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Live Review / Wrong Answer / Misc. > Income Tax > Flashcards

Income Tax Flashcards

1
Q

Medical expenses are deductible only to the extent that they exceed __ of AGI

A

7.5%

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2
Q

The charitable contribution deduction for long-term capital gain property is limited to __ of AGI

A

30%

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3
Q

Internal Revenue Code

A

Primary source of all tax law

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4
Q

Treasury Regulations

A

Great authority, but not law

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5
Q

Revenue Rulings & Revenue Procedures

A

Administrative interpretation. May be cited.

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6
Q

Congressional Committee Reports

A

Indicate the intent of Congress. May not be cited.

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7
Q

Private Letter Rulings

A

Apply to a specific taxpayer

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8
Q

Judicial Sources

A

Court decisions interpret

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9
Q

Charitable Deductions

Cash - Value of donation?

A

Cash

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10
Q

Charitable Deductions

Cash - Overall write off?

A

Cash

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11
Q

Charitable Deductions

Cash - This years write off?

A

60% AGI

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12
Q

Charitable Deductions

Long Term Appreciated Property - Value of donation?

A

Basis or FMV

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13
Q

Charitable Deductions

Long Term Appreciated Property - Overall write off?

A

Basis or FMV

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14
Q

Charitable Deductions

Long Term Appreciated Property - This years write off?

A

Basis: 50% AGI
FMV: 30% AGI

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15
Q

Charitable Deductions

Ordinary Property - Value of donation?

A

Basis

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16
Q

Charitable Deductions

Ordinary Property - Overall write off?

A

Basis

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17
Q

Charitable Deductions

Ordinary Property - This year’s write off?

A

50% AGI

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18
Q

Charitable Deductions

Loss Property - Value of donation?

A

FMV

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19
Q

Charitable Deductions

Loss Property - Overall write off?

A

FMV

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20
Q

Charitable Deductions

Loss Property - This years write off?

A

50% AGI

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21
Q

Frivolous Return

A

$5000

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22
Q

Negligence

A

Penalty is 20% of the portion of the underpayment attributed to negligence

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23
Q

Civil Fraud

A

Penalty is 75% of the portion of the tax underpayment attributable.

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24
Q

State and Local Taxes (SALT) limited to

A

$10,000

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25
Q

The deduction for use-unrelated tangible personalty

A

The deduction for use-unrelated tangible personalty is limited to basis, with a 50% of AGI limitation.

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26
Q

Non business bad debts

A

Nonbusiness bad debts are considered short-term capital losses in the year in which they become completely worthless.

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27
Q

death-benefit-only (DBO) plan

A

The DBO plan benefit is considered compensation for services rendered, and is therefore taxable as ordinary income.

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28
Q

Standard deduction MFJ 2024

A

$29,200

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29
Q

Standard deduction MFS 2024

A

$14,600

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30
Q

When incident to a divorce, are qualified domestic relations orders (QDRO’s) subject to gift tax or early withdrawal penalties?

A

NO

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31
Q

Section 1231 assets

A

Section 1231 assets are certain assets used in a taxpayer’s trade or business that is held for the long-term. Assets include depreciable tangible and intangible personal property, real property, timber, certain livestock, and unharvested crops.

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32
Q

Standard deduction for a dependent

A

The standard deduction for a dependent is limited to the greater of (1) $1,300, or (2) earned income plus $450 (limited to the regular standard deduction).

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33
Q

The capital gains rate on Section 1202 stock

A

28%

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34
Q

The exclusion ratio

A

The exclusion ratio is the investment divided by the expected return

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35
Q

the at-risk rules limit

A

the at-risk rules limit his total losses to $100,000

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36
Q

FICA

A

7.65 %

Social security - 6.2%
Medicare - 1.45%

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37
Q

Child & dependent care credit

A

-under 13
-$3000 one child
-$6000 two or more
-both x 20%
-both parents need to work
-no MAGI phaseout (Jeff Bezos story)

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38
Q

Child tax credit

A

-under 17
-$2000 per kid
-MAGI phaseout

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39
Q

How much student loan interest is deductible?

A

Up to $2,500 annually

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40
Q

Tax on dividends from a life insurance policy

A

Dividends from a life insurance policy are not taxable income unless the aggregate dividends received exceed the taxpayer’s basis in the contract.

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41
Q

Bargain element of an ISO

A

the difference between the FMV and the option price

*an AMT preference item

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42
Q

LIFO recapture tax

A

LIFO recapture tax applies only to S corporations

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43
Q

material participant hours

A

you are a material participant if working over 500 hours

44
Q

Capital asset

A

A capital asset is any asset that is not a copyright or creative work, accounts or notes receivable, depreciable property used in a trade or business or for production of income (such as a computer), or inventory.

45
Q

tax deduction vs tax credit

A

a deduction is worth more to a high bracket taxpayer and a credit is worth more to a low bracket taxpayer

46
Q

Sole Proprietorship risky or risk-free?

A

Risk-free

47
Q

S Corp risky or risk-free?

A

Risky

48
Q

Limited Liability Company risky or risk-free?

A

Risky

49
Q

Partnership risky or risk-free?

A

Risk-free

50
Q

Limited Partnership risky or risk-free?

A

Risky

51
Q

Business is profitable?

A

C Corp

52
Q

Amortization period for intangible assets

A

The amortization period for intangibles is generally 180 months. Other examples of Section 197 intangible assets include: goodwill, going-concern value, operating systems, patents, copyrights, formulas, and non-compete agreements.

53
Q

Capital losses

A

Capital losses result from the sale or exchange of a capital asset

54
Q

Ordinary losses

A

Ordinary losses result from something other than the sale or exchange of a capital asset

55
Q

taxpayer-use test

A

In the taxpayer-use test, the owner investors’ properties must be used in similar endeavors as the previously held properties

56
Q

functional-use test

A

In the functional-use test, the taxpayer’s use of the replacement property and of the involuntarily converted property must be the same.

57
Q

For gift loans greater than ____ and less than or equal to ____, no interest is imputed if the borrower’s investment income for the year does not exceed ____ . For a gift loan of more than ____ , the prevailing federal rate of interest will be imputed.

A

For gift loans greater than $10,000 and less than or equal to $100,000, no interest is imputed if the borrower’s investment income for the year does not exceed $1,000. For a gift loan of more than $100,000, the prevailing federal rate of interest will be imputed.

58
Q

Loan provisions employer plans

A

Generally, loans are limited to one-half the vested account balance and cannot exceed $50,000. When account balances are less than $20,000, however, loans up to the lesser of $10,000 or the vested account balance are available

59
Q

When is the income test waived for children/students?

A

If the child of the taxpayer is under age 19 or if the child is a full-time student and under age 24, the income test is waived and gross income of the dependent is not an issue.

60
Q

Home Office

A

In order to fulfill the deduction requirement using this category, the home office must be used exclusively and regularly by the taxpayer for administrative or management activities of a trade or business. There must also be no other fixed location where these activities are performed to a substantial extent.

61
Q

How to qualify as a rental property

A

To qualify as rental property, the personal use cannot exceed the greater of 14 days per year or 10% of rental days.

62
Q

The maximum deduction allowed for interest related to an investment debt

A

The maximum deduction allowed for interest related to an investment debt is the taxpayer’s net investment income.

63
Q

Sham transaction

A

A sham transaction is intended for tax avoidance

64
Q

Gross income exclusion

A

Gifts
Inheritances
Child support
Muni bond interest
Workers comp payments
Compensatory damages

65
Q

Fringe benefits - employer provided parking spots

A

$315/month cap

66
Q

Fringe benefits - excludable amount with respect to serviced

A

limited to 20%

67
Q

extra standard deduction elderly (65 or older) or blind

A

$1,550

68
Q

Taxable interest - what schedule?

A

Schedule B

69
Q

Calculation of the standard deduction for a child with both earned and unearned income

A

the greater of $1,300 unearned income or earned income plus $450 but no more than the single person standard deduction ($14,600)

70
Q

Business income or losses - what schedule?

A

Schedule C

71
Q

Capital gains/losses - what schedule?

A

Schedule D

72
Q

Real estate - what schedule?

A

Schedule E

73
Q

Child unearned standard deduction

A

$1,300

74
Q

Itemized deductions - what schedule?

A

Schedule A

75
Q

Investment interest deduction

A

The maximum deduction allowed for interest incurred on investment indebtedness is limited to the taxpayers net investment income

76
Q

Installment sales - calculation

A

Profit / total contract price = gross profit percentage

Installment x gross profit percentage = gain or loss

77
Q

Net operating losses

A

NOL may NOT be carried back to prior years but may be carried forward indefinitely

78
Q

C Corp keys

A

-Separate tax entity using flat 21% rate
-dividend-received deduction of 50%
-BUSINESS IS PROFITABLE
-preferred stock

79
Q

Personal Service Corporation

A

(PSC)- HALE
-no graduated tax rates (flat 21%)

80
Q

ESOP & married couple

A

= 1 shareholder

81
Q

ESOP & married couple

A

= 1 shareholder

82
Q

Section 1244 qualified small business stock

A

-only apple to first million dollars of stock (C or S) initially issued
-loss of $100,000 per year (JT) ($50,000 otherwise) is ordinary (not capital loss)

83
Q

What types of interest can be deducted without any limits?

A

-sole proprietor loans
-nondeductible consumer or home equity interest

84
Q

Partnership basis

A
  1. Cash contributed by the partner
  2. Direct loans made to the partnership by the partner
  3. Bank loans
85
Q

S corp basis

A
  1. Cash
  2. Direct loans made by the shareholder to the corporation

NO BANK LOANS

86
Q

LLC/LLP basis

A

Same as partnership

87
Q

Section 197

A

Intangibles are amortized under a tax section called Section 197 intangibles

88
Q

MACRS

A

Modified accelerated cost recovery system applies to all recovery property (not land or intangibles) placed in service after 1986.

89
Q

179 property

A

Tangible personal property (1245 property)

CANT CREATE LOSS

90
Q

Public charities

A

50% organizations

91
Q

Private charities

A

30% organizations

-private nonoperating foundations
-fraternal organizations (elks)
-war veterans organizations

92
Q

Cash gifts to a public charity

A

A taxpayer cannot deduct more than 60% of AGI for cash gifts to a public charity

Any contribution in excess is carried forward as an itemized deduction for 5 years, or, if sooner, death.

93
Q

Inclusions to Gross income overlooked on exam

A

-punitive damages
-unemployment income
-alimony received pre 2019

94
Q

Exclusions to Gross income overlooked on exam

A

-child support
-workers comp
-compensatory damages

95
Q

QBI phaseout based on

A

Taxable income

96
Q

Improvements basis

A

Improvements add to basis and cannot deduct as expense

97
Q

Repairs basis

A

Do not add to basis and you can deduct as an expense

98
Q

Preference items and add back items

A

Add cement to the rock

99
Q

Material participation

A

Think full time job

100
Q

Active participation

A

Think part time job

101
Q

Passive loss exception for real estate

A

If there is active participation for your RE rentals, you might be able to claim a loss from this passive loss against active or portfolio income bucket

$25k max loss. Starts going down at 100k AGI, completely lost at 150k AGI.

Allowable loss goes down $1 for every $2 of income above 100k AGI.

102
Q

Tax treatment of vacation home

A

If you use your vacation home for more than the GREATER of:
-14 days or
-10% of the period of rental use
It is treated as a home and no expenses are allowed

103
Q

Itemized Deductions (Schedule A)

A

“My Tax Is Calculated Correctly”

Medical Expense - 7.5% AGI
Taxes I paid - 10k salt cap
Interest I paid - Mortgage & Margin
Charitable Contributions
Casualty Losses - the president

104
Q

Inclusion Ratio

A

Inclusion ratio = (proceeds − basis) ÷ expected proceeds

105
Q

Section 1245 Recapture

A
  1. purchase price − depreciation claimed = adjusted basis
  2. Next, the adjusted basis is deducted from the amount realized to determine the gain/(loss) realized
  3. Section 1245 recapture recognized as ordinary income is the lesser of the gain realized or cost recovery deductions claimed
106
Q

Lowest marginal income tax rate

A

The lowest marginal income tax rate is 10% for all taxpayers.

Live Review / Wrong Answer / Misc. (9 decks)

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