Memo Flashcards
Charitable Contributions - Deductible
- Money or property to:
- Religious
- Governments, if contribution is solely for public purposes
- Nonprofit schools and hospitals
- Public parks and recreation facilities
- Salvation Army, Red Cross, CARE, Goodwill Industries, United Way, Boy Scouts, Girl Scouts, Boys and Girls Clubs of America, and etc.
- War veterans’ groups
- OOP for a student living with you, sponsored by a qualified organization
- OOP serving a qualified organization as a volunteer
Charitable Contributions - Nondeductible
- Tuition
- Value of time
- Value of blood
- Payments to social organizations
- Cost of raffle, bingo, or lottery tickets
- Money or property to:
- Individuals
- Lobbying groups
- Homeowners associations
- Political groups/candidates
- Groups run for personal profit
- Foreign organizations (except certain Canadian, Israeli, and Mexican charities)
- Civic leagues, social sports clubs, labor unions, and chambers of commerce
Charitable Contribution - Cash
Amount: FMV
Public, Private Operating: 60% AGI
Private Nonop: 30% AGI
Charitable Contributions: Ord. Inc. & STCG prop
Amount: min(FMV, adjBasis)
Public, Private Operating: 50% AGI
Private Nonop: 30% AGI
Charitable Contribution: LTCG Intangibles
Amount: Elect either FMV or basis
Public, Private Operating:
- FMV: 30% AGI
- basis 50% AGI
Private Nonop:
- FMV: 20% AGI
- basis 20% AGI
Charitable Contribution: Tangible (related use)
Amount: Elect either FMV or basis
Public, Private Operating:
FMV: 30% AGI
basis 50% AGI
Private Nonop:
basis 20% AGI
Charitable Contribution: Tangible (unrelated use)
Amount: min(adjBasis, FMV)
Public, Private Operating:
50% AGI
Private Nonop:
20% AGI
Charitable Contribution: Real Estate
Amount: Elect either FMV or basis
Public, Private Operating:
FMV: 30% AGI
basis 50% AGI
Private Nonop:
basis 20% AGI
A SEP is a type of
IRA
Incidental Benefit Rule
Stipulates no greater than 50% of the employer contributions may be used to purchase whole life insurance
Deductible portion of self-employment tax
- Deduction for AGI for 6.2% of OASDI up to SS wage base ($137,700) and 1.45% of Medicare (with no earnings limit) for a total of 7.65%
- Tax is based on net income from self-employment.
- No tax if self-empl. net earnings less than $400
- Where self net income <= base
- Calculate self-employment income.
- Multiply the net earnings from self-employment by 0.9235 (1 − 0.0765).
- Multiply the resulting product by 0.153 (the full self-employment tax rate in 2020).
- The shortcut method for SE income at or below the taxable wage base is to simply multiply the amount of self-employment income by 0.1413 (0.9235 × 0.1530).
- For net self-emp > TWB, multiply the taxable wage base by 7.65% and the excess over the TWB by 1.45% and adding the two together
- Additional Medicare Tax 0.9% if
- Single > $200,000
- MFJ > $250,000
What does “nonrefundable” tax credit mean?
Means it won’t result in income.
The tax can be reduced to zero, but not below.
Standard deduction for a dependent
Earned income + $350
New Comparability Plan
- DC plan, either money purchase or profit-sharing plan.
- More expensive to administer
- Type of cross-tested plan
- Nonhighly compensated employees must receive certain minimum contribution levels
- Contributions favor highly compensated employees
- Common design factor is an allocation or contribution formula that results in two groups receiving different levels
- For example, the owner/executive may receive full annual additions limit ($57,000 in 2020), and other EE classes may receive less
- Type of plan works well where owners are different ages, thus precluding an aged-based plan.
- The plan can define EE classifications in a number of ways:
- Service with the employer
- Job title, such as officer or partner
- Employment at a particular division or subsidiary
- Compensation level
- Age
- Class of employee, such as salaried or hourly
- Any combination of 1. through 6
- Allocations are restricted in that the employer must design the contribution structure in such a way that the plan passes the nondiscrimination tests
- In the event the plan fails the nondiscrimination tests:
- the plan should have provisions to reallocate or shift contributions from highly compensated employees to selected nonhighly compensated employees to satisfy the nondiscrimination rules; and
- it should be designed to increase accrual rates for nonhighly compensated employees one at a time until the nondiscrimination test is passed
Half year convention
When depreciating an asset straight line, assume only 1/2 year for year 1
Gain attributable to depreciation
1245 gain
Excess of gain over gain attributable to depreciation
1231 capital gain
NOI capitalization approach
(Gross inc. - op. & recurr. exp) * (1 - vacancy) / discount rate
FDIC limit for Joint Account
Limit applied PER PERSON
2033
Property owned by decedent
M
Mine!
2034
doweR and cuRtesy Interests
R
2035
Law
- Gift tax on gifts made within three years of death
- Gifts made within three years of death that would have been included under Section 2036, 2037, 2038, or 2042
2036
J - just let me keep
Transfers with a retained life interest
2037
K - kill
Transfers taking effect at death
2038
not Final
Revocable trusts
2039
Pay each year
Annuities
2040
‘S’pouse incl.
Jointly owned property
2041
‘TT’
Powers of appoinTmenT
2042
‘TN’ ?
Proceeds of Life Insurance
S-Corp may include non-US citizens
Yes
S-corp election deadline.
15th of 3rd month of current tax year.
(Ides of March to a calendar year S-corp)
Extensions permitted if reasonable cause
Special taxes for S-corp
- Built-in gains tax
- LIFO recapture tax
- Excess net passive income tax
All paid by S-corp, not by shareholders!
AMT Tax Credit
AMT may be used as credit against regular tax in future years
Carried forward, not backward
AMT Exclusion items
- Std./Itemized deduction
- A portion of the exclusion of gain from qualified small business stock (S 1202) acquired before September 28, 2010
- Tax-exempt interest treated as a tax preference for AMT
- Percentage depletion treated as a tax preference for AMT
Sect. 179 expense
May write off cost of tangible personal property used in a trade or business.
Not income-producing (ie, inventory)
Max $1,040,000 / yr
Functional use test
v
Taxpayer use test
Functional: Use must be the same
Taxpayer: Used in similar endeavor
1231 asset
Certain assets used in a taxpayer’s trade or business that are held for the long-term
Included: depreciable tangible and intangible personal property, real property, timber, certain livestock, and unharvested crops
Not included: inventory, copyrights and property held for sale to customers.
1231 losses
Ordinary!
What can never be depreciated for income tax purposes?
Land
Exception to the 10% penalty for higher education expenses applies only to
IRAs
(not qualified plans)
Min. hours for SEP elig
0
Are rollovers permitted from eligible 457 to 401(k) and 403(b)?
Yes
How long must a person participate in a SIMPLE IRA prior to rolling over into a traditional IRA?
2 years
SIMPLE IRA early withdrawal penalty
25% first two years
SIMPLE 401(k): after-tax deferrals permitted?
No
HEMS
Health, Education, Maintenance, Support
Permitted feature in a bypass trust; allows spouse to invade principal for these four motivations
Trust NOT included in surviving spouse’s GE
Reverse QTIP
Under GSTT rules, QTIP property included in the surviving spouse’s gross estate is considered transferred by the surviving spouse, not by the decedent. Therefore, if a decedent transfers property into a QTIP trust, and the trust beneficiaries are grandchildren, the decedent will not be allowed to use his GSTT exemption. The surviving spouse would be required to use her GSTT exemption at death.
- The reverse QTIP election is a special election available for GSTT purposes. The election treats the QTIP property as if the QTIP election was not made for GSTT purposes
- Marital deduction will still be available
- Often made to use a decedent’s GSTT exemption
Gift of remainder interest
Future interest
Not eligible for annual exclusion
Deduction up to $25,000 of losses from real estate activities against active and portfolio income reduced by
50% taxpayer’s AGI in excess of $100,000
Deductibility of passive losses by C corp
100%
Sprinkling (spray)
The power of directing income at the trustee’s discretion to the beneficiary (trustee can choose when and how much)
Crummey right of withdrawal limit
Min{5%, annual gift limit ($15,000)}
2503(b) distribution of income
Manadatory
Code of Ethics (6)
- Act with honesT, integriT, compeTence, and diligence.
- Exercise due care.
- Maintain the confidentiality and protect the privacy of client information.
- Act in the client’s best inteRests.
- L:Avoid or disclose and manage conflicts of interest.
- Just Act in a manner that reflects positively on the financial planning profession and CFP® certification.
Depreciation recapture rate
Min(marginal rate, 25%)
Stock distributions from qualified plan
If he receives employer stock certificates in a lump-sum distribution from a qualified plan, only the original cost basis of the stock is taxable at the time of distribution.
The net unrealized appreciation (NUA, which is the appreciation of the shares while inside the employer retirement plan) would not be taxed until the stock was subsequently sold
Tax on gain from sale of 1250 property
@25%, to the extent of accum deprec
rest @LTCG rate
Original Issue Discount (OID)
OID typically applies to zero-coupon or deep-discount bonds.
- Interest is usually accrued and includable in income despite an absence of cash flow It is often referred to as phantom income, which is income that is taxable but not received in cash or property at the time of recognition for income tax purposes
- The sale of an OID bond will result in capital gain or loss if the sale proceeds are different from the adjusted tax basis
- The accrued interest reported each year by the taxpayer is added to the basis
Durable vs Nondurable
Durable survives the person’s incapacity
Nondurable does not
1231 asset
Certain assets used in a taxpayer’s trade or business that are held for the long-term
Included: depreciable tangible and intangible personal property, real property, timber, certain livestock, and unharvested crops
Not included: inventory, copyrights and property held for sale to customers.
1231 losses
Ordinary!
What are NOT capital assets?
A-C-I-D
- A/R (
- Copyrights and creative works
- Inventory
- Depreciable prop or RE
A, C, and I are ordinary income assets
