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Income tax Flashcards

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0
Q

Who can NQSO be granted to

A

Employees, family members, independent contractors, beneficiaries of infldependt by contractor

*NOT ISOs they are only for employees of corporation

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1
Q

C Corps would use which accounting Method if they have a lot of inventory?

A

Accrual

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2
Q

Casualty Loss what is the tax deductibility

3

A

1- deductible amount is reduced by by the amount the insurance company would have paid out

2-$100 floor and a %10 AGI Limitation

3- any insurance payout lessens the lose

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3
Q

What are the three focuses of tax Law authorities

A

Statutory

Administrative

Judicial

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4
Q

What can you deduct for foreign travel?

3

A

7 days or less required no allocation for business and personal

Can deduct if less than 25% is personal

If traveler doesn’t have any control over the trip

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5
Q

How is an S Corp Taxed?

A

Pass through entity as a K-1 distribution to partners

Report income on personal returns

If greater than 2%(3%) or more are not considered employees and ineligible for deduction for group term and health

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6
Q

Exceptions to the Terminable Interest Rule

4

A

Bequest to surviving spouse by 6 months

QTIP election

A life estate with General Partnership of appointment

A lifetime income interest in a CRT where transferor is the only non spousal beneficiary

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7
Q

What is a 1231

A

Assets used in taxpayers trade or business

Ex depreciable and intangible property real property and live stock

NOT- inventory copyrights or property held for sale

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8
Q

QTIP

4

A

Qualified Terminable Interest

Allows for Terminable interest so the martial deduction can be taken

Spouse not given GP of appointment

Must pay annual income

Often used if remarried and want your first kids to have corpus of home

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9
Q

IRA MAGI Participant Limits

A

60-70k single

96-116k MFJ

Need to look this up

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10
Q

2032A

4

A

Valuation of Farms

Can reduce value of estate by 1090,000

Must use land 5 of 8 years

Qualified heirs or business partners

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11
Q

Bargain Sale

A

Selling goods at a discount to FMV

Gain= sale price -basis

Gift =FMV - sale price

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12
Q

Rabbi Trust

3

A

Used in Deferred compensation plans

Subject to creditors

Risk forfeiture

Employee is taxed at payment not when assets are promised initially

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13
Q

Imputed Interest

A
  • is lending below federal interest rate
  • less than 10,000 no imputed interest
  • greater than 10k but less than 100k is difference in federal rate and loan rate up to net investment income
  • greater than 100k difference
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14
Q

Legal accounting fees how are they deducted for taxes?

4

A

Acquiring an asset= add to basis

Rent or royalties = deduction for AGI direct deduction

Fight taxes = deduction from AGI subject to 10

Personal issue = not deductible

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15
Q

Ear pays premiums on EEs long term care what are the tax implications

A

ER payments are tax deductible and not taxed as income to EEs

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16
Q

American Opportunity Tax Credit

A

Reduce family tax dollar for dollar to first $2000 of a qualified expense and 25% on next 2000 maxing out at 500

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17
Q

Secular Trust

A

Used for Non qualified deferred compensation plans

Secure from creditors

Taxed immediately to employee because it’s protected

No risk forfeiture

Irrevocable

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18
Q

1244

A

small business losses for domestic businesses

Income levels 50-100k

Up to 1MM in losses

Can’t write off lost to a negative but extra losses can be Carried forward

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19
Q

Under social security survivor benefits PIA- primary insurance amount cover the following people

4

A

Surviving spouse with dependent child under 16

Unmarried children under age 18 and dependents

Unmarried disabled dependent child who because disabled before 22

Any surviving divorced spouse over age 50 who was married to decedent over 10 years and. Who who is unmarried with no children and is disabled

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20
Q

Social Security definition of disabled

A

Inability to engage in any substantial gainful a activity which is suppose to last 12 months or result in deathly

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21
Q

Can deprivation be taken on a personal primary residence?

A

Generally speaking NO

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22
Q

If someone get injured in the job how is workers compensation taxed?
4

A

Punitive damage payments are taxed(punitive are excess payment for misconduct or punishment for getting that person hurt)

Compensatory damages are NOT taxed(granted reasonably to make you whole).
Workers compensation payment are not taxed
Reimbursed medical bills are not taxed

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23
Q

Which contribution to a retirement account are subject to FICA FUTA?
3

A

Thrift saving contribution
401k elective deferrals by EEs
Salary reduction SEP contributions made by EEs

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24
Q

Corporations are allowed to make charitable contribution and take a deduction

A

Limited to 10% of corporations AGI

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25
Q

S corp Election can be terminated if?

A

More than 25% of gross receipts for 3 successive years come from passive income and the corporation has accumulated profits from operations before it was an S Corp

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26
Q

Charitable Donation for corporations

A

Deductible contributions can’t exceed 50% of AGI

Long term unrelated property donated uses the lesser of basis or FMV for deduction

Ordinary income property is the lesser of adjusted basis or FMV

Charitable contributions from and S Corp are components of the K1 distributions

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27
Q

Exception to UBIT

Unrelated business taxable income

A

ESOP securities lurched with bored funds(LESOP)

Dividends

Royalties

Interest

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28
Q

Entity Theory

When partners make deals(pay salary) from their own partnerships

A

The taxable amount of income is equal to

The salary + their portion of the difference between salary and total partnership income

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29
Q

Annual depreciation tax deduction in the first year only

A

The adjusted basis =

The year FMV - the salvage value divided by the useful life ….. Then you dived by two

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30
Q

Taxation of life policies for tranfer of value

A

If you purchase a life policy in anticipation of realizing a gain your taxable amount is=

The DB - the amount paid

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31
Q

Cash basis tax payer

A

Are not allowed to deduct bad debt bad debt is not included in income

32
Q

If a C Corp distribute property

A

The distribution is considered a dividend which is the FMV of property

Dividend amount is reduced by liabilities

33
Q

A C corp’s distribution of profits or earnings are

A

Treated as dividends

Any excess distribution is calculated as a capital gain ( difference - adjusted basis)

34
Q

If a grantor retains rights to borrow and controls

A

Then the income is taxable to grantor (not beneficiary of different than grantor)

35
Q

What is cap of tax deductibility of Home Equity Loans

A

100,000 cap but also capped at Net EQUITY amount

Not deductible if not used for home improvements

36
Q

Section 1244 stock applies to

A

Loss not gain.

Gains will be treated as ordinary stock transaction with LT or ST capital gains

37
Q

Section 1202 stock

A

Stock between 9-27-2010 and 1-1-14 would have a 100% gain exclusion if held for five years

If stock is not held for 5 years stock is taxed as normal LTCG

38
Q

C corps with over 5 million in gross income in their most recent 3 years are prohibited from using what accounting method?

A

Cash

39
Q

How are Non Business Bad debts deductible?

A

As short term capital losses and must be taken in year it became worthless. No partial deductions are allowed

Max if 3000 annually with a carry over of remaining.

40
Q

A dependency credit can be claimed by a parent if their child is what age?

A

Under 19(18 or lower)

Full time student under 24(23 or lower)

41
Q

Section 1231

A

A section 1231 gain has a five year look back rule(not including the current taxable year)

Net gain is treated as long term capital gain and the rest of gain is ordinary gain.

1231 property is used in trade or business depreciable that is held for 12 months or more.
(Excludes- inventory, property held for sale, copyrights)

42
Q

Education expense can be deducted if:

A

Tax payer is required by employer or improves a required skill. (Cannot be for meeting a minimum requirement of the job)

Meal can only be deducted 50%

43
Q

Tax exempt interest from GO bonds in regards to AMT Are?

A

Are not a preference item for AMT

44
Q

Gifts to clients are deductible

A

25$ per donee

Husband and wife are one client

45
Q

1033 replacement property

2

A

Functional use test= tax payers use of replacement property and the involuntary convert property must be the same

Tax payer use test= the owner-investors properties must be used in a similar endeavors as the previously held property

46
Q

Mid-quarter convention is?

A

A depreciation method for personal property if more than 40% of property was bought and used in the last quarter of the year

EXample. 50,000 in Feb
100k in October(last quarter)

100 of total 150k or 66% was purchased and used last quarter so you use mid-quarter depreciation

47
Q

When can intangible asset purchases for a business be deducted?

A

Intangible property like information, names, patents, copyrights can be amortized over 180 days following the purchase

48
Q

What is never depreciable?

A

Land is never depreciable for income tax purposes

49
Q

What is never covered in a homeowners policy and what is always covered

A

Land is never covered

Building materials are always covered no matter where it is on property

50
Q

Built in gains tax applies to what?

A

S Corps that were formerly a C Corp. It is a tax calculated by applying the highest corporate income tax rate to the net recognized built in gain for the year.

Any appreciation of the asset after the date of conversion(from c Corp to S corp) is not subject to built in gains for tax year

51
Q

Child care tax credit is?

A

Maximum is 35% of eligible expense of AGI less than $15,000

This is reduced by 1% every $2,000 of AGI above 15k to a minimum of

20%-so if you make over 45k you get to take 20%

52
Q

Passive loss deductions?

A

Can be written off against passive gains … If it’s rental income you can actually deduct extra losses to maximum 25k

53
Q

Medical expenses are itemized for expenses against AGI to

A

10% of AGI is you are 64 or younger

7.5% is you are 65 or older

54
Q

Interested in a Qualified residence is:

A

Primary home and one other home

Allowable indebted is 1MM(for single or married)

Home equity deductibility is the lesser of
100,000 or equity amount

55
Q

Tax rules for LTC and Disability

A

LTC benefits are excused from taxes up to 330$ a day

Disability benefits are tax free if paid by you

Disability premiums and LTC are tax deductible

56
Q

Related party sale

A

If you sell something for a loss to a related party you can not recognize the loss. If the person related eventually sells for a gain you can offset the first seller loss.

57
Q

Assets in a qualified plan if the decedent dies the tax basis to beneficiary is…

A

The FMV at date of death minus the NUA amount.

58
Q

Net investment income is made up of?

A

Interest
Short term capital gains
NON Qualified Dividends

59
Q

Casualty loss is calculated

A

Lesser of FMV or Basis

Subject to 10%AGi

EX 30k income
Property basis 10k and FMV 15k

You take 10,000
Minus 10-% AGI 3,000
Minus 100 floors
Total 6,900

60
Q

Charitable gifts Cash during life

A

50% public charity

30% private foundation

61
Q

Charitable donation during life of Ordinary income property or short term capri so gain property

A

Amount = less of FMV or basis

50% public charities

30% private non operating foundations

62
Q

Charitable donation
Long term capital gain property

4 types

A

Tangible related choice =
30% FMV
Of 50% Basis

Tangible unrelated 50% lesser of basis or FMV

Real property= choice 30/50

Intangible =choice 30/50

63
Q

Value of a stock at death if it didn’t trade that day:

A

Take the days it traded before and after. Take the average of the high and the low. Then multiple that number by the amount of business days away from the death date and sum the totals. Then dived that number by total business days

64
Q

How are RELPS deducted

A

RELPS are non publicly traded and can’t offset income from publicly traded partnerships. Income from RELPS can only deduct rental activity losses .

65
Q

Charitable deduction at 50% of AGI

A

Cash

Income property (lesser of basis or FMV)

Tangible UNRELATED property(lesser of basis or FMV)

All others(related property, intangible, or real property) are 30%fMV or 50%Basis and you have a choice.

66
Q

Section 179

A

Expensing purchase for small business
UP TO $25,000
Over $200,000 expense reduce 1$ for 1$

Example $207,000 reduce deduction from 25k to 18k

Carried forward indefinitely

67
Q

LLC can be what type of business

A

Sole proprietorship
Partnership
SCorp
Ccorp

68
Q

Personal Holding Company

A

Was created to prevent using a C Corp to shelter tax
By not distributing income. Must meet both test below

  • ownerships test=if more than 50% of stock is owned by five or less individuals
  • passive income test- at least 60% of gross income is person holding company income (passive income from certain services)

TAXED AT 15%

69
Q

C Corp Accumulated earning tax

A

15% tax applied if earning beyond it reasonable need

70
Q

C Corp Personal Service Corp

A

Principal activity is a personal service this is taxed at 35%

EX doctors account ants engineers lawyers etc

71
Q

S Corp

A

A corporation with a maximum of 100 shareholders

Must be domestic

K-1 distribution pass through to partners

Partners are anyone that is >2%(3+) shareholder
(Which means that health insurance benefits paid by the S Coro for a partner are deductible by Corporation and taxable to partner(which can be deducted by shareholder)

72
Q

MEC occurs if

A

Is contract exceeds “net level premiums that would have been paid up to the time in question if the policy was considered paid up after 7 level annual premiums payments were received.

Then loans and withdrawals are considered LIFO
GAINS FIRST

73
Q

Transfer of Value of a Life Insurance Contract

A

If a policy is transferred the transferred will be taxed on amount of life insurance pride ends minus the basis paid for policy

Exceptions:
To a partner
To the insured
To a partnership where insured is the partner
To a corporation where insured is an officer
In a tax free exchange

74
Q

If life insurance is paid by the S Coro for a partner the death proceeds

A

Are considered a dividend and taxed to partners beneficiary

75
Q

Section 1231

A

Is the tax treatment for depreciable(1245 )and real property(1250) used in business at a gain loss or recapture

NOT FOR CAPITAL ASSETS(ACID accounts receivable, copyrights, inventory, depreciable property not used in business)

76
Q

Section 1245 is the

A

Description recapture of a business asset sold

EX 500K equipment

Depreciation 300k

Sell for 400k= 200K 1245 Ordinary Income
Sell for 600k=300k 1245 Ordinary income 100k 1231 LTCG
Sell for 100k=100k ordinary 1231 loss

77
Q

Section 1250 is calculated as?

A

This is for depreciable property for business:

Taxed at 25% for depreciation ordinary income recapture And gain above sale price is LTCG
And amount over straight line is ordinary income .

( can comprise of three thing s potentially)

78
Q

Section 121

A

Primary residence exclusion rules

250,000 per spouse
2 of 5 years as primary
Can get a portion for job change, health, or unforeseen circumstance(not divorce). Calculate as a ratio

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