Income Tax Planning Flashcards
Capital Assets
Most personal use Assets and Investment Assets
What is not a capital asset. defined by section 1221(a)
Inventory
Depreciable property used in trade or business
copy right and creative works (if owned by creator)
accounts and notes receivable
Increases to basis
Capital improvements
Assessments for local improvements
Cost of restoring damaged property after casualty loss
Legal fees
Zoning costs
Decreases to basis
Casualty/ theft loss reimbursements
Deduction for clean fuel vehicles
Section 179 deduction
Credit for qualified electric vehicles
Depreciation
Non taxable Corp distributions
Carry over basis
The cost basis of the exchanged property
Double basis
Gifted asset where FMV is less than donors basis at time of gift
Collectibles tax rate
28%
Unrecaptured section 1250 gain tax rate
25%
Qualifying small business stock (section 120) tax
Portion taxed at 28% if holding period is at least 5 years.
Wash Sale
Occurs when taxpayer disposes of securities at a loss and acquires substantially identical securities within 30 days before or after the date of the loss sale
Wash Sale rules
the disallowed loss is added to the cost of the new stock to determine basis
Do wash sale rules apply? Index Fund for Index Fund
Yes
Do Wash sale rules apply? Index Fund for Managed Large Cap fund
no
Capital Asset Losses
Deductible to extent of capital gains, plus $3,000
Personal Use Property Losses
Losses may not be recognized or deducted
Trade or Business Losses
Ordinary Loss, deductible against ordinary income
1244 Stock
allows an individual to deduct up to 50k (s), 100k (mfj) for losses on small business stock as an ordinary loss.
Section 267 Stock
Disallows losses from direct or indirect sales or exchanges of property between related parties.
Section 1231 Asset
Assets used in trade or business, not including inventory & Copyrights.
Tax Benefit of section 1231 asset
Gains are treated as capital gains and losses treated as ordinary loss.
Section 1245 Property
Property that is or has been subject to an allowance for depreciation
Section 1245 Property
Property that is or has been subject to an allowance for depreciation or amortization. Tangible personalty used in trade or business and includes depreciable property
Excluded from 1245 Property
Real property (land & buildings),
Section 1250
Governs recapture of depreciation on real section 1231 assets. (business realty such as land and buildings)
Section 1033
Permits nontaxable treatment of gains if the replacement property equals or exceeds amount realized. (Involuntary conversion/ condemnation)
Section 1035
provides for tax free exchanges of some insurance policies
5 different filing statuses
Single, Married Filing Joint, Married filing separate, Head of household, widower
Who qualifies for additional standard deduction
Those who are 65 and older or blind. 65 and blind gets two additional standard deductions
Dependent Standard deduction
1,150 or 400 plus earned income (2022) not to exceed regular standard deduction
4 tests required for qualifying child
relationship, abode, age, and support
Form 8332
Allows non custodial parent to claim child as dependent (separation or divorce)
4 Qualifying Relative tests
Relationship test, Gross income test, Support test, Not a qualifying Child test
Annuity Exclusion Ratio
Investment in contract/ Expected Total return
Retirement Plan distribution- Annuity Exclusion Ratio
Cost basis in annuity/ Total expected benefit
Retirement Plan distribution- Annuity Exclusion Ratio
Cost basis in annuity/ Total expected benefit
Exclusions from gross income
Gifts, Bequests, inheritance, life insurance proceeds, gain on personal residence, employer sponsored accident and health plans, meals and lodging sponsored by employer, some fringe benefits, interest on some gov bonds, discharge of debt
AGI Deductions
Business expense, losses on sale of property, rental & royal property, alimony (before 2019), half of self-employment tax, health insurance premiums paid by individual, contributions to pension, penalty on premature withdrawals, interest on student loans, health sav acc, teacher expense.
Public Charities
Church, school, hospital, government entities
Private Charities
veterans, fraternal orders, some private foundations,
Below the line (itemized deductions)
medical expenses, certain state and local taxes, contributions to qualified charity, charitable contributions directly from IRA,casualty losses, personal interest expense (mortgage), qualified business income QBI
Kiddie Tax
applied to the net unearned income of a child under 19 or 24 and a full time student.
Kiddie Tax- Net unearned income
unearned income less standard deduction, less 1150 taxed at child marginal tax rate
child earned income standard deduction
earned income plus 400. not to exceed normal standard deduction
Corporation Tax: What are the dividend received deductions based on ownership percentages
ownership percentage dividend received deduction.
Less than 20% - 50%
20%- Less than 80% - 65%
80% and over - 100%
What is a personal service corporation (PSC)
c corp where all activities involve performance of service in the following fields: health, law, engineering, architecture, accounting, actuarial science, and consulting
Personal Holding Company Requirements
1.at least 60% of corporations adjusted ordinary gross income is from dividends, interest, rent and royalties
2. in the last half of the year more than 50% of outstanding stock owned by 5 or less people.
