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REG > REG2 > Flashcards

REG2 Flashcards

1
Q

Formula to arrive at tax due or refund

A

gross income

AGI

taxable income

apply tax

other taxes

tax due or refund

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2
Q

How to determine single + mfj status

what if spouse dies during the year

A

end of year test

if spouse dies during year, can still file mfj

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3
Q

qualifying widower

when can file?

how to qualify?

A

can file 2 years after year of death (mfj in year of death)

Must be principal residence of dependent child for whole year

Widower = Whole year

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4
Q

head of household

how to qualify?

A

maintains a home that is the principal residence of:

Son or daughter, dependent relatives for more than Half the year

(no cousins, unrelateds, etc.)

Father or mother over half the cost of upkeep of home (nursing home)

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5
Q

What do you get in year of birth or year of death?

A

Exemption for the whole year

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6
Q

Dependents

Qualifying Child mnemonic (CARES)

A

C Close Relative (brothers, sisters, kids)

A Age limit (19/24 college)

R Residency and filing restrictions (more than 1/2 year, no joint return for child)

E Eliminate gross income test (doesn’t matter unlike SUPORT)

S Support test changes (child didn’t contribute more than 1/2 own support (no parent))

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7
Q

Dependents

Qualifying relative mnemonic (SUPORT)

A

S Support Test (taxpayer provides more than 50% support, 10% if multiple)

U Under $4,000 taxable income (S.S., tax exempt don’t count)

P Precludes dependent filing a joint return (unless to just get refund)

O Only citizens of U.S., Canada, Mexico

R Relative Test - any relative.

 -OR-

T Taxpayer lives with dependent for Whole year if non-relative

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8
Q

Passive losses

A

can only be offset against passive income

net passive loss carried forward

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9
Q

Taxable interest income

A

All except:

1) State and local bonds interest
2) Bonds of U.S. possession interest (treasury bonds are taxable)
3) Series EE (Educational expenses) bond interest PHASE OUT

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10
Q

Taxable dividend income

A

company’s earnings and profits

cash or FMV if property

taxed at 15% or 0% for low income people

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11
Q

Tax-free distribution dividend income

A

Return of capital (no e+p) > reduces shareholders basis

Stock split

Stock dividend unless had option to receive cash

Dividends from mutual life company

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12
Q

Capital gain distribution dividend income

A

No earnings and profits, but shareholder recovered entire basis of stock.

entire distribution is taxable

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13
Q

State and local tax refunds

taxable?

A

yes, if itemized in prior year

no if standard deduction

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14
Q

Payments pursuant to a divorce

A

Alimony - income to receiver, deductible to contributor

Child Support - non-taxable to receiver

Property Settlements - not taxable

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15
Q

Business income

A

cash

property

cancellation of debt

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16
Q

Business expenses

A

every cost except:

  • salaries and commissions to yourself
  • business meal and entertainment at 50%
  • interest expense in advance cannot be deducted until actual time
  • federal income tax
  • personal portion of interest expense
  • personal portion of state and local tax expense
  • personal portion of health insurance of sole
  • proprietorship (actually adjustment to arrive at AGI)
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17
Q

If net operating loss,

A

carry 2 back, 20 forward

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18
Q

Uniform capitalization rule

A

capitalized as inventory: DM, DL, OH

period expense: selling, general, admin, R+D

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19
Q

Rental Income formula

A

Gross rental income

Prepaid rental income (non-refundable deposits)

Rent cancellation payment

Improvement in-lieu-of rent at FMV

Net rental income or loss

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20
Q

How to treat rental income

A

If rent less than 15 days, income is ordinary, no deductions. treated as personal residence.

Rent 15 or more days and live more than 2 weeks for personal purposes, or 10% of rental days, expenses are prorated. treated as personal/rental residence.

Personal/rental residence deduction for taxes, interest, * rented months/12

Personal/rental residence deduction for utilities, depreciation (can’t go below zero) * rented months/occupied months

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21
Q

Passive activity losses (rental income)

A

Can only be deducted to the extent of income (can’t be negative)

Carryforward w/o limit, fully deductible in year of disposal

Can deduct net loss if active: 1) mom & pop - $25,000 max deduction (excess carried forward indefinitely) and must be ‘active’; 2) real estate professional more than 50% of services in real estate more than 750 hours incurred.

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22
Q

unemployment, workers comp

A

unemployment fully taxable

workers comp is not

23
Q

social security income

A

not taxable at low levels, taxable as you move up

24
Q

educational deductions

A

NO ROOM AND BOARD

25
Q

Gifted property for gain/loss purposes (general rule) & holding period

A

retains rollover cost basis

basis is increased by any gift tax paid

recipient assumes giftor’s holding period

26
Q

Gifted property for gain/loss purpose exception

A

Lower FMV at date of gift

Sell higher: use ‘donor basis’ to determine gain

DONOR BASIS

Sell between: No gain or loss

LOWER FMV AT DATE OF GIFT

Sell lower: Use lower FMV at date of gift to determine loss

27
Q

inherited property

A

date of death FMV becomes basis

alternate date : earlier of 6 months later or date of distribution/sale

automatically long term holding period

28
Q

In like kind exchange, recognized gain is ____.

In like kind exchange, basis is _____.

A

recognized gain is the lesser of realized gain or boot.

basis is decreased by money received and increased by gain (boot) recognized.

29
Q

Installment Sale

A

Recognize over period cash is received
gross profit = sale - cogs
gross profit % = gross profit/sales price
earned revenue = cash collections * gross profit %

30
Q

Non deductible losses mnemonic (WRaP)

A

W Wash Sale Loss

R Related party transactions

A -and-

P Personal loss

31
Q

Wash sale loss

A

When a security is sold for a loss and is then repurchased within 30 days before or after sale date.

32
Q

Related party transactions

A

Brothers/sisters, husband/wife, father/son/grandfather, entities that are more than 50% owned by individuals, corporations, trusts, partnerships.

Capital gains taxes imposed on all transactions except husband to wife basis transfer

Capital losses disallowed.

Holding period starts fresh

Same basis rules as gift tax

33
Q

personal loss

A

no deduction allowed for loss on a non business disposal or loss. maybe itemized deduction of casualty or theft

34
Q

individual capital gain and loss

long term vs. short term

A

long term - holding period greater than 1 year

15% max tax rate

short term- holding period 1 year or less

treated as ordinary income.

35
Q

net capital loss max deduction

A

single and mfj 3000

if husband and wife file separately, loss deduction limited to 1500.

36
Q

individuals; excess capital losses

A

carry forward indefinitely, no carry back

37
Q

corporation capital gains and losses

A

net capital gains > ordinary income

net capital losses > can only be deducted from net capital gains. 3 back/ 5 forward

38
Q

Exception to Penalty Tax Rule (HIM DEAD)

A 
Homebuyer (1st time)
Insurance costs (Medical)
Medical Expense
Disability events
Education and
Death
39
Q

Gains that are not Taxable (HIDE IT)

A 
Homeowner Exclusion ($500k MFJ)
Involuntary Exchange (No gain recognitions)
Divorce Property Settlement
Exchange of Like Kind
Installment Sale
Treasury and Capital Stock
40
Q

Deductible Interest (HIPPE)

A 
Home Mortgage ($1m Home Mortgage limit; $100k Home Equity limit)
Investment Interest
Personal Consumer Interest
Prepaid
Educational Loan ($2500)
41
Q

Taxes that are itemized (RIP)

A

Real Estate
Income
Personal Property
Sales (or income tax)

42
Q

Adjustments to arrive at AGI (I EMBRACED, Education, Health, Farm)

A 
Interest on student loans
Employment tax
Moving expenses
Business expenses
Rent/Royalty & Flow through entities
Alimony
Contributions to retirement fund
Early withdrawal penalty
Jury Duty Pay
Education
Health Savings Account
Farm Income
43
Q

COMMITT: Itemized Deductions (below the line):

A

Charitable Contributions
Other Misc. Deductions (Not subject to 2% rule)
Misc. Deductions (Subject to 2% rule; unreim. emp. expenses, tax prep fees, certain otr exp.)
Medical Expenses
Interest Paid
Taxes Paid but no FBI* Fed. Taxes, Business and Rental Property, Inheritance Taxes for States

44
Q

PANIC TIMME: AMT Adjustment (Individual):

A 
\+Passive Loss
Accelerated Depreciation
NOL’s
Installment Sale from Dealer
Contracts vs. % Completion method
\+Tax Deductions
\+Interest deductions on home equity loans
\+Med deductions (10% rule)
\+Misc. deductions (add back 2%)
\+Exemptions (Personal) and Standard Deduction
45
Q

FACCE: AMT Credits (Individual):

A 
Foreign Tax 
Adoption
Child Tax
Contribution to Retirement Plan
Earned Income
46
Q

S-Corp Form (1120S) overview

A

S corporations are corporations that elect to pass income, losses, deductions, and credits through to their shareholders.
Shareholders of S corporations report the flow-through of income and losses on their personal tax returns and are assessed tax at their individual income tax rates.
S corporations avoid double taxation on the corporate income.
S corporations are responsible for tax on certain built-in gains and passive income at the entity level.

47
Q

S-Corp Main points

A

Must be a domestic corporation
Have only allowable shareholders:
-May be individuals, certain trusts, and estates and
-May not be partnerships, corporations or non-resident alien shareholders
Have no more than 100 shareholders
Have only one class of stock
Avoids double taxation
Liability Protection
Once a year tax filing requirement vs. quarterly for C-corps

48
Q

Partnership Form (1065)

A

A partnership must file an annual information return to report the income, deductions, gains, losses, etc., from its operations, but it does not pay income tax.
It “passes through” any profits or losses to its partners.
Each partner includes his or her share of the partnership’s income or loss on his or her tax return.
Partners are not employees and should not be issued a Form W-2.
The partnership must furnish copies of Schedule K-1 (Form 1065) to the partners by the date Form 1065 is required to be filed, including extensions.

49
Q

General Partnership

A

Partners have unlimited liability for business debts, injuries, etc.

50
Q

Limited Partnership (LP)

A

A limited partnership is a special kind of partnership, in which there are two classes of partners. One class is that of general partners. The general partners run the business and share in any profits or losses the same as in a regular partnership. The other class is that of limited partners. Limited partners contribute money, but are not allowed a say in how the business is operated. They might also be called silent partners. Usually, limited partners are only liable for losses up to the amount of money they contributed to the partnership.

51
Q

Limited Liability Partnership (LLP)

A

It operates like a limited partnership, but gives each member of the LLP protection from personal liability, except to the extent of their investment in the LLP.
Generally, partners in a limited liability partnership aren’t responsible for another partner’s debts, obligations, or liabilities resulting from negligence, malpractice or misconduct.
Professional organizations (such as accounting and law firms) often form as limited liability partnerships because an LLP is specifically designed to limit malpractice claims against uninvolved partners.
Each partner is liable for debts and obligations created as a result of his or her own negligence, malpractice or misconduct, as well as negligence, malpractice or misconduct by any person under that partner’s direct supervision.

52
Q

C-Corp Form (1120)

A

For federal income tax purposes, a C corporation is recognized as a separate taxpaying entity. A corporation conducts business, realizes net income or loss, pays taxes and distributes profits to shareholders.
The profit of a corporation is taxed to the corporation when earned, and then is taxed to the shareholders when distributed as dividends. This creates a double tax. The corporation does not get a tax deduction when it distributes dividends to shareholders. Shareholders cannot deduct any loss of the corporation.
Main Points: Unlimited # of owners (of which any can be foreign), may issue stock to attract investors, may be owned by another business. Quarterly tax filing requirement.

53
Q

LLC and overview

A

Creating an LLC is a good way to “wall off” your personal assets from your company’s liabilities, offering protection for your personal assets in the event of a judgment against your business. For this reason, forming an LLC is a better fit for many owners than a sole proprietorship or a general partnership.
A limited liability company (LLC) also has certain tax advantages. The business itself is not responsible for taxes on its profits. Instead, the LLC’s owners, known as “members,” report their share of business profit and loss on their personal tax returns, similar to tax reporting for a general partnership. This is known as “pass-through” taxation.
Main points: Pass through taxation, owners need not be US Citizens, legal protection for business debts, unlimited # of owners

REG (21 decks)

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