NINJA Individual Taxation #2 Flashcards
What can be carryovers?
C - Charitable Contributions A - AMT Paid C - Capital Loss (Individual) P - Passive Activity Loss I - Investment Interest expense > Investment Income E - Excess 179 expenses
How can Passive Activity Loss be carried?
o No Carryback
o Carry Forward Indefinitely
How can Investment interest expense be carried?
Carry Forward Indefinitely
How can charitable contributions be carried?
Carry Forward 5 years
How can AMT paid be carried?
o Carry Forward Indefinitely
o Apply against future Income Tax only
Not against future AMT liabilities
How can capital losses (individuals) be carried?
o $3,000 Loss and Carry Forward rest Indefinitely
o Loss retains Character (STCL vs LTCL)
How can corp capital losses be carried?
- 3 years back /5 years forward
* Corp Carry Forward as a STCL only
What is the formula for contract price?
Contract Price = Sales Price – (Buyer Liability)
What is the treatment of home mortgage interest?
- Mortgage Interest deductible on loans up to $1M
- Home Equity Interest deductible on loans up to $100K
What types of business gifts (Sch C) are deductible?
- $25 per person is deductible
* Service awards up to $400 are deductible
How are business losses treated?
Business Losses only offset active Business Income
W2 wages are considered active Business Income
Passive Losses don’t offset active income
W2 wages = Active Income
Can’t be offset by Passive Losses
Ltd Partnership income = Passive Income
Can be offset by passive losses
Interest/dividend income = Portfolio Income
NOT PASSIVE
What is the treatment of business start-up costs?
Deduct up to $5,000 of Start-up costs
Reduced dollar-for-dollar by amount over $50,000
Remaining costs are amortized
What is the deductible treatment of medical expenses – Schedule A?
(New) Deductible once 10% AGI threshold is reached
o If your AGI is $100,000, your first $10,000 of medical expenses are not deductible
Accident/Disability insurance is not deductible
What types of medical expenses – paid on behalf of another treated?
Must be a Citizen of North America
If person is your mother/father or relative closer than a cousin, they don’t have to live with you
Otherwise, they must live with you
Must provide more than 50% support to individual
Are Foreign Income Tax – Deductible?
Yes
Are Foreign Real Estate Tax Deductible?
Yes
Are Foreign Personal Property Taxes Deductible?
No
Are Foreign Tax Assessments Deductible?
No, Add to Basis
How are investment interest expenses – Schedule A treated?
Deductible only the extent of Net Investment Income
Gross Investment Income
= Net Investment Income
Note: Investment expense doesn’t include Interest Expense. Investment interest expense on tax-free securities is not deductible
How are mortgage points – Schedule A treated?
Deductible if it represents prepaid interest on purchase of a new home or improving a home
Refinance points are amortized over the life of the mortgage
How are mortgage interest expenses – Schedule A treated?
If used to purchase a house (i.e. not to pay off credit cards) deductible on Schedule A on debt up to $1M
Refinance interest expense deductible up $100k of debt
How are charitable contributions – Schedule A treated?
LTCG Property + Property related to Charity
o Deduction for FMV of property
o Up to 30% of AGI
STCG Property + Property not related to Charity
o Deduction for Adjusted Basis in property
o Up to 50% of AGI
What is the treatment of Misc Schedule A deductions?
Must Exceed 2% of AGI Education - If required to keep your job Business travel expenses 50% of meals/entertainment Union Dues Tax prep fees Legal fees to collect alimony Appraisal Fees to Value o Casualty Loss o Charitable Contributions
What types of deductions are not subject to AGI phaseout?
Medical
Casualty
Gambling
Investment Interest Expense
How are casualty losses treated?
Decrease in FMV of property vs. Basis
Use the lower of the two numbers
Lower of above number
(Note – this was $500 in 2009 tax year)
=Deductible amount for casualty loss
Are expenses to repair damaged personal property deductible?
No
What is a qualifying child?
Must be resident of North America
Under age 19 or age 24, if student
What is a qualifying relative?
Must be citizen of North America
Same “relative” test as the test for medical expenses paid for another person
o If person is your mother/father or relative closer than a cousin, they don’t have to live with you
o Otherwise, they must live with you
o Must provide more than 50% support to individual
o Can’t earn more than the Personal Exemption
Social Security doesn’t count as income
Formula for minor income taxed at parent’s rate
Child’s unearned income
=Amount taxed at parents’ rate
Can MFJ spouses use different accounting methods if they each own a small business?
Yes
Can Non-resident aliens can file MFJ with their spouse?
Yes
What are some AMT add-backs?
- Difference between Depreciation on Real Estate purchases pre-‘99 vs AMT’s Straight Line 40
- Difference between 200% MACRS vs 150% MACRS on personal property
- Difference between FMV of stock options vs amount paid for them
- No state income tax, real estate tax, or personal property tax allowed for AMT.
- No personal exemptions or standard deductions
- Construction: Only % of Completion Method allowed
- No installment method on sales allowed
- AMT paid is carried forward indefinitely and only reduces future regular tax, not future AMT
What is the SE Tax rate?
15.3% of Net Profit
What is an EXAM TRICK related to SE?
Executor of Estate NOT SE Income
What are some refundable tax credits?
Taxpayer receives larger refund than what they paid
o Earned Income Credit
o Additional Child Tax Credits
o American Opportunity Credit
What is the American Opportunity Credit (formerly Hope Credit)?
o Includes first 4 years of post-secondary school
Hope Credit only allowed first 2 years
o 100% Credit for first $2,000 expenses including
Tuition
Course-related Books & Supplies
• Hope Credit didn’t include this
o 25% Credit for next $2,000 of expenses
aka – up to $500
o Total Available Credit per student: $2,500
Compare to Lifetime Learning Credit, which is per taxpayer
o 40% ($1,000) of credit is refundable
Compare to Lifetime Learning Credit, which is not refundable
What is the Lifetime Learning Credit?
o Per taxpayer
o Not refundable
What are the estimated tax payments?
The lesser of: o 90% of current total tax o 100% of prior year's total tax o 110% of prior year's total tax If AGI is $150,000 or more
Will insurance proceeds from damaged crops have to be included in the year they are received?
Yes
What is the treatment if the gains on the extra sales caused by weather issues force the sale of an abnormal volume of livestock?
May be deferred until next year
Are costs to preserve soil/water deductible?
Yes
Are costs to drain wetlands or for irrigation deductible?
No
Can you deduct if you want to preserve resources?
Yes
Can you deduct if you want to use resources?
No
How much of feed costs for livestock can be deducted?
Up to 50% of other farming expenses
What is used for personal tangible property (i.e. non RE, such as farmer’s F150 truck)?
MACRS 150
What happens after an audit appeal and no deal is reached after appeal?
o Taxpayer has 90 days to Petition the Tax Court
o If no Petition filed – Tax due within 10 Days
What is the statute of limitations for a tax audit?
3 years
What is the statute of limitations for a tax audit if 25% or more of GI (Gross receipts + capital gains) was omitted from the tax return?
6 years
When does the clock start ticking?
On the Due Date of the return or the date the return was filed - whichever is later
Are there statutes of limitations for Fraud and/or failure to file?
No
How are non-business bad debt treated?
Treated as a Short-Term Capital Loss (STCL)
When must tax refund be claimed?
Must be claimed within (whichever is later)
o 3 years of return Due Date
o 2 years of Tax being paid
How is dividend income treated?
Ordinary Income
You cannot offset dividends with a capital loss
How much life insurance premium can an ER pay in life insurance without it being included as income?
$50k
How are life insurance premiums > $50K treated?
As taxable income to the taxpayer
When are scholarships taxable?
- In return for services rendered (ex. If a graduate assistant gets a scholarship in return for teaching classes, that’s not a tax-free scholarship)
- Room and board counts as income
What is tax-free interest income?
State & Municipal Bonds
US EE Savings Bonds
o US HH Bonds are taxable
Are US Treasuries taxable?
Yes
What is tax-free dividend income?
Some Stocks
S-Corps
Life Insurance
What is the tax treatment for SS benefits?
Up to 85% of Social Security income can be taxed for people in higher income brackets
Is unemployment compensation taxable?
Yes
Are damage awared to you to make you “whole” taxable? (ex. You lose a limb in an auto accident and get paid $500,000)
No
Are punitive damages taxable?
Yes
Is W/C taxable?
No
Are divorce property settlements and child support taxable and deductible?
No
Is alimony taxable and deductible?
Yes
Are adoption expenses deductible?
No, but adoption credit is available
What is the tax treatment of Net Operating Loss (NOL)?
Carryback 2 and carryforward 20
Are traditional IRA contributions deductible?
Yes
Are ROTH IRA contributions deductible?
No
Define Head of Household
o Has a dependent child
o Provides more than 50% support
o Lives with them more than 50% of year
Define qualifying widow(er)
o Has a dependent child
o Gets MFJ status for year of death + 2 tax years
Define tax effects of Affordable Care Act (Obamacare)
Annual Penalty for not having ‘minimum essential coverage
o Greater of:
$95 per person ($47.50 if under 18)
1% of Household Income over threshold
o 3 month grace period for being uninsured
