Tax Flashcards
Historical Rehabilitation Credit Keys
$200,000 AGI phaseout
Credit is $25,000
Calculate by multiplying the $25,000 credit by the clients tax rate
Low income housing credit keys
Tax credit of $25,000
Multiply $25,000 by clients tax rate
No phaseout
Can be used annually for 10 years
Public charity keys
50% organizations
All churches, schools, hospitals, public charities
Private charity keys
30% organizations
Private foundations, fraternal orders, war veteran organizations
How much can a taxpayer deduct for CASH gifts to a public charity?
No more than 60% of AGI
Excess is carried forward as itemized deduction
What are examples of ordinary income property?
Inventory A copyright Use unrelated property Work of art created by taxpayer Short term capital gain property
What are always presumed to be use related property?
Stock and real estate
What is the charitable deduction for gifts of short term capital gains property?
Limited to the donated properties BASIS and 50% of AGI
What tax form do c corps report charitable donations?
1120
NOT schedule C
If someone is claiming the standard deduction, will they have an AMT problem?
No-they are not itemizing and there are no AMT preference or add back items
What is percentage depletion?
Excess depletion over the properties adjusted basis
What are NOT add back items for AMT?
Medical expenses Qualified residence interest Investment interest Charitable deductions Casualty/gambling loss
What depletion is allowed for AMT?
Percentage- triggers AMT bc it is accelerated
Cost-NOT an AMT preference item
What is a 1244?
Allows loss of 100k for joint and 50k for single to be considered ordinary loss not capital loss
Question must specify company is a 1244 company
Requirements for company:
S or c corp
Originally capitalized with no more than $100M
If you sell your home and the exclusion covered the whole gain, do you need to file a tax form?
No, there is no gain
Can taxpayers do both the 121 exclusion and the 1031 like-kind exchange?
Yes-if the requirements are satisfied
Where is the recognized gain for a sale of a home reported?
Schedule D as capital gain
What is a code section 121?
Single-250k
MFJ-500k
Allows for exclusion from income, gains on sale of home
Must have owned and used home for 2 out of 5 year period immediately preceding homes date of sale
What is a 179 deduction?
Business may expense up to 1,080,000 of qualifying property in the year if acquisition
Qualifying prop-1245 prop
CANNOT create a loss with this
MACRS Tables
MACRS. SL
Recovery Yr. 1. 2. 1. 2
1. 20%. 14.29%. 10%. 7.14%
2 32%.24.49%. 20%. 14.29%
Tax forms for a S corp
Filing-1120S
Employee-W-2
Distribution- K-1 (unearned)
Tax forms for a partnership
Filing- 1065
Employee- W-2
Distributions- K-1
Tax forms for self employed
Filing- schedule C
Employee- schedule C
Distributions- NA
Tax forms for a corporation
Filing-1120
Employee-W-2
Distributions- 1099
Key components of FIFO and LIFO
FIFO
Increased earnings
Greater tax liability
Current cost inventory
LIFO
reduced earnings
Deferral of taxes
Understated inventory
Are entertainment expenses deductible?
No
Do S corps pay self employment tax?
No
Salary paid by an s corp is subject to FICA NOT self employment tax
Excess earnings are treated as K-1 NOT self employment
What is the basis for a partnership?
Cash contributed by parter
Direct loans made by partner
Partnership debt
What is the basis for a LLC?
Cash contributed by partner
Direct loans made by partner
Partnership debt
What is the basis for a s corp?
Cash contributed by shareholder
Direct loans made by shareholder
NOT loans by 3rd party
How are losses allowed in a s corp?
Only up to basis
What is form 1041
Estates and trusts
At what income is an individual required to file if the net earnings from self employment reach this level?
$400
What is the 1040A
Used before 2018 to report simple income
Could not itemize on this
What is the penalty for a frivolous tax return?
$5,000
What is the payment for under penalty of tax due to negligence or fraud?
20% of underpayment attributed to negligence
75% of portion of tax attributed to fraud
What is the failure to pay and file penalty?
Pay- .5% per month of tax that is unpaid with max of 25%
File- 5% of tax due each month with a max of 25%
What is the primary source of all tax law
Internal revenue code
What are the treasury regulations
A source of tax law until overturned by a court
What indicates the intent of congress
Congressional committee reports
Adjustments FOR AGI
IRA contributions Keogh or SEP 1/2 self employment tax Alimony paid (pre 2019) Self employment health insurance
2500 student loan interest
Contributions it HSA
penalty for early withdrawal of savings
Moving expenses (active military only)
Gross income inclusions
Taxable interest Ordinary dividends Business income or losses Capital gains/ losses Alimony received (pre 2019) Ira distributions Pensions/annuities/punitive damages RE unemployment income Taxable social security
Schedule B
Taxable interest
Ordinary dividends
Schedule c
Business income/losses
Schedule d
Capital gains/losses
Schedule e
Real estate
Schedule a
Itemized deductions
Itemized deductions
Medical, dental, LTC (7.5%) Casualty losses (federal disaster) Real estate taxes* State, local and sales tax* Home mortgage interest Charitable gifts Investment interest expense
*limited to max of 10k
What qualifies as investment income?
Interest
Dividends
Royalties
Short term gains
Dividends included only if tax payer elects not to use reduced rates
Long term gains included only if tax payer elects out of long term rates
Calculation of deductible loss
First must be federally declared disaster
- Use lesser of basis or FMV
- Subtract any insurance coverage
- Subtract $100 (floor)
- Subtract 10% of AGI
Does FICA apply on earned income above $147,000?
Yes, at 1.45% for the employee
How to calculate FICA tax
6.2% of 147k plus 1.45% of 150k
Credit for child and dependent care versus child tax credit
Credit for child and dependent care
- 3k for one child or 6k for 2 children
- 20% of allowable expenses
- ex: one child =20% of 3k.
- until age 13
Child tax credit
-$2000 tax credit per child
Phase out is 400k AGI
-until age 17
Which of the tax credits are refundable?
Earned income credit
Child tax credit (up to $1400)
Advantages of a c corp
Separate tax entity Dividend received deduction Sale of stock to unlimited amount of investors Can provide non qualified deferred comp Limited liability Continuity of life
What type of interest can be deducted without limits?
Sole proprietor loans
How are short term gains and 1245 recapture taxed?
Ordinary income
Difference between recognized gain and realized gain on sale of home
Recognized-subtracts 121 exclusion
Realized-does not include 121 exclusion
Is there an exception where someone can use 121 exclusion and not live in the home 2 years?
Yes-new job, unforced circumstances, health reasons
- with new job, must move 50 miles
- if this is the case, must prorate exclusion amount
What is the difference between AMT and tax owed?
AMT payable
*they ask this a lot on the exam
When does AMT occur?
If the regular tax is less than the tentative minimum tax, the difference is AMT payable
What is the relationship between AMT and regular tax
It is inverse
If regular tax goes up, AMT will go down
What is the difference between active and material participation?
Material-taxpayer is involved in the operation of the activity on a regular, continuous, substantial basis
Active-less demanding standard that material
- merely requires bona fide involvement in management decisions
- income or loss is reported in schedule E
- limited partner may NEVER be an active participant
What are the 2 exceptions to the passive rules
Material and active participation
Are active participants in RE allowed to take a loss
- qualifying taxpayers may deduct 25k, per year, if net losses from RE activity from their active or portfolio income up to income generated
- this deduction is phased out with AGIs between 100k and 150k on a 2 for 1 basis
Is there an exemption from PAL rules?
Yes-losses from an oil and gas working interest for which the taxpayer is personally liable can be deducted against active income without limits to AGI
All sources of phantom income
- Any type of lapse with a loan
- Section 162 life and disability
- Zero coupon bond
- STRIP
- TIPS
- declared but not paid dividends/CG
- K1 income from LP/FLP
- recaptures
- ESOP distribution (basis only)
- secular trust
What does not qualify as alimony?
Transfers of non cash items including services, property or the use of property, or promissory notes
What entities cannot utilize a tax deduction under QBI-199A?
Pass through entities cannot utilize tax deduction through QBI
Non-qualifying property for 1031
Inventory of a business
Non-business tangible/personal property
Personal residence
Marketable securities
IRS ignores legal formalities to determine economic outcome of a transaction
Substance over form
What type of trust does not have to use calendar year to file tax returns?
501A or charitable trust
Prior to 2018 what entity could take a net operating loss?
Estates
Self employed
Corporations
*s corp and partnerships could NEVER take a NOL
Can losses be taken on the sale of a personal residence?
No
Is there a phase out for deducting active participation losses?
Yes-150k AGI
What is the tax status of I bond interest?
It is tax deferred, NOT subject to phantom income
How many years can a deduction from a charitable gift be carried forward?
5 years
How do small cash donations work for getting a deduction on your taxes?
Cash donations up to 300/600 do not have to be documented for 2021 if taking standard deduction
For gifts less than $250 a receipt is required
When do you need to file schedule SE?
Net earnings are $400 or more
How is basis of a gift of property affected by gift tax paid by a donor?
Basis to a donee is increased by the gift tax paid by the donor that is attributable to the appreciation of the gift
What is the liquidation order payout if a corporation goes bankrupt?
- secured creditors like mortgage bond holders and equipment trust certificate holders
- Unpaid wages, taxes, and trade creditors
- Debenture bond holders
- Preferred shareholders
- Common shareholders
If you are donating dresses (which are use related) as an in kind gift to a 501c 3 org, how are the dresses valued?
At the cost of the dresses plus one half of its markup to retail pricing
Can you deduct meal expenses?
1/2!
