REG 8 Flashcards
Adjustments for (to) AGI:
1. Student loan Interest for higher education - $2,500
2. Self-Employment tax –pays both employer and employee’s share (15.3%)
2A. 50% of SE tax (7.65%) is deductible on return
2B. 100% of medical insurance premiums paid by a self-employed taxpayer for self and family are deductible (no member of the family may have coverage through an employer).
3. Business expenses (Schedule C –Sole Proprietorship/1099 Income)
4. Generally, income is taxable when earned by an accrual basis taxpayer and when received by a cash-basis taxpayer. When rents or royalties are received in advance, however, even an accrual basis taxpayer will include them in taxable income in the period received.
5. Passive Activity Losses(PALs) are generally deductible only to the extent of passive gains
5A. Active Participation Exception—If taxpayer only actively participates in the rental activity and has at least a 10% interest in the activity, they may deduct up to $25,000 of losses against ordinary income each year.
Adjustments for (to) AGI:
1. Student loan Interest for higher education - $2,500
2. Self-Employment tax –pays both employer and employee’s share (15.3%)
2A. 50% of SE tax (7.65%) is deductible on return
2B. 100% of medical insurance premiums paid by a self-employed taxpayer for self and family are deductible (no member of the family may have coverage through an employer).
3. Business expenses (Schedule C –Sole Proprietorship/1099 Income)
4. Generally, income is taxable when earned by an accrual basis taxpayer and when received by a cash-basis taxpayer. When rents or royalties are received in advance, however, even an accrual basis taxpayer will include them in taxable income in the period received.
5. Passive Activity Losses(PALs) are generally deductible only to the extent of passive gains
5A. Active Participation Exception—If taxpayer only actively participates in the rental activity and has at least a 10% interest in the activity, they may deduct up to $25,000 of losses against ordinary income each year.
A cash-basis taxpayer may deduct a prepaid expense only if it does not create a right or benefit that lasts beyond the earlier of 12 months or the end of the tax year after the year of payment. Otherwise, the prepaid expense must be capitalized and expensed ratably over the time period covered by the prepayment.
A cash-basis taxpayer may deduct a prepaid expense only if it does not create a right or benefit that lasts beyond the earlier of 12 months or the end of the tax year after the year of payment. Otherwise, the prepaid expense must be capitalized and expensed ratably over the time period covered by the prepayment.
An affiliated group of corporations may elect to file a consolidated return. An affiliated group is one or more corporations connected through stock ownership, with a common parent corporation owning at least 80% of the stock in at least one other includible corporation.
An affiliated group of corporations may elect to file a consolidated return. An affiliated group is one or more corporations connected through stock ownership, with a common parent corporation owning at least 80% of the stock in at least one other includible corporation.
Premiums paid on key employee life insurance, the excess of book depreciation over tax depreciation, and accrued warranty expense, all reduce financial statement income but are not deductible for tax purposes. As a result, each will be added to financial statement income on Schedule M-1 or M-3 to reconcile to taxable income.
Premiums paid on key employee life insurance, the excess of book depreciation over tax depreciation, and accrued warranty expense, all reduce financial statement income but are not deductible for tax purposes. As a result, each will be added to financial statement income on Schedule M-1 or M-3 to reconcile to taxable income.
Section 1244 allows a taxpayer to deduct losses on qualifying small business corporation stock as ordinary losses, rather than as capital losses. The amount is limited to $50,000 for a single taxpayer and $100,000 for a married couple filing jointly. Any remainder is deducted as a capital loss, subject to the $3,000 per year limitation.
Section 1244 allows a taxpayer to deduct losses on qualifying small business corporation stock as ordinary losses, rather than as capital losses. The amount is limited to $50,000 for a single taxpayer and $100,000 for a married couple filing jointly. Any remainder is deducted as a capital loss, subject to the $3,000 per year limitation.
For Bankruptcy -Priority unsecured claims (have second highest priority) are claims that are not secured by collateral but that have priority over other debts under federal law. These debts have priority typically for public policy reasons – that is, the well-being of the public depends upon these debts being paid. Priority unsecured debts in a personal bankruptcy case might include child support, spousal support, and any other domestic support obligations; certain income taxes; and any amount you owe if you caused the death or serious injury of another person because you were driving while intoxicated.
Priority unsecured debts are non-dischargeable, which means that any amounts that do not get paid in your bankruptcy are still outstanding. The bankruptcy does not wipe out your obligation on priority unsecured debts unless they are paid in full through the case.
For Bankruptcy - Priority unsecured claims (have second highest priority) are claims that are not secured by collateral but that have priority over other debts under federal law. These debts have priority typically for public policy reasons – that is, the well-being of the public depends upon these debts being paid. Priority unsecured debts in a personal bankruptcy case might include child support, spousal support, and any other domestic support obligations; certain income taxes; and any amount you owe if you caused the death or serious injury of another person because you were driving while intoxicated.
Priority unsecured debts are non-dischargeable, which means that any amounts that do not get paid in your bankruptcy are still outstanding. The bankruptcy does not wipe out your obligation on priority unsecured debts unless they are paid in full through the case.
In Bankruptcy - Secured claims are claims for debts that are secured by an interest in property (highest priority). A secured creditor can take that property, the collateral, if you default on the debt. The most common secured loans are car loans and mortgage loans, but you may also have secured loans for furniture, jewelry, watercraft, and other types of property.
In a bankruptcy case, secured claims must be paid in full if you want to keep the property that secures the loan. If you choose to surrender the property (give it up), the loan is treated as a general unsecured debt.
In Bankruptcy - Secured claims are claims for debts that are secured by an interest in property (highest priority). A secured creditor can take that property, the collateral, if you default on the debt. The most common secured loans are car loans and mortgage loans, but you may also have secured loans for furniture, jewelry, watercraft, and other types of property.
In a bankruptcy case, secured claims must be paid in full if you want to keep the property that secures the loan. If you choose to surrender the property (give it up), the loan is treated as a general unsecured debt.
Bankruptcy law sets forth the order that your bankruptcy trustee must pay your debts. Usually the trustee pays them in this order: secured debts first, followed by priority debts, and then unsecured debts.
Bankruptcy law sets forth the order that your bankruptcy trustee must pay your debts. Usually the trustee pays them in this order: secured debts first, followed by priority debts, and then unsecured debts.
In Bankruptcy - Unsecured debts are any debts that are not secured by collateral or that are not priority debts (they have the lowest priority). These include medical debts, credit card debts, paycheck advance loans, and personal lines of credit.
In Bankruptcy - Unsecured debts are any debts that are not secured by collateral or that are not priority debts (they have the lowest priority). These include medical debts, credit card debts, paycheck advance loans, and personal lines of credit.
under common law, which applies to the sale of real property, the modification of an existing contract must be supported by consideration. Under the UCC, however, a contract for the sale of goods may be modified either orally or in writing without consideration.
under common law, which applies to the sale of real property, the modification of an existing contract must be supported by consideration. Under the UCC, however, a contract for the sale of goods may be modified either orally or in writing without consideration.
If the sale of section 1245 property is less than the depreciation or amortization on the property, or if the gains on the disposition of the property are less than the original cost, gains are recorded as normal income and are taxed as such. If the gain on the disposition of the section 1245 property is greater than that original cost, then those gains are taxed as capital gains.
If the sale of section 1245 property is less than the depreciation or amortization on the property, or if the gains on the disposition of the property are less than the original cost, gains are recorded as normal income and are taxed as such. If the gain on the disposition of the section 1245 property is greater than that original cost, then those gains are taxed as capital gains.
Machinery is also Section 1231 property since it was held for three years. The recognized gain is subject to Section 1245 recapture. Since the accumulated depreciation taken on the machinery ($27,000) exceeds the recognized gain ($3,000), all of the gain is recharacterized as ordinary income.
So even though the original cost of the asset was $34K , depreciation of $27K was taken and then the asset was sold for $10K - the $3K gain is actually recognized as a 1245 ordinary gain, not a 1231 gain.
Machinery is also Section 1231 property since it was held for three years. The recognized gain is subject to Section 1245 recapture. Since the accumulated depreciation taken on the machinery ($27,000) exceeds the recognized gain ($3,000), all of the gain is recharacterized as ordinary income.
So even though the original cost of the asset was $34K , depreciation of $27K was taken and then the asset was sold for $10K - the $3K gain is actually recognized as a 1245 ordinary gain, not a 1231 gain.
Equipment is Section 1231 property since it was owned for four years. Since it is sold at a loss, it is not subject to the recapture provision under Section 1245. The equipment loss is a Section 1231 ordinary loss and can be netted against other 1231 gains.
Equipment is Section 1231 property since it was owned for four years. Since it is sold at a loss, it is not subject to the recapture provision under Section 1245. The equipment loss is a Section 1231 ordinary loss and can be netted against other 1231 gains.
Gains from the sale of buildings used in a business are subject to the Section 1250 recapture provisions. Under Section 1250, only the depreciation claimed in excess of straight-line depreciation is subject to recapture. Since the commercial building was placed in service after 1986, straight-line depreciation was taken, so none of the $86,000 gain is recaptured.
To the extent of straight-line depreciation claimed ($51,000), the recognized gain is taxed at a maximum rate of 25%.
The remaining gain of $35,000 ($86,000 – $51,000) is characterized as Section 1231 gain subject to a further netting process against any 1231 losses.
Gains from the sale of buildings used in a business are subject to the Section 1250 recapture provisions. Under Section 1250, only the depreciation claimed in excess of straight-line depreciation is subject to recapture. Since the commercial building was placed in service after 1986, straight-line depreciation was taken, so none of the $86,000 gain is recaptured.
To the extent of straight-line depreciation claimed ($51,000), the recognized gain is taxed at a maximum rate of 25%.
The remaining gain of $35,000 ($86,000 – $51,000) is characterized as Section 1231 gain subject to a further netting process against any 1231 losses.
The truck is tangible personalty used in a business but since it is not owned more than a year, it is an ordinary asset (rather than Section 1231). Therefore, the loss of $500 is an ordinary loss.
The truck is tangible personalty used in a business but since it is not owned more than a year, it is an ordinary asset (rather than Section 1231). Therefore, the loss of $500 is an ordinary loss.
