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Danko + MJG > Income Tax > Flashcards

Income Tax Flashcards

1
Q

What are the eligibility requirements for a

Subchapter S Corporation?

A
  • Number of shareholders is limited to 100
  • The Corporation can only have a single class of outstanding Common Stock (no preferred), but the Common can be voting or non-voting.
  • Must be a Domestic Corporation Only individuals, estates and certain Trusts may be shareholders.

NOTE: Non-resident aliens (persons who are neither citizens nor permanent residents of the US) cannot be shareholders.

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2
Q

Tax Basis for Partnership / LLC

A
  • Cash invested
  • Direct loans made to the partnership
  • Partnership Debt: Loans made to the partnership - not the partner (bank loans)

NOTE: S-Corp basis does NOT include bank loans even if the S-Corp owner personally guarantees the debt.

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3
Q

Property Classes

A

Mnemonic: CATCORN

1245 Property (non real estate)

  • 5 year:Computers,Autos,Trucks
  • 7 year:Office Equipment except computers,

1250 Property (real estate)

  • 27.5 year: Residential rental property
  • 39 year: Non-residential real property
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4
Q

Boot / Gain Recognized / Basis

A
  • No Boot Received: Recognized Gain is zero
  • When Boot is Received, just answer the recognized gain is the boot received
    • Boot paid is added to Basis
    • Basis carries over from the prior property
    • Recognize the boot as gain up to the realized gain
    • Do not recognize losses if boot received
  • If boot is given:
    • Add to basis of new property
  • Gain recognized is the lessor of gain realized or boot received
  • A LOSS can NEVER be RECOGNIZED in 1031
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5
Q

Netting Capital Gains and Losses

A

Step 1:

  • ST Capital Gains and ST Losses are Netted
  • LT Capital Gains and LT Losses are Netted

Step 2:

  • If a Gain and Loss remain, they are again Netted

Step 3:

  • If a Loss remains after Netting Capital Gains and Losses, only $3,000 of the Net Losses can be used to offset ordinary income
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6
Q

Sale of a Personal Residence (Section 121)

A

$250K (single) and $500k (MFJ) of Gain from the sale is tax-free if lived in for 2 out of the last 5 years.

  • Exception available if taxpayer lives in the residence less than two years and moves because of a new job, for health reasons, etc. Receives a pro-rated amount.
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7
Q

Recapture (1245 Property)

A

When the sole proprietor purchases equipment and takes Depreciation (Cost Recovery Deduction - CRD), the CRDs offset the sole proprietor’s ordinary income.

When the sole proprietor sells the equipment for a gain, the sole proprietor must:

  • 1st: Look back and recapture the lesser of the CRDs taken or the Gain realized as 1245 Gain (ordinary income)
  • 2nd: Recover any excess gain as 1231 (capital gain)
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8
Q

Section 179

Qualifying vs. Non-Qualifying Property

A

Qualifying:

  • Tangible Personal Property
  • 1245 Property

Non-Qualifying:

  • Real Estate
  • 1250 Property
  • Intangible (owning a franchise)
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9
Q

AMT Preference Items

A
  • Excess Intangible Drilling Costs (IDC)
  • Private Activity Municipal Bond
  • Oil and Gas Percentage Depletion / Excess intangible drilling costs (IDC)
  • Depreciation (ACRS/MACRS) but not straight line

Remember: I.P.O.D.

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10
Q

AMT Add-Back Items

AMT Not-Deductible Items

A

Add Back:

  • Incentive Stock Option Bargain Element
  • Property and Income Taxes
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11
Q

Postponing AMT

A
  • Accelerating receipt of taxable income or deferring the payment of property taxes, state income taxes, deductible medical expenses or charitable giving, the regular tax (1040) may exceed the AMT payable (more taxable income)
  • Deferring exercise of incentive stock options (preference item) to a later date or disqualifying the ISO so that it becomes NQSO (subject to ordinary income tax).
    • Purchase public purpose muni bonds instead of private activity bonds.
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12
Q

Historic Rehabilitation Programs

A

Historic Rehabilitation programs that are held as passive activity may generate a Deduction:

  • Equivalent Tax Credit of up to $25,000.

The benefit of this Deduction:

  • Equivalent Tax Credit phases out between $200- 250k of AGI.

How does the Deduction Equivalent tax credit work?

  • Calculate tax to determine the maximum marginal tax bracket. If it is 25%, for example, then you multiply $25,000 by 25% to get $6250.
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13
Q

Low Income Housing Credit

A

Low-Income Housing programs that are held as passive activity may generate a Deduction:

  • Equivalent Tax Credit up to $25,000. There is NO phase out.
  • The Low Income Housing Credit is allowed annually over a 10 year “credit period.”
  • The Depreciation is straight-line over 27.5 years.

How does the credit work?

  • For example, multiply 35% by $25,000 to get a credit of $8750.

NOTE: Because there is no phaseout, it produces a higher credit.

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14
Q

Types of Phantom Income

A

Insurance:

  • Lapse of Policy Loan
  • Section 162 Life/Disability

​Investments:

  • Zero/Strip Income
  • TIPS
  • Declared but not paid Dividends

Tax/Retirement:

  • K-1 Income from LP/FLP
  • Recapture
  • NUA
  • 20% withholding plan distributions, Secular Trust
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15
Q

Charitable Giving

A

Calculate the Maximum Deductible - 60% of AGI

  • Calculate the eligible amounts given to 50% organizations (public charities) such as all churches, schools, hospitals and organizations such as United Way, Red Cross, Humane Society, etc.
  • Calculate the eligible amounts given to 30% organizations (private charities) such as private non-operating foundations, war veteran groups, and fraternal orders.
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16
Q

Sources of Federal Tax Law/Authority

A
  • Internal Revenue Code: Primary Source of all tax law.
  • Treasury Regulations: Great authority, but not law.
  • Revenue Rulings and Revenue Procedures: Administrative interpretation. May be cited.
  • Congressional Committee Reports: Indicate the intent of Congress. May not be cited.
  • Private Letter Rulings: Apply to a specific taxpayer .
  • Judicial Sources: Court decisions interpret
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17
Q

Step Transaction

A

Ignore the individual transaction and instead tax the ultimate transaction

  • Example: The XYZ Corporation sells property to an unrelated purchaser who subsequently resells the property to a wholly owned subsidiary of XYZ.
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18
Q

Sham Transaction

A

A transaction that lacks a business purpose and economic substance will be ignored for tax purposes.

  • Example: A sale by XYZ to ABC, but both XYZ and ABC are owned by the same persons.
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19
Q

Substance Over Form

A

The substance of a transaction, and not merely its form, governs its tax consequences.

  • Example: The president of XYZ has the company loan him the money he needs. He never intends to repay the loan or take a salary.
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20
Q

Assignment of Income

A

Income is taxed to the tree that grows the fruit, even though it may be assigned to another prior receipt.

  • Example: Mr. T owns XYZ, an S Corp. He directs that all income be paid to his son. Mr. T reports no income.
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21
Q

Dates for Paying Estimated Taxes

A
  • April 15
  • June 15
  • September 15
  • January 15
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22
Q

IRS Penalties

A
  • Frivolous Return: $5000
  • Negligence: Penalty is 20% of the portion of the underpayment attributed to negligence.
  • Civil Fraud: Penalty is 75% of the portion of the tax underpayment attributable.
  • Failure to File: Penalty is 5% of the tax due per month, with a maximum of 25%.
  • Failure to PAY: Penalty is 0.5% per month the tax is unpaid, with a maximum of 25% (Pay-Point)
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23
Q

Federal Withholding Tax Underpayment Penalty

A

To avoid, pay the lesser of:

  • 90% of the current year’s tax liability
  • 100% of the prior year’s tax liability (or 110% if the last year’s adjusted gross income exceeded $150,000)
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24
Q

Adjustments for Adjusted Gross Income (AGI)

A

The second step in the 1040 calculation is adjusted gross income. It is Total Income (or Gross Income) less adjustments to income.

The main Adjustments or Deductions to Income are:

  • IRA Contributions
  • Self-employment Tax
  • Self-employment Health Insurance (100%)
  • Keogh or SEP Alimony paid
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25
Q

Casualty Losses (Calculation of the Deductible Loss)

A

First: Use the lesser of basis or FMV

Second: Subtract any insurance coverage

Third: Subtract $100 (floor)

Fourth: Subtract 10% of AGI. Must be a presidentially declared “natural disaster”

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26
Q

Kiddie Tax

A

All net UNEARNED income of a child who has:

  • NOT attained the age 18
  • Is 19-23 and a full-time student
  • Has at least one parent alive

…is taxed at Parent’s Rates regardless of the source of the assets.

Children under 18 are entitled (2020) to a Standard Deduction amount ($1,100) and an additional $1,100 of unearned income will be taxed at the child’s rate (10%).

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27
Q

Self-Employment Income

A
  • Net Schedule C Income
  • General Partnership Income (K-1 income)
  • Board of Directors fees
  • Part-time earnings (1099) NOT wages or K-1 distributions from an S Corp
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28
Q

Self-Employment Tax Calculation

A

The Taxable Wage Base will not exceed $137,700 (2020).

  • If you added up the self-employed income, and you exceeded $137,700, you did something wrong. Why? Social Security tax stops at $137,700 (2020).

Shortcut: Multiply Self-employment Income by 0.1413

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29
Q

Tax Credits

A
  • Credit for child and dependent care expenses
  • Child Tax Credit (up to $1,400 could be refundable)
  • Adoption Credit
  • Elderly and Disabled Credit
  • Foreign Tax Credit
  • Earned Income Credit (refundable)
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30
Q

Accounting Methods

A
  • Cash: Mandatory where taxpayer’s records reflect only cash transactions, and there are no inventories.
  • Accrual: Mandatory for purchases and sales over $25M where there are inventories.
  • Hybrid: Combines accrual for inventory portion of business and cash for cash portion of business.
  • Percentage of Completion: For long-term contracts where the contract will not be completed within the taxable year started.
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31
Q

Personal Service businesses that are also regular Corporations (C-Corp)

A
  • Health
  • Accounting / Architectural
  • Law
  • Engineering

Remember: H.A.L.E.

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32
Q

Realized Gain vs Recognized Gain

What’s the difference?

A
  • Realized Gain is Economic or Inherent Gain at the time of the transaction.
  • Recognized Gain is the part of Realized that is immediately taxable.
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33
Q

An individual is required to file a tax return if earnings from self employment (1099) are more than ______?

A

$400

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34
Q

Section 1231 property

A
  • Section 1231 property is any depreciable real property or personal property used in a trade or business or for the production of income. As such, it encompasses both Section 1250 property (real property used in a trade or business) and Section 1245 property (tangible personal property used in a trade or business). This does not include inventory or cost of goods sold, which is not depreciable.
  • Any such property sold at a loss is afforded ordinary loss tax treatment (rather than capital loss tax treatment with the $3,000 limit or $1,500 for MFS).
  • A taxpayer who has a net Section 1231 gain for the current year must report the gain as ordinary income to the extent of any Section 1231 losses reported within the past five taxable years (the lookback rule).
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35
Q

Section 1245 Property

A
  • Section 1245 property is depreciable tangible personal property. Section 1245 recapture requires any recognized gain on the sale of Section 1245 property to be treated as ordinary income to the extent of any depreciation taken. Any remaining gain over and above the Section 1245 recapture amount is considered Section 1231 (capital) gain.
36
Q

Section 1250 Property

A
  • Section 1250 applies to depreciable real property used in a trade or business or for the production of income, that is, real estate that is a Section 1231 asset.
  • Upon sale, the gain attributable to straight-line depreciation is treated as long-term capital gain, subject to a special LTCG tax rate. This gain is referred to as unrecaptured Section 1250 gain and is taxed at the maximum 25% capital gain rate. If the taxpayer’s marginal tax rate is less than 25%, the Section 1250 gain will be taxed at that lower marginal tax rate. For taxpayers whose marginal rate is 32% or higher, 25% is the maximum rate at which the unrecaptured Section 1250 gain will be taxed. Any gain not attributable to depreciation (gain attributable to actual appreciation of the asset) is subject to a LTCG rate. Like Section 1245, any losses on Section 1250 property do not have any depreciation recapture and are usually treated as Section 1231 (ordinary) losses
37
Q

How to get to AGI

A
38
Q

Dependents and living status

A
39
Q

What are the key points with Section 1033?

A

Section 1033 allows a taxpayer who incurs an involuntary conversion to postpone recognition of gain realized from the conversion

EXAMPLE Section 1033 Gain
Admed had some property condemned by the State of Louisiana. The property had an adjusted basis of $26,000. Ahmed received $31,000 from the state for the prop-erty. He just realized a gain of $5,000 ($31,000 – $26,000) and bought new prop-erty that was similar in use to his old property for $29,000. He must recognize a gain of $2,000 ($31,000 – $29,000).

40
Q

What is the formula for calculating a deduction’s value as a tax credit?

A

Deduction x Marginal Tax Rate = X

For example, a $3,000 deduction in the 10% tax rate = $300 equivalent credit

41
Q

When will an individual recognize income with an NQSO?

A
  • If the option is traded on an exchange and not subject to a substantial risk of forfeiture.
  • The recognized income equals the share price times the number of shares. An example of substantial risk of forfeiture would be a requirement that the employee not exercise the option for a year.
42
Q

What are the basics of taxes and NQSOs

A
  • An individual is taxed on the bargain element when the option is exercised (the difference between the FMV of the stock on the date of exercise and the option price).
  • The bargain element is considered compensation income and taxed at ordinary income tax rates and will be included in the employee’s W-2 by the employer and is subject to Federal Insurance Contributions Act (FICA) and Federal Unemployment Tax (FUTA) taxes.
  • Any appreciation that occurs after the date of exercise is taxed as a capital gain.
  • Basis is the FMV at the date of exercise.
  • The holding period begins on the date of exercise, which determines if the gain is long term or short term.
43
Q

Tax basics of ISOs

A
  • No income is recognized when the option is granted.
  • No regular tax is due when the option is exercised.
  • Tax is due when the stock is subsequently sold.
    • If the taxpayer does not dispose of stock within two years after the option grant and holds the stock for more than one year (after exercise), any gain over the exercise price will be capital gain.
    • If the taxpayer sells the stock within one year after the exercise date, the gain is considered compensation income reported on the W-2 by the employer and taxed at ordinary income tax rates, but it is not subject to FICA or FUTA taxes.
  • Alternative minimum tax (AMT) may require earlier recognition of income because the difference between the option price and the FMV at the date of exercise is an addback for AMT purposes.
44
Q

What is the foreign tax credit?

A
  • Avoids double taxation by granting tax credit for taxes paid
  • Cannot do both foreign tax credit and foreign earned income exclusion
  • Generally more adventagoues when foreign tax is higher than US
45
Q

What are the terms of the child tax credit?

A
  • Provided to allow parent to be gainfully employed
  • Eligibility:
    • Taxpayer must be gainfully employed (both spouses if a married coupled) with earned income
    • Must be paying the expenses being covered
    • Must be a qualifying individual
      • A qualifying individual is any of the following:
        • A dependent under age 13
        • Any other person who is physically or mentally incapable of caring for himself and lives with the taxpayer for more than half of the year. In this case, the tax-payer must either be able to claim
          • the person as a qualifying child or a qualifying relative
          • the person as a qualifying child or qualifying relative, except for the fact that the person had income exceeding their standard deduction amount).
        • The taxpayer’s spouse who is physically or mentally incapable of self-care and lives with the taxpayer for more than half of the year
        • Certain dependent children of divorced parents
  • $3,000 for one child, $6,000 for two or more
46
Q

What is the adoption credit?

A
  • In 2020 and beyond, the adoption credit is a nonrefundable credit for qualified adoption expenses. The maximum credit is $14,300 (for 2020) per eligible child.
  • The credit is taken in the year the adoption becomes final. Any unused credit may be carried forward up to five years.
  • The credit is phased out beginning at modified AGI of $214,520, with complete phaseout at $254,520.
47
Q

What are the key parts of the Child Tax Credit?

A
  • For 2020, a $2,000 credit is given for each qualifying child under age 17.
  • A qualifying child includes child, stepchild, grandchild, or eligible foster child. In any case, the child must be a dependent.
  • Credit is reduced to $50 for each $1,000 above threshold:
    • MFJ = $400k
    • All others = $200k
48
Q

What is the FMV for property in a divorce?

A

When a spouse receives property pursuant to a divorce, the basis in the property will always be carryover basis from the transferor spouse.

49
Q

AOTC Key Points

A
  • The credit is available for qualified tuition expenses (tuition and fees) incurred and paid in the first four years of postsecondary education in a degree or certificate program for taxpayer, spouse, or dependent:
    • Room and board are not qualifying expenses.
    • Qualifying expenses must be reduced by any tax-free income, and taxpayers cannot use the same educational expense for figuring more than one benefit.
  • The credit is 100% of the first $2,000 of qualified expenses paid in the tax year plus 25% of the next $2,000; maximum of $2,500 for the tax year.
  • The credit is calculated on a per student basis.
  • Students must carry at least half of normal load during one term.
  • A convicted drug felon is not eligible.
  • Forty percent of the credit is refundable.
  • However, it is not refundable if taxpayer is subject to kiddie tax.
  • The AOTC is not available to taxpayers who file as married filing separately
50
Q

What are the key terms of the Lifetime Learning Credit?

A
  • Credit is available for tuition and fees (undergraduate, graduate, or professional degree programs).
  • Taxpayer may claim 20% of qualified expenses up to $10,000.
  • The allowable credit is a maximum of $2,000 credit per year per tax return. Note that maximum is family based, unlike the American Opportunity Tax Credit
  • If courses are taken to acquire or improve job skills, students can be enrolled less than half-time.
  • This credit can be claimed for an unlimited number of years.
  • Taxpayers cannot claim both the American Opportunity Tax and Lifetime Learning Credits for the same individual in the same year. However, it would be possible to take the American Opportunity Tax and the Lifetime Learning Credits on the same return if there are two students in the family (each qualifying individually).
  • Taxpayers may claim an American Opportunity Tax Credit or Lifetime Learning Credit for a taxable year and exclude from their gross income any amounts distributed (both the contributions and the earnings portions) from a Coverdell Education Savings Account on behalf of the same student, as long as the distribution is not used for the same educational expenses for which a credit was claimed.
  • The Lifetime Learning Credit is not available to taxpayers who file as married filing separately.
51
Q

What is the deductability for private charity donations?

A
  • Cash, LTG, and ordinary income property = 30%
    • Lesser of adjusted basis or FMV
  • EVERYTHING ELSE = 20%
52
Q

What are the deductability rules for:

  • Intangibles
  • Tangle Property RELATED USE
  • Real Property
A
  • FMV = 30%
  • Basis = 50%

Good mental cue, FMV is three letters (30%), basis is five (50%)

53
Q

Define Personal Use vacation property

A
  • Property rented less than 15 days per year
  • Exclude rental income from gross income
  • Expenses nondeductible except mortgage interest, taxes, and casualty losses (Schedule A)
54
Q

Define Rental vacation property

A
  • If the rental property is rented at least 15 days per year and is not used for personal use more than the greater of 14 days per year or 10% of rental days, it is classified as primarily rental use.
  • Allocate expenses between rental and personal
  • Can deduct loss up to $25,000 (phased out at AGI between $100,000 and $150,000)
  • Report income and expenses on Schedule E
55
Q

Define Mixed Use vacation property

A
  • Rental property rented at least 15 days per year and used for personal use more than the greater of 14 days per year or 10% of rental days
  • Allocate expenses between rental and personal.
  • Deduct expenses (in order of interest/ taxes, maintenance and utilities, and then depreciation, up to amount of gross income)
  • Cannot deduct loss currently, but can carry forward
  • Report income and expenses on Schedule E (apply hobby rules)
56
Q

Social Security taxation rules

A

As much as 85% of Social Security benefits may be included in gross income if provisional income exceed:

  • $44,000 for married filing jointly (MFJ)
  • $0 for married taxpayers who did not live apart the entire year and file separately
  • $34,000 for all other filing statuses.

Up to 50% of Social Security benefits are subject to taxation if the taxpayer’s provisional income exceeds:

  • $32,000 for MFJ
  • $0 for married taxpayers who did not live apart the entire year and file separately
  • $25,000 for all other filing statuses .

For single taxpayers with provisional income of $25,000 or less, and married taxpayers with provisional income of $34,000 or less, none of the income is taxable.

The amount subject to tax is based on the taxpayer’s provisional income.

The taxable amounts can be determined by one of two formulas using the provisional income formula.

Provisional income is AGI from all sources plus 50% of Social Security benefits received, foreign income previously excluded, and any tax-exempt interest income.

57
Q

Can interest on series EE and I bonds be excluded from taxable income?

A
  • A taxpayer may elect to exclude interest on Series EE and Series I U.S. government savings bonds from gross income if the bond proceeds are used to pay qualified higher education expenses.
  • These requirements must be met:
    • The savings bonds are issued after December 31, 1989.
    • The savings bonds are issued to an individual who is at least age 24 before the issuance.
58
Q

What are the steps to calculate self-employment tax for UNDER the SS base?

A
  • The steps to calculate the total self-employment tax for 2020, where net income from self-employment is at or below the taxable wage base, are as follows:
  1. Step 1: Calculate self-employment income.
  2. Step 2: Multiply the net earnings from self-employment by 0.9235.
  3. Step 3: Multiply the resulting product by 0.153 (the full self-employment tax rate in 2020).
  4. Step 4: The shortcut method for SE income at or below the taxable wage base is to simply multiply the amount of self-employment income by 0.1413 (0.9235 × 0.1530)
59
Q

How do you calculate deductable employer share of self-employment tax ABOVE the SS base?

A

An easy method of only calculating the deductible employer share of the SE tax for self-employment earnings above the taxable wage base is to multiply the taxable wage base by 7.65% and the excess over the TWB by 1.45% and adding the two together

60
Q

What are the tax ramifications of an installment sale?

A
  • The reported gain is based on the amount of cash received and the gross profit percentage resulting from the sale.
  • The gross profit percentage is calculated by subtracting the seller’s adjusted tax basis from the total contract price and dividing that figure by the contract price.
  • Down payment—The down payment received from an installment sale is par-tially a capital gain and partially a return of capital. The capital gain portion is based on the amount of cash received and the gross profit percentage calculated previously.
  • Note payments—The note payments received from the buyer are partially ordi-nary income (interest), partially capital gain, and partially a return of capital.
    • If a portion of the gain on an installment sale is attributable to 25% gain (straight-line depreciation on real property) and another consists of 20%/15%/0% gain, the taxpayer must recognize the 25% gain before the 20%/15%/0% gain when reporting gain received from installment sale payments.
61
Q

What are capital assets vs. ordinary assets?

A
  • Capital Assets:
    • Capital assets are personal-use assets and most investment assets. Losses from personal-use assets are not deductible, but losses from investment assets are deductible.
  • Ordinary Assett:
    • The following is from Section 1221 in the code, which defines what a capital is not. (The code does not have a list defining capital assets, only those that are not capital assets.)
      • Accounts and notes receivable—This refers to receivables acquired from the sale of inventory or services associated with a business.
      • Copyrights and creative works—These types of assets are usually considered ordinary assets and not capital assets.
      • Inventory—This refers to inventory held for sale to customers; it is mainly for business use.
      • Depreciable property or real estate—If these assets are used by a business, they are not considered capital assets

Think A-C-I-D for ordinary assets

62
Q

What creates a passive activity?

A
  • The taxpayer does not materially participate (except in oil and gas partnerships).
  • The activity is a rental activity (even if the taxpayer does materially participate).
63
Q

What makes someone a material participant?

A
  • > 500 hours,
  • > 100 hours AND no one participate more
  • Your participation is substantially ALL of the participation
64
Q

What are the holding periods for the following assets:

  • Inherited:
  • Gifted?
  • Like-kind?
A
  • Inherited:
    • Always LTCG
  • Gifted:
    • Gain: carried over from donor
    • Loss: starts on day of gift
  • Like-kind:
    • Newly acquired real property includes the holding period of the formerly held real property
65
Q

AMT Table

A
66
Q

What is the basis on a gift in which no gift tax was paid?

A
  • Carryover basis on a gift for which no gift tax was paid is the donor’s adjusted tax basis, unless the FMV on the date of the gift is lower than the donor’s basis.
  • Basis must be reduced by any depreciation taken. If the FMV on the date of the gift is lower than the donor’s basis, the donee will have a double basis. Then, the FMV of the property on the date of the gift will be the basis for losses, and the donor’s basis will be the basis for gains
67
Q

What happens to non-business bad debts if they are not paid?

A

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

68
Q

Asset types cheat sheet

A
69
Q

Charitable contribution cheat sheet

A
70
Q

What are the rules for the kiddie tax standard deduction?

A
  • Child’s standard deduction =
    • Greater of $1100
    • Earned income plus $350 up to single deduction limit
71
Q

Section 179 notes

A
  • Only applies to PERSONAL PROPERTY
  • Limited to income
  • Losses above income can carryover
72
Q

Child and dependent care credit notes

A
73
Q

How far out can an accrual-basis taxpayer defer income?

A

An accrual-basis taxpayer may defer advance payments for services that will be performed after the tax year following the year of receipt of the advance payment but may defer it only until the year succeeding the receipt of the advance payment.

74
Q

How are fringe benefits taxed by an S corp?

A

Fringe benefits are not deductible by an S corporation and the benefits are not tax free for the greater than 2% shareholders.

75
Q

Gift loans by size

A
  • In a gift loan, the lender makes a gift to the borrower in the amount of the imputed interest.
  • For gift loans greater than $10,000 and less than or equal to $100,000, no interest is imputed if the borrower’s net 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.
76
Q

How does Section 121 work for when someone has lived in the residence for < 5 years?

A
  • Time in months / 24 months x $250,000
  • For example:

6 months of residency /24 = .25 x $250,000 = $62,500

  • Special note: surviving spouses can use spouse’s exclusion amount if they use it within 2 YEARS and they have to have met the eligibility requirements in the first place
77
Q

What happens to rental income deductability for higher incomes?

A

For rental property income, when AGI > $100,000:

  • Lose $1 of deduction (AGAINST LOSSES ONLY) for every $2 over $100,000.
  • You can still deduct every dollar lost against any income
78
Q

What is the difference between Recognized and Realized gains?

A
  • Recognized gain = taxable gain
  • Realized gain = actual economic gain from transaction
79
Q

Section 1033 Slide

A
  • Section 1033 (owner of property must buy exact same type of property to get section 1033; LESSOR of property can buy something similar)
  • To use this provision, must take advantage 2 years after the end of the year in which the realized gain took place; for seized real property, that jumps to 3 years
80
Q

Section 1031 Example

A
81
Q

Related Party Slide

A

Related party is lineal in nature, meaning siblings don’t count

82
Q

How does whether property is appreciated or depreciated affect the basis for gifts?

A
  • Appreciated property = carryover basis
  • Depreciated property = carryover basis for sales that result in gain, FMV for sales that result in a loss
83
Q

RAINS and IRD

A
  • IRD (income in respect to a decent) assets does not receive step-up in basis
  • IRD assets:
  • R = Retirement plans
  • A = Annuities
  • I = IRAs, ISOs, Installment Notes
  • N = NUA, NQSOs
  • S = Savings Bonds
84
Q

Section 1202 slide

A
85
Q

Installment note slide

A
86
Q

What are the valuation rules for double basis?

A
  • FMV for LOSS
  • Basis for GAIN

Bass guitars need GAIN to be good

Danko + MJG (7 decks)

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