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Ri CFP > Income Tax > Flashcards

Income Tax Flashcards

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1
Q

IRC

A

primary source of all tax law

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2
Q

Treasury Regulations

A

source of tax law

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3
Q

Revenue Rulings/Procedures

A

administrative interpretation/cited as precedent

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4
Q

congressional committee reports

A

indicate intent of congress/not cited as precedent

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5
Q

private letter rulings

A

apply to a specific taxpayer & situation

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6
Q

judicial sources

A

court decisions interpret law or fax

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7
Q

RIA

A

research institute of america publish reference books on federal income tax DO NOT CITE TO AUDUIT/TAX COURT

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8
Q

cch

A

commerce clearing house publish reference books on federal income tax DO NOT CITE TO AUDUIT/TAX COURT

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9
Q

Estimated Tax Pay Dates

A

April, June, Sept, Jan 15
1 + 2+ 3+ 4

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10
Q

Filing Dates

A

April 15 - Oct 15 (filing time may be extended but NOT time to pay

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11
Q

Audit Representation

A

attorney, cpa, enrolled agent, enrolled actuary, other persons permitted

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12
Q

Frivolous Return

A

5k penalty

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13
Q

Negligence

A

20% Penalty on the UNDERPAYMENT NOT THE INTEREST

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14
Q

Civil Fraud

A

75% penalty on the UNDERPAYMENT NOT THE INTEREST

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15
Q

failure to file

A

5% for each month missed, max 25%

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16
Q

failure to pay

A

P = POINT
0.5% for each month missed, max 25%

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17
Q

estimated tax

A

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

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18
Q

Divorce Filing Status

A

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)

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19
Q

Qualifying Widower Status - No Dependents

A

file jointly in year of death, then single the following year

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20
Q

Qualifying Widower Status - Dependents

A

file as qualifying widower using MFJ for 2 years following year of death (if you stay unmarried and maintain a home for the child)

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21
Q

Gross Income Inclusions

A

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

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22
Q

Adjustments for AGI/Above the Line

A

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

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23
Q

How do Roth IRAs Show up on the 1040?

A

They do not (for test purposes)

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24
Q

Standard vs Itemized Deduction

A

AGI reduced by greater of standard deduction or itemized deduction

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25
Q

65 and Blind

A

single: 1950
mfj: 1550
extra STANDARD deduction for each item, 65 and blind

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26
Q

Itemized Deductions (Schedule A)

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)

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27
Q

What is Investment Income

A

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

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28
Q

Deductible Loss Calculation

A

Lesser of Basis or FMV
Subtract insurance coverage
Subtract $100
Subtract 10% of AGI

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29
Q

Home Office Deduction

A

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

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30
Q

Meals & Entertainment Expense

A

not lavish or extravagant
expenses for activities for taxpayers employees (i.e. office parties) are deductible
meals are 50% deductible

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31
Q

Entertainment Expenses for Corps

A

corps can pay 100% of the expense but cannot deduct anything for it

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32
Q

Kiddie Tax

A

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

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33
Q

SE Income INCLUDES

A

NBGP (Not boutta go pro)

NET schedule c income
board of directors fees
GP (k-1) income
part time earnings

34
Q

SE Activities that are NOT Included in SE Income

A

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

35
Q

Taxable Wage Base

A

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

36
Q

SE Tax

A

.1413

deductible part: 1/2 of that, .0765

multiply by NET schedule C income

net = gross income - expenses

37
Q

FICA Taxes

A

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

38
Q

Credit for Child and Dependent Care

A

UP TO AGE 13
20% of allowable expenses
3k for 1 dependent
6k for 2 ore more dependents

39
Q

Child Tax Credit

A

2k per child under 17 (includes step and foster)
up to 1700 is refundable
400k MFJ MAGI phaseout
200k S MAGI phaseout

40
Q

Credit for Other Dependents

A

500
dependents in HH that are not kids
dependent cant have taxable income over 4500

41
Q

Adoption Credit

A

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

42
Q

Elderly and Disabled Credit

A

nonrefundable

65 + permanently and totally disabled

43
Q

Foreign Tax Credit

A

EACH year: select a credit or deduction for foreign taxes paid
nonrefundable

44
Q

Earned Income Credit

A

REFUNDABLE
for people who wore and have income under certain amountsI

45
Q

Installment Sale Gain Calculation

A

profit/total contract price = gross profit percentage

installment x gross profit percentage = LTCG

46
Q

Related Party Tax Trap

A

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

47
Q

NOL

A

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

48
Q

Section 1244 Qual Biz Stock

A

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

49
Q

QBI

A

up to 20% of QBI from PASS THROUGH ENTITIES (sole prop, partnership, s corp, llcs)

phased out for service related businesses

50
Q

role of limited partner

A

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

51
Q

basis -> cost basis

A

increased by legal fees, commissions, sales tax, freight, improvements

NOT REPAIRS, RE TAXES, OPERATING EXPENSES

52
Q

197

A

intangibles amortized

53
Q

179

A

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

54
Q

1245 property

A

CAT CORN
CAT C

5 year - computer, auto, truck

7 year - office equipment except computers

55
Q

1250

A

CATCORN
RN

27.5 - res real estate
39 - commercial real estate

56
Q

1031 exchanges qualifying property

A

only real estate

57
Q

1031 exchange key items to remember

A

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

58
Q

Section 121 Exclusion

A

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

59
Q

AMT Preference Items

A

IPOD

intangible drilling
private munis
oil and gas PERCENTAGE depetion
depreciation (macrs/acrs only, no straight line)

60
Q

AMT add back items

A

stock option bargain element
re, state/city taxes
home equity unless used for home improvement

61
Q

how to avoid amt

A

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

62
Q

25k loss for active participants

A

deduct 25k/year from RE activity from active or portfolio income

phased out 100-150 on 2 for 1

63
Q

Rental of Principal Res

A

rent for fewer than 15 days, rental income is excludible but no deductions allowed

64
Q

Rental of Vacay Home

A

personal use cannot exceed longer of 14 days or 10% of rental period

65
Q

Deduction Equivalent Credit//Credit Equivalent Deduction

A

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

66
Q

Low Income Housing Programs

A

NO PHASEOUT
deduction equivalent tax credit up to 25k

67
Q

Sources of Phantom Income

A

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

68
Q

Hobby Loss

A

activity w net income (prfit in 3 of 5 consecutive years = biz)

horses: 2 of 7 years

NO DEDUCTING HOBBY RELATED EXPENSES

69
Q

Retirement Savings Credit

A

no credit for agi over 76,500 MFJ

max 2k single, 4k mfj

50,20,10% of contribution

70
Q

Cash Method of Accounting

A

under 29 million in revenue

71
Q

Accrual

A

mandatory if biz averages over 29mil in rev during 3 prior years

72
Q

LLP

A

general partners not personally liable for malpractice related claims arising from misconduct ofanother gp

73
Q

Accumulated Earning Tax

A

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

74
Q

Simple Trust

A

income IS distributed
income taxed to beneficiary
normally no distribution of corpus
no charitable gifts
still treated as sep tax entity
exemption 100

75
Q

Complex Trust

A

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

76
Q

DNI

A

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

77
Q

What Property can you NOT use MACRS on

A

land and intangibles

78
Q

Decedent Carryforward Loss Treatment

A

can only use in estates final return (1041)

79
Q

Installment Sale Dep Recovery

A

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

80
Q

Wash Sale Rules

A

basis of stock (lot that triggered wash sale) increased by amount of disallowed loss

81
Q

Charitable Bargain Sale

A

find “sold” portion of basis

sold portion proceeds - above

Ri CFP (18 decks)

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