REG R1-R3 Flashcards
How much of a partnership ST capital loss is allowed for an Individual tax payer
STCL from a partnership can flow through for deduction on a partner’s 1040 to the extent of the partner’s tax basis in the partnership interest.
AND can only deduct up to $3,000 of NET capital losses each year, after netting all CG/L for the year together.
Is partnership capital gain income taxed at ordinary or preferred rates?
preferred
Investment interest expense deduction
limited to net taxable investment income. Non interest investment expenses are not deductible.
Taxable investment income includes:
- interest and dividends (if taxed at ordinary rates)
- rents (if activity is not a passive activity)
- royalties (in excess of related expenses)
- net short-term cap gains
- net LT cap gains if the taxpayer elects not to claim the net capital gains reduced tax rate
Are damages received for slander taxable income?
Yes
Is interested received from U.S. Treasury bonds taxable?
Yes
What is the computation for allowable casualty loss?
Lesser of: Decrease in FMV or adjusted basis
Less: insurance proceeds
Less: $100 floor (applied to each casualty loss)
Less: AGI threshold (applied to all casualty losses in aggregate) which is 10% of AGI
=loss after consideration of all threshold limits
Corporate NOL treatment for losses 2018-2020
5 yr carryback and indefinite carryforward
Corporate Max Charitable Contributions Deduction
10% of taxable income before:
* any charitable contribution
* Dividends Received Deduction
* Any NOL or Net Capital Loss carrybacks
Dividends Received Deduction calculation
LESSER of:
applicable % x domestic div received
applicable % x taxable net income BEFORE the following:
* DRD
* any capital loss carryback
* any NOL carryforward. Any capital loss carryovers are still deducted when calculating DRD taxable income limitation
*EXCEPTION: the DRD modified taxable income does not apply if, after taking into account the full DRD, the result is a net operation LOSS
Personal Service Corps and Personal Holding Companies must include in gross income 100% of dividends received from unrelated taxable domestic corps in computing regular taxable income
YES to Both
SCorps AAA account is increased by Tax-Exempt Interest Income or Taxable Interest Income?
Taxable Interest income. Other Adjustments Account (OAA) is increased by tax-exempt interest income.
S Corps that were former C Corps with undistributed C Corp earnings and profits are restricted in the amount of passive income they can realize without terminating their S election. What is the restriction?
25% of total gross receipts from passive investment income for 3 consecutive years
Corporate capital losses treatment
carry back 3 years, carry forward 5
What source of income is included to determine Personal Holding Company income requirements
NOT tax-exempt interest
Dividends received from unrelated domestic corp
Personal holding company status applies if a corp is owned more than 50% by 5 or fewer individuals during last half of tax year and if 60% of adjusted ordinary gross income for that year is personal holding company income (income from investments in stock and securities)
Income is subject to regular corp tax on taxable income, and an additional 20% tax on personal holding company income not distributed.
Regulated Investment Company
a corp that is registered under the Investment Company Act of 1940 and some venture capital companies. To qualify at least 90% of gross income must be qualified investment source income and distribute at least 90% of dividends and interest income.
Benefit of this corp is they are not taxed on amounts distributed to shareholders.
Charitable contribution limits for individual
60% for cash contributions
50% for property contributions - Ordinary income property (personal use assets and ST publicly traded stock) is valued at LESSER of adj basis or FMV.
30% - LT capital gain property at the HIGHER of FMV or cost.
Kiddie Tax
the net unearned income of a dependent child under 18 yrs old (or 18-24, over half supported by parent and FT student) is taxed at parents’ marginal rate.
net unearned income = net unearned income - standard deduction $1,250 +$1,250 taxed at child’s marginal rate ($2,500 total)
When kid has both earned and unearned income the standard deduction is the GREATER of: $1,250; or earned income + $400
all income is reported on the child’s tax return.
S Corp Stock Basis calculation order of operations
First increase by: ordinary business income, separately stated income/gain items, and tax-exempt income
Then decreased by: distributions from S corporation earnings
Non-business bad debt losses treatment
ST capital loss in the year that debt becomes totally worthless
noncash income treatment (even in an exchange)
report FMV of property or services received (in full). The FMV of services rendered is irrelevant.
Traditional IRA deduction
$6,500 per year per person. Additional $1,000 for taxpayers age 50 and older is allowed.
For MFJ where at least one spouse is an active participant in a retirement plan, the phase out is $116,000-$136K. The spouse phase out (who is not an active participant) is $218k-$228K
Statutory notice of deficiency
taxpayer has 90 days to either pay the deficiency or file a petition with the U.S. Tax Court
30-day letter from IRS
taxpayer has 30 days to either request an administrative appeals conference, or agree to the IRS proposed adjustment
Small Cases Division of U.S. Tax Court
Decisions cannot be relied on as precedent in any other court, neither party can appeal a decision, and a taxpayer can file a petition if w/SCD of U.S. Tax Court if amount in dispute does not exceed $50,000 for any one tax year.
scienter
intent (knew that a statement was wrong) or recklessly disregarded the truth
Partnership losses and Partner’s Tax Basis
Tax basis in a partnership interest cannot be reduced below zero. Amount of any loss in excess of basis in the partnership interest is suspended until basis is reinstated in future years.
