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REGULATION > 2 > Flashcards

2 Flashcards

1
Q

LT gains (net LTCG) taxed at PREFERENTIAL rates ______

A

0%, 15%, 20%

Collectibles e.g. jewellery at 28% rate
Unrecaptured Sec 1250 gains at 25% rate

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2
Q

ST gains taxed at __________

A

ordinary rates

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3
Q

Partnerships and S corp cannot claim a _________

A

NOL

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4
Q

Deductible partnership losses are limited to lesser of the partner’s __________

A

Basis or At risk amount

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5
Q

Individual taxpyers may deduct losses only if incurred from (1) a trade or business (2) Transactions entered into for profit (e.g. investments) or (3) casualty and theft losses (in a federally declared disaster area) (4) Passive activities (only to the extent of passive income)

A

*LOSSES from sale of PERSONAL USE ASSETS are non-deductible

*GAINS from sale of PERSONAL USE ASSETS are TAXABLE.

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6
Q

Hobby - If there is no profit for 3 out of last 5 years

A

Considered as Hobby rather than a business. No expense will be deductible. Under TCJA, all hobby revenue must be reported as income, but no hobby expenses are deductible. Hobby income is reported as Other Income on Sch 1.

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7
Q

Deduction for PROMOTIONAL item is limited to _________

A

$4 per item.

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8
Q

To be claimed as a dependent, the individual must be either a citizen of the ______

A

Canada, U.S., Mexico

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9
Q

When the subject matter of
a breached contract is unique (e.g. sale of a patent) and Compensatory/monetary damages will not suffice, a court may award ______________to the injured party.

A

Specific performance

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10
Q
A
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11
Q

QUALIFYING CHILD

  1. Child
  2. Stepchild
  3. Adopted child
  4. Foster child
  5. Sibling
  6. Stepsibling
  7. Half sibling
  8. Descendant of any
A
  1. Close relative
  2. Age limit - under 19 or under 24 if a full time student
  3. Residence
  4. Eliminate gross income test
  5. Support
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12
Q

QUALIFYING RELATIVE

  1. Parent
  2. Stepparent
  3. Grandparent
  4. Father/Mother in law
  5. Son/Daughter in law
  6. Uncle/Aunt
  7. Brother/Sister in law
A
  1. Support
  2. Under Gross Income
  3. Precludes filing jointly
  4. Only citizens
  5. Relative or taxpayer lives with dependent for full year
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13
Q

SUpport Includes ____

A
  1. Food
  2. Clothing
  3. FMV of loding, medical, recreational, educational and certain capital expenditures

Excluded from support are:
Insurance premiums, funeral expenses, nontaxable scholarships and income and social security taxes paid from a dependent’s own income.

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14
Q

Gifts and Inheritances are both _________ to the recipient.

A

tax-free

Tax is often paid by the person giving the fift or the estate at death.

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15
Q

To be eligible for MFJ, Taxpayers must____________

A
  1. Have the same TAX YEAR
  2. Be married
  3. Agree to file a joint return
  4. Be either US Citizens or resident aliens (e.g. GC holders) for the entire tax year

note: both spouses can file as MFJ even if they have different ACCOUNTING METHODS

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16
Q

Upkeep for the year means half the _______ (50
%) and not half the time

A

COSTS

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17
Q

Roth contributions made by the employer to an employee’s 401(k) account are included in the employee’s income

A

True (per Becker)

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18
Q

Premiums paid by an employer on a group term life insurance policy are not income to the employees up to the cost on the first $50,000

A

and over it will be taxable

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19
Q

Exclusion is phased out for AGI _________to __________for adoption credit

A
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20
Q

Dependent care assistance - under age 13, spouse incapable of taking care of the child

A

employees can exclude from gross income upto $5,000

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21
Q

Part of the proceeds from an installment sale is taxable as _______

A

Interest (in installments)

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22
Q

The amortization of a bond premium is an offset (Reduction) to the _______and a reduction to the bond’s basis

bond discount (addition)

gifts given by a bank for opening by a bank is TAXABLE (e.g. phone or mixer)

EE=educational purpose (tax-exempt)

A

int received

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23
Q

ESOP

A

Non qualified Dividends

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24
Q

When not out of RE, div are known as Return of Capital

A

Non taxable event

option of receiving cash or stock (when you are taking cash, it’s taxable at FMV)

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25
Q

Roth IRA = tax free (not tax deductible) over 59.5 years of age

A
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26
Q

Qualified dividends are taxed at a lower tax rate or preferential tax rate

A
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27
Q

Basis will be _____________and not FMV if spouse received property in alimony settlement and it’s not taxable.

A

original cost

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28
Q

Property settlements are ________ for receiving spouse in case of Alimony.

A

not taxable

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29
Q

Interest on U.S. Treasury Bonds is _____
________

Not taxable as int = State or municipal bonds, Qualified higher education bonds, Series EE savings bonds used for qualified higher education expenses.

A

Taxable and should be included in Gross Income

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30
Q

Current income threshold for Parents - $5,050

A

Gross taxable Income threshold for qualifying child/relative = less than $4,150

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31
Q

SUPPORT TEST - over one-half of a dependent’s support.

A

In the event no one person provides more than 50% of the dependent’s support, any individual who contributed more than 10% is entitled to claim the dependent if each other person contributing more than 10% of the support signs a written consent not to claim the dependent (i.e. multiple support agreement).

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32
Q

Separately stated items being passed through to a partner

A
  1. Worthless personal debt - ST capital loss (always SHORT TERM)
  2. Inherited Stock - LT capital gain (always LONG TERM)
  3. 1231 gain - LT gain
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33
Q

1231 are also known as business assets _____

A

Net gain is treated as LT CAPITAL GAIN

Net loss is ORDINARY LOSS

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34
Q

If property acquired by gift is sold at a loss, its basis is lesser of its gain basis (4k) or FMV on date of gift (3k).

If property acquired is sold at a gain, its basis is the donor’s basis so 4k would be the answer in this scenario. Increased

A

3k is the answer

500 shs gifted
Albert’s basis for Liba stock was $4k.
FMV at the date of gift to Laura = 3k
Laura sells 500 shs in yr 7 for 2k

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35
Q

A sole proprietor is normally permitted to use either the cash or accrual method of accounting. If, however, the business carries significant__________ for sale, the accrual method must be used unless special IRS permission is granted.

A

inventories of goods (year end merchandise inventories)

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36
Q

SE tax is calculated on___________

A

Sole Proprietorship and GENERAL PARTNERSHIPS

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37
Q

Int paid in advance - deduct only for current year

A
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38
Q

Net rental income or loss

A

= Gross Rental income
+ Prepaid rental income
+ Rent cancellation

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39
Q

Les than 15 day rental

A

Rental income is excluded from gross income

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40
Q

NOL cannot be carried back but can be carried forward

A
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41
Q

State and local municipal bond interest is ________

A

Not taxable

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42
Q

Workers compensation award (related to job related injury) is excluded and __________

A

Not taxable

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43
Q

Student loan int is limited to _______

A

$2,500

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44
Q

HSA = 1600 self-coverage and 3,200 for family coverage

A

Out of pocket - 8500 self

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45
Q

Archer MSA contribution

A

SImilar to IRAs, used only if HSA is unavailable.

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46
Q

IRA

A

lesser of earned income or 7k each spouse

47
Q

Student loan deduction int

A

above the line

48
Q

On or before Dec 31, 2018

A

Deductible alimony

49
Q

Not active participants in another qualified plan _________________

A

their deductible contribution is not phased out

50
Q

Stock split = Original tax basis of the stock owned before the split is allocated among the shares held ________

A

after the stock split

51
Q

Sch C losses ________

A

Carry back not allowed, carry foward indefinitely

52
Q

Int must both be

A

paid and incurred to deduct it

53
Q

S corp ____________

A

Distbn just reduces basis and does not impact 1040 income

54
Q

200 spent on lottery ticket purchase should be deductible _________

A

as itemized deduction

55
Q

Dividend on a life insurance policy from mutual insurance company is treated as a

A

__________________reduction of the cost of insurance and is excluded from income

56
Q

Trade or business

Necklace - personal - capital asset

A

1231

57
Q

Casulaty loss

A

decrease in FMV or adjusted basis (LESSER of the two)
lesS: insurance proceeds
less: 100
less: 10% of AGI

58
Q

Investment int expense deduction will be limited to the ___________. Any excess will be carried forward indefinitely.

A

net investment income of the taxpayer

59
Q

QUALIFYING RELATIVE - Foster parents and cousins must live with the taxpayer the entire year because they are not considered to be _________

A

relatives

60
Q

Stocks (contribution value on Sch A itemized deduction)

A

Lesser of the two

61
Q

CHarity - Ordinary Income property

A

Lesser of FMV or cost basis
Inventory, stock etc.

LTCG property - FMV at the time of contribution e.g. investment assets, personal use assets, gain in excess of depreciation recapture

62
Q

Non refundable

A

Child and dependent care credit
education credit
AOC (60% non-refundable)

63
Q

Death

A

FMV will be the basis

64
Q

Child and dependent care credit

A

20% to 35% of work related expenses to care for qualifying persons

20% or 35% of lower income spouse depending on the AGI

13 years

AGI phaseout - USD 43000

65
Q

Gift

A

Original basis unless FMV is less than the adjusted basis of the donor

66
Q

Coverdell

A

nondeductible

earnings - taxfree if used for education

67
Q

REFUNDABLE CREDIT

A

EARNED INCOME CREDIT
CHild tax credit
AOC(40%)

QUALFYING CHILD WILL INCREASE THIS CREDIT

68
Q

Gross income does not include debt forgiveness for student loans that are forgiven because of the ____________

A

Death or disability of the debtor

69
Q

Charitable contributions that are not fully dedcuctible can be carried forward _____________

A

5 years

70
Q

Contributions to COverdell education savings account cannot be made to an education IRA if the designated beneficiary __________

contributions to this account are not deductible
maximum contribution is $2000 but annual contribution is phased out by AGI in excess of certain thresholds

A

is age 18 or older

71
Q

Sch A

A

Penalty payment for mortgage prepayment is deductible.

72
Q

Compensation for emotional distress caused by the injury is ________

A

excluded

73
Q

Section 1231 assets - used in a trade/business that have been owned for more than ___________

Owned for less than a year are _____________

All investment assets are ___________in nature

A

a year

ordinary assets.

Capital (a lapsed option results in a capital loss equal to the option’s price).

74
Q

Self-emoloyed taxpayers are allowed certain adjustments for AGI when determining taxable income. Two common ones are :

A

50% of self-employment taxes and contributions to retirement plans

75
Q

A scholarship or grant covering tuition, fees or course materials is excluded from a recipient’s gross income if the recipient is a degree candidate and if the amounts paid are not for services rendered by the recipient.

A

Payments for teaching or for participating in research projects are for services and are included in gross income.

76
Q

Fee received for serving on a jury must be included in _________

A

gross income.

When the fee is remitted to the employer, the taxpayer is entitled to a deduction for AGI. The deduction offsets the income so the taxpayer pays tax only on the money the employer paid while the taxpayer was on jury duty.

77
Q

Manufacturing firm is a _________not SSTB

A

QTB

78
Q

QBI = Lesser of combined deductions or 20% of the taxpayer’s taxable income in excess of ________

A

net capital gain

79
Q

WHen business is SSTB and the taxpayer’s taxable income exceeds $241,950________

A

the taxpayer is not eligible for the QBI deduction.

80
Q

CHild and dependent care credit

A

child must under age 13, credit is available for cost of care of disabled spouse

81
Q

Child tax credit

A

$2000 each child

age limit - under 17
citizen or resident of the US

reduce by $50 each if AGI exceeds $400,000 for MFJ and

partially refundable

82
Q

Estimated tax payment

A

110% of PY if income exceeds 150k
else 100% of PY

83
Q

NII tax is ____________

A

3.8% tax lesser of Net investment income or the excess of modified AGI over a threhold amount

84
Q

Child’s standard deduction is

A

greater of

(a) $1300 or
(b) earned income + $450

85
Q

Sec 197 intangibles

A

Basis of patents and copyrights include:
Cost of development
legal cost
govt fees

86
Q

Loan closing costs such as loan origination fee are

A

capitalized

87
Q

Donee’s

A

Rollover cost basis

88
Q

Death

A

lower of the two will be the basis
(a) Original basis
(b) FMV

Inherited property to the beneficiary = FMV on the date of decedent’s death

89
Q

QBI does not include ____________

A

C corp income, compensation, payments to a partner for services, inv income, cap gains/losses or deductions allocable to inv income or capital gains/losses.

90
Q

Long term appreciated property or stock

A

30%

91
Q

QBI deduction per business is the lesser of:

A

Maximum deductibe QBI amount =20% * QBI

OR

Greater of:
*50% of W-2 wages
*25% of W-2 wages +2.5% of qualified property

92
Q

Premiums paid for Medicare B supplemental medical insurance is a ___________

A

deductible medical expense

93
Q

A self-employed individual must file an income tax return if net earnings from self-employment are ___________

A

$400 or more

94
Q

Kiddie Tax

A

Unearned income
less: Std deduction ($1300 for Year 2024)
less: 1300 to be taxed at child’s marginal rate
_____________________________________________
Remaining to be taxed at parent’s marginal rate

95
Q

Underpayment penalty for estimated tax

A

90% of current year tax liability or

100% of PY tax liability (if USD 150,000 or less), 110% of PY tax liability (if more than USD 150,000)

96
Q

Retirement Savings COntributions credit

A

For the low and moderate income taxpayers

Age - at least 18 years old by the close of the tax year
Not a full time student
Not a dependent of another taxpayer

Max contribution eligible for the credit is $2,000 per taxpayer. No carryover is alloweed

Allowable credit = 10%, 20% or 50% of the taxpayer’s contribution to a qualified retirement plan for the year

eligible for contribution made to traditional or Roth

97
Q

If tax due after withholding is not above $1000

A

No underpayment penalty

98
Q

Manufacturing firm is _____

A

QTB

99
Q

Rental Loss deduction calc (Actively participates) - e.g. 40k loss

at least a 10% int in the activity to be considered active

they may deduct upto $25,000 of losses against ordinary income each year

A

AGI = 135000
Threshold = -100000
___________________________
Excess = 35000

Phase out 35000*50% = 17500
Deductible loss = 25000-17500 = 7500

Suspended loss in CY (or Carried forward) = $40,000 loss - 7500 (deductible loss) = $32,500

100
Q

SSTB and QTB are treated the same when threshold is below _________

A

limit

101
Q

Investment interest expense

A

Deductible but limited to NII, Schedule A itemized deduction, excess carried forward to next tax year

Inv expenses other than interest - Generally nondeductible to tax years 2018-2025
excluded from computation of NII

102
Q

QSBS = 28% Sec 1202
tax basis in assets must not be more than $50 million

A

Qualified small business stock

103
Q

Short sale

A

doesn’t own stock but you know stock (is overvalued currently) and will go down in the future
sell now and buy later

104
Q

No dis between ST and LT cap gains and losses for C Corp

A

C corp do not get the benefit of lower cap gains rates

may not deduct any net cap losses

105
Q

WraP - NON DEDUCTIBLE LOSSES or disallowed

Basis = Purchase price of shares + disallowed loss on wash sale

ACQUISITION DATE on requisition = original date of acquisition

A
  1. Wash sales
  2. Related party transaction
  3. P
106
Q

Arm’s length - sale with unrelated party transaction. Related party losses are __________

A

not deductible

107
Q

Salvage value is ignored in ____________

A

MACRS

108
Q

Non residential real property

A

39 years (mid month convention) Use SL depreciation

109
Q

oRDER OF DEDUCTIONS

  1. Sec 179 expense deduction for 2024 (immediate expensing-Used and new business property)-max allowable is $1,160,000 for 2023. Phase out threshold - $2,890,000
  2. Bonus dep
  3. MACRS Dep
A
110
Q

Depreciation under MACRS

(half-year or quarter convention)

Intangibles - (15 year or 180 months) SL method

A
  1. SL method
  2. 150% Declining balance method
  3. 200% Declining balance method
111
Q

MACRS personal property

A

3 year - Small tools, Off-the-shelf and software
5 year - Automobiles, Information systems and Most Farm Equipment
7 Year - Equipment

Mid-quarter convention applies if > 40% of personal property is purchashed in the last 3 months of the year

112
Q

_____________ partially worthless business bad debt

A

Cannot deduct (ST capital loss)

113
Q

COrp Net loss or gain

A

Carried back 3 years
Carried forward 5 years

114
Q

To use MACRS, business use must be ________

A

> 50%

Investment use is not considered when meeting the 50% test. Investment use is considered when computing cost recovery.

REGULATION (8 decks)

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