Income Tax Planning Flashcards
Income Threshold for Social Security Taxation
$25,000
Unemployment Income Taxable Threshold
$10,200
S Corporation Election Requirements (6)
- Must be a domestic corporation.
- All resident citizens.
- No more than 100 shareholders.
- Only 1 class of stock.
- Not a disallowed corporations (financial).
- All shareholders must vote for S corp election.
Primary Residence Exclusion and Rules
$250k ($500k MFJ) income deduction if…
Ownership & Use test: Must have owned and lived in the home for 2 years of the prior 5 years.
Kiddie Tax Limits for Unearned Income
First $2,200 is non-taxable.
$2,201 - $11,000 is taxable at the parent’s bracket.
$11,000+ child must file their own tax return.
(T/F) Passive losses can be counted against interest and dividend income.
False, unless a special election is made.
Earned Income Tax Credit (EITC) Rules
- U.S. Citizen w/ earned income.
- Age 25-65
- Filing Status cannot be “Married Filing Separately”
- AGI limits (based on dependents): $15k - $56k
- Investment income of < $3,650
What type of compensatory damages are non-taxable?
Are punitive damages taxable?
Bodily-Injury damage compensation is non-taxable.
No, punitive damages are always non-taxable.
Deductible Medical Expense Threshold
Any expenses over 7.5% AGI are deductible.
AMT Tax Preference Items (7)
Are these items deducted or added back to calculate AMT?
- Deductions for accelerated depreciation/depletion.
- Net income from oil and gas properties.
- Excess intangible drilling costs.
- Interest on certain private activity bonds.
- Qualifying exclusion for small business stock.
- Capital gains from exercise of stock options.
- Investment tax credits.
These items are added back for AMT purposes.
Dividend Received Deduction Features and Thresholds
Deduction for dividends received by a corporation from another owned corporation.
50% deduction for ownership of <20%.
65% deduction for ownership >20%.
Child Tax Credit Features and Limits
$3,600 per child < 6yo.
$3,000 per child 6 - 17yo.
Phaseout starting at $112,500 (S) and $150k (MFJ)
Child Earned Income Filing Rules
Earned income >$12,550 requires filing and payment of taxes. Less than this amount should file for a refund. Child taxed at normal tax rates and brackets.
Education Savings Bond Qualified Expenses
Tuition and related fees only.
Like-Kind, Tax Free Exchange Features
- Must be investment property.
- New property must be of the same type.
- Must identify new property within 45 days and purchase within 180 days of selling old property.
Capital Loss Offset and Carry-over
Up to $3,000 losses to offset income and unlimited carryover.
Simple Trust Tax Filing Exemption Amount
$300
Calculate AMT Gain on ISO Exercise
AMT is the sale price - the price when awarded.
A gift recipient’s basis in property is the ______ of the FMV or the donor’s basis.
Lower
Education grants are only deductible up to the amount of:
- Tuition
- Fees
- Books
Section 1244 Stock Features and Limits
- Also known as “restricted” stock
- Riskier businesses and ventures.
- Allowed to be counted as regular losses instead of capital losses.
- Fully deductible up to $100k.
Failure to file & pay penalty equation:
5% of the amount owed times the number of months (or partial months) late.
Income to a Grantor Retained Trust is taxed to the:
Grantor
Income in Respect of a Decedent is defined as income ______ but not ______ before death and is taxed to the ______.
Earned / Received / Beneficiary
“Dependents” are those that:
- Related
- Live with you all year.
- Provide half their support.
- < 18yo or 24 if student.
- Earn less than < $4,300
Social Security Maximum Taxable Earnings
$142,800
(T/F) The AMT Minimum Tax Credit may be used to offset regular taxes in subsequent years.
True
Self Employment Tax Rate / FICA Deduction
Self Employment Tax Formula
15.3% / 7.65%
(Income x .9235) x .153 = Self Employment Tax
Required Filing Status for Legally Separated Couples w/o Children
Single
Two Types of AMT Preference Items
Exclusion Items (This Year and Permanent)
Deferral Items (Multiple Years and Temporary)
Rules for:
Primary Personal Property
Primary Rental Property
Mixed Use Property
PPP - Used for personal use
PRP - Rented for more than 14 days/ year
MUP - If PRP is used for personal use for more than 10% of the rental days.
Maximum charitable deduction allowed for different types of organizations:
- Public Charity, Private Foundation, or Govt.: 50% (60% for cash)
- Private, non-operating Foundation, or CRUT: 30%
Generation Skipping Transfer Tax Annual Exclusion
Same as the gift tax exclusion, $15k.
Investment Interest Expense Deduction Rules
- Interest on loans or margin used to buy actively managed investment real estate or capital gain securities can be deducted for both personal and business.
- Deduction cannot exceed gains but can carry over.
- Cannot be used for non-taxable income.
- Cannot be used for passive income such as rentals.
Sole-Proprietorships must file which tax schedule?
Schedule C
Depreciation Recapture Tax and When It’s Triggered
25%, when depreciated property is sold for more than basis.
Gain on Collectibles Tax
28%
(T/F) Capital gains, royalties, and dividends are considered investment income.
False, unless the taxpayer makes an election to have them taxed at ordinary rates.
IRS Specific Identification Method for Selling Stock
FIFO
(T/F) Averaging cost basis may be used for the sale of stock.
False, averaging cost basis may be used for the sale of mutual funds.
Amount of deductible unreimbursed personal casualty loss
0% unless from a Federally declared disaster area. Then the formula is (Loss - ($100*Disasters for the year)) * (.10 * AGI)
Wash Sale Rules
- When a security or option is sold for a loss deduction and, within 30 days before or after, a “substantially identical” security is purchased.
- Also applies if a spouse or company controlled by the individual makes the repurchase.
- Basis remains the same.
(T/F) A QDRO is required to transfer assets from one spouse’s IRA to the other’s without penalty.
True.
Basis for use-related tangible personal property donated to charity:
Lesser of basis or FMV.
Estimated Taxes Rules
- 90% of this year’s projected tax liability or…
- 100% of last year’s tax liability.
If last year’s AGI is >$150k, the 100% for last year’s changes to 110%.
Distribution Methods for Inherited Tax Deferred Retirement Accounts
If non-spouse:
- Immediate RMDs,
- RMDs at the qualifying age of the decendet.
- 10 year plan
- Lump sum.
- All taxed at beneficiary’s income bracket.
If spouse:
- Same as above but may also…
- Roll IRA into their own.
When do rental property passive losses (expenses over income) become deductible?
When the property is disposed of.
When do S Corps. have to have extension requersts filed by?
March 15th
When do SEP contributions have to be contributed?
The annual extension deadline of Sept. 15th.
May annual carryover losses be included in a decedents estate?
Nope.
Reverse Gift, Section 1014(e) Transfer Rules
You may transfer appreciated property to a soon-to-be decedent and receive if from them as an inheiritance with a step-up in basis if they held it for ONE YEAR.
Gift Value Appraisal Rules
Gifts of non-cash property (other than securities) with an estimated value of over $5k.
IRC Section 1250 Depreciation Recapture Amount
25%
Section 179 Deduction
Small business deduction for business equipment up to $1.02M
IRC 2032A, Special Use Valuation Rules
Allows a personal representative to elect that a farm and certain closely held business property included in a decedent’s gross estate be valued for estate tax purposes at its current or special valuation rather than its highest value or best-use valuation.
