ALL Flashcards
Under Bankruptcy code, non-dischargeable debts
Non-dischargeable debts include
- certain taxes,
- debts incurred by fraud,
- unscheduled debts
- debts arising from crimes
- fines and penalties,
- alimony/child support debts
- student loans
Social security tax base
- for self-employed, is based on a self-employed person’s net profit (subject to certain max limitations)
- for employees, tax is based on gross wages (with some adjustments)
- the employer also pays for the tax
Estates-General items
1) Discretionary expenses reduce the gross estate and include unlimited transfers to a decedent’s spouse, sometimes referred as the “unlimited marital deduction”
2) funeral expenses are non-discretionary expenses that are allowable deductions from the gross estate
3) outstanding debts of the decedent are allowable nondiscretionary expenses that reduce the gross estate
4) transfer tax rate schedule is applied to total transfers. lifetime taxable gifts and transfers at death are taxable on a cumulative basis
5) the applicable credit reduces the amount of gross estate tax calculated on the estate tax return
6) medical expenses of the decedent are allowance nondiscretionary gross estate deductions
7) An estate is allowed to deduct expenses of administering and settling the estate on the Form 706. Alternatively, as in situations where there is no taxable estate, the executor of the estate may deduct those expenses on the estate’s Form 1041.
8) Discretionary expenses reduce the gross estate and include unlimited transfers to qualified charitable, scientific, educational, and religious organizations.
Distribution of a bankruptcy estate assets
- First, all secured claims are paid
- Then, priority claims are paid;
- Finally the remaining assets are split proportionally among the unsecured creditors who have timely filed a claim.
Private foundations include all Code 501(c)(3) organizations except:
1) max 50% charitable-deduction donees
2) broadly public-supported organizations
3) supporting organizations
4) public safety organizations
Accrual basis of accounting for tax purposes is required for the following
(not used by most individuals, qualified personal service corporations-which are treated as individuals for purposes of these rules)
- the accounting purchase and sales of inventory
- tax shelters
- certain farming corporations
- c corps, trusts w unrelated trade or business income and partnerships having a C corp as partner provided the business has Greater than $5 million of average annual gross receipts for the 3 year ending with the prior tax year
Alternative minimum tax -Exemption Amount
The exemption amount is $40,000 less 25% of “AMTI” in excess of $150,000.
As a result, the exemption amount is completely eliminated at AMTI in excess of $310,000.
Ex: Rona Corp.’s current year alternative minimum taxable income was $200,000. The exempt portion of Rona’s current year alternative minimum taxable income was (assume Rona does not meet the definition of a small corporation):
Initial exemption amount ……. $40,000
Exemption limitation: AMTI.....................$200,000 Phase out level...(150,000) Excess amount = 50,000 Phase-out %....................25% =Reduction to exemption amount.........................(12,500)
Rona’s allowable exemption amt… $27,500
Priority in bankruptcy cases
1) secured creditors paid first
2) first priority, such as claims for alimony
3) claims that accrue in the ordinary course of business after involuntary petition is filed, but before the order for relief or appointment of a trustee (involuntary case gap claims)
4) employees with claims for wages earned within 180 days prior to filing receive the fourth priority amount unsecured creditors
7) consumer deposits for good ordered but not received
Mom and pop exception Example
Gena, an unmarried individual, had an adjusted gross income of $125,000 in the current year before any IRA deduction, taxable social security benefits, or passive activity losses. Gena incurred a loss of $30,000 in the current year from rental real estate in which she actively participated. What amount of loss attributable to this rental real estate can be used in the current year as an offset against her income from non-passive sources?
-Answer:
up to $25,000 allowance is reduced by an amount equal to 50% of the amount which the taxpayer’s modified AGI exceeds $100K(and completely phased out at $150K).
125,000 AGI-100,000 floor=25,000 X 50%=$12,500
25,000 exception
(12,500) phase out amount
=12,500
Medical deduction for health insurance premiums:
Deductible health insurance premiums include:
- Voluntary Medicare A premium payments
- Medicare B premium payments
- Medicare D premium payments
(Mandatory Medicare A premiums are not deductible)
Home mortgage interest
Acquisition indebtedness ($1M Max/ $500K MFS)
Home equity indebtedness ($100K max/ $50K MFS)
Articles
Article 9 of the UCC: primarily relates to the attachment establishes a secured party’s right to take possession of collateral from a debtor when there is a default on the secured transaction
Article 3 of the UCC: relates to Holders in due course relevant to commercial paper
Article 7 of the UCC: relate to warehousemen are relevant to Documents of Title.
Doctrine respondeat superior
Respondeat superior is an agency concept that makes an employer liable for the actions of an employee done within the scope of employment.
For income to be taxable on a tax return
it must be both recognized and realized.
Keogh Plan Example
For the current year, Jennifer has self-employment net income of $50,000 before any Keogh deduction and no other earned income for the year. The total amount of self-employment tax related to Jennifer’s earnings was $7,064. What is the maximum amount Jennifer may deduct for contributions to her Keogh plan for the year:
Answer: rule: The maximum annual deductible amount for self-employed individuals to a Keogh Plan is the lesser of $53,000 or 25% of net earnings.
“Net earnings” is defined as Business income minus business expenses minus 50% of self-employment taxes minus the Keogh deduction. Because the Keogh deduction is part of the equation to obtain the “net earnings” amount, the mathematical equivalent of 25% of net earnings is to multiply 20% [25% / 125%] by the self-employment earnings before the Keogh deduction, as follows:
Net business income………………..$ 50,000
50% of self-employment taxes…….(3,532)
[$7,064 / 2]
Self-employment earning before Keogh..$46,468
Times 20% [25% / 125%] × .20
Calculated Keogh Deduction….$ 9,294
