Income Tax Flashcards
IRC
primary source of all tax law
Treasury Regulations
source of tax law
Revenue Rulings/Procedures
administrative interpretation/cited as precedent
congressional committee reports
indicate intent of congress/not cited as precedent
private letter rulings
apply to a specific taxpayer & situation
judicial sources
court decisions interpret law or fax
RIA
research institute of america publish reference books on federal income tax DO NOT CITE TO AUDUIT/TAX COURT
cch
commerce clearing house publish reference books on federal income tax DO NOT CITE TO AUDUIT/TAX COURT
Estimated Tax Pay Dates
April, June, Sept, Jan 15
1 + 2+ 3+ 4
Filing Dates
April 15 - Oct 15 (filing time may be extended but NOT time to pay
Audit Representation
attorney, cpa, enrolled agent, enrolled actuary, other persons permitted
Frivolous Return
5k penalty
Negligence
20% Penalty on the UNDERPAYMENT NOT THE INTEREST
Civil Fraud
75% penalty on the UNDERPAYMENT NOT THE INTEREST
failure to file
5% for each month missed, max 25%
failure to pay
P = POINT
0.5% for each month missed, max 25%
estimated tax
no penalty if taxpayer pays lesser of 90% of this years estimated tax or 100% of last years. if agi over 150k, then 110% of last years
Divorce Filing Status
if because of divorce: based on status at year end (12/31). if no kids: single (indefinitely). if dependent kid: head of household (until kid leaves)
Qualifying Widower Status - No Dependents
file jointly in year of death, then single the following year
Qualifying Widower Status - Dependents
file as qualifying widower using MFJ for 2 years following year of death (if you stay unmarried and maintain a home for the child)
Gross Income Inclusions
TRIP TO CUBA
Taxable interest
Real estate (e)
Ira distributions
Pension/annuities/puni
Taxable ssb
Ordinary divs (b)
Cap gains/losses (d)*
Unemployment
Biz income (c)
Alimony received (pre 2019)
*if it is a loss, subtract 3k because this 3k would have been subtracted on the sched d
Adjustments for AGI/Above the Line
SMASH KIPS
Self employed tax (1/2)*
Moving expense
Alimony paid (pre 2019)
Self emp health insurance**
HSA contributions
Keogh or sep
Ira contributions
Penalty for early withdrawal
Student loan int 2500
*.07065 x SE income
**NOT DISABILITY
How do Roth IRAs Show up on the 1040?
They do not (for test purposes)
Standard vs Itemized Deduction
AGI reduced by greater of standard deduction or itemized deduction
65 and Blind
single: 1950
mfj: 1550
extra STANDARD deduction for each item, 65 and blind
Itemized Deductions (Schedule A)
MITCCM (my income tax check comes monday)
Med & dental expenses exceeding 7.5% agi
Investment Interest expense (max: NII, typically margin acct interest)
Taxes (RE, state, local, sales) MAX 10k (SALT)
Casualty losses
Charitable gifts
Mortgage interest (up to 750k of principal. up to 1mm before 2017)
What is Investment Income
income from property held for investment
interest, divs, royalties, ST gain
divs included Only if taxpayer requests to not use reduced rates, LT gains included if taxpayer opts out of reduced rates
Deductible Loss Calculation
Lesser of Basis or FMV
Subtract insurance coverage
Subtract $100
Subtract 10% of AGI
Home Office Deduction
SE ONLY!!!! NO W2!!!!!!
limited to gross income derived from activity reduced by all deductible expenses (net biz income)
prove that you use exclusively for biz and on a regular basis
no other location where they conduct substantial activity
Meals & Entertainment Expense
not lavish or extravagant
expenses for activities for taxpayers employees (i.e. office parties) are deductible
meals are 50% deductible
Entertainment Expenses for Corps
corps can pay 100% of the expense but cannot deduct anything for it
Kiddie Tax
take the higher of earned & unearned income.
1300 - standard deduction
1300 - taxed @ kid ($130)
next amt taxed at parents rate
LTCG taxed at LT rates (so kids would pay 0%)
earned income standard deduction = earned income + 450
NO MORE THAN SINGLE STANDARD DEDUCTION
SE Income INCLUDES
NBGP (Not boutta go pro)
NET schedule c income
board of directors fees
GP (k-1) income
part time earnings
SE Activities that are NOT Included in SE Income
RDWD (real dudes wear dior)
Real estate income or rents paid
Distributive share of income or loss of limited partner
Wages from S Corp
Distributions from S Corp
Taxable Wage Base
168600
the max amount of earned income that employees must pay social security taxes
amounts above 168600 are only subject to medicare tax
NOTE: in test questions, if SE income is over 168600, you did something wrong. they will not give you an amount above this
SE Tax
.1413
deductible part: 1/2 of that, .0765
multiply by NET schedule C income
net = gross income - expenses
FICA Taxes
on w2 earnings up to 168600 - employee and employer each pay 6.2 +1.45 (15.3) total of FICA taxes
1.45 medicare (total 2.9%) paid when over the taxable wage base
Credit for Child and Dependent Care
UP TO AGE 13
20% of allowable expenses
3k for 1 dependent
6k for 2 ore more dependents
Child Tax Credit
2k per child under 17 (includes step and foster)
up to 1700 is refundable
400k MFJ MAGI phaseout
200k S MAGI phaseout
Credit for Other Dependents
500
dependents in HH that are not kids
dependent cant have taxable income over 4500
Adoption Credit
all qualified expenses are eligible (court, attorney, cost to adopt foreign child, adoption fees) for kids 17 and younger, kid at any age with special needs
NONQUALIFYING:
- surrogates
- adopting spouses kid
can claim expenses from previous years
expenses from this year d following year will be claimed the year incurred
Elderly and Disabled Credit
nonrefundable
65 + permanently and totally disabled
Foreign Tax Credit
EACH year: select a credit or deduction for foreign taxes paid
nonrefundable
Earned Income Credit
REFUNDABLE
for people who wore and have income under certain amountsI
Installment Sale Gain Calculation
profit/total contract price = gross profit percentage
installment x gross profit percentage = LTCG
Related Party Tax Trap
property sold to related party and related party sells within 2 years: ALL GAIN NOW TAXED RETROACTIVELY IN FIRST YEAR to me even thought installment sale payments continue
NOL
net operating losses
if biz operations result in excess of deductible expenses over gross income, excess is a net operating loss that can be carried forward to reduce taxable income. NO CARRYING BACK
Section 1244 Qual Biz Stock
only applies to first million dollars of stock (C or S) issed
loss of 100k/yr jt or 50k otherwise is ORDINARY for that year, and the 3k cap loss.
without the 1244 stock, you dont get the ordinary loss for this year only the carry forward
QBI
up to 20% of QBI from PASS THROUGH ENTITIES (sole prop, partnership, s corp, llcs)
phased out for service related businesses
role of limited partner
LPs must have at least 1 gp. limited partners are liable for debt only to the extent of their capital investment
not active in investment operations
basis -> cost basis
increased by legal fees, commissions, sales tax, freight, improvements
NOT REPAIRS, RE TAXES, OPERATING EXPENSES
197
intangibles amortized
179
qualifying property: 1245
CANNOT CREATE LOSS
limited to taxable income from ANY biz
expense up to 1.22mm in year of acquisition (if over 3050000, reduced $ for $)
why? to not have to maintain macrs schedule
1245 property
CAT CORN
CAT C
5 year - computer, auto, truck
7 year - office equipment except computers
1250
CATCORN
RN
27.5 - res real estate
39 - commercial real estate
1031 exchanges qualifying property
only real estate
1031 exchange key items to remember
if you receive boot: gain recognized is boot
if you pay boot: no gain recognized
your basis carries over
3 numbers to know: fmv received, adjusted basis of given up property
Section 121 Exclusion
500k mfj, 250k single
live there 2 of 5 years preceeding sale
realized or recognized gain*
realized would be before the exclusion, recognized would be after
AMT Preference Items
IPOD
intangible drilling
private munis
oil and gas PERCENTAGE depetion
depreciation (macrs/acrs only, no straight line)
AMT add back items
stock option bargain element
re, state/city taxes
home equity unless used for home improvement
how to avoid amt
increase taxable income
1. defer payment of charitable giving, prop/state taxes, deductible med expenses (MORE TAXABLE INCOME)
DEFER EXERCISE OF iso OR disqualify so it becomes NSO
purchase pulblic purchase munis
25k loss for active participants
deduct 25k/year from RE activity from active or portfolio income
phased out 100-150 on 2 for 1
Rental of Principal Res
rent for fewer than 15 days, rental income is excludible but no deductions allowed
Rental of Vacay Home
personal use cannot exceed longer of 14 days or 10% of rental period
Deduction Equivalent Credit//Credit Equivalent Deduction
Deduction Equivalent Credit
(i.e. of 25000)
multiply by tax rate (credit will be smaller than the deduction)
25k x 37% = 9250
credit / tax rate = deduction amount
ALLOWED ANNUALLY FOR 10 YEARS
Low Income Housing Programs
NO PHASEOUT
deduction equivalent tax credit up to 25k
Sources of Phantom Income
INS:
lapse w loan
section 162
Inv:
zero/strips/tips
declared but not paid divs & cgs
tax:
k1 income from lp/flp
recaptures
ret:
esop (basis only)
secular tr
Hobby Loss
activity w net income (prfit in 3 of 5 consecutive years = biz)
horses: 2 of 7 years
NO DEDUCTING HOBBY RELATED EXPENSES
Retirement Savings Credit
no credit for agi over 76,500 MFJ
max 2k single, 4k mfj
50,20,10% of contribution
Cash Method of Accounting
under 29 million in revenue
Accrual
mandatory if biz averages over 29mil in rev during 3 prior years
LLP
general partners not personally liable for malpractice related claims arising from misconduct ofanother gp
Accumulated Earning Tax
corp can accumulate 250k (150k for psc) without establishing a biz need.
20% of the accumulated taxable income for that year (over the 250k)
encourages corps to pay dividends
Simple Trust
income IS distributed
income taxed to beneficiary
normally no distribution of corpus
no charitable gifts
still treated as sep tax entity
exemption 100
Complex Trust
income must/may be accumulated
income accumulated is taxed to trust, distributed is taxed to bene
corpus can be distributed
may make charitable gifts
MUST BE IRREVOCABLE
taxed as distinct entity
exemption 300
DNI
limits the amount that trust benes must report as income
trust can claim deduction for amount distributed
limit portion that is taxable to beneficiaries
no double taxation
income dist deduction is lesser of DNI or amt distributed to benes
What Property can you NOT use MACRS on
land and intangibles
Decedent Carryforward Loss Treatment
can only use in estates final return (1041)
Installment Sale Dep Recovery
all depreciation recovered in year of sale
use 1245 recapture rules
recapture up to realized gain
excess gain (1231 amt) is subject to installment sale rules
Wash Sale Rules
basis of stock (lot that triggered wash sale) increased by amount of disallowed loss
Charitable Bargain Sale
find “sold” portion of basis
sold portion proceeds - above
