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Income Tax Short Course - Course Topics

Course Topics

Ethics

This chapter discusses important state and federal ethics obligations for the tax practitioner. It also gives tax practitioners the information necessary to remain compliant with Circular 230, Regulations Governing Practice before the Internal Revenue Service, and other ethical obligations. It includes a discussion of ethical challenges when working from home, including the duties of confidentiality, competency, and due diligence. This chapter reviews what services constitute the unauthorized practice of law. This chapter also details the steps that tax practitioners must take to comply with their ethical duties when they volunteer for a nonprofit.

This chapter explains how to recognize and report abusive tax schemes, and the role of judicial doctrines in complying with a tax practitioner’s due diligence obligations. Finally, this chapter uses 10 case studies to explore ethical dilemmas. The case studies illustrate how to handle real-life ethical issues by focusing on common challenges that tax practitioners confront when working with clients, the public, and other professionals.

Trusts and Estates

The basic estate exclusion amount in 2021 is $11,700,000, and any unused exclusion amount is portable between spouses. This chapter first discusses how to calculate the gross estate. It then reviews how the value of the gross estate is used to determine whether to make the portability election, and how the election is made.

This chapter explains who is authorized to file returns and obtain information for a deceased taxpayer. It also discusses income in respect of a decedent and how that income is taxed.

This chapter reviews language that makes a trust a grantor trust and deductions that are available to a trust, including final regulations that provide guidance on determining the character, amount, and allocation of deductions in excess of gross income succeeded to by a beneficiary on the termination of an estate or nongrantor trust.

Finally, this chapter explains when an estate must file an estate tax return.

Business Tax Issues

Several more states legalized recreational marijuana in 2021, and the IRS is increasingly focusing on tax compliance issues for marijuana businesses. This chapter reviews current tax laws for marijuana businesses and new IRS guidance. In 2021, shutdowns increased the demand for day care, yet those businesses faced challenges in operating with heightened health and safety requirements. This chapter discusses the general rules for the business-use-of-the-home deduction and the rules that apply to day care providers.

This chapter also explains how to calculate cost of goods sold on Schedule C (Form 1040), Profit or Loss From Business (Sole Proprietorship), and how an owner of multiple trades or businesses can maximize the qualified business income deduction by dividing or aggregating those businesses. This chapter also discusses the newly implemented requirement for partnerships to report tax basis capital accounts. Finally, this chapter explains what real property is eligible for like-kind exchange treatment under the final regulations and when gain from an involuntary conversion may be deferred.

Agriculture and Natural Resource Tax Issues

In 2021, adverse weather, changes in consumer demand, and supply chain disruptions created new challenges for farmers and ranchers. Some may have had unusually high income, and others may have decided to get out of the business of farming or ranching. This chapter explains tax planning strategies for a taxpayer in a high-income year, and the tax consequences of a sale of farm assets.

This chapter discusses how sales of livestock are taxed and when a taxpayer can defer recognizing income on a weather-related sale of livestock or defer reporting payments for damaged or destroyed crops. This chapter also explains how a taxpayer calculates a net operating loss and applies the loss carryovers, and how agricultural and horticultural cooperatives and their patrons calculate the qualified business income deduction. Finally, for the taxpayer who has sold farm assets and ceased farming, this chapter reviews the steps that are necessary to close out the business.

Choice of Entity

The Tax Cuts and Jobs Act of 2017 (TCJA), Pub. L. No. 115-97, reduced the tax rate for C corporations from a graduated scale between 15% and 35% to a flat 21% rate [IRC § 11(b)]. However, C corporation owners are taxed on distributed earnings and do not qualify for the qualified business income (QBI) deduction. S corporations, LLCs, and partnerships typically do not pay tax at the entity level (although certain taxes may apply to an S corporation with C corporation history). In addition, S corporation shareholders do not pay self-employment (SE) tax on their share of net income (but the shareholders’ compensation is subject to employment taxes).

This chapter first reviews the entity classification rules. It then gives an overview of the tax factors to consider in selecting a business entity. This chapter discusses how the choice of entity affects loss limitations, SE tax, the QBI deduction, and allowable fringe benefits. Finally, this chapter explains reporting obligations and when multiple entities can or must be aggregated.

Individual Tax Issues: Part 1

In 2021, taxpayers who claim the standard deduction can claim an above-the-line charitable contribution deduction for cash contributions to qualified charities. Taxpayers who itemize deductions can claim a deduction of up to 100% of AGI for qualified cash contributions. This chapter reviews the new and existing rules for claiming the charitable contribution deduction.

With lower interest rates and higher prices for new homes in 2021, many taxpayers opted to remodel their existing homes. This chapter reviews the remodel costs that are added to basis, and the energy credits that may be available for energy efficient home improvements. Finally, this chapter reviews the exclusion for gain on the sale of a principal residence, and how that exclusion applies when a home has been used for business purposes or when a rental property has been converted to a principal residence.

IRS Issues

This chapter provides an overview of the IRS Return Preparer Office (RPO) programs. It reviews the requirements for Taxpayer Advocate Service assistance. It also discusses current scams used to steal private information from individuals or businesses. This chapter discusses new online tools and filing obligations for taxpayers and preparers. Finally, this chapter explains new and existing payment arrangements that can help taxpayers who have been financially impacted by COVID-19.

Individual Tax Issues: Part 2

The American Rescue Plan Act of 2021 (ARPA), Pub. L. No 117-2, expanded eligibility for the earned income tax credit (EIC). This chapter reviews the existing rules to be eligible for the EIC and the expanded eligibility requirements. It also explains how it may be advantageous to calculate the 2021 EIC using 2019 income.

This chapter discusses the taxation of a minister’s income. It explains when and how a minister can claim an exclusion from self-employment tax. It also reviews how licensed ministers can exclude from income tax a housing allowance paid to the minister or the FMV of a parsonage that is provided to him or her in exchange for ministerial services.

Finally, this chapter reviews tax issues for US persons with foreign income and non-US persons with US income. It explains when a taxpayer can claim the foreign earned-income exclusion and foreign tax credits. It reviews foreign currency exchange rate issues and the taxation of foreign owners with US real estate rentals. Finally, this section explains tax treaties and social security agreements that are designed to prevent double taxation and may reduce a taxpayer’s tax obligation.

Current Real Estate Tax Issues

In 2020 and 2021, eviction moratoriums prohibited landlords from evicting certain tenants for failure to pay rent. Those landlords may have lost income because of the inability to evict nonpaying tenants. This chapter discusses the passive activity loss rules, the rules that apply if a taxpayer qualifies as a real estate professional, and the $25,000 special allowance for passive activity rental losses. This chapter also explains when the taxpayer can claim the IRC § 199A qualified business income (QBI) deduction for rental real estate activities and how that deduction is calculated if the taxpayer has QBI losses.

With a strong housing market in 2021, there was significant new development activity. This chapter reviews the allocation of basis to subdivided lots, and whether the developer will be characterized as a dealer who pays tax at ordinary income rates, or an investor who can use the preferential capital gains tax rates. Finally, this chapter reviews the general net investment income tax rules and how those rules apply to a taxpayer with real estate rentals or a real estate developer.

Retirement, Investing, and Savings

This chapter explains important retirement, investing, and savings tax issues. It reviews participation in section 403(b) plans, the types of contributions to those plans, and the limits on contributions. This chapter also discusses how a taxpayer can convert a traditional IRA to a Roth IRA and the tax consequences of that conversion. It reviews the prohibited transaction rules that apply to self-directed IRAs and how those rules apply to a self-directed IRA that owns rental property.

This chapter discusses which taxpayers are eligible for a health savings account, and it provides an example of how the taxpayer calculates and reports the contribution deduction. The IRS and Treasury recently issued final regulations for individual coverage health reimbursement arrangements (ICHRAs). This chapter summarizes those regulations and reviews the general requirements for an employer to offer an ICHRA.

Finally, this chapter discusses types of stock options that an employee or contractor may receive. It provides an overview of how those stock options are taxed, and the tax elections that the recipient may consider making.

Construction Issues

According to the American Construction Association, construction is a major contributor to the US economy. The industry has more than 680,000 employers with over 7 million employees. Construction is one of the largest customers for manufacturing, mining, and a variety of services. According to Business Wire, the US construction industry is expected to grow by 15.6% to reach over $1.5 trillion in revenues in 2021.

Construction industry taxpayers encompass a vast range from huge private (e.g., Bechtel) and publicly traded (e.g., AECOM and Fluor) companies to sole proprietors working on an hourly basis. The tax issues facing this industry are numerous, varied, and rapidly changing. This chapter focuses on some common issues and “hot topics” of concern to construction contractors, including:

  1. Accounting methods and periods in general,
  2. Accounting method for long-term contracts,
  3. Motor vehicle expenses,
  4. Meals and entertainment expenses, and
  5. Employees and independent contractors.