Income Tax Planning Flashcards
All assets are capital assets except…
A.C.I.D.
Accounts/notes receivable
Copyrights & creative works
Inventory
Depreciable prop used in trade/business
What are Section 1231 assets?
Depreciable assets (real property or realty) used in trade or business held longer than 1 yr.
What is a reduced exclusion (residential property)?
Reduced exclusion is when a person sells there home even though they haven’t lived there for 2 years yet for an “unforseen circumstance” according to IRS and they are taxed on a portion of their excluded gain on selling their home.
(Months owned÷ 24 Months) × Exclusion Amount
What are the Property Types and how are they treated for tax purposes?
-Personal Use prop is short-term/long term for gains (depending on holding pd.), but losses aren’t recognized or deducted.
-Capital assets are short-term/long term for gains (depending on holding pd.) and losses deductible to extent of capital + $3k.
-Trade or business assets are short-term/long term for gains (depending on holding pd.) and losses are ordinary and deductible against ordinary income.
-Trade Ordinary Income is ordinary income and losses are ordinary and deductible against ordinary income.
How much does IRS allow a taxpayer to deduct on a loss for Section 1244 stock?
Up to $50k against ordinary income (or $100k for married filing jointly) remaining loss is capital loss
In Like Kind Exchanges between related parties, what happens if property is sold?
-If either related party sells property within 2 yrs, both parties are required to recognize gain/loss from exchange the year prop is sold.
-If prop sold after 2 yrs, only party that sold prop has to recognize gain or loss in that same year.
What is special about Section 1231 assets?
Business assets can be taxed on gains as capital gains and losses can be treated as an ordinary loss against income when sold.
Describe Section 1250- Depreciable Business Realty Taxation
-1st gains are ordinary income to extent of acclerated depreciation
-2nd gains of straight line depreciation are taxed 25% percent
-3rd Any additional gains is taxed at capital gains rates (Section 1231 gain)
-If property sold at a loss, loss is ordinary loss.
What are the Itemized deductions FROM AGI include:
-Medical expenses in excess of 7.5% of AGI
-Certain state & local taxes; taxes capped at $10k
-Contributions to qualified charitable organizations (between 20-60% of AGI)
Who are eligible children for the Child Tax Credit that pays $2k per child?
Biogical children, stepchildren, & foster children that are under age of 17, US citizens, & claimed as dependents on taxpayer’s return.
What is the credit amount for the Child & Dependent Care Credit?
20% of eligible costs ($3k of expenses for one child & $6k of expenses for two children or more)
What is the MACRS Schedule for depreciation & asset types?
CAT-CORN
C.omputers 5yrs, Section1245
O.ffice furniture 7yrs, Section1245
R.esidential real prop 27.5yr, Section1250
N.on Residential real prop 39yr, Sec1250
Residential & Non-Residential Real Prop uses mid-month convention (half a month depreciation is allowed when depreciation starts)
What are the dividend-received deductions if the dividend paying company is owned by a C corp?
-Own less than 20%, 50% dividend deduction
-Own 20%, but less than 80%, 65% dividend reduction
-Own at least 80%, then 100% dividend reduction
What are the requirements to have for a S corp?
-Cannot have more than 100 eligible shareholders
-Ownership restricted to individuals who are US citizens/residents, estates, certain trusts, & charitable orgs
-Must be an eligible corp under US laws or State laws
-Insurance companies, financial institutions, & Domestic Int’nl Sales Corp (DISCs) not eligible for S corp
-S corps only allowed 1 class of stock (may have shares with and without voting rights)
Who can represent a client during an IRS audit?
A.C.E. can represent a client at an IRS audit.
A.ttorney
C.PA
E.nrolled agent
