Income Tax Wrong Answers Flashcards
FMV Deduction?
FMV = up to 30% of AGI
rest can be carried forward
MT: FMV (3) 30% of AGI
What’s the best source for obtaining info about the INTENT of a recent change in tax law?
Congressional Committee Reports
John is found guilty of substance over form tax violation - what is the penalty?
John must pay 75% of deficiency amount attributable to fraud.
Last year a client had a tax liability of $125,000. What is the minimum annual tax payment to avoid an underpayment penalty tax?
Question says $125,000 tax liability. AKA AGI over $150,000.*
90% of this years taxes to be paid OR 110% of prior tax year
Credit for Child and Dependent Care Expense
1 Kid = $3,000 on test use 20% = $600
2+ Kids = $6,000 CAP 20% = $1,200
remember 20%! (credit available until age 13)
Child Tax Credit
$2,000 p kid under 17
phases out single MAGI $200K
MFJ MAGI $400K
MT: CTC = Can’t Take Contraceptives ($$$ p kid)
Margin Interest Deductible up to…
Investment Income + Dividends + Capital Gains + Interest Received
CANNOT CREATE A LOSS
Unearned Income not subject to self-employment tax
S Corp Wages = FICA
General Partnership = Self Employment Tax
Limited Partnership Income is PASSIVE
(Limited(7) Passive(7))
Self Employment Tax
INCOME x 0.1413
(NOT WAGES)
Key to a Casualty Loss
Under TCJA - to claim a casualty loss the cause of the loss must be from a federally declared disaster.
What is no longer phased out under TCJA?
ITEMIZED DEDUCTIONS no longer phased out under TCJA
Income Tax Test Tip
When asked about taxable income don’t forget to reduce income by the standard deduction!
What are FIFO and LIFO?
Inventory Methods
Exam will try to conflate with account methods they are not
If declares more than $25M in revenue + carries inventory what kind of accounting method do you need to use?
ACCRUAL METHOD
MT: A is for $25M Revenue AND Inventory =Accrual
What does the FIFO inventory method of valuation reflect?
Current Cost
How do you calculate gain in an installment sale?
Step 1. Profit/Contract Price = %
Step 2. % x Installment = GAIN
What is the limit for cash reporting for a C Corp?
$29M ($25M indexed for inflation)
What are the accounting methods?
Accrual
Cash
Hybrid
MT: ACH
Test Tip on NOL:
MT: NOLs (NO Looking back)
May now be carried forward indefinitely
What is the Dividend Deduction for Corporations?
more than 20% ownership 65% of dividends are excluded
less than 20% ownership 50% of dividends excluded
MT: MORE = MORE excluded
Regular Corporation Reports earned income for employees on _____ and dividends on ______?
W-2 and 1099
Distributable Net Income (DNI)
- trust claims deduction for amount distributed
- limits the amount that the trust or estate beneficiaries must report as gross income.
If the the trust income is used to satisfy a grantors legal support obligation that then trust income will be taxed to____
the Grantor
MACRs Table
******MACRS Straight Line
Recovery Year 5 7 5 7
1 20% 14.29% 10% 7.14%
2 32% 24.49% 20% 14.29%
MT: Straight Line 10% in Year 1
1 in year and 10% are straight lines
How do you figure out the realized gain on a 1031?
Total Value Received (FMV of Property + Boot if any) LESS Adjusted Basis of Property = Realized Gain
What tax forms do you file if there is no taxable gain?
NO tax forms need to be filed if there is no taxable gain!! (1031)
Section 1244 Stock
Small Business Stock
- Up to $100,000 of loss treated as an ordinary loss
-Any loss in excess of $100,000 treated as capital loss
Adjusted Basis After Swap (1031)
Step 1 Realized Gain $350,000 Step 4 $400,000
Step 2 Recognized Gain - 100K Step 3 -$250K
___________________________________________________________
$250,000 $150,000
What is the amount and nature or character of gain or loss from disposition?
Original $8000 Sells $11,500
Cost
- CRD -5858 less basis -2142
Basis $2142 GAIN = $9,358
Recapture 1245 $5858 (OI) from CRD
Excess (if any) 1231 $3500 (CG)
9358-5858=3500^
1031 is ONLY for Real Property NOT FOR EQUIPMENT!
Old Basis + Cash = New Basis
Ex. Old Equipment Trade In
Adj Basis $10K
+ Cash $ 2K
New Basis = $12,000
What are add back items for individual AMT?
- Qualified private activity muni bond interest
- Property tax itemized deduction
- Excess % depletion over property’s adjusted basis
Calculate the AMT Payable
AMT - Regular Tax = AMT Payable
To Avoid or Reduce exposure to AMT you should? (think of rock in the river)
- increase 1040 income
- buy public purpose muni bonds
Publicly Traded v Non Publicly Traded Income and Losses
NET ONLY like to like.
Non Public to Non Public
Publicly Traded to Publicly Traded
MT: Think of the circles
This is Brett and Jennifer Aniston
AGI Under $100,000 may deduct up to ________ in losses from active participation in real estate. Any remaining losses carry forward.
$25,000.
What is Material Participation?
Material Participation describes tax payers work in principal trade or business.
What is a passive activity?
An investment in a trade or business in which the tax payer does NOT materially participate.
*active participation is exception the the passive loss rules.
Income Tax Exam Tip
Closely held C Corporations CAN own an equipment leasing program and deduct the losses. These are NOT treaded as passive losses, They are deductible on the 1120 Return
What is an exception to the active rule?
Active participation in real estate
What triggers alimony recapture and how do you calculate it?
Alimony decrease or end within 3 years you may be subject to recapture.
Step 1. Add Y1 + Y2 = X
-Step 2. X - $37,500 = Alimony Recapture Amount
MT: Average age of divorce is 37.5
Income Tax Exam Tip
SHORT (Term Capital Gain) must be valued at BASIS.
SHORT (5) BASIS(5)
Max deduction is 50% of AGI
anymore is a carryforward
What’s the income tax penalty for negligence?
20%
