chapter 2 Flashcards
Express Trust
An express trust is created when funds or property are distributed to a trustee. The trustee holds the funds or property for the recipient. The express trust must generally fulfill the requirements within the legal trust.
American Opportunity Credit
The American Recovery and Reinvestment Act of 2009 made the following changes to the Hope credit:
The name of the credit is now the “American Opportunity Tax Credit.”
Amount: The nonrefundable credit increased to $2,500 per student per year (previously $1,800).
Years available: Four years (previously two years) for student’s postsecondary education
Calculation: 100% of the first $2,000 (previously $1,200), 25% of the next $2,000 (previously 50% of the next $1,200)
Expenses covered: Qualified tuition, fees, and course material (previously tuition and fees only)
Phaseout range:
$160,000–$180,000 for married filing jointly returns
$80,000–$90,000 for all other taxpayers
The nonrefundable portion of the credit may be claimed against the regular and alternative minimum tax liability.
Lifetime learning credit
Individual taxpayers are allowed to claim a nonrefundable Lifetime Learning credit against federal income taxes equal to 20% of qualified tuition and fees incurred during the taxable year on behalf of the taxpayer, the taxpayer’s spouse, or any dependents. For expenses paid after December 31, 2002, up to $10,000 of qualified tuition and fees per taxpayer return will be eligible for the 20% Lifetime Learning credit (20% of $10,000 = $2,000, the maximum credit per taxpayer return).
The credit is available in the taxable year the expenses are paid, provided the education commences or continues during the first three months of the next year.
The Lifetime Learning credit apples to undergraduate or graduate-level (and professional degree) courses as well as any course of instruction at an eligible educational institution (whether the student is enrolled on a full-time, half-time, or less-than-half-time basis) to acquire or improve job skills of the student.
The Lifetime Learning credit may not be claimed by a taxpayer for expenses of a student for any tax year which an American Opportunity tax credit is “allowed” for the same student or if a tax-free distribution from an Education IRA is made for a student for the same tax year.
The Lifetime Learning credit begins to phase out once a taxpayer’s modified adjusted gross income (MAGI) exceeds $110,000 for married couples filing joint returns, or $55,000 for other taxpayers, and is ratable over a $20,000 income range for joint filers, or $10,000 for other taxpayers for 2015.
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AMT- Small Corp exemption
A small corporation is one with average annual gross receipts not more than $7.5 million for the three tax years ending before its current tax year. For example, a calendar-year corporation would be a small corporation for 2010 if it had average gross receipts of not more than $7.5 million for the three-year period including 2007, 2008, and 2009. If a corporation meets this test, it continues to be exempt from the corporate AMT as long as its three-year average annual gross receipts do not exceed $7.5 million.
Rates for LT gains
The rates for short-term capital gains are the same rates as for ordinary income. Long-term capital gains for individuals are taxed as follows:
Adjusted net capital gain: 15% for individuals in the 25%–39.6% tax brackets
For individuals in the 10% and 15% tax brackets: 0%
For individuals in the 39.6% tax bracket: net capital gains taxed at 20%
Recaptured net capital gain on Section 1250 real property for straight-line depreciation previously deducted: 25% maximum
Most collectibles (such as coins or art): 28% minimum
The taxable part of a gain from selling Section 1202 qualified small business stock: 28% maximum
alternate valuation date
For federal estate tax purposes, the general rule states that property includible in the decedent’s gross estate must be valued at fair market value as of the date of the decedent’s death. An exception to this general rule is the alternate valuation date, which allows the property in the gross estate to be valued at the fair market value as of the date 6 months after the decedent’s death. If property has been distributed, sold, exchanged, or otherwise disposed of within the 6 months, the property is valued as of the date of the ownership change.
The executor, however, may only elect the alternate valuation date if the election decreases the value of the decedent’s gross estate, the estate tax, and the generation-skipping transfer tax imposed on the property. (See IRC Section 2032.)
House Ways and Means Committee
The House Ways and Means Committee is a permanent committee of the U.S. House of Representatives that makes recommendations to the full House for raising revenue for the government.
The Joint Conference Committee
The Joint Conference Committee is comprised of members from both the House and Senate. The purpose of this committee is to craft a compromise bill that both legislative groups can agree on, or in other words, to resolve their differences.
Liquidation
Liquidation is a form of relief granted under the uniform bankruptcy laws (Chapter 7) that results in the distribution of the debtor’s nonexempt, unsecured assets to creditors and a final discharge of the individual debtor from its obligations. Liquidation is the ultimate remedy, the remedy that embodies finality, providing the debtor with a “fresh start.” All entities, except governmental units, family farms, railroads, insurance companies, and financial institutions, may use Chapter 7. An entity can liquidate voluntarily or involuntarily, and Chapter 7 can be converted to a Chapter 11, 12, or 13 proceeding.
shareholder treat the gain on the redemption of stock t
Shareholder concerns:
a. Cash or property received by shareholders in exchange for their capital stock will generally result in capital gain or loss to the shareholder. The basis of any property received is FMV.
b. Exception: When a subsidiary distributes property to its parent corporation (80% ownership), no gain or loss is recognized by the parent. Generally, the property received by the parent has the same basis that it had in the hands of the subsidiary.
