Brainscape's Knowledge GenomeTM

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


See full index

Flash Cards > Income Tax Flash Cards > Flashcards

Income Tax Flash Cards

1
Q

Tax Penalties

A

Frivolous Return: $5k
Negligence: 20% of underpayment
Civil Fraud: 75% of underpayment
Failure to File: 5%/month up to 25% (File Five)
Failure to Pay: 0.5%/month up to 25% (Pay-Point)
Estimated Tax: 100% of last year (110% if AGI >150k), 90% of this year

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

Tax Forms

A
  • 1040 • 1040X • 1065 Partnership
  • 1040EZ • 1041 – Estate and Trust
  • 1120 • 1120s
Schedule A – Itemized Deductions
Schedule B – Interest and Ordinary Dividends
Schedule C – Business Gains/Losses
Schedule D – Capital Gains/Losses
Schedule E – Supplemental Income/Loss – rental real estate, royalties, partnership, S-corp, estates, trusts
Schedule H – Household employement
Schedule SE – Self-employment
Schedule AMT (6251)
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

Dates for Estimate Payments

A 
Remember – 1, 2, 3 months in between!
• April 15th
• June 15th
• September 15th
• January 15th

• October 15th is due date for extended returns

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

Adjustments FOR AGI

A
  • IRA Contributions
  • Self-employment tax
  • Self-employment health insurance
  • Keogh or SEP contributions
  • Alimony Paid
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

Itemized Deduction Types

A
  • Medical, Dental, LTC
  • Casualty and theft loss
  • Real estate taxes
  • Charitable gifts
  • Home interest mortgage
  • State, local, sales taxes
  • Investment interest expense

Subject to $254,200 (Single) or $305,050 MFJ phase-out. Any deductions above this amount are phased out at 3% with 80% max

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

Section 179 Qual and Non-Qual Property

A

Qual:
• Tangible personal property
• 1245 Property

Non-qual:
• Real Estate
• 1250 Property
• Intangible

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

HALE Corporations

A 
Personal services corps taxed at 35%
• Health
• Education
• Legal
• Engineer
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

Dividend Received Deduction

A

Corp shareholders are allowed a deduction for dividends received.
• 70% of divs received from qual corp can be excluded from income if corp owns less than 20% of distributing corp
• 80% exclusion if ownership 20 - 80%• 100% exclusion if ownership >80%

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

Section 1244 qualified Small Business Stock

A
  • First million $ of stock (C or S) issued after incorp

* Loss of $100k (joint) or 50k (single) considered ordinary income loss

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

S-Corp Advantages / Disadvantages

A

Advantages:
• Limited Liability
• Conduit of income/loss but losses only up to basis
• Basis = cash + direct loans from shareholder to corp
• Pension plans
• 100% of medical, dental, LTC deductible for 2%+ owner

Disadvantages:
• Corporate formalities
• Sale of stock limited to eligibility standards
• Cannot use NOLs

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

Netting Capital Gains and Losses

A

Step 1:
STCG netted against STCL
LTCG netted against LTCL

Step 2:
If gain and loss remain, net them

Step 3:
Only $3k of net losses can be used to offset ord income

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

Double Basis

A

FMV is lower, Carry-over basis is higher
• Selling above carry-over, use carry-over as basis
• Selling below FMV, use FMV as basis
• In between, no gain

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

Bargain Sale

A
  • Sale to charity for below FMV - client must split basis between sale of stock and gift to charity. Basis = Orig Basis * sale price/fmv
  • Sold to relative, no split (amount above fmv is a gift)
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

Sale of Personal Residence (Section 121)

A
  • $250k (Single) or $500k (MFJ) of gain from the sale is tax-free if lived in for 2/5 years
  • If taxpayer lives in house less than 2 years and has to move more than 50 miles away due to job or health, receive a pro-rated amount (# of months lived in / 24 months)
  • If spouse passes away within 2 years of the sale, survivor can take $500k exemption
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

Depreciation Recapture – Sale of depreciated property (1245 & 1250)

A

• Occurs when business asset is sold and any of gain is due to depreciation claimed in prior years
• Personal property – Section 1245 – taxed as ordinary income
(5 year – Computer, Auto, Truck / 7-yr Office equipment)

• Real property – Section 1250 – taxed at 25%
(27.5 yr – Residential / 39 yr – Non-residential)
CATCORN!

Above and beyond depreciation, taxed at Section 1031 rate – LTCG

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

Installment Sale

A
  • Income taxes due when installment payment is paid
  • Each payment is return of capital, capital gain, and interest
  • Sale price
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

Like-Kind Exchange (Section 1031)

A
  • Must be reported on tax return
  • Must be property used in trade or business
  • Can use 3rd party intermediary so you can’t touch cash, otherwise gain will be taxable
  • 3 replacement properties within 45 days if first property falls through
  • Transaction must be completed within 180 days
  • If like-kind or installment sale done with relative who sells within 2 years, immediate taxation of all gain for all related parties
  1. No boot received – recog gain = 0
  2. 5 Realized Gain is FMV - basis
  3. Boot received – Recognized gain is lesser of boot received/realized gain
  4. Boot paid is added to basis
  5. Basis carries over from prior property

Example:
Mr Sand wants to exchange beach house worth 400k for a ski cabin worth 350k owned by Mr. Snow.

Sand - Basis 275k, Mortgage 150k, 25k beach furniture
Snow - Basis 200k, Mortgage 125k, 50k ski equipment
Realized Gain - Sand 400k-275k = 125k
Snow 350k - 200k = 150k
Boot
Mr. Sand gets 50k boot from Mr. Snow
Substituted basis
Mr. Sand - keeps orig basis of 275k
Mr. Snow - 200k + 50k boot = new basis = 250k
Recognized Gain
Mr. Snow - gave boot, no recog gain
Mr. Sand - gets boot, 50k gain
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

Inventory Cost

A
  • Specific ID - i.e. artist and his work
  • FIFO - results in write offs in rising cost environ
  • LIFO - matches current rev and current cost• Weighted Average - Running average of cost of all inventory
19
Q

Half-year convention / Mid-quarter convention

A
  • Assets put into service normally are considered put in service mid-year
  • Putting > 40% of new assets in service in fourth quarter results, must use mid-4th quarter
20
Q

MACRS / Straight line Depreciation

A

MACRS
5-year 7-year
1 yr 20% 14.29%
2 yr 32% 24.4%

Straight Line:
5-year 7-year
1 yr 10% 7.14%
2 yr 20% 14.29%

21
Q

Alimony Recapture

A

Excess alimony calculated after year 3 payment (nothing in year 1 & 2!)
Year 2 max deduction - Year 3 payment + $15k
Year 1 max deduction - Avg (Yr 2 and Yr 3) + 15k(If year 2 deduction used, use lower amount)
Any amounts paid above amount are treated as taxable income to payor, deduction for payee

Shortcuts to hopefully avoid calculation:
No alimony recapture if alimony is going up!!!! (going down is ‘frontloading’)
No alimony recapture in years 1 or 2

22
Q

Donations of tangible personal property to charity

A
  • Deduct basis if item is not used for charitable organization’s charitable purpose
  • Deduct FMV if it is (subject to AGI limitations)
23
Q

Grantor Trust

A

All income and expenses on grantor’s tax return

Powers that cause a trust to be grantor trust:
• Income paid to grantor or spouse
• Accumulated for future use by grantor and spouse
• Used to purchase life insurance on grantor or spouse
• Used to discharge grantors obligations
• Grantor can borrow against trust
• Grantor can retains right without consent of adverse party to change terms

24
Q

Simple versus complex trust

A

Simple trust
• May not accumulate income
• $300 exemption

Complex Trust
• Can accumulate income
• Anything not distributed is taxed to trust
• $100 exemption

25
Q

AMT Thresholds

A
  • 182,500 AMT is 26% up to this amount, 28% above
  • 156,500 MFJ Threshold for AMT / MFS is half of this per person – 78,250
  • 117,300 Head of Household / Single Threshold for AMT
26
Q

AMT Preference Items (Exclusion item)

A

Favorable under regular tax, taxable under AMT
• Intangible Drilling Costs
• Private Activity Muni Bond Interest (except 2009 & 2010)
• Oil & Gas % Depletion /Excess intangible drilling costs
• Depreciation (ACRS/MACRS not straight-line)

No misc deductions

27
Q

AMT Adjustments (Deferral Item)

A

Timing Difference – generate AMT carry-forward credits
• Bargain element of ISOs
• Depreciation (Slower under AMT)

28
Q

AMT Add-Back Items / Non-deductable

A 
addBATH items:
• Bargain element
• Advisor Fees/Misc deductions
• Taxes (State, Local, Property)
• Home equity interest not used for home improvement

Non-deductable:
• Standard Deduction
• Personal exemption

29
Q

Passive Activities

A

• Rentals, including both equipment and rental real estate (exception: active participation)
• Businesses in which the taxpayer does not materially participate include the following.
– Limited partnerships (with some exceptions)
– Partnerships, S-corporations (with some exceptions), and limited liability companies in which the taxpayer does not materially participate

Exemptions from passive activity:
• Real estate professionals are active participants if they work more than 750 hrs/yr
• Rental real estate exception – if client actively participates, can claim up to $25k passive loss. This 25k phases out at > AGI100k-150k by 0.50 / $1
• Client participates > 500 hrs / year
• Client is only participant in business
• Client participates 100 hrs which is more than anyone else
• If client is retired, but participated 5/10 years

30
Q

Publicly Traded Partnerships (PTP aka MLP) / Non-Publicly Traded partnerships

A

Public
• Public if traded on public market
• PTP income can only offset other PTP
• PTP losses can only be offset from gains from same PTP
• Losses can be suspended and carried forward and used against future gains or at time of disposition

Non-public:
• Losses from different partnerships can be offset against each other
• Non-publicly traded that makes income = PIG
• Non-publicly traded that has a loss = PAL

31
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 dist. from S-corp
32
Q

Self Employment Tax

A
  • For CFP test, If taxable wages > 117k, you did something wrong
  • Shortcut – multiply amount x .1413 to get self-employment tax

Detail:
• Self-employment wage base = all wages * .9235 (1 – .0765)
• On first 117k, 6.2% = SS, 2.9% = Medicare - deductable
• Above 117k, 2.9% Medicare – deductable
• Above ???, 0.9 Add’l medicare tax – not deductable

33
Q

Tax Credits

A

• Subtracted from FITBAC dollar for dollar
• Child and Dependent Care – 1 child – 20% of first 3000, 2+ = 20% of 6000
• Child tax credit
• Adoption credit
• Elderly & disabled credit
• Foreign tax credit
• Earned income credit (refundable)
• Amer Opp Tax Credit - 1st 4 years of college, 100% of 2000, 25% of next 2000
• Lifetime Learning credit – 2000 once a year – any school
(Can’t use learning credits if paying from 529, so pay cash)

34
Q

Realized vs recognized gains

A
  • Realized is economic or inherent gain at the time of transaction
  • Recognized is part of realized that is immediately taxable (cash!)
35
Q

Tax reduction & management for regular tax

A

Accelerate deductions:
• Pay January 15th estimated tax in December to take deduction 1 year earlier
• Pay real estate taxes before end of year
• Pre-pay January mortgage (not Feb, Mar, etc)
• Charitable contributions – stack 2 years payments into 1
• Buy 179 business assets before end of year
• Make repairs and improvements before end of year

Defer income until the next year:
• Sell investments later
• Don't bill customers until January
• Exercise ISOs
• Use non-qual defer comp
• Installment sale or like-kind
• Buy an annuity

Intra-family transfers
• Shift income to lower tax brackets
• Installment sale

36
Q

Low Income Housing / Historic Rehab

A

Historic Rehab
• Deduction-equivalent tax credit up to $250k, phases out AGI 200-250k

Low Income Housing:
• Deduction-equivalent tax credit up to $25k, no phase out
• Allowed annually over 10 year ‘credit period’
• Depreciation is straight-line over 27 ½ years

If you give $25k, multiply marginal tax bracket (say 39.6%) x $25k to get deduction

37
Q

Charitable Contributions

A

• Public charities – Cash: up to 50% AGI, LTCG prop: up to 30% AGI FMV
• Private charities – Cash: up to 30% AGI, LTCG prop: up to 20% AGI FMV
(if both, limited to private AGI limits)
• Basis can be used to get higher AGI limits, esp at death when FMV = basis
• Excess contribs carried forward 5 years or until death, then expires
• Artists can only deduct expenses, not FMV
• If tangible personal property given, can deduct basis only if not used for donees charitable purpose (i.e. art to a hospital) OR FMV if used for charitable purpose
• No deduction for donating your time or to a neighbor in need
• Must back out rubber chicken dinner cost
• Corporations can deduct up to 10% of taxable income with 5 year carry-forward, but can be categorized as a biz expense

38
Q

Sole Proprietor

A

Undistinguishable from Owner’s affairsAdvantages:
• Avail of pension plans - Keogh, SEP
• 100% medical insurance premiums deductable
• No legal formalities - all on individuals tax return
• Conduit of income/loss to owner

Disadvantages:
• Unlimited Liability
• Business dies with owner
• Capital structure depends on owner’s resources

39
Q

Partnerships (General Partnerships)

A

Association of two or more owners to carry on the business for profit.

Advantages:
• Avail of pension plans - Keogh, SEP
• 100% medical insurance premiums deductable
• Partnership can be oral (written preferable)
• Conduit of income/loss to owner

Disadvantages:
• Unlimited personal liability (joint/several)
• Dissolve on death, bankruptcy, incapacity of a partner
• Capital structure depends on owners’ resources
• No NOLs

40
Q

Limited Partnership

A
  • Losses up to basis

* LPs cannot actively participate in business

41
Q

Limited Liability Company (LLC)

A

Can be classified for tax purposes as a partnership or a corporation. Partnership if no more than two of the following:
• Centralized Management
• Limited Liability
• Continuity of life
• Fee xfer of interests
Governed by contract among owners
Can operate like partnership, but members can be involved in day-to-day ops without losing LLC status.

42
Q

Limited Liability Partnership (LLP)

A

Partnership where members’ liability is limited to their own torts.
• Generally a converted partnership.
In general, when forming a new entity, LLC is preferable because of its flexibility.

43
Q

Regular C Corp

A
  • Separate tax entity
  • Double taxation
  • Tax return is a 1120
  • Min rate is 15%, Max rate is 35%
Advantages:
• Separate tax entity         
• Limited Liability
• Unlimited # of investors 
• Continuity of life
• Dividend received deduction (70%)

Disadvantages:
• Corporate formalities (minutes, etc)
• Dividends paid (after-tax)
• Accum earnings beyond certain limits subject to double taxation

Flash Cards (6 decks)

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