Tax Flashcards
What are the three type of assets?
Capital Assets, Section 1231 Assets, Ordinary Income Assets
What are capital Assets?
Most Personal assts and most investment assets
What are Section 1231 Assets?
Section 1245 (Personalty) & Section 1250 (Realty) assets that can be depreciated and used in a business
What are ordinary income assets?
Assets not capital assets or Section 1231
What is not a capital Asset? “ACID”
Accounts/notes receivable, Copyrights, Inventory AND Depreciable property used in trade or business
What is all calculated in original cost basis? (List of items)
Purchase price, Sales tax, freight, installation, Testing, FMV of any property given in an exchange
Capital Improvements vs repairs and maintenance - Which one increases basis?
Capital improvement (Putting up walls), NOT repairs/maintenance (Repairing a door)
What decreases cost basis?
Depreciation
Inherited property, what is this?
Step up to basis at FMV of date of death, holding period is always long term
General rules of Property received as a gift - basis and holding period?
Carryover basis and holding period (There are exceptions though)
Double basis rule (When sold at a loss)
Loss is counted vs the FMV (Holding period starts at the date of gift)
Double basis rule (When sold between the FMV and basis)
No loss or gain
Double basis rule (When sold at a gain)
Gain is counted vs the basis (Carry over from previous owner)
Appreciated property with gift tax paid - Changes Basis (Formula)
Donor’s Basis + (Net appreciation in the gift / FMV-annual gift) * Gift
Appreciated property with gift tax paid - Holding period
Carryover holding period
Divorce - Basis/holding period for property transferred
Carryover basis and holding period
Related Party transactions - what is this?
Seller’s loss is disallowed (Never deductible) // buyer has double basis // it only affects transactions where there is a loss (New holding period for buyer in all cases)
Who ARE and ARNT “Related parties”?
Related parties: Siblings (Half but not step), Lineal descendants (Children and grandchildren), Ancestors (Parents and grandparents) // NOT related parties: Inlaws, Aunts & uncles, cousins
What is the minimum/Max long term capital gain rates?
0% and 20%
What are collectibles taxed at?
28%
What do short term capital gains taxed at?
Ordinary income
How long do you need to hold onto a stock for it to be long term?
One year plus one day
Losses on personal property - can you deduct it or not?
No, losses on personal property are disallowed. (Car bought at 30k, sold at 10k - no reporting the loss)
Wash sale rules only apply to ___ (gains or losses)
Losses
What are wash sale rules?
Selling a stock at a loss and acquiring it back after 30 days after selling it in the first place. The losses are postponed
How to calculate the wash sale new basis?
The amount of loss you are capturing + the new price you are buying it at.
At Sale or exchange the gain is ______
realized
Recognized vs Deferred vs Exclude
Recognized - Taxable in current year // Deferred - Taxable later // Exclude - Never taxable
Personal Residence gain exlusion
Own and used home for 2 out of 5 years and have not used the exclusion in the past 2 years
What is the personal residence gain exclusion
$250k/$500k MFJ
How to calculate personal residence gain exclusion with non qualified periods
(Years of non qualified use / Total ownership) * Gain
Exceptions for Personal residence exception and Formula
Change in employment, Change in health // Formula - (Number of Months met / 24) * Available exclusion
Worthless Securities - when is it deductible?
Deductible in the year that the securities become worthless
Worthless Securities - when is the sale date?
Last day of the year (12/31)
Personal Use - Gains & losses
Gains - Short term or long term (Depending on holding period) // Losses - Not deductible
Capital Asset - Gains & losses
Gains - Short term or long term (Depending on holding period) // Losses - Capital Loss (Deductible to the extent of capital gains, $3,000 of ordinary income)
Trade or Business - Gains & losses
Gains - Short term or long term capital gains (Depending on holding period) // Losses - Ordinary Loss (Deductible against ordinary income)
Inventory (From Business or trade - Gains & losses
Gains - Ordinary income // LLosses - Ordinary Loss (Deductible against ordinary income)
Capital Gains and Losses - Netting
Net both ST and LT together. If both LT and ST are gains, should be recognized. If LT gains and ST losses, offset the two
Section 1244 (Deduction on small business stock losses) - What is this?
total Cap - Less than $1M and can deduct up to $50k ($100k for married individuals)
Section 267 and Section 1244 only apply to
Losses, NOT gains
Section 1033 - Nontaxable exchanges Involuntary conversions - Time limits
Defer gains due to destructions, theft, seixure, condemnations and there is a time limit (2 Years) (3 years from condemnation) to put those proceeds into replacement property - IF time runs out, gain is recognized. Time period starts at date of realization
Section 1035 - What is accepted and non accepted
YES - LP for LP, Annuity for Annuity, LP for Annuity // NO - Annuity for LP
Cash Basis vs accrual Basis
Cash - when cash goes in or out // Accrual - when the action has been completed (Invoice)
What is constructive receipt?
Readily available to taxpayer and the income is not subject to substantial limitations
Qualifying widower - Eligibility years after spouse died?
2 years following the year the taxpayer died (Needs qualifying child)
Standard deduction for Single and MFJ?
$13,850 and $27,700
Additional Standard deduction for Single and MFJ?
$1,850 and $1,500 (Per taxpayer)
How do you get additional standard deductions?
Age 65 or older OR blind
Qualifying Child - What are the qualifications tests for the child? (Not Tax credit)
Relationship (Child, Grandchild, step brother, half sister), Age (18 years old or youger or student under 24), Abode (Lives with taxpayer over 1/2 year), Support (Child does not provide more than half of support)
Qualifying Relative - What are the qualifications tests for the relative? (Not Tax credit)
Relationship (Children, Siblings, or anyone that lives with you even if not related), Support (Provide more than half of support), Gross Income (Dependent must earn less than $4,700), Not a qualifying child test
Exclusion Ratio Formula
Exclusion Ratio = Total amount invested / Expected total return
Taxable amount for person who has life annuity and outlives life expectancy?
Fully taxable
How to calculate the taxable portion for Social Security benefits
MAGI plus 1/2 Social security benefits compared to hurdle amounts (50% and 85% formulas)
Below market rate loans inputed interest - Between $0 and $10,000
$0
Below market rate loans inputed interest - Between $10,001 and $100,000
Lesser of: Borrowers net investment income and AFR minus interest calculated // NOTE: If NII is under $1,000, then $0 inputed interest
Below market rate loans inputed interest - Greater than $100,000
AFR minus interest calculated
What is excluded from gross income?
Gifts, inheritances, life insurance proceeds, scholarships, gain on sale of personal residence, qualifying distributions from Roth IRA, Compensation for injuries and sickness
Group term insurance - how much is not taxable by the EE that the ER provides?
$50,000
For lodging to be exclude from gross income, it must be ____
must be condition of employment
For meals to be exclude from gross income, it must be ____
for the convenience of the employer and on the employer’s premises
For atletic facilities to be exclude from gross income, it must be ____
on employer premises and not available to the public
Company funding - Educational assistance programs - Max amount
$5,250/year
Company funding - Flexible spending accounts - Max amount
$3,050
Nontaxable empoyee benefits - No additional-cost services
No additional cost for the ER (Bowling ally, Free spot on flight)
Nontaxable empoyee benefits - Qualified EE discounts for 1) Service and 2) Product
Service - 20% // Products - Profit % (Gross Margin)
Nontaxable empoyee benefits - De Minimis fringe benefits
Too small for accounting purposes (Printer, coffee)
Nontaxable empoyee benefits - Working condition fringe benefits
For the specific job (Work phone or work car) Can be discrimination
What do Muni bonds and discharge of indebtedness in bankruptcy have in common?
Both are gross income exclusions
Above the line deductions (List)
Deductions from losses on sale or exchange of property, deductions from renatl ad royalty property, 1/2 Self employment tax paid, 100% health insurance premiums paid by self employed individual, contributions to pension/profit sharing plan/annuity/IRA, penalty on premature withdrawals from time saving accounts, Interest on student loans, Health savings accounts, trade or business expenses, alimony payments divorced before 2019, Military moving
Above the line deductions - Interest on student loans
$2,500 deduction and there is a phaseout - (S-75K-90K) (MFJ-155K-185K)
Above the line deductions - Trade or Business expense (Ordinary, Necessary, Reasonable)
Ord - Normal, usual // Nec - what are prudent business person would buy // Reasonable - Question of fact
Above the line deductions - Alimony
Has to be before 12/31/2018. Payment for support and in cash that do not extend beyond the death of payee. If agreement/modified after 12/31/2018- no longer deductible
Above the line deductions - Military Moving changes
Not for regular civilians and if ER gives money to EE, then it is counted as gross income
Below the line deductions (Itemized) - List
Charitable contributions, limited casualty losses, medical expenses in excess of 7.5% of AGI, Interest on mortgage and investments, State and local taxes - capped at $10,000
Below the line deductions (Itemized) - Casulty losses (What is it and how it is calculated)
Only available for federally declared disaster areas (Sudden and expected loss) - Loss is the lesser of: Decline in FMV or the adjusted taxable basis LESS $100 LESS 10% of your AGI
What is NOT subject to the 2% AGI threshold?
IRD, Gambling losses to extent of gambling winnings, Impairment related work expenses for handicapped, annuity losses for decendent (10 yr annuity and dies at 8 years)
Below the line deductions (Itemized) - Mortgage interest + Home equity interest
Interest up to $750,000 + Home equity interest is deductible if used for property (Does not if used for education)
Below the line deductions (Itemized) - Taxes
You have to use 1) State income tax OR 2) Sales and use tax - Capped at $10,000
Charitable contributions CASH deduction
60%
Charitable contributions Ordinary Income Property / Short Term Cap gain property / All loss property deduction
50%
Charitable contributions Long term Cap gain (Intangible,Real Property,Tangible property (Related use)) deduction
30% FMV // 50% Basis
Charitable contributions Long term Cap gain (Tangible property (unrelated use)) deduction
50%
Deduction clustering - What is this?
When you cluster all of you itemized deductions in one year and then take the standard deduction in the other year
Wash sale rules: Index for Index VS Index for Managed large cap fund
Index for index - wash sale rules apply // Index for Managed large cap fund - Wash sale rules do not apply
Never gift or sell an asset to a related party when the donors basis is_________
is greater than the FMV of the asset
What are refundable credits?
Credits that allow you to collect a tax refund (You can have negative income tax)
Examples of refundable credits
Earned income credit, child tax credit
What are nonrefundable credits?
Any credit in excess of total tax is lost - tax can be reduced to zero but not less than that
Examples of non-refundable credits
dependent tax credit, adoption credit
Adoption Credit - How much? Phase out? Eligibility of the child?
(Nonrefundable) $15,950 // Phase out $239,230-279,230 (Filing doesn’t matter) // Eligible child must be 17 years old or less OR physicall/mentally handicapped
Child Tax Credit - How much? Phase out?
(Partially refundable -$1,600 refundable) $2,000 per child // Phase out (MFJ 400k, Everyone else $200k)
Child Tax Credit - Eligibility?
Eligible Child must be 16 or under, Does not over half over their support, Lives with taxpayer for over half of the year, US citizen with Social security number (Can be Step, half, grandchild, brother)
Qualifying dependent tax credit - How much? Eligibility?
(Nonrefundable) $500 // No Social Security number for this person, qualifying relatives and children 17 and over
Child and dependent care credit - What is this for?
This is used for care for the taxpayer to go to work - Credit!
Child and dependent care credit - How to calculate this
20% of the lesser of: $3k - One Child $6k - two childs AND lower earned income of spouse // You pick the lower of the two number and multiply it by 20%
Kiddie tax - what is the setup to use? XX XX XX XX
Unearned income (UI) Earned income (EI) Standard deduction (SD) Taxable income (TI)
What can be the standard deduction in the kiddie tax?
The greater of $1,250 and earned income plus $400
Kiddie Tax - what ages for dependents?
18 years or less OR Under 24 that is full time student
AMT - Adjustments (ISOs)
Positive at exercise // Negative at Sale
AMT - Preferences - Do they increase or decrease AMT?
Increase
AMT - Adjustments - Do they increase or decrease AMT?
Increase and decrease
AMT - Preferences items
Interest on private activity bonds, intangible drilling costs, percentage depletion
AMT - Adjustment items
ISOs (Positive at exercise, negative at sale), State and local Taxes, Standard deduction (If itemized not used)
Hobby Losses - When is it presumed to be a hobby?
When there is no profit 3 years out of the 5 (Must have a profit motive)
Hobby Losses - what is the main drawback?
Hobby activities cannot generate deductible losses
QBI tax deduction - what is this? How much?
Tax deduction that is added to the standard deduction or itemized deduction and reduces taxable income // Deduction of 20% based on qualified business income
QBI tax deduction - who is this for?
Pass through entities
Passive actvity defined:
No material participation and rental activities (Even with material participation) - Not real estate dealers though
When calculating at risk rules and passive activity treatment, which one do you calculate first?
At risk then flows into the Passive activity loss (PAL)
How much can you deduct from ordinary income if real estate is activily managed? (With Phase-out)
Up to $25,000 of ordinary income (Subject to phase out of $1 for every $2 that exceeds $100k
What is material participation?
Greater than 500 hours OR Greater than 100 hours and most of any participant OR 100 hours devoted to several activities that add more than 500 hours
What is the difference between publicly and non-public traded partnerships when calculuating suspended losses?
non-public - you offset losses and income // Public - you cannot offset income and losses from different partnerships that are both public
Section 179 - What is this?
(For small businesses) Business tangible property placed in service during the year that you can expense up to $1,160,000) Cannot exceed taxable income - can be carried over and still reduces the basis
Section 179 - Amounts
You can expense up to $1,160,000 but this reduces dollar per dollar for amount that exceeds $2,890,000
Penalty amounts - Failure to FILE and Failure to PAY
FILE- 5% // Pay - Point 5% (.5%)
Which federal court can have a trial?
US district court
Which federal court are most binding?
Supreme court
Which federal court is in DC?
US court of federal claims
What is an example of: 3,5,7,27.5,39 year property? (5 and 7 most tested)
3-tractors,5-autos,7-office furniture,27.5-rental home, 39-office building
Which objects use the mid month covention?
Nonresidential and residential rental property
Entities - S Corp requirements
100 shareholders, only to US citizens/residents, 1 class of outstanding stock (Can have shares with voting and non voting rights)
Entities - Which is the easiest to create?
Proprietorship
Entities - which is not a flow through entity?
C-corp (Taxed at entity)
Rental property - what are the qualifications for personal use?
Rented for less than 15 days
Rental property - what are the tax implications for personal use?
Income is not taxable, rental expenses are not deductible, mortgage interest and property is 100% allowed on Schedule A
Rental property - what are the qualifications for rental use?
Rented for 15 days or more and used the house personally less than the greater of 10% of rental or 14 days
Rental property - what are the tax implications for rental use?
Include income, rental expenses are deductible, apportionment of mortgage interest and property taxes are deductible, can deduct loss up to $25,000 (Phase out $150k)
Rental property - what are the qualifications for mixed use?
Rented for 15 days or more and used the house personally more than the greater of 10% of rental or 14 days
Rental property - what are the tax implications for mixed use?
Include income, apportion expenses between personal & rental, rental expenses not deductible beyond income, no loss for mixed use property, apportionment of mortgage interest and property taxes are deductible
Which tax court you do not need to pay the fees to prior?
US Tax court
Deductions - ways to deduct natural resources, intangible, and tangible assets
natural resources (Depletion) intangible (amortization), tangible assets (Depreciation/cost recovery)
