Tax

Question 1

Tax Credits

Answer 1

Child and Dependent Care Tax Credit.
- eligibility: keep a home, earn income, pay expense (ie. nanny), dependant <13 or incapacitated spouse
- Ceiling of 3k expense (1 dependent) or 6k (2+ dependents)

Child Tax Credit
- 2k/kid <17 (reduced by $50/$1k above $400k MAGI)
- refundable up to $1,400

Adoption Credit
- max $14,890 in year adoption is finalized (phaseout at $223,410 and $263,410 AGI)
- unused credit carried forward up to 5 years

Foreign Tax Credit
- can’t be used in same year as foreign income exclusion

Question 2

C Corporation

Answer 2

Personal Holding Company tax: applies if corp. = PHC with undistributed PHC income (taxed at 20%). PHC classification meets BOTH tests:
- Ownership test: If > 50% outstanding stock owned by 5 of less individuals during last 1/2 taxable year
- Passive Income test: 60%+ AGI (ordinary income) is PHC income.

Accumulated Earnings Tax: 20% on accumulated earnings deemed in excess of reasonable need

Personal Service Corporation: applies to corp where principal activity is service performed by owner. Retained PSC income taxed at 21%

Other Factors:
- Separate tax entity
- Dividends received deduction from 50%-100% qualifying dividends received

Question 3

S Corporation

Answer 3

Max 100 shareholders

Shareholders treated as partners; taxed pro-rata on flows
- Shareholder-employee with > 2% ownership trated as partner for IRC fringe benefits

Tax filing - Form 1120S; Formation - Form 2553

May only have one class of outstanding stock (two classes permitted only if different voting rights)

Question 4

Business Forms

Answer 4

Question 5

Property Transactions

Answer 5

Personal
- gain = capital
- loss = nondeductible

Investment
- gain = capital
- loss = 3k limit on net capital loss

Trade/Business (1231, 1245, 1250)
- gain = capital
- loss = ordinary

Question 6

Section 1245

Depreciable Personal Property

Answer 6

Loss: ordinary
Gain:
- ordinary to the extent of depreciation taken
- remainder is capital (usually 1231)

Exceptions:
- gifts (carryover)
- death (recapture eliminated on set-up assets)
- charitable transfers
- nontaxable conversions (carryover)

Installment Sales: recognized in year of sale

Related

Question 7

Deductions for AGI (above-the-line)

Answer 7

-expenses related to trade/business
-alimony paid (pre-2019 divorce)
-50% SE tax
-capital loss deduction
-interest penalty for early w/d of savings
-deductible IRA contributions
-student loan interest
-moving expense for active duty military under orders

Question 8

Vacation Homes

Answer 8

Personal Use:
- rented < 15 days/year
- Rental income = excluded from gross income
- Expenses = nondeductible except interest, tax casualty loss

Rental:
- rented 15+ days w/ personal use < greater of 14 days or 10%
- expenses allocated between personal and rental
- income and expense reported schedule E
- Loss = deductible up to 25k (phase out AGI 100k-150k)

Mixed Use:
- rented 15+ days w/ personal use > 14 day or 10%
- expenses allocated between personal and rental
- Deduct expenses (in order of interest/ taxes, maintenance and utilities, and then depreciation, up to amount of gross income)
- loss = not currently deductible (carry forward)
- report schedule E (hobby rules apply)

Question 9

Installment Sale

Answer 9

Gross profit % = % of annual payment treated as gain
- sale price - basis (if any)
- note: land not subject to depreciation

Question 10

Child Support & Alimony

Answer 10

Child Support = not deductible

Alimony:
- Pre-2019 (i think? maybe 2020?) = reduction to salary (above line or adjustment)
- Post = non-deductible

Question 11

Worthless Secuties

Answer 11

• ## considered “worthless” at yr. end