Tax Flashcards
What is 1245 and 1250 property, and what’s the depreciation period?
Computers, Autos, Trucks = 5 year
Office Furniture and Fixtures = 7 year
CAT 5 year
O 7 year
R 27 1/2 year (Residential)
N 39 year (Non-Residential)
What are the MACRS table percentages for 5 year property?
20% year 1
32% year 2
What are the MACRS table percentages for 7 year property?
14.29% year 1
24.49% year 2
What is the basis and carrying period for inherited stock?
Basis = FMV on DoD
Carry is ALWAYS LT!!!!
What are the (3) methods of determining basis for mutual funds?
1) FIFO
2) Specific id (tough but can min tax)
3) Average Cost per share at time of sale
Is the gain on a home taxable? At what rate?
Conversely, is a loss on a personal home deductible?
Yes, gain is taxable at CG
NO DEDUCTION FOR LOSS ON HOME!!!
What is Boot?
Boot is the amount of $ added to an exchange to equalize values.
Recognized Gain is the lesser of Realized Gain or Boot
What is the basis & holding period on stock gifts?
Appreciated Stock (AT TIME OF GIFT): Basis and holding carry from original owner
Depreciated Stock (AT TIME OF GIFT): Use chart (Donor Basis on top and FMV on gift date below, and map sell price against that.
Holding period is determined by what you use for basis: if FMV then holding pd starts at gift, and if donor basis then holding period carries over too.
Mnemonic for Itemized Deductions:
My Taxes Increase w/o Credit & Cuts:
M edical >7.5% AGI
T ax (S&L, Real Estate)
I nterest Paid (Mortgage and MARGIN)
C harity
C atastrophe
What’s the property loss calc for income taxes?
Basis or FMV (Lesser)
- Insurance Received
- 10% AGI
- $100
What are the FICA breakdowns for SS & Medicare?
What’s the add’l tax for Net Investment Income?
What type of income is not (typically) subject to FICA?
SS: 6.2%
Medicare: 1.45% (add’l .9% if > $125MFS)
Total - 7.65%
ADD’L 3.8% on Net Investment Income
Most K-1 (passive) income isn’t subject to FICA, but active participation is.
Who pays SE tax (4) and what’s the calculation?
- Sched C SE
- GP K-1 and S-Corp INCOME ONLY (not divs)
- Bd of Directors Fees
- 1099 Income
SE Tax Due = .1413 * SE Income
Note: GUARANTEED payments from partnerships on K-1 are subject to SE TAX otherwise it’s unearned income
Tax Credits(7):
- Credit for Child/DEPENDENT CARE
Until 13
No phaseouts
20% per $3K expenses/child
Max of 2 kids/$1200
BASED ON ACTUAL EXPENSES - Child Tax Credit:
Until 17
MAGI phaseouts
$2k/kid (unlimited); $1700 REFUNDABLE - Adoption Credit:
OOP expenses only/phaseouts
Up to $16,810 reimbursement
If special needs, $16,810 no matter OOP - Credit for Elderly & Disabled:
>65 or < 65 and disabled - Foreign Tax Credit
- Retirement Savings Contrib Cr: low/mod inc
- Earned Income Tax Credit (EITC): low pay
How long can a business net op loss carry forward?
Indefinitely, but can’t create a refund (e.g.: no loss recognized if income = $0)
Who selects Limited Liability Partnerships?
Professionals (e.g.: doctors); just like General (regular) partnership but with limited liability instead of “joint and several”!!
Unique LLC features to remember (3):
- Members NOT partners
- Loss ded to basis (initial capital, personal loans to biz AND RECOURSE LOANS); S-Corp can’t use recourse loans
- Can adopt partnership tax treatment
S-Corp Disadvantages(4):
- UNANIMOUS vote req’d to adopt S-Corp
- MAX 100 owners (a family can = 1 owner)
- NO FOREIGN ownership
- Only ONE class of ownership; COMMON
S-Corp is passthru
What is a PSC (Personal Service Corp) and who can adopt this form of ownership?
CORP (close held) for HALE::
H ealth
A ccountants, A rchitects, A ctors
L egal
E ngineer
Similar to Ltd Liability Partnership in that’s it’s for professionals, but this is a corp (21% tax) as opposed to a partnership
What are the (3) partner roles and why is it important?
MAP
M aterial (works day to day)
A ctive (Mgr - runs things)
P assive
PASSIVE can’t net passthru losses against other earnings.
QBI (Qual Biz Income) Section 199A???
- Passthrough ONLY (no C-Corp)
- <= 20% of Biz Income (passthrough - NOT
W-2) are deductible (below line) - REITS qualify for QBI
What are the tax forms for corporations? Partnerships?
Corp: 1120/1120S
Partnership: 1065 -> K1
The 1065 is information only (partnerships don’t pay taxes), and then the info flows through to individual K-1s
In a partnership, what constitutes basis?
- Cash contributions
- Loans to the partnership
- Bank Loans (b/c in a partnership, the partners are personally liable for debt)***
S-Corps’ basis is ONLY the 1st two!!
What is Section 1244?
It allows investors in small corps (C or S) w<$1M capitalization to deduct losses as ORDINARY losses (netted against earnings) up to $50/$100K, with any excess moving over to the cap loss column. Incentive to invest in small corporations.
What’s the penalty for a corp that doesn’t distribute dividends and accumulates earnings?
20%
What is factored into basis?
Initial Purchase Price/Cost including:
Legal fees
Commissions
Taxes
Freight
Improvements (capital)
NOTE: Sales Tax and Shipping are depreciated b/c they’re part of the cost of acquisition
What are the tax forms for trusts & estates?
Both file 1041 (as separate tax entities), and trusts file a K-1 for each beneficiary
What is adjusted basis?
Adjusted Basis = Orig Basis - CRD
This reduces the basis but also decreases taxes!
CRD = Cost Recovery Deductions
CRD = DEPRECIATION/AMORTIZATION
Tangible assets are depreciated
Intangible assets are amortized eg: (loans,
franchises, patents)
NOTES:
1. Depr/Amort comes off ORDINARY
2. This is called depreciating/amortizing or
CAPITALIZING
Do repairs effects basis?
No, but they are deductible in the current year
This is called EXPENSING
Section 179 for SMB
SMB can expense equip in year of purchase instead of depreciate to help with cash flow
- Expense <= $1.22M
- 1245 Property ONLY
- $3.05M phaseout
- Can’t create biz loss but can zero out income
- Can carry over to following year OR be used
against 1099 income if biz income exhausted
Section 197 Property
INTANGIBLE assets can be depreciated on a straight line basis for 15 years to make it easier
Section 1231 property?
1245 or 1250 prop held >1 year
Allows you to pay LTCG on gains but take
ORDINARY losses if there’s a loss
1031 Exchange for GIVER of boot
Giver of boot adds boot paid to their basis
1031 Exchange Boot for RECEIVER of Boot
Realized Gain = Gain @ Trx NOT TAXABLE
Recognized Boot = On how much gain is tax pd
Substitute Basis = My new basis
Mem Device:
Realized -> ZERO
Recognized -> COSTS me
On calcs, I ONLY care about: MY basis, new FMV and boot
Realized = What I’m getting - my basis
Recognized = lesser of realized or boot
Sub Basis = New FMV-(Realized-Recognized)
1031 Time Limits (3):
Prop identified w/in 45 days
Title xferred w/in 90 days
If related parties and sold w/in (2) years SCREWED THE POOCH!
LT/ST Netting
ST w/ST
LT w/LT
ST w/LT
You can net the following year with whatever you carried over.
If you die with LTCL carry overs, you can take your $3K on 1041 in year you die and then LTCL is gone for good.
How are reinvested dividends taxed?
Pay phantom income BUT add reinvested div to basis!!
What is NIIT (Net Investment Income Tax)?
3.8% tax on investment income for high earners
Section 121 (Home) Exclusions
$250/$500 gain on home excluded (not reported) regardless of whether you buy again or rent next; if gain is larger it’s reported on Schedule D
You must have lived in home 2/5 prev years UNLESS (GAINS PRO RATED by time in house):
- Change of employment > 50 miles
- Moved for health
- Moved for unforseen (death, divorce, twins…)
How does depreciation recapture work?
1245 Property ONLY; IRS taking back some of what they gave you when you sell 1245 proprty @ gain b/c depr @ ordinary and LTCG max 20%
Gain broken into Amt depreciated (ord tax rate) and gain above depreciation (LTCG rate)
Remember, any depreciation taken is deducted from basis!!
How does depreciation recapture work in an installment sale?
ALL recapture must be paid in 1st year of installment (year of sale) (sucks). Only workaround is if you don’t depreciate
Wash sale rules
No loss deduction if sale 30 days before OR after!!!
Is there AMT for corporations? Trusts?
NO and NO
AMT Calculation
EVERYONE calculates AMT
Taxable Income+ADDBACK+PREFERENCE Items
PREFERENCE ITEMS: IPOD
- I ntangible Drilling Costs
- P rivate Activity Muni Bond (aka Ind Dev Rev)
- O il & Gas (% Depr NOT COST Depr)
- D epreciation (MACRS/ACRS - Not Straight)
ADD BACK ITEMS:
- SALT
- ISO Bargain Element (FMV-Exercise$)
NOTE: ISOs can trigger AMT so be careful!!
AMT Payable = AMT - 1040 Tax Liability @ 28%
AMT Avoidance Strategies?
Defer exercising ISOs
Disqualify ISO by making it NSO (pay tax on ex)
Buy public purpose munis instead of private
Goal is to raise taxes just enough
If you DON’T itemize, you’re less likely to have AMT exposure
What are the (3) types of income and who/how are they earned?
- Active: W-2, Sched C, Gen’l Partner (Material)
- Portfolio: Div, Int, Cap Gain/Loss
PTP/MLP* - Publicly Traded/Mstr Ltd Part
THESE CANNOT BE NETTED AGAINST OTHER
PORTFOLIO INCOME/LOSSES!! - Passive: CAN NET/COMINGLE Among Passive
LOSSES CARRY FWD AGAINST FUTURE PASSIVE INCOME ONLY
Passive can’t be netted against portfolio- LP (PASSIVE or ACTIVE**)
- NON PUBLIC Partnerships
- RELPs***
- Distribution from S-Corp
- Can’t be netted; can carry forward only to offset future gain/loss in same PLP/MLP
PARTNERSHIP ACTIVITY TYPES:
Material (Shovels Snow/GP)
Active (LP/Calls Raul - limited involvement)
Passive: LP/Could care less if it snows
RELP LOSSES: Can net against either portfolio or active income up to $25K IF THERE IS ACTIVE PARTICIPATION; phases out b/w $100K and $150K
Rental of Principal Residence - Taxable?
Augusta Rule - if < 15 days, not reported
Vacation Home Taxation (AirBnB)
If I USE the house > 14 days OR >= 10% of rental days (greater of) it’s a residence, otherwise reported as biz income
Low Income Housing Credit?
For passive investments in LI housing, tax credit ($25K * Tax Bracket = Credit Amt)
No AGI phaseout
Can take the credit for (10) years
Pre 2019 Alimony: how are non-cash alimony payments handled?
For tax purposes they are not considered alimony and not deductible (e.g. services - mowing lawn, giving an expensive purse)
Pre-2019 Alimony: how are life insurance prems taxed/handled?
If Rich Tilles pays LI prem for policy on his life Nancy owns, it’s deductible. If anyone else owns it, or it’s on someone else’s life, it’s not deductible.
What’s the difference b/w a 50% charity and a 30% charity?
50% = Public good
30% = Private Charity (foundation, fraternity/ELKS, War Vets, American Legion)
Charitable Donation Deductions - When can they be used and can they carry over if you exceed AGI deduction max?
Only used when you itemize
Can carry over CY + 5 (6 yrs total)
What’s the max deduction for cash donation to 50% charity?
60% (this is also the cap for TOTAL donation deductibility in a year)
For LT appreciated property to a 50% charity, what’s the max deduction?
Use of Basis or FMV to value is YOUR choice!
If Basis -> 50% AGI max ded
If FMV -> 30% AGI max ded
Use basis if not highly appreciated to get bigger ded, otherwise FMV is usually better
Basis = (5) letters/5%
FMV = (3) letters/3%
For ST/ORDINARY appreciated property to a 50% charity, what’s the max deduction?
MUST USE BASIS to value -> 50% AGI max ded
USE UNRELATED and INVENTORY are always ordinary
Note: This is a good donation/deduction b/c if you sold it and it’s ST it’s ordinary on gains not CG
For loss property to a 50% charity, what’s the max deduction?
MUST USE FMV to value -> 50% AGI max ded
What valuation do you use for use unrelated property that’s donated to a 50% charity?
ALWAYS use ST rules (Basis to 50% AGI)
What property is ALWAYS use related?
Stock and real estate
Private Charity (30%) Rules:
Cash to 30% AGI
LT App to 20% AGI (Basis or FMV if stock; else B)
ST App to 30% AGI valued @ Basis
Loss Prop to 20% AGI valued at FMV
Note: on loss property to 30% charity you’d be better off selling and taking the tax loss (then making a cash donation)
Corporate Charitable donations - what’s the max deduction?
10% taxable income (time can’t be donated)
Sole prop donation (even from biz account) is personal (sched A not sched C)
Donation of cars - how is the deduction determined?
Max ded = price charity sold it at (they have to tell you)
How are MEC distributions taxed?
LIFO with 10% penalty if < 59 1/2
How are life insurance gains taxed?
W/D up to basis are NOT taxed
W/D > basis taxed @ ordinary
If you surrender a policy, gains above basis are taxed @ ordinary
How are ISOs taxed?
Grant -> Exercise -> Sell
EGG:
Ex -> Sell must be > 1 year
At Sell, Grant -> sale must be > 2 years
Bargain element = FMV - Exercise
If EGG is broken:
Bargain taxed @ ordinary
CG taxed based on amt of time held
If EGG not broken - entire gain (sale - ex) taxed at LTCG
How are NSOs taxed?
NSOs have a vesting period; once vested they are taxed ORDINARY at exercise (including FICA).
At sale time, the CG is LT or ST depending on holding period.
What’s included in Gross?
TRIP TO CUBA
Taxable Interest (Sched B)
Real Estate (Sched E)
IRA Dist (Pension & Annuities)
Punitive Damages
Taxable SS
Ordinary Div
Cap Gains
Unemployment
Business Income
Alimony (pre 2019)
AGI Calc (Adjustments FOR AGI/Above Line):
SMASH KITES
Self-Employment Tax (1/5 = .07065)
Moving Expenses (Military)
Alimony
Student Loan Interest ($2500)
HSA
Keogh/SEP Contributions
IRA Contributions
Taxes; early w/d penalty
Education Expense ($4K)
Self Employment Health Insurance
How are estimated taxes calc?
LESSER OF:
90% TY
100/110% LY (110% if AGI > $150K)
What can’t be used to figure out how much margin interest you can deduct?
Qual dividends and LT cap gains (anything at a favorable rate) UNLESS the advantageous tax rate was opted out of
