2 Flashcards
LT gains (net LTCG) taxed at PREFERENTIAL rates ______
0%, 15%, 20%
Collectibles e.g. jewellery at 28% rate
Unrecaptured Sec 1250 gains at 25% rate
ST gains taxed at __________
ordinary rates
Partnerships and S corp cannot claim a _________
NOL
Deductible partnership losses are limited to lesser of the partner’s __________
Basis or At risk amount
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)
*LOSSES from sale of PERSONAL USE ASSETS are non-deductible
*GAINS from sale of PERSONAL USE ASSETS are TAXABLE.
Hobby - If there is no profit for 3 out of last 5 years
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.
Deduction for PROMOTIONAL item is limited to _________
$4 per item.
To be claimed as a dependent, the individual must be either a citizen of the ______
Canada, U.S., Mexico
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.
Specific performance
QUALIFYING CHILD
- Child
- Stepchild
- Adopted child
- Foster child
- Sibling
- Stepsibling
- Half sibling
- Descendant of any
- Close relative
- Age limit - under 19 or under 24 if a full time student
- Residence
- Eliminate gross income test
- Support
QUALIFYING RELATIVE
- Parent
- Stepparent
- Grandparent
- Father/Mother in law
- Son/Daughter in law
- Uncle/Aunt
- Brother/Sister in law
- Support
- Under Gross Income
- Precludes filing jointly
- Only citizens
- Relative or taxpayer lives with dependent for full year
SUpport Includes ____
- Food
- Clothing
- 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.
Gifts and Inheritances are both _________ to the recipient.
tax-free
Tax is often paid by the person giving the fift or the estate at death.
To be eligible for MFJ, Taxpayers must____________
- Have the same TAX YEAR
- Be married
- Agree to file a joint return
- 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
Upkeep for the year means half the _______ (50
%) and not half the time
COSTS
Roth contributions made by the employer to an employee’s 401(k) account are included in the employee’s income
True (per Becker)
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
and over it will be taxable
Exclusion is phased out for AGI _________to __________for adoption credit
Dependent care assistance - under age 13, spouse incapable of taking care of the child
employees can exclude from gross income upto $5,000
Part of the proceeds from an installment sale is taxable as _______
Interest (in installments)
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)
int received
ESOP
Non qualified Dividends
When not out of RE, div are known as Return of Capital
Non taxable event
option of receiving cash or stock (when you are taking cash, it’s taxable at FMV)
Roth IRA = tax free (not tax deductible) over 59.5 years of age
Qualified dividends are taxed at a lower tax rate or preferential tax rate
Basis will be _____________and not FMV if spouse received property in alimony settlement and it’s not taxable.
original cost
Property settlements are ________ for receiving spouse in case of Alimony.
not taxable
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.
Taxable and should be included in Gross Income
Current income threshold for Parents - $5,050
Gross taxable Income threshold for qualifying child/relative = less than $4,150
SUPPORT TEST - over one-half of a dependent’s support.
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).
Separately stated items being passed through to a partner
- Worthless personal debt - ST capital loss (always SHORT TERM)
- Inherited Stock - LT capital gain (always LONG TERM)
- 1231 gain - LT gain
1231 are also known as business assets _____
Net gain is treated as LT CAPITAL GAIN
Net loss is ORDINARY LOSS
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
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
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.
inventories of goods (year end merchandise inventories)
SE tax is calculated on___________
Sole Proprietorship and GENERAL PARTNERSHIPS
Int paid in advance - deduct only for current year
Net rental income or loss
= Gross Rental income
+ Prepaid rental income
+ Rent cancellation
Les than 15 day rental
Rental income is excluded from gross income
NOL cannot be carried back but can be carried forward
State and local municipal bond interest is ________
Not taxable
Workers compensation award (related to job related injury) is excluded and __________
Not taxable
Student loan int is limited to _______
$2,500
HSA = 1600 self-coverage and 3,200 for family coverage
Out of pocket - 8500 self
Archer MSA contribution
SImilar to IRAs, used only if HSA is unavailable.
IRA
lesser of earned income or 7k each spouse
Student loan deduction int
above the line
On or before Dec 31, 2018
Deductible alimony
Not active participants in another qualified plan _________________
their deductible contribution is not phased out
Stock split = Original tax basis of the stock owned before the split is allocated among the shares held ________
after the stock split
Sch C losses ________
Carry back not allowed, carry foward indefinitely
Int must both be
paid and incurred to deduct it
S corp ____________
Distbn just reduces basis and does not impact 1040 income
200 spent on lottery ticket purchase should be deductible _________
as itemized deduction
Dividend on a life insurance policy from mutual insurance company is treated as a
__________________reduction of the cost of insurance and is excluded from income
Trade or business
Necklace - personal - capital asset
1231
Casulaty loss
decrease in FMV or adjusted basis (LESSER of the two)
lesS: insurance proceeds
less: 100
less: 10% of AGI
Investment int expense deduction will be limited to the ___________. Any excess will be carried forward indefinitely.
net investment income of the taxpayer
QUALIFYING RELATIVE - Foster parents and cousins must live with the taxpayer the entire year because they are not considered to be _________
relatives
Stocks (contribution value on Sch A itemized deduction)
Lesser of the two
CHarity - Ordinary Income property
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
Non refundable
Child and dependent care credit
education credit
AOC (60% non-refundable)
Death
FMV will be the basis
Child and dependent care credit
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
Gift
Original basis unless FMV is less than the adjusted basis of the donor
Coverdell
nondeductible
earnings - taxfree if used for education
REFUNDABLE CREDIT
EARNED INCOME CREDIT
CHild tax credit
AOC(40%)
QUALFYING CHILD WILL INCREASE THIS CREDIT
Gross income does not include debt forgiveness for student loans that are forgiven because of the ____________
Death or disability of the debtor
Charitable contributions that are not fully dedcuctible can be carried forward _____________
5 years
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
is age 18 or older
Sch A
Penalty payment for mortgage prepayment is deductible.
Compensation for emotional distress caused by the injury is ________
excluded
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 year
ordinary assets.
Capital (a lapsed option results in a capital loss equal to the option’s price).
Self-emoloyed taxpayers are allowed certain adjustments for AGI when determining taxable income. Two common ones are :
50% of self-employment taxes and contributions to retirement plans
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.
Payments for teaching or for participating in research projects are for services and are included in gross income.
Fee received for serving on a jury must be included in _________
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.
Manufacturing firm is a _________not SSTB
QTB
QBI = Lesser of combined deductions or 20% of the taxpayer’s taxable income in excess of ________
net capital gain
WHen business is SSTB and the taxpayer’s taxable income exceeds $241,950________
the taxpayer is not eligible for the QBI deduction.
CHild and dependent care credit
child must under age 13, credit is available for cost of care of disabled spouse
Child tax credit
$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
Estimated tax payment
110% of PY if income exceeds 150k
else 100% of PY
NII tax is ____________
3.8% tax lesser of Net investment income or the excess of modified AGI over a threhold amount
Child’s standard deduction is
greater of
(a) $1300 or
(b) earned income + $450
Sec 197 intangibles
Basis of patents and copyrights include:
Cost of development
legal cost
govt fees
Loan closing costs such as loan origination fee are
capitalized
Donee’s
Rollover cost basis
Death
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
QBI does not include ____________
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.
Long term appreciated property or stock
30%
QBI deduction per business is the lesser of:
Maximum deductibe QBI amount =20% * QBI
OR
Greater of:
*50% of W-2 wages
*25% of W-2 wages +2.5% of qualified property
Premiums paid for Medicare B supplemental medical insurance is a ___________
deductible medical expense
A self-employed individual must file an income tax return if net earnings from self-employment are ___________
$400 or more
Kiddie Tax
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
Underpayment penalty for estimated tax
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)
Retirement Savings COntributions credit
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
If tax due after withholding is not above $1000
No underpayment penalty
Manufacturing firm is _____
QTB
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
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
SSTB and QTB are treated the same when threshold is below _________
limit
Investment interest expense
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
QSBS = 28% Sec 1202
tax basis in assets must not be more than $50 million
Qualified small business stock
Short sale
doesn’t own stock but you know stock (is overvalued currently) and will go down in the future
sell now and buy later
No dis between ST and LT cap gains and losses for C Corp
C corp do not get the benefit of lower cap gains rates
may not deduct any net cap losses
WraP - NON DEDUCTIBLE LOSSES or disallowed
Basis = Purchase price of shares + disallowed loss on wash sale
ACQUISITION DATE on requisition = original date of acquisition
- Wash sales
- Related party transaction
- P
Arm’s length - sale with unrelated party transaction. Related party losses are __________
not deductible
Salvage value is ignored in ____________
MACRS
Non residential real property
39 years (mid month convention) Use SL depreciation
oRDER OF DEDUCTIONS
- 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
- Bonus dep
- MACRS Dep
Depreciation under MACRS
(half-year or quarter convention)
Intangibles - (15 year or 180 months) SL method
- SL method
- 150% Declining balance method
- 200% Declining balance method
MACRS personal property
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
_____________ partially worthless business bad debt
Cannot deduct (ST capital loss)
COrp Net loss or gain
Carried back 3 years
Carried forward 5 years
To use MACRS, business use must be ________
> 50%
Investment use is not considered when meeting the 50% test. Investment use is considered when computing cost recovery.
