REG Flashcards
Individual Income Tax Formula
Gross Income (Adjustments) =Adjusted Gross Income (Std Deduction OR Itemized Deduction) =Taxable Income before QBI deduction (QBI deduction) =Taxable Income
Regular tax OR Alternative minimum tax (Tax credits) \+ Other Taxes (Payments) =Tax due OR Refund
Filing Status
GR: December 31st determines status
>Exception=Spouse died during the year
Qualifying Widow(er)=supporting dependent the WHOLE year
>Only available for 2 years after death
Head of Household
>Provide support to qualifying person for at least HALF the year
Qualifying Child (CARES)
Close relative Age Limit (19 or 24 & in college) Residency and filing requirements >More than half the year Eliminate gross income test Support test >Child did not contribute more than half of their own support)
Qualifying Relative (SUPORT)
Support test (Did they provide more than half of their own support?)
Under gross income limitation
>(GR: exception amount, currently 4,300)
>Nontaxable income is ok
Precludes dependent filing a joint return
>(Unless return would result in no tax liability)
Only citizens of US or residents of US, Mex, or Canada
Relative OR
Taxpayer lives w/ the individual the WHOLE year
Penalty Tax for IRA Distributions (HIM DEAD)
If done before the age of 59 1/2, must pay regular tax and 10% penalty Exceptions: Homebuyer (first time) Insurance (medial) Medical expenses in excess of AGI floor Disability Education (college tuition, books, fees) Adoption or birth Death
Adjustments
-1/2 of self-employment tax
-Educator expenses (250)
-Traditional IRA contribution
-Student loan interest expense (up to 2,500)
>PO (70-85k UM / 140-170k MFJ)
-Health savings account
-Moving expenses (for active duty)
-Self-employed health insurance
-Self-employed retirement plans
-Alimony (Pre 2019)
-Tuition fees deduction
-Attorney fees in a discrimination case
-Qualified CC (up to 300)
-Penalty on early withdrawal of savings (interest income forfeited)
Itemized Deductions
-Medical expenses
-State, Local, and foreign taxes (not to exceed 10k)
-Interest Expense (HIPPE)
>Home mortgage (up to 750k, first and second home)
>Investment interest expense (limited to inv income)
>Personal Interest = Not deductible
>Prepaid interest = Incurred and paid
>Educational loan interest (Adj, not itemized) 2,500/yr
-Charitable Contributions (60% cash, 50% ord inc property, 30% LTCG property FMV)
-Casualty losses (10% AGI floor, $100/ casualty)
>When in doubt go with the smallest option
-Other misc. = gambling losses (up to winnings)
-Note: home equity loan interest only includable up to the extent used to buy, build, or improve property
Refundable Tax Credits
Child tax credit, earned income tax credit, W-2 withholdings, excess SS withheld by two or more employers, American opportunity tax credit (40%)
Child and dependent care credit
20-35% of eligible care up to 3,000 for one child or 6,000 for 2 or more
- Must be under the age of 13
- Limited to the lowest earned income of either spouse
Education tax credits
American Opportunity: 2,500/ student, 100% of first 2,000 + 25% of next 2,000
Lifetime learning credit: 2,000/taxpayer, 20% of first 10,000
Foreign Tax Credit
Lesser of foreign taxes paid or (taxable income from all foreign operations divided by total worldwide income times US tax)
Deductible SE Tax Calc
SE income92.35%= SE subject to tax15.3%=SE tax liability*50%=Deductible amount
Exceptions to PALs from real estate
-Mom & pop exception: deduct up to 25,000 attributable to real estate when actively participating and own at least 10%
>Phase out =100-150k
-Real estate professional: More than 50% of taxpayers personal services and more than 750 hours of service/year
Alternative Minimum Tax
Regular taxable income \+/- Adjustments \+Preferences =Alternative minimum taxable income - Exemption amount =Alternative minimum tax base *AMT rate =Tentative minimum tax -Regular income tax =AMT
AMT exemption amount
=Full exemption - (AMTI-AMTI threshold*25%)
AMT Adjustments (PANICTS)
\+/- >Passive activity losses >Accelerated depr. >Net operating loss of indy taxpayer >Installment income of a dealer >Contracts (% completion (required) vs. completed) \+ only >Tax deductions >Std deduction
*CC and home mortgage interest not add backs
AMT Preferences (PPP)
Private activity bond-interest income
Percentage depletion deduction
Pre-1987 accel. depr.
Gifted Property
-GR: Donor’s basis and holding period
-Exception:
>FMV Sell higher = SP-Basis=Gain
>Sell between = No G/L
>Sell Lower = SP-FMV = Loss
Inherited Property
GR: FMV at date of death
>If alternative date elected, earlier of 6 mos. after death or distribution date
>Holding period ALWAYS LT
Nontaxable Gains (HIDE IT)
Homeowner's exclusion -500,000 MFJ/250,000 Else Involuntary conversions -Gain excludable if proceeds reinvested in property similar to that disposed >Must be done within 2 years for personal or 3 years for business Divorce Property Settlement -Property rec'd in divorce=nontaxable Exchange of like-kind property -G/L deferred unless boot rec'd -Basis = FMV - G deferred + L deferred Installment Sale -Gain deferred until cash rec'd Treasury and capital stock transactions
Nontaxable Losses (WRaP)
Wash sale losses -Losses deferred if repurchased within 30 days of sale -Basis of repurchase=purchase price+disallowed loss Related party transactions -Gift tax basis rules -Family and 50% or more owned business AND Personal losses = NEVER deductible >Gains are taxable though
§1231 LT Trade or Business Use Assets
- Net gain=Capital, Net loss = ordinary income
- 5-year look back using cy 1231 gain against prior year 1231 loss
Depreciation Recapture
-§1245 used for personal property sold at a gain
>Lesser of gain or A/D is treated as ord inc
>Any remaining gain is 1231 gain
-§1250 (Land and building)
>Partial recap = accelerated depr.-SL
-§291 (Corps only)
>If SL is taken: 20% of lesser of recog gain or A/D
>If 1250 applies = (Lesser of recog gain or AD)-1250 recap
Depreciation (1BM)
- §179 deduction
>For personal property including qualified property improvements. NOT for (non)/residential buildings
>Max = 1,040,000, reduced $-$ by amount exceeding 2,590,000
>Deduction limited to taxable income, before deduction.
>Cannot be used to create or extend a net loss - Bonus Depreciation
>If asset converted from personal use to business or from family member, no bonus depr. or §179 - MACRS
>In year of disposal, month disposed of out of 12 for real property; 1/2 multiplied for personal property
DRD
50% (0-20% ownership) = unrelated
65% (20-<80%)
100% (80% +) = consolidating
=Lesser of DRD or rate x taxable income before deduction
>Exception: If full DRD would create a NOL, take full DRD
Operating Losses
Corporation: >CB 2 years, CF 20 (Pre 2018) >CB 5 years, CF Indef (2018-2020) > No CB, CF Indef (2021 +) (80% limit) >Capital Losses: -Only deductiable to offset CG -CB 3 years and CF 5 -Treated as ST
Individuals:
>Business Losses (Flow-throughs):
-Tax Basis (Includes Recourse debt if general partner or personally guaranteed, qualified nonrecourse debt, and other nonrecourse debt)
-At-risk Basis (includes Recourse debt if general partner or personally guaranteed and qualified nonrecourse debt)
-PAL
-Note: S corp SH or liable for debts personally guarenteed
>Capital Losses:
-CF indef
-3,000/year after matching against CG
-Maintain character
Tax Shelter
Any (1) pship or other entity; (2) investment plan or arrangement; or (3) other plan or arrangement if a significant purpose of such pship, entity, plan or arrangement is the avoidance or evasion of federal income tax. There are legal tax shelters that can be used to reduce taxes and there are abusive tax shelters.
Implied Duties of an Agent (LORAS)
Loyalty Obedience Reasonable Care Account- For money and property rec'd and paid out Subagent
Agent
Can lack capacity and be a minor (Principal must have both)
Ratification
- Principal must know all relevant facts
- Principal cannot be undisclosed at the time of making the contract
- Must ratify the entire transaction
- Must be done before the third party withdrawals
Duties of Principal to agent
-Compensation
-Reimbursement/indemnification
-Remedies of the agent
>Reasonably foreseeable damages (compensatory)
Termination of Agency
- By agreement (By either party unless agent is creditor)
- Operation of law (legality, death of either party, the bankruptcy of principal, destruction of subject matter, agent does not have required license)
- By attainment of the purpose of the agreement
Revocation
MUST occur before acceptance!
Child Tax Credit
2,000 for each qualifying child
CARES rules, except must be under 17
Extent that it can create a refundable credit is lesser of:
- Remaining credit
- Earned income less 2,500 * 15%
- 1,400 per qualifying child
Apportionment Factor
The apportionment factor is calculated by averaging the factor of sales, payroll, and property for a specific state. These factors are the ratio of (1) total sales, payroll, or property in a specific state to (2) total sales, payroll, or property everywhere.
-Property should be average not ending
Private Letter Ruling
The IRS issues a private letter ruling (PLR) in response to a taxpayer’s request for guidance on the tax treatment of a proposed transaction, typically one with significant tax consequences. A private letter ruling can be relied on by the taxpayer to whom it is issued, but cannot be relied on as precedent by other taxpayers.
Base Erosion and Anti-Abuse Tax (BEAT)
The base erosion and anti-abuse tax (BEAT) may apply to corporations with average annual gross receipts of $500 million or more for the three preceding tax years.
Special Medicare Tax Rule
Starting in 2013, a 3.8% Medicare tax is levied on the lesser of (1) the taxpayer’s net investment income; or (2) the excess of modified AGI over a threshold amount.
Types of Bankruptcy
Ch 7 = Liquidation (I,P,C)
-Trustee appointed, may be voluntary or involuntary
Limitation: No RIBS (Railroads, savings institutions, insurance companies, banks, and small investment buisnesses)
-Step 1: Determine if monthly income is < state medial
-Step 2: Means Test
>(Avg MI-Allowed exp)*60 = available
>If < 8,175 = Ch 7 ok
>If > 13,650 = Ch 13 or dimissal
>If in between, presumption of abuse = amunt is atleast 25% of unsecured creditors
Ch 11 = Reorganization (I,P,C)
-Trustee is not required; voluntary or involuntary
-No BIBS (Savings institutions, insurance companies, banks, or brokers)
Ch 13 = Debt adjustment
-Trustee is appointed and 3-5 year repayment plan in developed
-Individuals only
Ch 15 = Cross-border case
Involuntary Petition into Bankruptcy
-May be filed if the debtor is not paying debts as they come due
-Only UNsecured creditor can file
-12 or less creditors = 1 must meet 16,750 unsecured
>12 or more, at least 3 must meet 16,750 unsecured
Property of the bankruptcy estate
Generally includes all debtors real and personal property at time of filing.
Estate is to include certain income received within 180 days of petition (DIII):
>Divorce
>Inheritance
>Insurance
>Interest from bonds
Claim priority in bankruptcy
- Secured Creditors
2.
>Support obligations to spouse and children
>Admin expenses in proceeding
>Gap creditors
>Wages up to $13,650 per employee if earned 180 days prior to filing
>Employee benefit plan contributions up to $13,650/employee reduced by wage claims, if earned w/in 180 days prior to filing
>Grain farmers and fishermen’s claims up to $6,725
>Consumer deposits for good paid for but not delivered up to $3,025
>Taxes
>Injury claims caused by intoxicated driving - General creditors
*Those on the same level will receive remaining estate on a pro rate basis
Objections to discharge
- Debtor not an individual
- Fraudulent transfers of concealment of property
- Unjustifiability failed to keep books and records
- Prior discharge w/in 8 years
- Commission of bankruptcy crime
- Failure to explain loss of assets
- Refusal to obey orders or to answer questions
Exceptions to Discharge (FAT WED)
F-Debts incurred by FRAUD, embezzlement, or inducement
A-Alimony, maintenance, support, and settlements
T-Taxes due w/in 3 years of filing
W-Willful and malicious injury
E-Educational loans (Unless undue hardship can be demonstrated)
D-Debts undisclosed in the bankruptcy petition
Methods of Formation of Contract
Express=Oral or written Implied-in-fact= Formed by conduct Implied-in-law(Quasi) = Allows a plantiff to recover a benefit unjustly conferred upon the defendant >Remedy=To prevent unjust enrichment >Not contract at all
