CFP Tax Flashcards

Question

SE Tax Amount

Answer 1

.1413 Cannot be on more than $168,600 amounts above only subject to Medicare tax only

Answer 2

20% of allowable expense (for exam purposes, actually a % scale) Taxpayer must be working Kid only until age 13 Non refundable Limited to $3000 for 1 dependent = $600 $6000 for 2 = $1200

Answer 3

Qualified at capital gains rates Ordinary at ordinary income tax rates

Answer 4

$2000 Partially refundable up to $1700 Under age 17 >> I am 16 going on 17=no credit phased out over $200K / $400K MAGI MFJ Other dependents: $500 non refundable "family credit" only if dependents have taxable income < 4500 adjusted for inflation

Answer 5

100% of eligible expenses child under 17 or child with special needs claimed in year that adoption is finalized Not surrogacy or adopting spouse's child

Answer 6

Refundable Anti-poverty for very low income earners

Answer 7

Child tax credit (partially refundable) Earned income

Answer 8

Tax credit more valuable for low bracket Tax deduction more valuable for high bracket

Answer 9

calc gross profit percentage gain on the sale / total contract price basis 100K sale for $1M gain = 900K / 1M = 90% apply to each installment payment Exceptions: if buyer is a RELATED party who sells within TWO years, sale collapses and all gain is taxable to original seller in first year Sold at a Loss All payments in year of sale

Answer 10

NOL can be carried forward indefinitely - think CII Under TJCA, NOL may not be carried back to prior years

Answer 11

C corp or PSC - Personal Service Corp Both 21%

Answer 12

closely held C corp for professionals H-A-L-E Health (doc, dentist) Accounting, Architecture, Actor/Actresses, Actuarial science Law Engineering

Answer 13

Sole Prop Partnership

Answer 14

S corp Limited Partnership LLC

Answer 15

US corporation (C corp only) investing in another US corp receives a deduction for dividends rec'd 50% of dividends rec'd from qualifying corp may be excluded from income if receiving corp owns 20% or less of distributing corp 65% exclusion if between 20-80% owner 100% exclusion if > 80% owner

Answer 16

S corp can pass through earnings/losses. PSC is self-contained and losses would be carried forward, earnings taxed 21% Stock in both would step up at death. Both have limited liability but only general liability not professional. Both can deduct business expenses.

Answer 17

Interest paid on debt is deductible on schedule C without limit

Answer 18

Offsets any other income on 1040 Then carry forward as net operating loss like a corp

Answer 19

1. Cash contributed by partner 2. Loans from partner 3. Other bank loans (b/c partner can be held responsible for debt) UNLIMITED PERSONAL LIABILITY

Answer 20

Cash contributed Direct loans from shareholder to corp NOT bank loans This can be a disadvantage - can only take losses up to basis

Answer 21

100 or fewer shareholders No preferred stock No non resident aliens Individuals, estates, and certain trusts can be shareholders

Answer 22

Deduction for qualified business income up to 20% depending on Tiered status (Tier 1,2,3) based on TAXABLE INCOME, not AGI pass through income from partnerships, sole props, and other pass through businesses (including REITs, publicly traded partnerships) BELOW THE LINE Available even with std deduction

Answer 23

Cash distributed is a non taxable return of investment that reduces basis Not subject to FICA or SE taxes Salary paid to owners IS subject to FICA/FUTA Any unearned income / losses become adjustment to basis

Answer 24

LLP ltd liability partnership

Answer 25

Can NOT be active in operations passive only

Answer 26

included: legal fees, commissions, sales tax, freight, improvements (must be capitalized) excluded: repairs, real estate taxes, normal operating expenses repairs deducted as expenses

Answer 27

Inventory of a business Non business tangible / personal property Personal residence Marketable securities must be business real estate someone can exchange for a personal residence IF they then use that for business purposes, but owner of personal residence will be taxable

Answer 28

FMV property rec'd + any boot rec'd Minus Adjusted basis of property given up (given)

Answer 29

Usually = to boot rec'd else Zero

Answer 30

FMV of new property Minus (Realized gain (1) - Recognized gain (2))

Answer 31

3.8% on UNearned income

Answer 32

Cost Recovery Deduction - depreciation which offsets business's ORDINARY income When assets are sold for a gain: 1. Look back and recapture the LESSER of total CRDs taken OR the gain realized as a 1245 gain (ordinary income) 2. Recover any excess gain as 1231 gain (capital gain). If gain is less than the CRD's there is no 1231 recovery. Recapture applies to all MACRS property mainly equipment other than real property (27.5) and non residential (39 yr class) example: equipment cost $12K CRDs $7392 Sale price $13K CRDs recaptured as 1245 gain (ord income) Sale price minus adjusted basis (original cost minus CRD) = Gain $13k - ($12k-7392) = $8392 CRD is less than gain so recapture is $7392 Amount of 1231 gain Difference between Gain and CRD = $1000

Answer 33

IPOD Excess Intangible drilling costs (IDC) PRIVATE-activity muni bonds (not public) Oil and gas % depletion (not cost depletion) Deprecation (ACRS/MACRS not straight line)

Answer 34

Previously deducted items that must be added back ISO bargain element SALT taxes Home equity interest if not used for home improvement

Answer 35

like depreciation but for natural resources, recover the cost of an asset over productive life % depletion is an AMT preference item but not cost depletion

Answer 36

If tentative AMT is less than regular tax, no AMT due If tentative AMT is higher than regular tax, the difference is AMT payable aka tentative minimum tax

Answer 37

Increase regular tax by: accelerate receipt of taxable income reduce deductions - defer payment of property tax, state income tax, medex, charitable giving defer exercise of ISO to a later date or disqualify the ISO so that it becomes an NSO subject to ordinary income tax buy pubic purpose muni bonds instead of private purpose (reduce preference items)

Answer 38

Publicly traded partnership - PTP Income is portfolio income on Schedule B cannot be sheltered by passive losses from any other source Losses can ONLY be used against income from the SAME partnership

Answer 39

Real estate limited partnership Passive activity losses can only e used to offset income from other non public limited partnerships (Passive Income Generators) Usually reported on schedule E for real estate

Answer 40

Material - regular, continuous, substantial basis Active - less demanding standard requires bona fide/real involvement in management decisions limited partner cannot be active participant Both are exceptions to the passive activity rules A merely formal and nominal participation in management without genuine exercise of independent discretion is insufficient

Answer 41

up to $25k/year phased out for AGI 100-150K on 2:1 basis

Answer 42

Not taxable income if < 15 days in tax year No deductions attributable to rental allowed

Answer 43

Personal use cannot exceed longer of 14 days or 10% of the rental use THEN deductions attributable to rental use are allowed

Answer 44

held as a passive activity may generate a deduction-equivalent credit up to $25K NO INCOME PHASEOUT calculate tax to determine max marginal bracket. If it is 37%, multiply $25K times 37% to get credit of $9250 credit allowed annually over a 10 year "credit period" don't confuse with the 27.5 year straight line deprecation

Answer 45

still available but often not productive phases out at $200K AGI if tax rate is 25% tax credit is $25K * 25% = $6250 these programs depend on credits, not returns, to make them worthwhile ??? This may be wrong IRS says it is 20% of expenses over 5 years

Answer 46

Exempted from PAL rules IF taxpayer is personally liable then losses are deductible without limits against active or portfolio income IF LIMITED partner, just passive loss until dissolution of partnership

Answer 47

when real estate properties have declined in market value and are refinanced or debt is forgiven portions of debt forgiven is phantom income

Answer 48

Insurance: any type of lapse with a loan section 162 life and disability Investments: Zero/STRIPS TIPS Declared but not paid dividends/capital gains Tax: K-1 from LP/FLP Recaptures Retirement: ESOP distribution (basis only) Secular trust

Answer 49

PRE 2019 - taxable to payee and deductible by payor cash payments only not if property owned by payor spouse not if life insurance owned by payor spouse

Answer 50

START WITH CALCULATING THE MAX # at 60% a)Cash b)LTCG (use related, stocks, real estate) c) Ordinary Property (not cap gain) >> Use unrelated >> STCG >> inventory >> artwork >> copyright d) Loss Property What is the value? a) cash amount b) basis or FMV c) basis ONLY d) FMV How much can i deduct? Overall = Total gift value. Deduction can be carried forward 5 add'l years. How much can i write off THIS YEAR? a) 60% of AGI b) FMV 30% AGI (FMV is 3 letters) Basis 50% AGI (Basis is 5 letters) c) 50% AGI d) 50% AGI

Answer 51

50% - public charities schools, churches, hospitals all orgs for charitable, religious, educational, or literary purposes, or prevention of cruelty to children or animals 30% private charities private non-operating foundations, fraternal orders, war veterans orgs

Answer 52

Step 1: Calc max at 60% Step 2: Cal amount to public charities (50% orgs): >> Up to 60% for cash donations >> Up to 30% of AGI for LTCG property at FMV Up to 50% of AGI for: Basis for inventory/works of art Basis for STCG Basis for Use Unrelated Property

Answer 53

sale for less than FMV gain must be allocated between property "sold" and property "gifted" sale amount / FMV * basis = adjusted basis sale amount - adjusted basis = taxable gain

Answer 54

Tuition and books not included in income Room & board IS included

Answer 55

Gift Inheritance Child support Workers comp compensatory damages (punitive is taxable) Muni bond interest Scholarship tuition and books

Answer 56

only reg T broker / dealer interest is deductible not reg U commercial banks

Answer 57

Use tax tables 10- 12 bracket: 0% 22-35 bracket: 15% 35-37 bracket: 20%

Answer 58

1.45% paid by ER, 1.45% paid by EE (2.9% total) plus additional 0.9% on income over 200/250K MFJ PLUS additional tax on Net Investment Income 3.8%

Answer 59

If over $29M revenue over 3 years average, accrual method Cash is ok if < 29

Answer 60

20% penalty/tax if above $250K or $150K for PSC

Answer 61

Sole prop Partnership LLC Not S corp

Answer 62

MACRS 5 year (100/5) = 20% 7 year (100/7) = 14.29% Straight line(half year convention) 5 year (100/5/2) = 10% y year (100/7/2) = 7.14%

Answer 63

Expenses NOT deductible after TJCA 2017 Income counts as misc income Unless 3/5 years income is a business or 2/7 years for horses

Answer 64

If alimony paid too fast it is a disguised property settlement alimony paid and deducted the has to be recaptured Recapture / tax amount paid in years 1 & 2 exceeding constant of $37,500 year 1 + year 2 minus $37500 = recapture amount