REG 5 Flashcards
Kiddie Tax
The kiddie tax applies to all children who:
Are under 18, or
If their earned income does not exceed 50% of their total support for the year,
Are 18, or
Between 19 and 23 and are full-time students.
EARNED INCOME does not get kiddie tax, only interest income
The earned income of a child of any age and the unearned income of a child 18 years or older as of the end of the tax year is taxed at the child’s own tax rates. However, the unearned income of a child under age 18 in excess of a threshold amount is generally taxed at the parents’ rates. The threshold amount is subject to change because it is indexed for inflation, but it is normally twice the amount of the applicable standard deduction for a dependent who has only unearned income.
Dividend Received Deduction
The DRD (normally 65% of dividends from unaffiliated corporations 20%-owned) may be limited to 65% of TI before the DRD, except when the full 65% DRD creates or increases a net operating loss - eligible for 50% DRD
Section 351
means for an individual to transfer property to a corporation in exchange for stock without recognizing a gain or loss.
issuance by Corporation of its preferred stock in exchange for its bonds
nontaxable “Type E” reorganization (i.e., a recapitalization) unless BOOT is received
Self Employment Tax
self-employed taxpayer is allowed a deemed deduction equal to 7.65% of self-employment earnings in computing the amount of net earnings upon which the tax is based. The purpose of this deemed deduction is to reflect the fact that em-ployees do not pay FICA tax on the corresponding 7.65% FICA tax paid by their employers.
Rental income / loss
A dwelling unit is used as a home if personal use exceeds the greater of 14 days, or 10% of the number of days rented. If a dwelling unit is used as a home and it is rented for less than 15 days during the tax year, rental income is excluded from gross income and expenses are not deductible as rental expenses.
A special rule permits an individual to offset up to $25,000 of income that is not from passive activities by losses from a rental real estate activity if the individual actively participates in the rental real estate activity.
this special $25,000 allowance is reduced by 50% of the taxpayer’s AGI in excess of $100,000 and is fully phased out when AGI exceeds $150,000.
Charitable Contribution
Cannot exceed 60% of adjusted gross income
Difference between property vs cash distribution by C corp
C corp will have to recognize property appreciation as taxable income (FMV-basis)
Minimum Accumulated Earnings Credit
$250,000 for noservice corporation
$150,000 for service corporation
Partnership loss deduction
Partners can deduct losses on their Form 1040 only if all three of the following hurdles are passed (in this order):
Partners must have enough basis to deduct the loss.
Partners can deduct losses only to the extent of their at-risk amount.
If the loss is a passive loss, the partner can deduct the loss only to the extent of passive income.
Partnership loss deduction
Partners can deduct losses on their Form 1040 only if all three of the following hurdles are passed (in this order):
Partners must have enough basis to deduct the loss.
Partners can deduct losses only to the extent of their at-risk amount.
If the loss is a passive loss, the partner can deduct the loss only to the extent of passive income.
Accumulated Earning Tax vs Personal Holding Company tax application
Personal holding companies cannot be subject to the accumulated earnings tax. So if both penalty taxes could apply, only the personal holding company tax must be paid.
Treatment of he receipt of money or other property in exchange for company own stock (including treasury stock)
No gain or loss is ever recognized by a corporation
Business casualty loss deduction
Fully deductible on FMV. Not like personal with 10% AGI limit and $100 floor
Organizational Expenses
deductible up to $5,000. The $5,000 amount must be reduced by the amount by which organizational expenditures exceed $50,000. Remaining expenditures are deducted ratably over the 180-month period beginning with the month in which the corporation begins business.
