no deduction is taken (which isn't allowed anyway) and the money (refund) isn't taxed. If they had itemized deductions greater than the standard deduction, they are taxed (as income) only on the difference between the return and the total deductions minus the standard deduction. Tax refund worksheet pg 88

Instead of filing a 1040x for a deduction on a previous year, a payer should account for the deduction by including it as income in the appriate portion for the current year. 

 ALIMONY line 2


Line 1: for tax refunds.


Losses calculated in Schedule C (necessary for Business income).


Other Gains and Losses Line 4

Usually for business properties



RENTAL REAL ESTATE: expenses are deducted including maintenance. If it's a short term rental with a ton of services provided to renter,` it's a schedule C (not schedule E). Rental activity is on schedule E, business activity is on schedule C.

Advanced rent is reported the year recieved. 

Security Deposits Not taxed because owner intends on giving it back

Renter fixes something: both income and deduction (if deductable)


- Mortgage and interest

- Maintenance, repairs and cleaning fees

- Advertising

- Utilities (if paid by home owner)

- Insurance

- Depreciation

IRS Form 1098 Mortgage Interest Statement: if renter pays more that $600 in mortgage interest, they recieve this form.

Expenses to maintain passive income cannot offset non-passive income. If someone is 'materially involved' in the business, it's non-passive income (this is why short term rentals are on Schedule C, it's a business, which is non-passive). If someone is a real estate professional, it's more convincing that they are 'materially involved' in their rentals. If someone manages their own rentals, they can deduct those expenses from their non-passive income up to limits:

- $25,000 if single or MFJ (making up to $100k MAGI, phases out up to $150k)

- MFS $12,500 (Making up to $50k, phases out up to $75k)

Any losses exceeding these limits can be carried to future years indefinitely.

Modified Adjusted Gross Income (adjusted gross income with a few things added back)

Adjusted Income not including:

- deductions for IRA contributions and taxable ss payments

- deduction for student loan interest or tuition

- Excluded foreign income

- Half of ones self-employments taxes

- Interest from EE savings bonds used to pay for higher education expenses

- losses from publicly traded partnership

- Passive income or loss

- Qualified tuition expenses

- Rental losses

- The exclusion for adoption expenses

When a renter uses the rental as a home, they can't use the expenses to offset anything other than the rental income from that property. it's not considered use as their 'home' if theyre only living in it to work on it (for under 15 days), renting to a local charity is considered personal use.

If it was used as a home way over 15 days, divide the days it was used by the days it was rented and use that value as the percentage of the total expenses that can be deducted

If renting in part of the property and living in part of it, any 'reasonable method' resembling taking the percentage of square footage of the room being rented (1000 sqft house, 100 sqft room, 10% of expenses can be written off). 

Improvements must be depreciated over 27.5 years, Repairs can be deducted totally from current year.

A property is improved whenever it undergoes a

Betterment: fixing something that existed before acquisition, adding something that will make things more efficient (better) 

Restoration: returning all or a part to normal operation, replacing something that was previously a loss 


Adaptation: converting the property to a new use of which it was not originally set up for

Local Benefit: expenses incurred for the benefit of the community cannot be deducted (special assessments)

Unit Of Property (UOP): The larger the scope of the property the more likely an improvement can be seen as a repair.

     Final Tangibles Regulation: requires that buildings are split into 9 UOPs and up to 8 separate building systems

     UOP #1: The Building (and it's individual components which, when repaired, are improvements)

       Structural components

      - Walls, partitions, floors, and cielings and any permanent coverings on the such as paneling or tiling

      -windows and doors

      - All central air conditioning and heat system components

      - Plumbing and plumbing fixtures (sinks and bathtubs)

      - Electric wiring and lighting fixtures

      - Chimneys

      - Stairs, escalators and elevators

      - other components relating to the operation or maintenance of the building.

      - roof

     UOP #2-9: Building systems (personal property)

          The goal of the IRS in this is to diminish the size of a Unit of Property so that it looks more like an improvement (aka capital improvement) and less like a repair and that would make it so that deductions would be taken in pieces of 27.5 years ('depreciated' or 'capitalized'). To get to a repair it has to be a small piece of a UOP, like repairing 10% of the roof (as long as that 10% of the roof isn't a part of a bigger project that falls under restoration). Cleaning a sewer line or an apt is a repair. Landscaping is a repair (as long as it's not replacing all of the landscaping at once). And the travel costs of the owner can be deducted. If they have the building as a business and pay themselves a wage for their time, they can deduct the payments to the 'employee.' 

Record Keeping - if the building is NOT set up as a business, income and expenses and supporting docs is all. 

Travel Expenses: Must leave the city in which business is conducted for reasons involving business.

Transportation Expenses Include - fares, car rental/gas, shipping luggage, 50% of meals 100% lodging while en route. 

Destination Expenses include - lodging for days one works at rental activity, 50% of meals, rental, tips, etc.

100% of these expenses can be deducted if over half the days out were for rental, if majority of days were recreation, nothing can be deducted (other than specific costs).

Local travel expenses can be deducted only if from 'office' to place of work.

Cost basis: what it cost the tax payer to purchase the property including taxes and fees.

Depreciation more refers to allocation of cost than wear and tear when it comes to taxes. Depreciation ends if the property is no longer used to generate income o the entire cost basis has been deducted.

Passthroughs as they affect landlords: TCJA put in a qualified business income deduction of 20% (section 199A deduction). Total taxable income after deductions starts phasing at $315k MFJ or $157k S. Gone at $415k/$207,500. This is not an 'above the line' deduction that reduces the AGI. If above $415k/$207.5k, the main deduction will be 25% of wages paid to themselves (50% of other wages paid) plus 2.5% of original purchase price of the property. 

So, the higher income doesn't get to deduct all of the wages they pay themselves.

If above $415k/$207.5k, this is how the Qualified Business Income is calculated:

1. Compare the sizes of [20% of rental income] and the greater of [50% of wages] and [25% of wages paid to self + 2.5% of purchase price]

2. If 20% is smallest, that deduction can be used.

3. If  not, subtract the greater of [50% of wages] or [25% of their wages] from 20% of their income. 

4. Multiply the result by the percentage their Qualified Income exceeds the threshold. 

5. The product is added to the greater of [50% of wages] or [25%of their wages + 2.5% of purchase price]. The sum equals the Qualified business Income deduction.

Section 179: TCJA's changes to depreciation. This section clarifies the amount of personal property cost in use by the rental that can be deducted in one year. in 2019 its $1,020,000. If the personal property is worth over $2,550,000, the dudection amount is reduced by how much over $1,020,000 the value of the personal property is. 

TCJA also made it so that residential rental owners can use this deduction for couches, appliances, etc. TCJA also increased the percentage of the cost of personal property used by busniesses to 100% until 2022 (new and used). TCJA also made it so that you can use the personal property less than 50% of the time to still deduct its cost.

Partnerships and Scorps: Not taxable entities, only pass throughs. Income and losses reported on Schedule K-1 and income is on line 5 of schedule 1.

Royalty Income: royalties also include money that's paid to owner for use of oil, gas and minerals. Reported as income on Schedule 3, unless self-employed (then on Schedule C and Self-employment tax is paid as well). Expenses can also be deducted - depreciation, agent fees, management fees, interest, insurance, etc.. 

Unemployment income (Line 7 of Schedule 1)

Governmental program: if someone is under a program where they make contributions, they don't have to claim any of the distributions as income until they've met the amount they contributed

Repaying Unemployment: if in previous year, over $3k, they can deduct the amount from income on line 16 of schedule A

Supplemental (from employer) Unemployment: counts as wages, not as income. This is unemployment funds that come from employer, not government.

Reporting Unemployment Income: gov send a 1099G, in Box 1 is the total, place that in income. Deduct any contributions you may have made to a fund. 

Hobby money or side gig money is just additional income on line 8 of schedule 1

Canceled debt: if it's from a non-business, on line 8 Schedule 1, if business debt is canceled, Schedule C


- From ch 11 bankruptcy

- insolvent (when your assets are worth less than your debt) the canceled debt isn't included as income only up to the value of the assets. 

- Farming debt

- Real Property debt ???? (not covered) Q

IRS FORM 982 will be attache dfor any qualifying canceled debt

- Qualified Principal Residence Indebtedness Exclusion - any debt canceled from foreclosure (currently until 2020)

- Student Loans - usually tied to working in a particular job (TCJA made it so that this includes total dixcablement and death)

- Nobel and other prizes - if you don't itemize, if you donate it or if you had nothing to do with winning it (lol) then you don't include it as income.

- Credit card Insurance: pays you card if you're injured etc.. the amount over what you pay for the insurance is considered income.

- Life insurance pay outs to a beneficiary- not taxable up to the amount of the life insurance

- Welfare and Public Assistance Programs: SNAP, Nutrition Program for the Elderly NEp, etc Expenses paid for by Welfare (like medical bills) ARE NOT deductable.

Scholarships and Fellowships: Room and board IS taxed and money made in little jobs even if it's required.

- Cash Rebates: the cash basis changesto the reduces amount for finding loss/gains purposes but the rebate is not taxed. 

VA Payments: not taxable AT ALL

- Down Payment Assistance: Not considered income but goes against cost basis of house if the distributor is not a non-profit

- Energy Subsidies: not taxable

- Foster care provider: not taxable but included as income on Schedule 1. If more than 5 of the children are 19+ then it's taxed. 

- Virtual Currency: must be included as income based on the fair market value of the coin




Cost basis: Includes basically the expenses paid to acquire the asset. ie purchase price, fees, comissions, taxes, etc. 

Tax Basis (adjusted tax basis or 'tax basis') is the same as cost basis but adjusted to allow for depreciation, improvements over time, etc. 

Gain or loss is determined by subtracting the basis from the proceeds received upon sale

Stocks can be split, or held for a certain time, so that the cost basis changes.

Additions to cost basis: if already used as an expense, can't be used again. Can include capital improvements, legal fees, substantial repairs, even comissions and fees 

Deductions to cost basis: Costs classed as current expenditures can't be deductions. All money spent is either current expenditure or capitalized expense upon selling the asset. 

Capital Gain: the difference between the adjusted cost (assest's cost or basis) and the current market value

Stocks that fall to zero are treated as if they were sold the day they became worth nothing.

Gifts and inhertiances: gains, losses, or niether are calculated based on cost basis of donor when gifted vs fmv. If cost basis is more than fmv than further costs are included in basis. If fmv is more it;s a gain upon selling, if fmv is more than basisbut less than the value when they recieved the gift, no gain or loss. Super weird in writing but kind of common sense and adjustable.. 

REAL ESTATE SALES TAXES (basis adjustments)

$250,000 ($500,000 if mfj) is tax free from the sale of a personal residence. 

Upon the sale of a personal residence, the cost basis AS WELL AS any fees/comissions paid are subtracted from the total profit . Tax is only owed on this adjusted amount that exceeds the exclusion. 


- minor repairs, carpet cleaning, repainting, gardener, etc cannot be added to cost basis. 

- Major improvements CAN be added to cost basis (siding, new kitchen, new fences, wall-to-wall carpeting, etc..)

- accumulated depreciation is subtracted from cost basis.

A file of home repairs should be kept although, fixing a broken window and replacing a few shingles is NOT an additon to cost basis. A brand new roof, new floors, etc CAN BE aded to cost basis.

- The amount of ordinary losses that can be deducted on a tax return is generally unlimited

Non Capital assets: real property used in business or trade (depreciable and even if fully depreciated), stock, accounts receivables. Property used or consumed in the course of business

Capital assets: anything used for investment, personal use, pleasure; stocks/bonds, household furnishings, car (for commuting or just pleasure) collections, jewlery, valuable metals, etc. 

Real Property: attached to land (includes crops)

Short-term gain: within one year. Day bought not included, day sold included. So from day after bought to day sold.

Long term gain: held for over a year. If inherited, always Long term. 

Collectibles: taxed at a long term rate of 28%, ordinary income rate in the short term

1250 recapture is when the amount that you over depreciated is taxed at an unpreferable amount (25% or highest capital gains rate). The gain from selling the real estate and over depreciating to take the tax benefit during your time with the asset (not the depreciated amount but the gain) is subject to ordinary income tax. This is not reported on Schedule D but on worksheets mentioned on schedule D. 


Schedule D to report Capital Gains or Losses.  Form 8949 is  often required before schedule D is filled out. 

- ONLY GAINS on the sale of personal property (capital) need to be reported, losses aren't required to be reported BUT they CAN be used to offset other current and future capital gains. 

Form 8949 used to report the sale or exchange of capital assets, gains from involuntary conversions (only personal) and non-business bad debt. Short term gains on line 1, Long term gains on line 3 

Schedule D: overall gain or loss from transactions from 8949 and capital gain distributions that are not reported on line 6 of 1040

 Form 8949 is NOT required when

1. there were no losses and only gains from 1099-DIV, Box 2a


2. There are no un-recaptured Section 1250, Section 1202 and collectibles in all the corresponding boxes/forms. 

Basically, if it was only a 1099-DIV with one entry in box 2a, no 8949 is necessary.

If ONLY capital gains distribution, they can fill in line 6 on 1040 and check box on line 13.



Form 8949 can be replaced by

1. a detailed explination of the asset transaction IRS approved

2. a 1099-B showing the cost basis and no sale or basis adjustments.

Capital losses can be carried over and deducted against capital gains up to $3000 ($1,500 if mfs) in the following year

When a corp gives out capital gains distributions, if they held the securities from which the capital gains came from for over a year, they're taxed at long term rates.

Form 4797 for reporting sales of business property. It's important to separate what is depreciable and not depreciable.



$250k ($500k if married) excluded if primary residence and live in for 2 out of 5 years from the sale of the house. 

Exceptions: selling for work relocation (lived in home less than two years and is new job or employer moved) medical (letter from doctor), unforseen circumstances (divorce, separation, twins, unemployment) etc..

Partial Exclusion: if they lived there less than two years, divide number of months by 24 and multiply that by $250,000 (or $500k)

If divorce: the spouse that gets the house after the divorce uses the time of ownership for the two year test

REPORTING the sale: on schedule D. If under one year, short term, if over a year, long term. 

1031 EXCHANGES Form 8824

Not for personal residence, ONLY INVESTMENTS

Identify the next asset within 45 days. Complete purchase within 180 of sale of first asset. 

No personal property since 2018 (TCJA)

BECAUSE section 179 allows for 100% depreciation, THEN 1031 exchange deducts the gains of the sale.. 

Installment Sale: taxes can be spread out based on when payments are recieved. 

Each payment has 3 parts

- Interest income: a portion must be interest, even if buyer wasn't charged interest. The interest part is taxed as ordinary income.

- Return of the basis: tax free

- Gains: Form 6252 - includes Selling price (everything buyer paid) and adjusted basis (including recaptured depreciation).


Congress creates these, the IRS interprets them. 

They use the word administrative to represent a broad interpretation of the following exclusions:

Unrealized income: stocks before theyre sold.

Self-help Income: painting your house, paying to have your car fixed, etc. No taxes on the increase of value of personal property. Could be contrasted if bartering one service for another.

Rental value of personal property: Renting a room out. Too tough to keep record of.

Selling price vs taxable gain: taxed on ONLY gain

Social Policy: congress makes rules out of benevolence (no gift or inheritence tax, no welfare tax, etc) and to encourage certain behavior (no tax on bankruptcy income, interest from state bonds, etc)

Limits to gift giving in one year (2019) is $15000, Lifetime is 11,400,000. 

Any amount that is given away anually is subtracted from the lifetime exemption.

must file form 709 if recieving a gift (mfj file their own individual 709s) or if giving gift over the limit. Donor is responsible for paying gift tax, if they dont, donee might have to.

QTIP Qualified Terminable Interest Property trust: a trust that leaves the property to the spouse AND determines who gets it after the receiving spouse dies. 

No gift tax applies to ('gift tax' refers to the amount tax if exceeding exclusion): 

- Donations to campaigne

- Education money (tuition)

- Tuition program donations
- Directly to care providers for medical care (even transportation and insurance paymentxz)

Non resident aliens file gift tax form if they're over the limit (14,000 if not spouse, 155k if spouse) or the gift is future interests

gift to trust: only gift if donor totally gives it up, if its a revocable grantor trust than gift tax isn't likely due.

*The gross amount that will be included in the 709 is DIFFERENT from the amount that will be taxed. The amount that will be taxed is what exceeds the limit. The gross amount is just the TOTAL. 


Estate taxes (dont say 'death tax'): 

- none if to spouse or IRS recognized charitable org. 

Based on where deceadent lived at death.

- The gross estate includes properties, powers and proceeds (life insurance, etc), etc Unless beneficiary was named in the policy.



Simple Trust: Not grantor trust, distributes income anually, no charitable contributions or distribution of corpus (money or property defining the trust)

 Grantor Trust: revocable. grantor is responsible for taxes because retains certain power: who recieves income, vote, etc.. 

Revocable trust: Family trust, living wills, the trust is disregarded for tax purposes. the grantor takes all liability. 

Complex Trust: not simple or grantor as far as the IRS

Qualified Terminable Interest Property trust: who recieves the assets after the surviving spouse has deceased is predetermined. The valuation of the assets can happen 6 months after the death of surviving spouse. Deductions are allowed (exacutor commission, etc)

estate tax Rate

Highest is 40%. Can be deducted if year of decease AND if deductions are itemized. Beneficiary gets a deduction because of the possible increase in income that would create a huge liability. 

IRD refers to the deduction of the additional income at year of death. Certain forms of income become IRD items, and other dont. IRD items are on the beneficiary's 1040 with no liability. Wages paid after death are NOT IRD items. Interest payments before death are. Payments before death (not IRD) are in the deceadent's return for the year. The rest are IRD items on the beneficiary's return. 

All the IRD items get a unified credit (tax exemption)

NOL Net Operating Losses on an estate can be carried back 5 years and carried forward infinitely.

If estate is larger than the gifting limit, executor (other person responsible or occupant) is responsible for paying the taxes. 

Deadline for Form 706 is 9 months after death. payment can be up to 12 months out.

-trusts are treated like individuals but with smaller exemptions and no standard deduction.

Generation skipping transfer (GST) taxIf the trust or estate avoids a gift or trsnsfer tax, there is this mandatory tax for when the transfer is generations away. 

Form 1041: determines the taxes a trust owes.

inter vivos- during an individuals life

Testementary = will

Trusts are allowed a deduction for the distribution to beneficiaries. This is why the beneficiary won't really be responsible for taxes on the income of the trust. 'Pass-through style. Schedule K-1 is used to notify beneficiary of amounts to be included in their tax returns.

Tax exempt interest is in the 'other Information' section.

distributable Net Income

The estates taxable income (excluding the distribution deductions, tax-exepmt interest and charitable donations.

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Adolfo Street 2020