CFP - Tax Flashcards
Roadmap - Publicly and non-publicly traded MLPs
Non-publicly traded partnerships (RELPS) = can net
Publicly traded partnerships = no netting
-Notice that losses stay inside the circle; to utilize, that particular PTP must generate income or the business must be sold; income comes out of the circle
REMEMBER - Up to $25,000 loss for active participants in real estate deductible against active or portfolio income (AGI phaseout between $100-$150k)
Roadmap - Business losses
Roadmap - Taxation of businesses
Roadmap - 1040
Gross income (less above the line deductions) = AGI (less below the line deductions) = Taxable income X tax rates (less tax credits) = tax liability (less quarterly’s + w/h) = tax due/refund
Schedules A-E
-Itemized deductions (sch A)
-Dividends + interest (sch B)
-Business income (sch C)
-Cap gains (sch D)
-Real estate (sch E)
Filing status
Single, MFJ, MFS, head of household, widower + child unearned ($1,300)
Ex. If spouse dies, get MFS year of death, widower the following 2 years, and then single.
Net Investment Income (what can be written off against investment interest expense)
Limited to the taxpayer’s investment income (dividends ONLY IF elected not to use reduced cap gains rates, interest, and ST cap gains - NOT long-term unless you elect ST treatment)
Margin interest can be carried forward forever
Self-employment deductions + tax
Home office: $10,000 max deduction (limited to income; home office can’t create a loss)
-must use office exclusively for business and must be used to conduct admin/management activities + no other fixed business location
Self-employment tax - 0.1413%
Deductible business expenses
Entertainment is not deductible, meals for clients or wooing prospects or social/office parties are deductible, and general meals for employees are up to 50% deductible
Shortcut - 100% travel, 50% meals, 0% entertainment
FICA Taxes
15.3% (employee 7.65% / employer 7.65%)
-SS up to $168,600 - 6.2%
-Medicare no cap - 1.45%
Child, dependent care, adoption credit
Dependent care credit (nonrefundable) - $3,000 per kid under 13 up to $6,000 - For exam, X 20%
Child care credit (partially refundable) - $2,000 / kid under 17, up to $1,700 is refundable
Other dependents (nonrefundable) - $500
Adoption credit (nonrefundable) - Up to $16,810 in qualified expenses for 2024; claim in the year adoption is finalized
Other credits - Elderly & disabled (must be both) (nonrefundable), foreign tax credit (nonrefundable), earned income credit (refundable)
Installment sale - gain calc
Calculates the gain recognized each year in the installment sale - Profit / Total contract price = Gross profit %
Installment received X gross profit % = cap gain
REMEMBER - Related party trap - I sell building to Garrett. He sells it within two years to someone else, installment sale collapses and all gain is taxed retroactively to me.
Section 1244 qualified small business stock
This applies to the first $1M of stock issued (C or S), and election allows for $100k ord. loss each year; 1244 election is an advantage = allows you to write off business losses faster
Sole prop, GP features, LLC
Sole prop - If individual borrows money for a business purpose relating to the sole prop, interest paid (WITHOUT LIMIT) on the debt is deductible on Sch. C
General partnership - Businesses must file 1065 for information purposes only; partners file K-1 with their return. ADVANTAGE - 3. things contribute to basis 1. Cash/contributions 2. Direct loans from partners 3. Loans made to the partnership, not the partner (bank loans)
Passthroughs = QBI-199A deduction up to 20% qualified business income | NOTE that non-pass through (C Corp) don’t get this
179 v. 197 amortization/deduction/depreciation
179 - Can’t create a loss or depreciate for more than 20 yrs. - Generally elected for 1245 property & can’t take a loss
-179 generally can’t be taken for 1250 or intangible/franchise property
1250 property CAN take a loss
197 - 15 yr. straight line depreciation for intangibles like goodwill
1031 and like-kind for real estate + boot
Keep it simple;
-Recognized gain = boot
-Realized = New prop + boot - org. prop adjusted basis
Keys - Boot paid = add to basis + basis carries over from the last property
Realized v. recognized gain for selling a home
Realized = Actual
Recognized = Takes into account $250/$500k exclusion
Flows to Sch. D
121 exclusion rules + pro rating
Ex. Married clients bought home in CA. After 6 mo. they sold home for $50k gain and moved to OH for a job. What taxable gain must they report?
To qualify, must live in home for 2/5 years before sale.
Exception - If you move due to unforeseen circumstances (a move for work has to be more than 50 miles) - In this case, you get pro rated exclusion based on live in over past 2 yrs.
Ex. 0.5 / 2 years = 0.25 X $500k = $125k allowable exclusion
AMT (preference + add back items, corporate AMT, and tax application)
- Preference items
-IPOD (O: Oil and gas % depletion, NOT cost depletion) - Add back items
-ISO bargaining element + prop, state, city/income taxes - Corporate AMT eliminated
- Delta between normal/regular tax and AMT is added to tax owed (remember rock and river example)
Rental property rules
Renting principle residence - If less than 15 days, income = tax-free
Renting vacation home - Personal use can’t exceed the longer of 14 days or 10% of rental use
Oil & gas working interests
Exempt from PAL rules + losses for which taxpayer is personally liable are deductible against active or portfolio income; though limited partner = passive loss, take loss when partnership is dissolved
SO REMEMBER - If you want to lower taxable income, be a general partner in oil and gas interest/partnership or do low-income housing (no phase out for either)
Calculating charitable giving
- Calc max deductible amount - up to 60% of AGI
- Calc amount given to 50% orgs
- Calc amount given to 30% orgs
Types of donated property
-Cash - up to 60% AGI
-Appreciated prop - 30% AGI based on FMV unless basis is elected –> 50% of AGI
-Ord income + use-unrelated prop (prop, if sold, creates ord. income, not cap gains) - limited to basis & 50% AGI
Cash + stock is always use-related
Charitable bargain sale
When property is sold to charity for less than FMV. The amount discount must be reduced from the basis.
Ex. Prop w/ $500k FMV is sold to charity for $300k, and basis is $100k. What is the taxable gain? $240,000
Hobby loss rules
Hobby income still must be filed, but you don’t get hobby loss deductions; ideally, have 3/5 of last consecutive years turn a profit to qualify as a business (instead of a hobby)
