Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

CFP Memorize > Income Tax > Flashcards

Income Tax Flashcards

1
Q

Exclusions Gross Income

A
  • Gifts
  • Inheritances
  • Child Support
  • Muni Bond Income
  • Worker’s Comp
  • Compensatory Damages
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

Frivolous Return Penalty

A

$5,000

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

Negligence on Return Penalty

A

20% of underpayment due to negligence

“Negligence” is a blatant disregard for tax law or failure to report material information

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

Fraudulent Return Penalty

A

75% of underpayment due to fraud

“Fraud” is the willful and intentional disregard for tax law in an attempt to cover information or reduce tax payment

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

Estimated Tax

Avoid Penalty amounts

A

Pay:

90% of current year’s tax liability
Or
100% of last year’s tax payment
110% if AGI > $150K

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

Failure to Pay Penalty

A

0.5% per month on tax due, up to 25% max

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

Failure to File Penalty

A

5% per month on tax due, up to 25% max.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

Hobby Loss Rule

A

Can deduct expenses (to the extent of revenues) subject to 2% of AGI if…

Enterprise generates net income for less than 3 of 5 consecutive years

Horses - 2 of 7 consecutive years

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

Step Transaction

A

“Step-out, then Step-back-in”

XYZ inc. sells property to ABC inc. then ABC inc. sells to a subsidiary of XYZ.

Tax the ultimate transaction, ignore the individual transaction.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

Sham Transaction

A

“Internal sale”

XYZ inc. sells property to subsidiary of XYZ inc.

Ignored for tax purposes, lacks economic substance

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

Substance over Form

A

Paying your own salary and calling it something else besides income

CEO takes a loan from the company with no intent to repay - it is really compensation

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

Assignment of Income

A

“Tax the tree that bears the fruit”

Man tries to funnel income to his son who has a lower tax bracket.

The man is taxed on the income, not his son.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

Adjustments to Gross Income

“For AGI”

“Bottom Front of 1040”

A
  • Educator Expenses
  • HSA
  • Moving Expenses
  • 1/2 Self-Employment Tax Deduction (.07065)
  • SEP/ Keogh contributions
  • Alimony Paid
  • penalty on early withdrawal
  • IRA Contributions
  • Student Loan Interest
  • 100% of Self-employment health insurance
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

Deductions From AGI

“Below the line deductions”

Back of 1040

A

Standard or Itemized Deductions

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

Standard Deduction Amounts

A

Single $6,300; married $12,600; head of household $9,250

Elderly or Blind: single $1,550; married $1,250

Child unearned income: $1,050 (kiddie tax)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

Itemized deductions

A

(Schedule A)

  • Medical, dental, qual LTC > 10% of AGI (Age +65 >7.5% until 2016)
  • State and Local Taxes; sales tax
  • personal property tax
  • Charitable Gifts
  • mortgage insurance (
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

Itemized Deductions Limitation

A

Deductions are reduced by 3% of AGI above $258,250 (single) or $309,900 (joint). Cannot exceed 80% of deductions amount.

This does not apply to medical expenses, investment interest, wagering losses, or casualty and theft losses.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

Qualified Residence Interest Rules

Limits on Mortgage Interest Deduction

A

All loans on residence +$1MM and money is used to build, buy, or improve:

Only interest on first $1MM is deductible

Any other purpose: interest on first $100K is deductible

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

Limit on Investment Interest Deduction

A

Total amount up to net investment income

Ex: Investment Income of $2,500 in 2015
Margin interest paid: $5,500

Can deduct only $2,500

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

Qualified Dividends

A

Taxed at LTCG rates; not ordinary income

Taxpayer can elect to pay ordinary income so as to boost investment income amount - higher interest expense deduction

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

Investment Expenses Calculation

A

Subtract investment expenses (advisor fees, cost of execution, etc.) from investment income

THEN subtract 2% of AGI

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
22
Q

Tier II Miscellaneous Deductions reduced/offset by…

A

2% of AGI “2% calculation”

Subtract 2% of AGI from aggregate miscellaneous deductions

Exceptions (Tier I deductions): impairment-related work expenses for handicapped, gambling losses

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
23
Q

Casualty and Theft Loss “Floor”

A

$100

24
Q

Calculation for Deductible Casualty and Theft Loss

A
  • Lesser of FMV or basis
  • Subtract insurance coverage
  • Subtract $100 floor
  • Subtract 10% of AGI
25
Q

Casualty and Theft loss offset by…

A

10% of AGI

SUBTRACT 10% of AGI from net losses after insurance coverage and floor

26
Q

Home Office Tax treatment

A

Miscellaneous Tier II deduction

Offset by 2% of AGI

*can have no other fixed location where taxpayer conducts business

** cannot create a loss

27
Q

Entertainment Expenses Deduction Limit

A

50% of expense…

Corporations:
Pay 100% of the amount and deduct 50% on 1120 corporate return

Self-Employed:
Pay 100%, deduct 50% on line 24 Schedule C

Salaried Employee:
Non-reimbursed expenses, deduct 50%, offset by 2% of AGI on Schedule A

28
Q

Personal Exemptions

A

$4,000

  • You; unless you are someone else’s dependent
  • Spouse; filing jointly
  • child under age 24 and full-time student; under 19 not student
  • Parent earning above $2,000 MAGI including Social Security
29
Q

Personal Exemption Phaseout

A

2% per $2,500 of AGI above $309,900 married, jointly

*just remember it’s subject to phaseout, no calculation necessary

30
Q

Fringe Benefits - Tax Free

A
  • Occasional use items - Company house, yacht, tickets (not season tickets)
  • Health premiums paid by employer
  • Group life premiums paid by employer up to $50K
  • Company Car for business
  • commuter pass $130/mo
  • Employer provided parking spots $250/mo
  • Exclude up to $5,000 ($2,500 married) for dependent care paid by employer
  • Discounts on company products not exceeding employer’s gross profit %
  • ## Discounts on services limited to 20% of selling price
31
Q

Fringe Benefits Taxable

A
  • health insurance premiums paid to self-employed, partners, and > 2% owners of an S-Corp
    (100% is deductible on front of 1040)**
  • Insurance premiums on group life +$50,000 of death benefit if plan is nondiscriminatory

heavily tested!!

32
Q

Not included in Self-employment income

A
  • Dividends or interest on investments
  • Gains (or deductions from losses) for property, securities, or commodities
  • Real Estate income or rents paid
  • Distributive share of income or loss of a limited partner
  • Wages from an S-Corp
  • Distributions from an S-Corp (K-1)
33
Q

Self-Employment Income

A
  • Net Schedule C income
  • GP income (K-1)
  • Board of directors fees
  • part-time earnings (1099)
34
Q

Self Employment tax Shortcut

A

Step 1: Calculate self-employment income

Step 2: multiply by .1413

35
Q

Child Care Credit Keys

A

$3,000 per child up to $6,000 for two or more children.

20% credit

Ex: two kids receiving day care $10K
$6,000 x 0.2 = $1,200 credit

36
Q

Child tax credit

A

$1,000 for each child under 17, phased out $50 for every $1,000 over $110,000 MAGI married, $75,000 single

Ex: MAGI for couple $120,000 with one child, credit is $500

($10,000 over, 10 x $50 = $500;
$1,000-500= $500 credit)

37
Q

Adoption Tax Credit

A

Max $13,400…

Up to adoption related expenses, unless adopting a special needs child - then you get the full amount

38
Q

Formula for credit equivalent to deduction

A

Deduction x Tax Bracket = Credit

Credit is worth more to a low bracket payer, deduction is worth more to high bracket

39
Q

Inclusions Gross Income

A

Schedule B

  • Ordinary Dividends
  • Taxable Interest
  • Business Income(and losses) Schedule C
  • Cap G/L
  • Real Estate Income Schedule E
  • Punitive damages(except wrongful death)
  • wages, salaries, tips
  • IRA distributions
  • Pension and Annuity distributions
  • Alimony Received
  • Unemployment Income
  • Taxable Social Sec.
40
Q

Deduction for Charitable Giving

A

Choice to elect:

FMV up to 30% of AGI

OR

Basis up to 50% of AGI

(FMV 3 letters; BASIS 5 letters)

41
Q

Constant for Divorce Recapture

A

Add all payments together and subtract $37,500

42
Q

Basis increases with

A

Legal fees, commissions, sales tax, freight, improvements

NOT repairs, real estate taxes, or normal business expenses - these are all deductible expenses

43
Q

Gross Profit Percentage Calculation

A

Profit / Contract Price = GPP

44
Q

Calculation of gain on installment sale (seller)

A

GPP x Cash Received from installment sale

*recognized in year of sale and each subsequent year

45
Q

NOL Net Operating Losses

A

Excess loss above gross income

Reported as a loss for the year up to the gross income, the rest is carried over:

Forward 20 years or back 2 years

**NOT available to Partnerships or S-Corps

46
Q

MACRS Table 1st and 2nd Year

A

5 year - 20%, 32%
7 year - 14.29%, 24.49%

Straight line: Half of MACRS

47
Q

179 deduction

A

Up to $25,000 deduction on purchase of 1245 property in year of acquisition

48
Q

Collectibles Cap Gain Rate

A

28%

49
Q

Real Estate Loss Deduction and Phaseout

A

$25,000 on active and portfolio income

Phaseout AGI $100,000-150,000

*Same credit for low income housing, but no phaseout.

50
Q

Standard Deduction for Blind or elderly

A

$1,250 married

$1,550 single

51
Q

File Schedule ___ for nanny or caretaker in the house.

A

Schedule H

H is for “Household”

52
Q

Charitable deduction for donation of time or service

A

NONE

Cannot deduct this even if charity is a qualified charity

53
Q

Receipt of goods or services in lieu of charitable donation (tax treatment)

A

Can only deduct the excess of the donation relative to the value.

(Ex. At a charitable auction, your client bids on and wins a $2,000 TV for $2,500. The maximum charitable deduction amount is $500)

54
Q

Charitable Deduction carry-forward term

A

5 years

55
Q

ISO “bargain element”

A

Excess of FMV over the option price at exercise.

*AMT Add Back Item

CFP Memorize (6 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions