Sections Flashcards
Section 199A: QBID
Qualified Business Income Deduction (QBID)
pass-through (non-corporate) entities (AKA small businesses) such as
* a sole proprietor,
* S-Corporation shareholder, or
* partner in an LLC or partnership entity.
**LESSER OF: **
- 20% of QBI = Net Business Income - (1/2 of SE Tax + SE Retirement Contributions + SE Health Insurance Preimiums) OR
- 20% of Ordinary Taxable income (AGI - Capital gains - Std or ITM deductions).
Sec 303 Redemption
Allows for portion of decedent shareholder’s stock to be bought back by the corporation as a sale or an exchange instead of dividend
The redeemed stock MUST be included in the decedent’s gross estate.
decedent shareholder’s stock must be worth more than 35% of decedent’s gross estate (after deductible expenses)
Section 6166 - What and Qualifications`
created to alleviate an estate’s liquidity problems; can defer estate tax payments if qualify
An Estate Qualifies, If:
1) value of decedent’s interest in the closely held business EXCEEDS 35% of the ADJUSTED GROSS ESTATE
2) Decedent was US Citizen or Resident at DOD
3) Election was made timely with full and complete filing of fed estate tax return
Section 6166 - Payment options
the estate pays a reduced rate of interest on the portion of estate tax deferred
may elect to pay the estate tax due on the decedent’s interest in a closely held business in up to 10 equal, annual installments.
1st annual payments MUST be made with 5 years after the due date of the Federal estate tax return (i.e., Form 706), which is generally 9 months from the date of death.
when is Section 6166 a useful tool?
an estate is unable to pay tax without selling assets at a loss, and
when the business or estate can earn a greater after-tax rate of return than it spends in interest for the deferral privilege.
Section 2032A - Reduction
executor may elect to value qualifying real property (farm or closely held business real property) based on its actual special use valuation (limit to $1,390,000) rather than its highest and best use.
AKA: REDUCE estate tax by LOWERING the value of real property used in business by as much as $1.39M as indexed.
Section 2032A - Reduction Amount
in 2024 is $1,390,000, as indexed
Section 2032A - Reduction Reqs
Reqs:
- property in qualified as on DOD
- qualified property = at least 50% of decedent’s gross estate
- at least 25% of gross estate (less expenses) MUST be qualified farm or closely held business real property
- qualified property must pass to qualified heir
- property must have been owned by 5 years out of last 8 years ending on DOD
- Decedent or family member of decent must be an ACTIVE participant in those 5 years
IRS Section that priovide tax-free exchange of life insurance and aunnity contracts
Section 1035
(Section 1031 allow to deffer recognized gains for real business property exchange)
IRS Section that priovide tax-free exchange of life insurance and aunnity contracts
Section 1035
(Section 1031 allow to deffer recognized gains for real business property exchange)
Section 83(b) - Basics
Generally, restricted stock is taxed as compensation income to the recipient based on the value of the stock when it vests to the recipient.
Section 83(b) election allows the recipient to pay taxes at the time of the grant on the value of the stock at the time of the grant.
Section 83(b) Advantages
Paying taxes on lower evaluation is beneficial if the stock is expected to increase significantly prior to becoming vested.
Making the Section 83(b) election and paying taxes at the time of the grant also establishes the holding period for tax purposes in the future sale of the stock.
