Income Tax Flashcards

Question

Adjustments for Adjusted Gross Income (AGI)

Answer 1

The second step in the 1040 calculation is adjusted gross income. It is Total Income (or Gross Income) less adjustments to income. The main Adjustments or Deductions to Income are: * IRA Contributions * Self-employment Tax * Self-employment Health Insurance (100%) * Keogh or SEP Alimony paid

Answer 2

* Medical, Dental, and LTC (7.5% of AGI) * Casualty and Theft Losses * Real Estate Taxes\*\* * Investment Interest Expense * Home Mortgage Interest * State and Local Taxes\*\* * Personal Property Tax\*\* * Charitable Gifts \*\*Limited to $10,000/yr.

Answer 3

**First:** Use the lesser of basis or FMV **Second:** Subtract any insurance coverage **Third:** Subtract $100 (floor) **Fourth:** Subtract 10% of AGI. Must be a presidentially declared "natural disaster"

Answer 4

All net UNEARNED income of a child who has: * NOT attained the age 18 * Is 19-23 and a full-time student * Has at least one parent alive ...is **taxed at Parent's Rates** regardless of the source of the assets. Children under 18 are entitled (2020) to a Standard Deduction amount ($1,100) and an additional $1,100 of unearned income will be taxed at the child's rate (10%).

Answer 5

* Net Schedule C Income * General Partnership Income (K-1 income) * Board of Directors fees * Part-time earnings (1099) NOT wages or K-1 distributions from an S Corp

Answer 6

The Taxable Wage Base will not exceed $142,800 (2021). * If you added up the self-employed income, and you exceeded $142,800, you did something wrong. Why? Social Security tax stops at $142,800 (2021). **Shortcut**: Multiply Self-employment Income by 0.1413

Answer 7

* Credit for child and dependent care expenses * Child Tax Credit (up to $1,400 could be refundable) * Adoption Credit * Elderly and Disabled Credit * Foreign Tax Credit * Earned Income Credit (refundable)

Answer 8

* **Cash:** Mandatory where taxpayer's records reflect only cash transactions, and there are no inventories. * **Accrual:** Mandatory for purchases and sales over $25M where there are inventories. * **Hybrid:** Combines accrual for inventory portion of business and cash for cash portion of business. * **Percentage of Completion:** For long-term contracts where the contract will not be completed within the taxable year started.

Answer 9

* **H**ealth * **A**ccounting / Architectural * **L**aw * **E**ngineering **Remember**: H.A.L.E.

Answer 10

* **Realized Gain** is Economic or Inherent Gain at the time of the transaction. * **Recognized Gain** is the part of Realized that is immediately taxable.

Answer 11

* Income can be used despite the money not yet received * occurs in cash accounting situations * does not apply with the use of accrual accounting. * Taxpayers must include any income on their taxes based on the year that income was constructively received, even if they don’t have possession of the funds.

Answer 12

INCOME is the factor and must be claimed Income generated 3 of 5 consecutive years = NOT a hobby Income Generated 2 of 7 consecutive years for HORSES = NOT a hobby Losses allowed only to the extent of profit \*\* Income reported as Miscellaneous taxable

Answer 13

Federal Tax Coordinator from the RIA (Research Institute of America, publisher) Federal Tax Service from the CCH (Commerce Clearing House Inc.) **MAY NOT BE CITED IN TAX COURT**

Answer 14

IRS recognizes a transaction as a STEP to the ultimate transaction

Answer 15

IRS recognizes that the FILING is in order but the ultimate econimic outcome is obfuscated

Answer 16

1. individuals (net earnings \>$400) 2. Dependendents 3. Children under 24 (KIDDIE TAX) 4. Self Employed 1. Aliens

Answer 17

* 4/15; wait 2 mos * 6/15; wait 3 mos * 9/15; wait 4 mos * 1/15; NOT QUARTERLY Late installments can amend earlier ones 6mo extension until 10/15 \*\* IRS Checks: Math Errors and sends demand of balance due (no court privelege)

Answer 18

1041 for estates and trusts 1040X to Amend math errors 1040A WAS used \<2018 to report simple income (no itemizations)

Answer 19

Any attorney Enrolled Agent Enrolled Actuary CPA Any other persion legally permitted to represent the tax payer

Answer 20

Frivolous return $5,000 Negligence: 20% of underpayment (No intent to fraud) Fraud: 75% of underpayment Failure to pay: .5% / mth (max 25%) =\> 6%/yr Failure to File: 5% / mth (max 25%) =\> 60%/yr **BEST PRACTICE IS ALWAYS TO FILE**

Answer 21

Pay the **LESSER** of: * 90% of _current year's tax_ * **100**% of _prior year's TAX_ OR * **110**% of prior year **AGI** IF the **AGI \> $150,000)**

Answer 22

* Single * MFS * avoids spouse fraud under innocent spouse rules * MFJ * HOH * residents who have maintain 50% of support for dependents * Qualifying Widower * Has a child and not remarried * Last 2 years after death

Answer 23

* Schedule B * Ordinary Dividends * Taxable Interest * Schedule C * Business Income & Losses * Schedule D * Capital Gains and Losses * Schedule E * Real Estate and PASSIVE Income

Answer 24

1. Punitive Damanges (NOT wrongful Death) 2. Wages, Salaries, Tips 3. IRA distributions 4. Pensions & Annuities 5. Alimony (div. \< 2019) 6. Unemployment Income 7. Taxable Social Security

Answer 25

1. Gifts 2. Inheritance 3. Child Support 4. Muni Bond Interest (may be subject to AMT) 5. Workers Comp 6. Compensatory Damages

Answer 26

1. **GROSS INCOME** 1. less ***adjustments*** above the line ***_for_*** AGI makes 2. **AGI (Adjusted Gross Income)** 1. less ***deductions*** below the line ***_from_*** AGI makes 3. **TAXABLE INCOME** 1. multiplied by *tax rate* makes 4. **TAXABLE CALCULATION** 1. less ***credits*** plus other taxes 5. **TAX LIABILITY** 1. less quarterly payments and withholding 6. **NET TAX DUE or REFUND**

Answer 27

If the scholarship exceeds tution and books. Scholarship used for room and board are taxable. **Student loan interest deduction is capped at $2,500**

Answer 28

* Dependent care ≤ $5,000 (MFJ); $2,500 (MFS) * Health Plan Premiums * Disability PREMIUMS (benefit from employer) * Insurance group life (≤ $50,000) * Car for business * Transit Pass ≤ $270/mo ($3,240/yr) * Discounts on company products **\*** * Education assistance ≤ $5,250 **\*** * Adoption Assistance ≤ $10,000 **\*** * Overtime meals, cab, theater, sports tix (NOT seasonal) * Discounts on SERVICES (≤ 20% of retail) **\* Exclusion for Employer gross income**

Answer 29

* S - Corp * Premiums for Health Insurance * Partners, self-employed, \> 2% owners * 100% Deductible BUT as an Adjustment to Income * DOES NOT INCLUDE DISABILITY INSURANCE * EMPLOYER PAID lIFE INSURANCE PREMIUMS \> $50,000 Death Benefit * If the plan is nondiscriminatory Annuity Contributions owned by employee that are not deferred comp.

Answer 30

1. IRA 1. Be careful of phaseouts 2. Student Loan Interest (50%) 1. ≤ $2,500 3. SEP/KEOGH (self-employed) 4. Self-Employment Tax 1. **0.07065** factor to adjust gross income (50% of 14.13%) 5. Alimony paid for divorces settled \< 2019 6. Self-employement insurance 100% 7. Military Moving (active) 8. Penalty for early savings w/d 9. HSA 10. Education Expense ($4,000) 1. AGI Limits 2. alternative to AOC (American Opportunity Credit)

Answer 31

* Single: $12,550 * MFJ: $25.100 * MFS: $12,550 * HOH: $18,800 * Elderly (additional): $1,350 (\>65 y.o. MFJ; $1,700 for Single) * Blind (additional): $1,350 * Child unearned: $1,100

Answer 32

* Medical, dental, & qualified LTC expenses \>7.5% * SALT ≤ $10,000 * Property taxes (personal) ≤ $10,000 * Real Estate Taxes ≤ $10,000 * Mortgage INSURANCE (qualified) \< $100,000 AGI * Mortgage INTEREST * Charitable Gifts * Investment Interest paid on margin (up to investment income) * Casualty Losses from FEDERAL DISASTER ## Footnote **TCJA REPEALS ITEMIZED DEDUCTION THROUGH 2025**

Answer 33

MFJ Interest on ≤ $750,000 Single/MFS Interest ≤ $375,000 On Schedule A Includes both primary and heloc loans \*\* Note: if Cash out REFI exceeds prior debt CASH OUT not deductible \*\*

Answer 34

* Interest * NonQual Dividends * Royalties * STCG * Qual DIV IF taxpayer elects to use ordinary income * LTCG IF taxpayer elects STCG rate **NO MISCELLANEOUS DEDUCTIONS SINCE TCJA** **NO DEDUCTIONS FOR INTEREST PAID ON DEBT INCURRED TO PURCHASE TAX EXEMPT BONDS**

Answer 35

* Unreimbursed losses (not covered by insurance: casualty and theft) * MUST BE Federally DECLAIRED disaster * Act of Nature (sudden, unexpected) * Partial OR complete destruction * Fire, Earthquake, Hurricane * Loss reduced by $100 FLOOR * Aggregate loss \>10% of AGI is deductible

Answer 36

* LESSER OF: * Basis OR FMV * LESS insurance coverage makes * **Uncovered losses** * LESS $100 Floor * LESS 10% of AGI * **Makes a Deductible Loss** *Always ask value of home and collections to make suree they are insured enough*

Answer 37

* IF self-employed OK BUT * MUST be EXCLUSIVE AND * NO OTHER available location where business is conducted * Cannot create a LOSS * Limited to Gross Income Limit after deductions

Answer 38

* **Deductible IF** * Client/Prospect entertainment AND Business is actually conducted * Taxpayer is present * Meals are NOT “Lavish or Extravagant” * **EXCEPTIONS** * For the benefit of NHC employees (office parties still deductible) * **Taxpayer Certainty and Disaster Tax Relief** * 100% deduction for business meals FROM A RESTAURANT 2021-2 * NO tickets; NO Personal and dependency exemptions * Meals while traveling still deductible at 50% (100% this year and next yr if for business) * Salaried employee NOT REIMBURSED for travel meals

Answer 39

1. **UNEARNED INCOME** 1. STEP 1: ≤ $1,100 (Standard deduction, no tax) 2. STEP 2: $1,100 taxed at 10% ($110 max) 3. STEP 3: ≥ $2,200 taxed at parent's marginal tax rate 2. **If kiddie has EARNED income Take the GREATER of the standard deduction of $1,100 or DO EARNED deduction** 1. DO EARNED income + $350 to get **EARNED deduction** 2. IF E**ARNED deduction** \> $1,100 then use that 3. If a child has BOTH add them together for kiddie gross income \*\*Child can be paid on 1099 (consultant, no fica) or be self employed AND owe .1413 on earnings

Answer 40

* does NOT include soc sec and medicare tax * as employee and employer you pay both * It is based on NET earnings (not salary or taxable income)

Answer 41

* DOES NOT include * Dividends/Interest on investments * Gains/Losses on property securities or commodities * Real estate income OR rents paid * Distrib. income share OR loss of L.P. * Wages from S corp * K-1 Income from S Corp (distributions * DOES include * NET Schedule C Income * K-1 Income for G.P. * Board of Director fees * Part time 1099 earnings

Answer 42

$142,800 ## Footnote **above that is for MEDICARE TAX only**

Answer 43

Multiply the total self-employment income by **.1413 and round up**

Answer 44

Insurance Premiums Medical Dental LTC (Max LTC deduction has phaseouts; e.g. at 61 \>$4,000)

Answer 45

Dependent care for kids \< 13 y.o. No phase out for **Dependent** Care * **DEPENDENT** care limits: * $3,000 for 1 dependent * $6,000 for 2 dependents * Multiply by 35% or 20% (use 20% for exam) * Allowable % by AGI * \< $15,000 = 35% credit * \>$43,000 = 20% credit

Answer 46

$2,000 fore cach child \< 17 y.o. * Phaseouts: Tax Credit is reduced by $50 for for every $1,000 earned * \>$400,000 MFJ MAGI * \> $200,000 SINGL MAGI * ≤ $1,400 / child is a refundable credit even if you don't pay taxes

Answer 47

$500 for dependents NOT chidren where you grant \> 50% of support Elderly and disabled same phaseout as Child Tax Credit NonRefundable for 17 or older

Answer 48

* Refundable tax credits are refunded to the taxpayer regardless of the taxpayer's liability. * These tax credits are called refundable because * they can involve cash payments from the IRS if they put the taxpayer's lability below zero.

Answer 49

US Taxpayers can DEDUCT taxes paid to OTHER countries (must be allies) OR receive a credit $ for $ against tax liability

Answer 50

Max Credit $14,440/child Credit for related OOP expenses related to adoption Special Needs child can claim full amount anytime

Answer 51

* INCLUDED: * Adoption fees * court costs * attorney fees * Domestic Adoption costs * available in the year PAID * Foreigh adoption costs (including Travel) * available in the year the adoption is FINAL * Special Needs * credit available the year adoption final * 100% of all expenses * NOT included: * Surrogate parent costs * adoption of spouse's child * Non special needs adoptions have a prorata phaseout * MAGI $216,660-$256,660

Answer 52

Age 65+ OR \< 65 (retired w/permanent and total disability AND Receives disability income

Answer 53

Basically to get folks on the books to pay taxes

Answer 54

Deduction: better for HIGH BRACKET payors Credit: better for LOW BRACKET payors

Answer 55

Deduction x tax bracket = equivalent Tax CREDIT Tax Credit / tax bracket = equivalent Deduction

Answer 56

7.65% for FICA .141d if Self Employed

Answer 57

* Cash: EASIEST ≤ $25mm avg revenue * Revenue realzed in the year pmt received (constructive receipt) * Expenses/Liabilities realized in year paid * Accrual Method: MANDATORY for ≥ $25mm plus INVENTORY * ≥ $25mm for prior 3 years * Revenue realized when sale is complete * Realized expenses with liability of revenue (paid or not) * HYBRID * Used if income is clearly reflected

Answer 58

Need to get permission from the IRS in ADVANCE!

Answer 59

Long term contracts such as construction

Answer 60

Seller Realizes cap gains over the lifetime of the note * EXCEPTIONS: * Payment all in the sale year * Property is publicly traded * Property sold at a loss * Property sold to a RELATIVE who sellse within 2 years * EVEN if payments are stll being made.

Answer 61

PROFIT / Contract Price = Gross Profit Margin % Installment Paid $ x Gross Profit Percentage = GAIN **Gain can be short or long term, but usually Long**

Answer 62

* **LIFO best for** * RISING prices * Diminishes/Defers taes * reduces earnings * MUST UNDERSTAND INVENTORY * **FIFO best for** * **F**alling prices * Increases earnings * Increases tax liability * uses CURRENT cost of inventory * Sells the lowest cost basis generally **also there is specific identification method** – good for stocks and MF and salting the mine

Answer 63

* Gross Income - Deductible Losses = NOL * NOL losses reported on Schedule C for sole proprietor; claimed on 1040 to reduce AGI * **NOL NOT allowed in Partnerships or S Corps** – they use other methods * NOL Deductions may be used in future years and carried forward indefinitely * Can offset 80% of taxable income * No Carry Backs

Answer 64

1. **Risk Free Business** 1. Sole Proprietorship 2. Partnership 2. **Risky Business** 1. S Corp 2. LLC 3. L.P. (only limited partners) 4. LLP (limited liability in a partnership) 3. **Profitable Business (21% Flat Tax)** 1. C Corp 2. PSC (note: no dividend exclusion) 1. Personal Service Corp 1. Closely Held C Corp 2. Health Professional 3. Accounting, Architects, Actors, Athletes 4. Law 5. Engineering

Answer 65

* **Advantages** * Availablity of retirement plans : KEOGH, SEP * 100% medical premiums owner deductible * Easy to set up * Conduit for income and losses (Sched C) * **Disadvantages** * UNLIMITED PERSONAL AND LEGAL LIABILITY * No succssion – business dies with owner * Capital Structure = Personal Resources

Answer 66

* **Advantages** * Availablity of retirement plans : KEOGH, SEP * 100% medical premiums owner deductible * Partnership agreement can be oral, but written is better * Conduit for income and losses (Sched C) * Losses up to basis * **Disadvantages** * UNLIMITED JOINT and PERSONAL AND LEGAL LIABILITY * No succssion – business dies with owners due to death, bankruptcy or incapacity * Capital Structure = Personal Resources

Answer 67

S Corp LLC Sole Proprietorships Partnerships

Answer 68

Can be a partnership OR a corporation * Partnership IF ≤ 2 of the following exist it's a Corporation * Central management * Contiuity of life * limited liability * free transferability of interest * Like a corp in that it as limited Liability * Like a partnership in that it has losses up to basis including contributions of partners and LOANS * LLC Governed by state law * Ownership interest * fund disbursement * capital structure * contract and finace items

Answer 69

* Can be utilized by Pass Through Entities (S Corp, Sole Prioretor, Partnerships) NO C Corps * Rental income * REITS (Publicly Traded) * Partnerships (Publicly Traded) * Losses from one business can be used to offset gains from another QBI * If QBI ≤ 0 THEN * No deductions are allowable * BUT Losses can be carried forward

Answer 70

* Type 1: * PSC * Type 2 Business Owners * Tier 1: Single: \>164,900 MFJ \> 329,800 20% Pass through deduction * Tier 2: Single: \> $214,900 MFJ \> $429, 800 0% for PSC; limit for others * Tier 3: Single between Teir 1 and 2 * 164 to 214 and 329 to 429 Partial Tax benefit; phases out for deductions on PSC

Answer 71

* GPs NOT personally liable for another GP * Good conversion option from LLC or Partnerships * Somestates allow easy conversion * Must have at least one GP * Conduit Taxation

Answer 72

* **Advantages** * Separate Tax entity * Sale of stock to unlimited investors * 50% Dividend received deduction * 50% Div excluded if recvr owns \<20% of corp * 65% Div excluded if recvr owns \>70% * 100% Div excluded if recvr owns \>80% * Limited Liability * Continuity * **Disadvantages** * Corporate formalities * Dividends paid after tax * *_Double Taxation_*

Answer 73

S1244 = “a corporation”using" 1244

Answer 74

* Special Tax Treatment 21% Flat Tax * ≤ 100 share holders; issues common stock ONLY * MUST BE COMPLETELY DOMESTIC * US citizens and permanent resident aliens * Limited Liability * Conduit Income/Loss to OWNER ***_(limited to basis)_*** * ***_BANK DEBT DOES NOT INCREASE BASIS LIKE AN LLC DOES_*** * Owner can take excessive comp not classified as dividends * 100% Medical is deductible to ≥ 2% owners * All shares are voting for board * **Disadvantages** * Corporate formatlities * No Preferred Stock * Sale of stock limited by eligiblity standards

Answer 75

Business Investment Interest Paid or expensed The deduction for necessary business interest is unlimited. Deductions for mortgage interest and margin interest are limited. Personal loan interest isn’t deductible

Answer 76

* CAE tax * Accumulated earnings to avoid tax to shareholders * If earnings are not accumulated, penalty is 20% of accum taxable income * additive to regulary corp tax * Allowable up to $250k for Reg C; $150k for PSC * Tax used to encourage Dividends

Answer 77

* Accumulated earnings * less tax and dividends paid * plus this years earnings less allowable credit ($150k for PSC or $250k for Reg C) * makes Accumulated taxable income * multiplied by 20% (CAE Tax) * creates tax due

Answer 78

Dividnds paid are NOT deductible Taxed at Corp AND sharholder levels (double tax) Corps generate 1099 Partnerships and S Corps generate K-1

Answer 79

* K-1 of the 1120S for S Corp * K-1 of the 1041 for trusts and estates * 1099 for self employed * K-1 of the 1065 is for Partnerships * Schedule E for K-1 from real estate

Answer 80

* **Corporation** * Filing 1120 * Employee W-2 * Distributions 1099 Dividends * **Self Employed** * Filing Schedule C * Employee Schedule C * **Partnership** * Filing 1065 * Employee W-2 * Distributions K-1 * **S Corp** * Filing 1120S * Employee W-2 * Distributions unearned K-1

Answer 81

Compensation from a regular corporation is subject to unlimited Medicare taxes Taking limited salary from an S corporation will reduce FICA and FUTA taxes because the remainder of income will be unearned income. Unearned not subject to Medicare Tax

Answer 82

* 1041: Finduciary Income Tax Return * 706: Estate Deductions * Admin Costs * Attorney fees * Expenses related to preparing the returns

Answer 83

1. Have benes 2. must be created by someone 3. transfer of property 4. both have fiduciaries (trustee and executor) 5. Both are distinct tax entities

Answer 84

15th day of the 4th month after the entity's year end\*\* * **MUST FILE IF:** * there is taxable income * gross income ≤ $600 * Beneficiary is a nonresident alien \*\* Choice of tax year: accting period of decedent OR calendar tax year, OR any fiscal year \*\* TRUST MUST USE CALENDAR YEAR (not Charitable trust of 501 (a))

Answer 85

When Grantor is taxed (not the trust itself) for using the trust income for the Grantor or Spouse. * **Tainted if:** * Administrative Power exists * Right to enjoyment exists In an ILIT, a yearly gift to the trust (not the trust itself) pays the prmium. If the trust pays the premium on the LIns for the grantor, the grantor is taxed.

Answer 86

When Reversionary interest \> 5% at the time of creation is retained by the grantor.

Answer 87

Grantor no longer has administrative power OR rights of enjoyment (no income, no right to w/d) AND it is left to a designated beneficiary

Answer 88

1. Simple 1. Income is: 1. Distributed 2. Taxed to beneficary 2. Corpus is: 1. NOT distributed (normally) 3. No Charitable Gifts 2. Complex 1. Income is: 1. Accumulated OR Distributed (maybe) 2. Taxed to the trust 3. Distributions taxed to beneficiary 2. Corpus is: 1. Distributed 3. Yes to Charitable Gifts

Answer 89

* If not distributed, trust pays income (generally higher rates) * If distributed, taxed at bene rate * Limits amt benes must repoert as gross income * DNI RULES ALLOW: * claim of deduction for distributions * limit the amt of distribution taxable to benes * ensure the character of the distr remains the same to bene * NO DOUBLE TAX bc trust gets a deduction * Deduction = lesser of amt distr to bene or DNI

Answer 90

Becomes Irrevocable (non grantor) at death Trust Terminates when all corpus is distributed

Answer 91

* **COMPLEX only:** * Charitable deduction and Exemptions ($300 if required distributed, $100 if not required) **All Trusts:** 1. Net Operating carry forward 2. Admin Expenses 3. Required distributions (whether or not distributed

Answer 92

1. Improvements (NOT REPAIRS which are deductible as expenses) 2. Legal fees 3. commissions 4. sales tax 5. freight 6. real estate taxes 7. normal business expenses

Answer 93

Straign line depreciation periodiclly lower book value of a loan or INTANGIBLE asset

Answer 94

you know this: Creates phanton income Bonds are accreted when discounted bond interest gets added to the basis

Answer 95

IF the FMV \> donor's adj basis THEN use donor's adj basis IF the FMV \< donor's adj basis THEN LOSS = FMV - value on date of gift GAIN = value on date of gift - BASIS

Answer 96

* Depreciation and cost recovery are * an allowance for wear and tear of property * USED IN BUSINESS for PRODUCTION OF INCOME

Answer 97

* Straight line is an OPTION under MACRS * Half Year convention MUST BE USED * NOT used for * LAND * TANGIBLES (aka FIXED ASSETS) * Requires MID QUARTER CONVENTION IF: * 40% of property put into Q4

Answer 98

* 5yr 1245 = Computers Autos, Trucks * 7yr 1245 = Office equip, Furniture, and Fixtures * 27.5 yr 1250 = Residential Rental Property * 39yr 1250 = Nonresidential real property - commercial

Answer 99

* Tax law allowance to Expense Tangible Property (rather than capitalize) * Limit: $1,050,000 of qualifying property (1245 for trade use) In the year of acquisition * Limitation: maximum deduction is reduced $ for $ by cost of property \> $2,620,000 * Further Limit to the Taxable income of taxpayer (NOT PASSIVE INCOME) * If due to limitations THIS year, it can be carried over. * Tax Payer cannot create a loss * **Section 179 Elections allow small businesses to more easily deduct the cost of new assets and MACRS deprecation**

Answer 100

Recovery of certain CAPEX costs NOT ordinary deductible as straight line or simlar e.g. Trade Association memberships

Answer 101

No gain or loss recognized if held for investment OR PRODUCTIVE USE in TRADE OR BUSINESS

Answer 102

identify a property in 45 Days Close on new property in 180 Days

Answer 103

Real Estate Only

Answer 104

* Same Nature * same country * same purpose (rental to rental) * must be used for trade or business * does NOT have to be same business

Answer 105

* BOOT = debt relief * lower valued property to add “consideration” to match the value of the higher value property * cash * other property (not necessarily like kind) * does NOT disqualify the exchange

Answer 106

1. BOOT **RECEIVED** = **RECOGNIZED** GAIN (taxes paid on this) 2. BOOT **PAID** = **ADD to BASIS** 3. _Basis CARRIES OVER FROM LAST Property_ OR more complicated: The recognized gain is the lesser of the boot received or the realized gain.

Answer 107

1. FMV of property received 2. Adjusted basis of property given up 3. BOOT (anything that's NOT qualified, OR like-kind rec'd in the transaction)

Answer 108

**REALIZED** Gain = FMV of acquired property + BOOT - Adj Basis of the other property **RECOGNIZED** Gain = BOOT (If it's zero, the gain is zero)

Answer 109

≤ 45 Days to identify property (after transfer) ≤ 180 Days to receive title (after transfer) **Must have been used ≥ 2 years**

Answer 110

* IF Exchange is sold/disposed ≤ 2 years * GAIN NOT RECOGNIZED on the date of sale * like kind xchange collapses s * ALSO applies to installment sales

Answer 111

Cap Gains/Losses are unearned income/still included in AGI Same rules apply to netting STCG and STCL/LTCG and LTCL $3000 carry forward

Answer 112

* Ordinary Income (usually 28%) * OR 3.8% net investment for high earners * Collectibles taxed at 28% * Real 1250 property LTG (25% depreciation recapture rate applies on sale)

Answer 113

Investment interest is paid or accrued on property held for investment (e.g home mortgage but NOT a residence). Investment interest does not include interest on funds borrowed in connection with a trade or business. NO MUNI BOND INTEREST

Answer 114

1. FIFO 2. Specific Identification (most flexible for max gain or loss) 3. Average Cost

Answer 115

* EXCLUDES income from cap gains on a home * Single 250k * MFJ 500k * Must OWN & RESIDE in home as principal residence for * 2 of 5 years IMMEDIATELY preceding sale * Gains reported on Schedule D if excluded in entirety * Exceptions (but allow for PARTIAL exclusion on a pro rata basis =\> 50% of 2yrs = 50% exclusion) * Divorce (FULL EXCLUSION if part of divorce agreement), separation or death of spouse (if sold within ≤2 yrs of death get FULL exclusion) * Eligible for unemployment * Change in employement lowers income * Multiple births (need a bigger house) * Involuntary seizure, conversion , condemned property * Job moves \>50miles away **CANNOT TAKE A LOSS ON A PERSONAL RESIDENCE** **NJ HAS A 1% MANSION TAX IF HOME \> $1MM**

Answer 116

YES IF the 2 of 5 AND 2 yr rules apply

Answer 117

* CRD (Cost recovery deduction) creates Ordinary Income Offset Taken EVERY year after purchase 1. When SOLD, business MUST do the following 2 things: 1. **Look Back and recapture the LESSER of:** 1. Total CRD **OR** 2. **1245** GAIN (ordinary income) 2. **Recover excess gain (Cap Gain)** 1. If total CRD \< Gain, THEN 1. Excess = GAIN - CRDs ----1245 Gain 2. IF CRD \> Gain, THEN 1. NO RECOVERY ----- 1231 Gain 2. OR Ordinary Loss

Answer 118

Like Kind Exchanges and Installment Sales If relatives dispose of property w/in 2 years unrecognized gains are recognized as of date of sale.

Answer 119

30 days before / 30 days after Loss disallowed Basis carried forward

Answer 120

Property sold to a charity at \< FMV, given vs “SOLD”, Must be allocated to each portion based on FMV (what was given vs what was sold) (Realized$ / FMV ) x basis = adjusted basis Sale - adjusted basis = taxable gain

Answer 121

Higher tax brackets

Answer 122

* A separate method of caluclating tax liability * Results in a hgher tax * Purpose: to prevent wealthy folks from reducing tax too much * certain benefits under regular tax are lost

Answer 123

No, no and NO

Answer 124

Credits and deductions not allowed under AMT Personal exemptions

Answer 125

1. Property and SALT (10k limit) 2. ISO (Inscentive Stock Option “Bargain element” 1. Bargain element : excess of FMV over market price on Option 3. Personal Exemption is NOT available

Answer 126

1. Start with regular post-deduction 1040 income (if itemizing) **OR** AGI (if electing the standard deduction) 2. Add back any item that was deductible for the 1040 but not for AMT (see AMT deduction) 3. Add preference items 4. Result equals AMT base 5. Subtract exemptions 6. Result equals AMTI (Alternative minimum taxable income) 7. Then calculate AMT (26% and 28% tax rates) AMT payable = AMT - Regular Tax

Answer 127

1. Intangible Drilling Costs (IDC) Percentage Depletion\*\* 2. Private activity Muni Bonds 3. Oil and Gas % depletion\*\* 4. Depreciation (ACRS or MACRS – no straight line) (\*\*excess depletion over the property's adj basis) Cost depletion is NOT AMT preference item

Answer 128

* Natural resource deduction * similar to depreciation over the life of a natural resource * % depletion triggers AMT becaust it is accellerated Cost depletion is NOT AMT preference item

Answer 129

* Has a phaseout * IF (reg tax - credits ) ≥ tentative AMT * THEN NO AMT payment * AMT Payable = AMT - Reg Tax If you do not itemize, you should not have AMT exposure. (AMT maximum tax is 28%. If you are in the 37% bracket IRS is happy.)

Answer 130

* Increasing Income helps avoid AMT (commissions and wages) * Acclerate receipt of taxable income * Defer payments of property taxes and other deductibles * Defer exercise of ISO or DISQUALIFY the ISO so that it becomes income taxable (nonqualified) * Purchase public purpos muni bonds

Answer 131

* Trade/Business where owner does NOT “materially” participate * Gans and Losses of Passive activities may offset each other * Cannot be used to offset * portfolio income * compensation OR * business income

Answer 132

Separated earned and investment income Passive income active income portfolio (dividends, interest, cap gains and passive income)

Answer 133

1. Non-Publicly traded partnership (RELPS) 2. Non Public Limited Partnerships can offset each other Netting done on SCHEDULE E

Answer 134

* Own equity interest * Not materially participating * Share of operating income and losses (LP) * Passive income and losses * losses deductible to the extent of passive income

Answer 135

1. **Rentals** 2. **Equity Interest with no material participation** 1. LP 2. Partnership, S Corp, LLC 1. S corps can produce passive income to investors who do not materially participate

Answer 136

* Income: * Not sheltered by passive losses from ANYWHERE * Income like dividends (Schedule B) * Losses: * may be used to offset income from ANYWHERE * Losses may only be carried FORWARD BUT ONLY against losses in the SAME PTP or until the PTP is sold. * DISALLAOWED LOSSES (Suspended Losses) * Carried forward until sold; no 3k allowable loss

Answer 137

You can sell the interest to deduct the loss OR you would have to offset it against another non PTP gains.

Answer 138

Other forms of Phantom Income: ee bonds, imputed interest, zero bonds, S corp K1s etc. DEBT RELIEF IS TREATED AS INCOME TO THE PASSIVE INVESTOR AND CAN CREATE PHANTOM INCOME

Answer 139

1. Material Participation (it's a job) 1. Generally not LPs 2. regular, continuous, substantial 2. Active Participation (decider) 1. Different from material 1. Bona fide involvment in management 2. MUST OWN 10% interest 3. Profit and Loss shown on Schedule E

Answer 140

* Deduction phaseout * Can offset Active OR Portfolio income with $25,000 per yr of net losses from real estate activity * AGI 100k - 150k (2 for 1 basis)

Answer 141

Rental ≤ 15 days

Answer 142

No expenses deductible of days important IF Owner's use \< 14 days OR 10% of the period Whichever is LONGER MAY NOT BE DEDUCTED AS A BUSINESS EXPENSE

Answer 143

If held as a passive activity Tax Credit = $25,000 CALC for Housing Credit = Tax Bracket x $25,000

Answer 144

NOT PASSIVE IF GENERAL PARTNER (Unlimited Liability)

Answer 145

Still Available Phases out at $200,000 Often not a productive deduction because the credit is at the tax payers bracket $25,000 \* tax rate (@25% credit woul be $6250)

Answer 146

If C Corp and NOT a PSC, mayuse passive losses to offset active income (NOT portfolio. EXCEPTION for CLOSELY HELD C Corps only. (No S Corps)

Answer 147

* Year of spouses death : Joint return (executor signs for decident. * Able to net gains and looses of both * able to leverage the benefits of MFJ * IF there is a Minor child * Qualifies as surviving spouse 2 TWO Years after death (MFJ)

Answer 148

* Exceptions: * HOH * Child and Dependent care * education tax credit * non-custodial tax breaks * dependent exemption = 0$

Answer 149

50% income must be reported by each spouse in a community property if MFS.

Answer 150

* Alimony is deductible by payor and taxable to payee if the following requirements are met: * The divorce was finalized before December 31, 2018 * The taxpayers **cannot** file a joint tax return **or** live together at the time of payment * Payments must be made in **cash** * Payments must be received by or for the **benefit of the payee spouse** (i.e., _not child support_) * The payments cannot extend beyond the death of the recipient spouse

Answer 151

First 3 years post separation for deductible alimony IRC labels as a settlement if too fast, and recaptures as ordinary income Look at what's paid in the FIRST 2 YEARS then Subtract $37,500 plus 2x whatever paid in the 3rd year The result is recapture

Answer 152

Non Taxable to payee and Non Deductible to payor

Answer 153

* Public Charities - 50% org * All schools churches hospitals * organizations related to education religion health and welfare of animals and children * Private Charities - 30% org * Private nonoperating foundations * fraternal orders * war veterans org

Answer 154

* 60% of AGI max deduction * Excess carried forwar 5 years or til death (6 years with contributory year) * NOTE: 2021 itemizers may get 100% AGI deduction if CASH and PUBLIC can also deduct $600 for not itemizing * 60% AGI Max Cash to Public Charity * 30% AGI Max Cash to Private Charity

Answer 155

LTCG: can be BASIS (50%) or FMV (30%) STCG: Limited to BASIS AND 50% of AGI

Answer 156

* Examples: * inventory/art * copyright * Use-Unrelated property (Stock and Real estate are always presumed to be USE related.) * Work of art created by taxpayer * STCG property ## Footnote **DEDUCTION IS LIMITED TO BASIS**

Answer 157

1. Calc Max Deductible (60% of **AGI**) 2. Calc amt to public charities (50% of **AGI** Org) 1. Up to 60% of **AGI** for cash 2. Up to 30% of **AGI** for LTCG 3. Up to 50% of **AGI** but using (BASIS) 1. Basis for inventory/works of art 2. Basis for STCG 3. Basis for Use-UNrelated 3. Calc amt to private charities (30% of **AGI** Org) 1. Up to 30% of **AGI** for Cash Losses on stocks are limited to the FMV as a donation

Answer 158

Taxpayers should claim the GREATER of ITEMIZED OR Standard deduction Charitable Gifts may not impact an itemized tax return enough to make itemization an option

Answer 159

Must have validation from Donee (not just a cancleled check) for ≥ $250.00 Must be a letter. VEHICLE DONATIONS ≥ $500 MUST BE VALIDATED IF sold by donee, max deduction = Gross Proceeds

Answer 160

* Limted to ≤ 10% of taxable income * file form 1120 * Contributions of Inventory * Limited to basis PLUS 50% unrealized appreciation * NO S CORPs * Sole Proprietorship donations are PERSONAL * *Inventory must be for ill, needy or care of infants** * *May not exceed 2x basis**

Answer 161

**Income** : 1. ***_Pre Retirement Income_*** 1. Wages/Salaries/Tips 2. Unemployment Income 3. Business / Schedule C Income 2. ***_Retirement Income_*** 1. Taxable Social Security 2. Pension/Annuity 3. IRA Distributions 3. ***_Investment Income_*** 1. Ordinary Dividends (Sch B) 2. Taxable Interest (Sch B) 3. Cap Gains/Losses (Sch D) 4. Real Estate Income (Sch E) 4. ***_Special Income_*** 1. Alimony \<2019 2. Punitive Damages (not wrongful death) 3. Scholarship money used for Room and Board (not tuition)

Answer 162

**Exclusions**: 1. ***_Income_*** 1. Workers Comp 2. ***_Investments_*** 1. Muni Bond Interest (private or public) 3. ***_Surprises_*** 1. Gifts 2. Inheritance 4. ***_Special Income_*** 1. Child Support 2. Compensatory Damages

Answer 163

**Adjustments FOR AGI:** 1. ***_Self Employment_*** 1. 100% Health Insurance 2. 50% Self Employment Tax (.1413/2) 2. ***_Retirement & Savings_*** 1. IRA Contrib 2. KEOGH/SEP Contrib 3. HSA Contrib 4. Penalties or early w/d of Savings 3. ***_Education_*** 1. Student Loan Interest 2. $4000 education expense (AGI limits/Alternative to Amer. Opp. Credit) 4. ***_Special Situations_*** 1. Moving Expenses for Military 1. Alimony paid for Divorce settled 12-31-2018

Answer 164

**Below the line/Schedule A deductions:** 1. ***_Medical/Dental \>7.5% of AGI_*** 2. ***_TAXES_*** **($10,000 limit each)** 1. SALT 2. Sales Tax 3. Real Estate Tax 4. Personal Property 3. ***_INTEREST_*** 1. Home Mortgage ($750,000) 2. Mortgage Insurance for qualified residence (VA, FHA, Private (\< $100,000 AGI) 3. Investment Margin Interest (limited to investment income and stcg) 4. Qualified Residence for Home Improvement (HELOC $750,000) 4. ***_CHARITABLE GIFTS_*** 5. ***_CASUALTY LOSSES_*** * *(Federally Declared disaster)**