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Melissa's Flash Cards > Tax > Flashcards

Tax Flashcards

1
Q

What are the 6 most common above-the-line deductions?

A
  1. HSA contributions (made with after-tax money)
  2. 1/2 Self-employment tax
  3. SEP, SIMPLE, and Qualified plan contributions
  4. Alimoney before 2019
  5. Self-Employed health insurance
  6. Traditional IRA Contributions
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2
Q

What are the 5 categories of itemized deductions?

A

1) Unreimbursed medical and dental expenses up to 7.5% AGI
2) Taxes you paid (state and local up to 10,000)
3) Interest paid (investment interest limited to NII, mortgage interest up to 750,000)
4) Gifts to charity
5) Casualty and theft losses for a federally declared disaster

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3
Q

When taking the standard deduction, what are 3 things you must pay attention to?

A

Filing status, age, are they blind?

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4
Q

Name 5 of the following additional ordinary income sources?

A

1) Annuity withdrawals
2) RMDs
3) NQSOs: bargain element
4) ISO: Disqualified distribution, bargain element
5) Section 1245 property sales
6) Recaptured 1231 losses
7) Kiddie tax
8) Taxable social security retirement benefits
9) Unemployment benefits
10) Disability benefits
11) Roth conversions

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5
Q

How do you calculate the equivalent deduction given a tax credit?

A

Credit / marginal tax bracket

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6
Q

How do you calculate the equivalent tax credit given a deduction?

A

Multiply the deduction by the marginal tax bracket

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7
Q

Name 5 of the 6 forms you likely need to fill out if you are a retirement income recipient

A

-1099-R (RMDs, Annuity Distributions, Pensions, Qualified Plan Distributions, QCDs)
-SSA-1099/SSA-10425 (Social Security Retirement Benefits Rec’d)
-1099-DIV (Investment dividends)
-1099-INT (Interest income, CDs, bond coupons)
-Schedule B (for 1099 DIV and 1099 INT)
-Schedule D (Tax loss harvesting, capital gains netting, ETF sales)

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8
Q

Name 5 tax forms for self-employed individuals

A

-1099-NEC
-Form 1040 ES
-Schedule C
-Schedule SE
-Form 4868?

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9
Q

A person wants to know if they can write off their casualty and theft losses as an itemized dediction. What do you consider?

A

1) Is it a federally declared disaster?
2) Take the lesser of FMV or basis - insurance payments - $100 deduction
3) Take 10% of your AGI threshold and any losses in excess can be deducted

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10
Q

What is form 5498 used for?

A

IRA Contributions to individuals (roth and traditional)

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11
Q

What is form 8606 used for?

A

Nondeductible traditional IRAs

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12
Q

What is form 4868 used for?

A

Extension of time to file

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13
Q

What is the gift tax adjustment formula?

A

Appreciation / (FMV-annual exclusion)

Then multiply that appreciation factor by the gift tax paid

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14
Q

What is the QBI formula?

A

It is the lesser of the 2: 1) 20% of taxable income or 2) (AGI - capital gains - below the line deductions) x 20%

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15
Q

What are the 2 flags for needing to use the accrual method?

A

1) When your business has inventory
2) When your business has gross receipts for 3 prior years of over $30MM

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16
Q

What are 3 examples of substantial limitations where money is not constructively received?

A

1) Funds are in escrow
2) Granted stock shares that do not become available until a specific date
3) Retirement funds in a Rabbi Trust

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17
Q

In a rising price environment, what is the impact LIFO regarding profit, tax liability, and inventory value?

A

Lower, lower, and understated

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18
Q

What is the useful life for all 6 depreciable assets?

A

Autos - 5 years
Computers 5 - years
Heavy machines - 7 years
Office furniture - 7 years
Residential real estate - 27.5 years
Non-residential (commercial) real estate

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19
Q

If real estate, use _ convention

A

mid-month

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20
Q

What are the 2 elections and tax treatment for section 179 property? Let’s say that you have 125,000 in qualifying expenses and 85,000 in net profit.

A

Option 1) You choose to expense the full 1250,000 in profit and the remaining 40,000 will be carried over as a 179 expense for next year. Profit will be ZERO
Option 2) You choose to expense only 85,000 and the remaining 40,000 will be allowed to be depreciated using the appropriate method and useful life. This will cause profits to be NEGATIVE.

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21
Q

What is the failure to file penalty? What is the minimum imposed if the tax return is later than 60 days?

A

5% of the unpaid taxes for each month or part of a month that a tax return is late up to a max of 25%. A minimum penalty of 510 is imposed if the tax return is later than 60 days.

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22
Q

What is the failure to pay penalty?

A

0.5% per month the tax is unpaid up to a max of 25%

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23
Q

What are the 4 categories that are NOT capital assets?

A

-Accounts or notes receivable acquired in the ordinary course of a trade or business for services.
-Copyrights; a literary, musical, or artistic composition, a letter or memo, or similar property created by the taxpayer or for the taxpayer
-Inventory or property held primarily for sale to customers in the ordinary course of a trade or business
-Depreciable property used in trade or business (eg. Section 1231 assets)

24
Q

How do you calculate the amount realized in a 1031 exchange?

A

FMV of qualifying property received plus (or minus) net boot

25
Q

How do you calculate the realized gain in a 1031 exchange?

A

the amount realized minus the basis of the property transferred

26
Q

How do you calculate recognized gain in a 1031 exchange?

A

the lesser of realized gain or net boot recieved

27
Q

How do you calculate deferred gain in a 1031 exchange?

A

realized gain minus recognized gain

28
Q

How do you calculate substituted basis in a 1031 exchange?

A

FMV of qualifying property recieved minus the deferred gain

29
Q

In the event of a liquidation of a C Corp, who is the event taxable to?

A

both the corporation and shareholders

30
Q

Is municipal bond income included in net investment income?

A

NO

31
Q

What are the 2 rules that make taxpayers allowed to deduct the 25,000 loss on rental property

A

They must actively participate aka they must Own at least 10% of the property AND they must be substantially involved in managing the property.

32
Q

In a mixed-use rental property, what happens if your property produces a loss?

A

Deductions are limited to gross rental income so you can have net income of $0, but not negative income. Any unused losses are carried forward to future years .

33
Q

What tax form is rental income and expenses from a mixed-use rental property reported on?

A

Schedule E

34
Q

What are the acceptable reasons for a reduced exclusion on a home sale? Name 5

A

Job relocation
Employment change leaves you unable to pay your living expenses
Qualifying for unemployment benefits
Health issues
Divorce or legal separation
Birth of twins or other multiples
Damage to home from disaster
Condemnation or seizure of the property
Other unforeseen circumstances

35
Q

Inventory value for FIFO is always _

A

Realistic

36
Q

What are 3 characteristics of a pooled income fund?

A

1) Additional gifts can be made to the fund to increase the donor’s income stream.
2) The donor takes an income tax deduction for the PV of the charity’s remainder interest.
3) The donor pays income taxes on the income received from the fund.

37
Q

Can the charity managing a pooled income fund invest in tax-exempt securities?

A

No

38
Q

What are the 4 max deductions for donating to public charities?

A

Cash gifts: 60% of AGI
LTCGs with FMV election: 30% of AGI
LTCGs with Basis Election: 50% of AGI
Ordinary income property: (STCGs, art, inventory): 50% of AGI

39
Q

What are the 4 max deductions for donating to private charities?

A

Cash gifts: 30% of AGI
LTCGs W/ FMV Election: 20% of AGI
LTCGs with Basis Election: 30% of AGI
Ordinary income property: (STCGs, art, inventory): 30% of AGI

40
Q

What deduction can be taken for unrelated use property?

A

It must be the lesser of cost basis or FMV

41
Q

If the taxpayer does not elect to deduct the actual costs of operating an automobile while performing donated services, the law permits a deduction of _ cents per mile.

A

.14

42
Q

When someone gifts property to someone else, can the title search, legal fees and commissions be added to the basis being gifted?

A

Yes

43
Q

Which is always higher, marginal or effective tax rate?

A

The marginal tax rate will always be higher.

44
Q

When an employer pays you for your education, up to how much can be excluded from your income?

A

$5,250

45
Q

How much can you exclude on your taxes for dependent care assistance from your employer? (ex: daycare)

A

Up to $5,000 per year

46
Q

What are 2 strategies within AMT planning to make the AMT liability equal the regular tax liability?

A

1) Accelerate income into the AMT year (you might take distributions from a retirement account to drive up taxable income)
2) Defer tax deductions until a regular tax year (great for self-employed)

47
Q

What is the AMT formula?

A

Regular taxable income
Add: tax preference items
Add: standard deduction (if not itemizing)
Add/Subtract AMT adjustments and tax preference items
AMTI (Alternative minimum taxable income)
Less: Exemption amount
AMT Base
Times: AMT tax rate(s)
Gross AMT Tax
Less: AMT Foreign Tax Credit
Tentative minimum tax (TMT)
Less: Regular tax liability
AMT* (If the tentative minimum tax exceeds the regular tax, the difference is AMT)

48
Q

Does investment income for purposes of NII include income from businesses involved in trading of financial instruments or commodities and businesses that are passive activities to the taxpayer?

A

yes

49
Q

Explain the taxation of an NUA

A

The employer basis is taxed at ordinary income rates and any appreciation up to distribution is taxed at LTCG. If the stock is held rather than sold immediately, the appreciation will be taxed either as STCG or LTCG depending on the holding period.

50
Q

What are the 2 rules for making a QCD?

A

Must be age 70 1/2 or older on the date of distribution and also it must be a direct transfer or rollover.

51
Q

Where is. QCD reported?

A

On form 1040 as an IRA distribution and the taxable amount if reported as zero with “QCD” next to the line.

52
Q

Are QDRO distributions subject to an early withdrawal penalty?

A

No

53
Q

Regarding a gift of loss property, when that property is later sold, when does the holding period start?

A

At the time of the gift. This is NOT the case for a gift of appreciated property which takes over the gifter’s holding period.

54
Q

What is the ceiling limitation on child and dependent care expenses for the child and dependent care credit?

A

3,000 or 6,000 for 2 or more dependents

55
Q

What is the special unrecaptured rate and what does it apply to?

A

25% and it only applies to section 1250 property

56
Q

In the liquidation of an S corp, is the event taxed at the corporate level or shareholder level?

A

shareholder

Melissa's Flash Cards (18 decks)

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