[jeff]

Welcome to the Q1 2016 CPA Exam Study Group for REG.

Some BLITZ videos to help your exams: https://www.another71.com/ninja-blitz

[Claudia408]

@marqzho – i have one, it's just not great though which is why i'm asking. i mean, if anyone had anything handy, you know kinda like how others like to share their list of BEC formulas… not like they don't have their own list already…

BEC - 75 (3x)
AUD - 78 (3x)
REG - 67, 66, Aug 1
FAR - 54, Sept 8

[fruitsyrup]

Hi, can anyone please help this question on IRA contributions? Thanks!

1088 – Rita Spano is an active participant in a company retirement plan. Her husband, John, age 45, works for a company that does not have a retirement plan. The Spanos' joint adjusted gross income for 2015 is $187,000. John contributes $4,000 to an IRA for himself. How much of this $4,000 contribution for John can the Spanos deduct on their 2015 joint return?

a) $4,000
b) $2,900
c) $2,000
d) $0

Explanation:
Beginning in 1998, individuals are not considered participants in a company retirement plan simply because their spouses are. However, the maximum deductible IRA contribution for a nonparticipant spouse is phased out for couples with joint return adjusted gross incomes between $183,000 and $193,000.

Calculation for reduced IRA contribution:

1) Modified AGI $ 187,000
– 183,000
2) Difference between AGI and phaseout $ 4,000
Full contribution limit / 11,000
3) Reduction factor 0.364

4) Maximum contribution ($4,000 x 2) $ 8,000
Reduction factor x 0.364
Reduction amount $ 2,912 ($2,900 rounded)

Shouldn't the full contribution limit be 10,000 instead of 11,000 so the reduction factor is 0.4? So, the reduction amount is 8,000 x .4 = 3,200 and the maximum amount they can deduct is 8,000 – 3,200 = 4,800?

FAR - 71, 78
AUD - 71, 72, 78
BEC - 75
REG - 48, 60, 67, 76

[marqzho]

why 10000? 5500 for one, 11000 for two =)

REG 90
FAR 95
AUD 98
BEC 84

[WheresMy75]

Does anyone have a cheat sheet that could be shared that contains a list of mnemonics for REG and also a sheet that contains all of the major calculations that need to be memorized? (For example, property basis, etc.)

[Anonymous]

SIM Sample:
Question:
Able, Inc. granted an Incentive Stock Option for 50 shares to Mary an employee on April 10, Year 1. The option price and FMV on the date of grant was $45 per share. Mary exercised the option on September 5, Year 1, when the FMV was $75 per share. She sold the stock on November 20, Year 3 for $95 per share.
Question:
Please indicate the amount of income to be recognized in Year 1 and Year 3 by the shareholder in each independent situation.
Answer:
Year 1 = $0
Year 3 = $2,500
Explanation:
This is an Incentive Stock Option (ISO). Therefore, no income is recognized at the date of grant. When the stock is sold in Year 3, gain of $50 per share (95 – 45) is recognized. $50 × 50 shares = $2,500. Note that this gain is capital because the holding period rules of 2 years from grant date and one year from exercise date were met. If they were not met, then the first $30 of gain per share (75 – 45) is ordinary and the remaining gain of $20 per share (95 – 75) is capital. In this example, the excess of the FMV on the exercise date less the purchase price $30 ($75 – $45) is an AMT preference item.

My questions:
I am confused (to be honest).
What does “exercise” really mean?
Was that the day Mary paid the option on 9/5/Y1?
How much did she actually cash out?

Thanks guys.

[marqzho]

1. “exercise” means – the time you use the option to purchase the stock.

2. she didn't pay anything for the option. It was given by the company as an incentive program.
For employee stock option, it will be something like she can purchase 50 shares of that stock in a specific time period for $45.
If she exercise(use the option to buy the stock) when FMV is $55, she has a gain of $10 per share
If she exercise when FMV is $65, she has a gain of $20 per share.
If the FMV is $40, she won't exercise the option
If the option is a qualify ISO, no gain will be recognized when exercise. The gain will be deferred until the stock is sold. Then we test it for holding period rule to determine whether the gain is capital or ordinary

3. she paid out $45(option exercise price) *50 share = $2,250

REG 90
FAR 95
AUD 98
BEC 84

[Anonymous]

@Marqzho, thank you very much. I appreciate you taking time to answer my questions. Your response was very helpful!
For follow-up questions:
If the holding period is more than a year, is it considered as a capital gain?
Anything that is held 12 months or less considered an ordinary income?
Is it (the excess of the FMV on the exercise date less than the purchase price) always considered an AMT preference item?

[marqzho]

Holding period rule – 2 years from grant date and one year from exercise date.

If hold less than that, exercise price $45 – FMV of the stock at exercise $75 = $30 * shares would be ordinary gain.
FMV of the stock at exercise $75 – FMV when sold $95 = $20*#shares would be Capital gain.

Yes =)

REG 90
FAR 95
AUD 98
BEC 84

[mfbc23]

@tncincy Thank you!

AUD: 83 (Aug. 2015)
FAR: 78 (Nov. 2015)
REG: TBA
BEC: TBA

[Claudia408]

Hi, can someone help reason through this problem?
Why is CEP is 30,000 and AEP is 35,000?
And why is the answer $35,000 taxable and 4,000 ROC?

Calyx Corp is a C Corporation that began operations in Year 1. Calyx Corp’s Year 1 through Year 3 taxable earnings and profits, prior to the distribution described below, are as follows:

E&P
Year 1 (5,000)
Year 2 10,000
Year 3 20,000

On the last day of Year 3 Calyx Corp makes a property distribution to its sole shareholder, Melver, in the form of property with an adjusted basis to Calyx of $30,000 and a fair market value of $40,000. How much of the property distribution to Melver is a nontaxable return of capital? Assume sufficient basis in Melver’s stock investment.

BEC - 75 (3x)
AUD - 78 (3x)
REG - 67, 66, Aug 1
FAR - 54, Sept 8

[marqzho]

AEP=(-5000)+10000+20000=25000
Distribution of appreciate property ->FMV – Adjusted Basis =40000-30000=10000 <-this will increase EP. total is $35000
The distribution is $40000($35000 taxable + $5000 ROC)

REG 90
FAR 95
AUD 98
BEC 84

[Claudia408]

@marqzho – thank you. are you a roger user? bc i was looking at this problem and trying to relate it to:

CEP: + – + –
AEP: – + + –
—————————
was that the wrong approach?

BEC - 75 (3x)
AUD - 78 (3x)
REG - 67, 66, Aug 1
FAR - 54, Sept 8

[marqzho]

yes, i am.

this is a ++ situation

CEP +30000 (with the appreciate property)
AEP +5000 (beginning)

so ++ = 35000 (taxable)
remaining 5000 is ROC

REG 90
FAR 95
AUD 98
BEC 84

[Tncincy]

Hey Reg gang, I hope everyone is gearing up for January…..at least that's what I am supposed to be doing along with preparing for tax season. As a matter of fact, it's almost January, and I am still stumbling around. I really need a successful tax season this year to pay for these tests quickly and get this behind me.

It begins with a 75
Been here too long as a cheerleader....ready to pass

[Anonymous]

What percentage of a self-employed person's medical insurance premiums is deductible above the line in the year 2015?

A.
None

B.
60%

C.
70%

Correct D.
100%
The Tax and Trade Relief Extension Act of 1998 (P.L. 105-277) phased in the deduction for a self-employed person's medical insurance premiums over several years and now permits a full deduction. The percentage limits on the medical insurance premium deduction for self-employed persons has been:

Tax Years Allowable
Beginning In: Percentage
————– ———-
1999-2001 60%
2002 70%
2003 and later 100%

What about the employed individuals and those receiving long-term disability insurance benefits from SSA? Are the medical insurance premiums paid taxable (included in adjustments/above the line) in 2015?

[Author]

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