Business Entities

The Tax Cuts and Jobs Act expanded the definition of section 179 property to allow the taxpayer to elect to include the following improvements made to nonresidential real property: Qualified improvement property, (which means non-structural improvements to a building’s interior). Roofs, HVAC, fire protection systems, alarm systems, and security systems. Section 179 property does not include “intangible” property, such as trademarks, copyrights, or franchise rights (although there is an exceptio

The Tax Cuts and Jobs Act expanded the definition of section 179 property to allow the taxpayer to elect to include the following improvements made to nonresidential real property: Qualified improvement property, (which means non-structural improvements to a building’s interior). Roofs, HVAC, fire protection systems, alarm systems, and security systems. Section 179 property does not include “intangible” property, such as trademarks, copyrights, or franchise rights (although there is an exceptio

The Tax Cuts and Jobs Act expanded the definition of section 179 property to allow the taxpayer to elect to include the following improvements made to nonresidential real property: Qualified improvement property, (which means non-structural improvements to a building’s interior). Roofs, HVAC, fire protection systems, alarm systems, and security systems. Section 179 property does not include “intangible” property, such as trademarks, copyrights, or franchise rights (although there is an exceptio

When a business receives a cash payment of more than $10,000 from one transaction or from two or more related transactions, it must file Form 8300, Report of Cash Payments Over $10,000 Received in a Trade or Business, by the fifteenth day after the date of the cash transaction. By January 31 of the year following the reportable transaction, the business must also provide to each person whose name is required to be included in Form 8300 a written statement that shows the aggregate amount of repor

Under the “optional method” of calculating the home office deduction, a taxpayer can deduct $5 per square foot for the space in the home that is used for business, with a maximum allowable square footage of 300 square feet. Therefore, the maximum deduction is $1,500. The criteria for who qualifies for the deduction remains the same, but the calculation and recordkeeping requirements have been simplified. There is no depreciation expense and no recapture of depreciation upon the sale of the home.

Although expenses related to a hobby activity are not deductible, one benefit is that hobby income is not subject to self-employment tax, unlike other types of business income. Topic: 26-27EA Part 1-Section 2- Income and Assets

Up to 85% of Social Security benefits may be taxable. No taxpayer pays taxes on more than 85% of their benefits, regardless of their income. Topic: 26-27EA Part 1-Section 2- Income and Assets

A taxpayer that only has income from wages would not qualify for the 199A deduction (although there is a very narrow exception in the law for statutory employees only). C Corporations also do not qualify for the deduction. Owners of sole proprietorships, partnerships, S corporations and some trusts and estates may be eligible for a qualified business income (QBI) deduction (also called Section 199A). The deduction allows eligible taxpayers to deduct up to 20 percent of their qualified business i

Active-duty members of the Armed Forces may deduct unreimbursed moving expenses if the move was due to a military order and a permanent change of station. Topic: 26-27EA Part 1-Section 2- Income and Assets

The general rule is that an individual is an independent contractor if the payor has the right to control or direct only the result of the work, but not what will be done and how it will be done. Independent contractors are normally people in an independent trade, business or profession in which they offer their services to the public. An employee is generally a worker who performs services for their employer, and the business can control what will be done and how it will be done. Topic: 26-27E

Danika must include these guaranteed payments in income for 2026 (not 2025) and report them on her 2026 income tax return, because her reporting is based on the partnership's tax year. Guaranteed payments are included in income in the partner's tax year in which the partnership's tax year ends. This example is directly from Publication 541, Partnerships, under the section for Guaranteed Payments. Question is modified from an example in IRS Publication 541, Partnerships. Correct Answer Explanatio

Tax exempt income will increase a shareholder's basis in their S Corporation stock. All of the other items will decrease their basis. In computing stock basis, the shareholder starts with their initial capital contribution to the S corporation or the initial cost of the stock they purchased. That amount is then increased and/or decreased based on the pass-through amounts from the S corporation. An income item will increase stock basis while a loss, deduction, or distribution will decrease stock

Topic: 26-27EA Part 1-Section 1- Preliminary Work and Taxpayer Data Topic: 26-27EA Part 1 -Section 4-Taxation For more information about the tax rates that apply to estates, see Publication 559, Survivors, Executors and Administrators. Topic: 26-27EA Part 1 -Section 5 - Advising the Individual Taxpayer Correct Answer Explanation for C: The maximum estate tax rate is 40% in 2025. In 2025, the federal estate tax ranges from rates of 18% to 40%, with 40% being the highest tax rate. The corporate ta

In general, an employer must withhold and remit income taxes, Social Security and Medicare taxes (payroll taxes), and pay unemployment tax on salaries and wages paid to an employee. Employees have taxes withheld by their employers, while independent contractors are responsible for their own tax payments. A business generally does not have to withhold or pay taxes on payments to independent contractors, because the earnings of a person working as an independent contractor are subject to self-empl

The Premium Tax Credit is designed to make health insurance premiums more affordable. The Premium Tax Credit is based on a taxpayer’s estimated household income. The credit amounts are paid directly to the taxpayer’s health insurance provider every month. Topic: 26-27EA Part 1 Mock Exam 1

When a business has overstated inventory, this results in the COGS (cost of goods sold) being stated too low, which means that net income before taxes is overstated, resulting in a higher tax. In other words, overstating ending inventory will overstate net income, since this is directly related to the cost of goods sold. "Overstated" inventory records will indicate more inventory stock is held, rather than the true, physical stock numbers. If there is an overstatement of inventory, typically the

Under current law, most C corporations must limit NOL deductions to 80% of taxable income in any given year. Topic: 26-27EA Part 2-Section 1-Business Entities and Considerations

Eligible taxpayers can deduct up to 20% of their Qualified Business Income (QBI) from pass-through entities like sole proprietorships, partnerships, and S corporations. Certain types of income are excluded from the QBI deduction under Section 199A. For example, hobby income and interest income does not qualify for the deduction because they are not considered ordinary business income. Learn more about the Qualified Business Income Deduction. Topic: 26-27EA Part 1 -Section 4-Taxation