Tax Flashcards
1
Q
Gain on Personal Residence
A
If a taxpayer has owned and occupied a personal residence for at least two out of the last five years, $250,000 of a gain may be excluded from income for a single taxpayer
2
Q
Order of Obligations - Secured Creditor
A
- first to pay expenses incurred in selling the collateral
- then toward the debt owed to the secured party,
- next to any junior or inferior secured parties with rights in the collateral.
3
Q
NOL - Carryback/Carryforward
A
Back 2, forward 20
4
Q
Standard Deductions
A
MFJ - 12,400
Single - 6,200
Personal Exemption - 3,950
5
Q
Personal Exemption Phase Out
A
Single AGI - 254,200
MFJ AGI - 305,050
6
Q
Cash-Basis Accounting
A
Allowed: Individuals w/ a Business
Not Allowed: Corporations, Partnerships w/ C-Corp Partner, Inventory
7
Q
Deductions to Arrive at AGI
A
- MSA/HSA Contributions
- Moving Expenses
- Deductible part of Self-Employment Tax
- Self-Employed SEP, SIMPLE, and Qualified Plans
- Self-Employed Health Insurance Premiums
- Investment penalties for early withdrawal
- Alimony Paid
- IRA Deduction
- Student Loan Interest
8
Q
Section 179 Expenses
A
Max Deduction: $25K, phased out for purchases in excess of $200K
- New/Used Equipment placed into service during the year
9
Q
Carryover - Section 179
A
Excess of 179 expense
10
Q
Carryover - Passive Activity
A
No Carryback
Carry forward indefinitely
11
Q
Carryover - Investment Interest Expense
A
Expense > Income, Carry forward indefinitely
12
Q
Carryover - Charitable Contributions
A
Carry forward - 5 years
13
Q
Carryover - AMT Paid
A
Carry forward indefinitely
Apply against future income tax only (not against AMT liabilities)
14
Q
Carryover - Capital Loss (Individual)
A
Up to $3K of capital loss, Carryforward remaining portion indefinitely, retains original character (ST/LT)
15
Q
Carryover - Capital Loss (Corporation)
A
3 years back, 5 years forward
Carryforward as a STCL ONLY.
16
Q
Installment Sales
A
Gross Profit/Contract Price
Contract Price = Sales Price - Buyer Liability
17
Q
Home Mortgage Interest
A
Mortgage Interest deductions on loans up to $1M
Home Equity Interest deductible on loans up to $100K
18
Q
Business Gifts - Schedule C
A
$25/person is deductible
Service awards up to $400 are deductible
19
Q
Business Losses
A
Business losses ONLY offset active business income
20
Q
Passive Losses
A
Passive losses don’t offset active income
21
Q
Limited Partnership - Active/Passive
A
Considered Passive Income
22
Q
Interest/Dividend Income - Active/Passive
A
Considered portfolio income (active)
23
Q
Personal Property - Convention
A
Mid Year/Mid Quarter
Mid-Quarter if 40% or more of all purchases occur in 4th quarter
24
Q
Real Property - Convention
A
Mid-Month
25
Leasehold Improvements - Convention
39 Year Straight-Line
26
Business Start-Up Costs
Deduct up to $5K of start-up costs
Reduced for any amount over $50K
Remaining costs are amortized
27
Medical Expenses - Schedule A
Deductible only once 10% AGI Threshold is reached
Total Medical Expenses - 10% AGI
Accident/Disability Insurance is not deductible
28
Foreign Taxes Paid - Schedule A
Foreign Income Tax - Deductible
Foreign Real Estate Tax - Deductible
Personal Property - Not deductible
Tax Assessments - Not deductible
29
Investment Interest Expense - Schedule A
Deductible only to the extent of net investment income
Gross Investment Income - Investment exp. in excess of 2% AGI = Net Investment Income
30
Mortgage Points - Schedule A
Deductible if it represents prepaid interest on purchase of a new home or improving a home
Refinance points are amortized over the life of the mortgage
31
Mortgage Interest Expense - Schedule A
If used to purchase a house, deductible on Schedule A on debt up to $1M
Refinance interest expense deductible up to $100K of debt
32
Charitable Contributions - Schedule A
| LTCG Property + related to Charity
Deduction for FMV of property
| Up to 30% of AGI
33
Charitable Contributions - Schedule A
| STCG Property + not related to Charity
Deduction for Adjusted Basis in property
| Up to 50% of AGI
34
Miscellaneous Schedule A Deductions
Must exceed 2% of AGI
- Education - if req'd to keep job
- Business Travel Expenses
- 50% of Meals/Entertainment
- Union Dues
- Tax prep fees
- Legal fees to collect alimony
- Appraisal fees to value: Casualty Losses & Charitable Contributions
35
Deductions not subject to AGI Phase out
- Medical
- Casualty
- Gambling
- Investment Interest Expense
36
Casualty Loss
Lower of FMV of Property or Basis - Insurance Proceeds - $100 per casualty - 10% of AGI
37
Qualifying Child
- Resident
| - Under age 19, 24 if student
38
Qualifying Relative
- Citizen
- 50% of support
- Can't earn more than personal exemption
- Social Security does not count as income.
39
Minor Income Taxed at Parent's Rate
Child's unearned income - early withdrawal penalties - $1K - greater than $1K or child's itemized deduction related to unearned income
40
MFJ - Accounting Method
Different accounting methods are acceptable if they each own a small business
41
Alternative Minimum Tax Add-Backs
- Difference between FMV of stock options vs. amount paid
- No state income tax, real estate tax, or personal property allowed for AMT
- No personal exemptions or standard deductions
42
Self-Employment Tax
15.3% of Net Profit
43
American Opportunity Tax Credit
First 4 yrs. of post secondary education
100% of first $2K, 25% of next $2K = $2,500
Includes tuition and course-related supplies
44
Lifetime Learning Credit
Per taxpayer, not refundable
45
Estimated Tax Payments
Lesser of:
- 90% Curent Total Tax
- 100% PY Total Tax
- 110% PY Total Tax (if AGI is $150K or more)
46
Statute of Limitations for Tax Audit
- 3 years (generally)
- 6 years if 25% or more of gross income was omitted from the tax return
- No Statute of Limitations for Fraud or Failure to file
"Clock" starts on due date or the date return was filed - whichever is earlier.
47
Tax Refund Claims
Must be claimed within:
| 3 years of return due date, or 2 years of being paid (whichever is later)
48
Dividend Income
Treated as Ordinary Income, can't offset dividends with a capital loss
49
Life Insurance - Taxable/Not taxable
ER can pay premiums for up to $50K in coverage w/o being included in income, greater than $50K counts as income
50
Scholarships - Taxable/Not taxable
Not taxable if not in return for services rendered (i.e. GA gets scholarship for teaching classes)
51
Tax Free Interest Income - Taxable/Not taxable
State & Municipal Bonds
US EE Savings Bonds
Note: Treasury bonds ARE taxable.
52
Tax-Free Dividend Income - Taxable/Not taxable
- Some stocks
- S-Corporations
- Life Insurance
53
Social Security Benefits - Taxable/Not taxable
Up to 85% of Social Security income can be taxed for people in higher income brackets
54
Unemployment - Taxable/Not taxable
Taxable
55
Damages Awarded - Taxable/Not taxable
Any "make-whole" payment - Not taxable
| Punitive Damages - Taxable
56
Worker's Comp - Taxable/Not taxable
Not taxable, considered a "make-whole" payment
57
Divorce, Alimony, and Child Support - Taxable/Not taxable
Not taxable & not deductible - Divorce, Child Support
| Taxable & Deductible - Alimony
58
Net Operating Loss - Taxable/Not taxable
Carryback 2 years, Carryforward 20 years
59
IRA Contributions - Taxable/Not taxable
Traditional IRA - Deductible
| Roth IRA - Not Deductible
60
Filing Status - Married Filing Jointly
- Must be married at end of year
61
Filing Status - Head of Household
- Has a dependent child
- Provides more than 50% support
- Lives with them more than 50% of the year
62
Filing Status - Qualifying Widower
- Has a dependent child
| - Gets MFJ status for year of death + 2 tax years
63
Affordable Care Act
Penalty for not having minimum essential coverage:
$95 per person
1% of Household income over threshold
3 month grace period for being uninsured
64
Partnership Basics
- Partnerships are not a legal (taxable) entity
| - Income and Expenses flow through to the partner via a Form K-1
65
Property in exchange for Partnership Interest
- Non-taxable event: No G/L recognized
- Partner's Basis = Basis of Property Contributed
Exception: Property has a liability that exceeds the basis Capital Gain
66
Services in exchange for Partnership Interest
- Taxable event
- Treated the same as compensation
- Use % of Partnership Interest x FMV of Partnership = Taxable Income
Taxable income amount becomes basis
67
Partnership Holding Period of an Asset
- Inherits holding period of asset contributed
| - Exception: Inventory, holding period begins when contributed
68
Startup Costs for a Partnership
- Tax treatment same as individual ($5K deductible, reduced after $50K total, rest is amortized)
69
Deductions to Arrive at Partnership Income
- COGS
- Wages
- Guaranteed Payments
- Business Bad Debt
- Interest Paid
- Depreciation
- Amortization
70
Partnership Losses
- Cannot be taken below basis
| - Loss is carried forward until basis is available
71
Guaranteed Payments
Appear in partner's income during year in which FY closes
72
Partnership Benefits
Treated as guaranteed payments and are self-employment income
i.e. Health Insurance, Life insurance, etc.
73
Guaranteed Payments (Formula)
% Share of Ordinary Partnership Income from K1 + Guaranteed Payments - % share of 179 expenses = Self Employment Income subject to self-employment tax
74
Partner's Basis from Property Contribution
- Contribution of Property: Property's original basis
- Compensation for services: FMV of % of partnership ownership
- Purchase of Interest: Amount of Purchase = Basis
- Interest by Gift: Gift Basis rules apply
75
Items not Deductible on Schedule K (flow to Partner's K-1)
Investment Interest Expense
Foreign Tax Paid
Charitable Contributions
179 Expense
76
Items not Counted as income on Schedule K
Passive Income
Portfolio Income
1231 G/L
77
Partnership Basis (Formula)
Beginning Basis + Capital Contributions + Share of Ordinary Income + Capital Gains + Tax-Exempt Income = Ending Partnership Basis
78
Partnership Basis Decreases
- Money Distributed
- Adjusted Basis of Property Distributed
- Share of Ordinary Losses
- Partnership is relieved by a liability (considered a distribution)
79
Partnership Basis Increases
- Partnership Loan
Note: Guaranteed payments do not effect basis
80
Order of Adjustment to Basis
- Increase basis in share of liabilities
- Increase basis from all income items
- Decrease basis for distribution
- Decrease basis for losses
81
Partnership Taxable Year
must be the same as 50% of partners and use the same tax year for 3 consecutive years
82
Death of a Partner
Taxable year only closes with respect to partner and their partnership interest
83
Partnership can't use cash-basis if:
- Partnership has inventories
- Tax Shelter
- Corporation is a partner
- Gross receipts of $5M or more
- Exception: Gross receipts of $1M or less and maintains inventory - OK for cash-basis
84
Partnership Termination
- Less than 2 partners
| - 50% of partnership interest sells within 12 month period - terminates immediately
85
Sale of Partnership Interest
Results in a Capital Gain/Loss
Amount Realized - Basis in Partnership = G/L
Basis = Capital Account + Liabilities Assumed
Any assets sold that are not capital in = Ordinary Gain (Unrealized Receivables, Appreciated Inventory)
86
Partner's Share of Ordinary Gain
FMV of Assets - AB of non-capital assets = Ordinary Gain x Partnership Interest % = Partner's share of Ordinary Gain
87
Distribution - Order of Basis Reduction
1. Money Received
2. AB of unrealized receivables and inventory
3. AB of other property
88
Losses - Liquidating/Non-liquidating Distributions
A loss can ONLY occur in a liquidating distribution.
Requirements for loss:
1. Money was rec'd
2. Unrealized receivables rec'd
3. Appreciated inventories rec'd
89
Shareholder's Basis in a Corporation (Formula)
AB of Property Transferred - Gain Recognized - Boot Rec'd = Shareholder Basis
If shareholders have 80% control after a property transfer, no taxable event occurs.
90
Corporation's Property Basis (Formula)
Transferor's Basis + Gain Recognized by Shareholder = Basis
91
Property - Corporations & Shareholders
Both shareholders and corporations use ADJUSTED BASIS of property for basis purposes, NOT FMV of property.
92
Sec. 1244 - Small Business Corps
| Loss on Stock
Loss on worthless stock is an ordinary loss.
- Taxpayer must be the original stock owner.
- Taxpayer must be individual or partnership
- $50K single or $100K MFJ, remainder is capital loss
93
Estimated Tax Payments (Corporations)
- Req'd if more than $500 in tax liability is expected or:
- 100% CY liability
- 100% PY liability
94
AMT (C-Corp Formula)
```
Tax Income + Preferences +/- Adjustments = Pre-ACE
+/- ACE Adjustments = AMTI
AMTI - $40K Exemption = Tax Base
Tax Base x 20% = TMT
TMT - Regular Tax = AMT
```
95
Pre-ACE Adjustment
- Personal Property - use 150% MACRS, not 200%
| - Construction must use percentage of completion method.
96
ACE Adjustment
- Municipal Bond Interest
- Life Insurance Proceeds
- 70% DRD
- Organizational Expenditures
- AMT paid gets Carried Forward indefinitely (no carryback)
97
Corporate AMT Exemptions
- Exempt in year 1
| - Year 2: if gross receipts are
98
Corporation Organization Costs - Amortization
Amortization of costs begins in the month the corporation begins business activity.
Costs associated w/ offerings are NEVER deductible or amortized.
99
C-Corporation Charitable Deductions
Limited to 10% AGI
The BOD can authorize Charitable Contributions up to March 15th ad have them count for the previous tax year.
100
Dividends Received Deduction
Only allowed if no Consolidated Return is filed.
80% Interest = 100% DRD
20-29% = 80% DRD
101
Corporate Losses - Loss on Sale where taxpayer owns >50%
Interest is disallowed
102
Corporate Losses - Capital Losses
- Only deductible to the extent of capital gains
- Net STCG are taxed at ordinary rates
- Can carryback losses 3 years, carryforward 5 years as STCL.
103
Corporate Losses - Bad Debt
Classified as ordinary losses
104
Casualty Loss - Corporates
No floor on corporate casualty loss
Destroyed: Loss = AB - Proceeds from Insurance
Partially Destroyed: Lesser of FMV or AB - Proceeds from Insurance
105
Net Operating Loss
If loss includes NOL Carryforward, reduce the loss (add back the amount) to get the loss w/o the carryforward.
Carryback the NOL 2 years starting with the earliest year and reduce the taxable income there and then move to most recent year.
Leftover = This year's NOL.
106
Corporations - Investment Interest Expense
NOT limited to investment income like individual taxation.
107
Corporate Form M-1
- Reconciles book to tax income before Net Operating Loss/Dividend Received Deduction
- Permanent Differences: Tax-exempt interest
- Temporary Differences: Accelerated depreciated tax, straight-line, etc.
108
Corporate Form M-2
- Reconciles beginning to ending Retained Earnings
| - N/I + Other Increases - Dividends Paid - Other Decreases = Ending Unappropriated Retained Earnings
109
Corporate Form M-3
Same as M-1, but for Corporations w/ $10M+ in assets.
110
Affiliated Corporations (80% Ownership)
- Consolidation election is binding
- Dividends are eliminated: G/L are deferred
- One AMT Exemption
- One Accumulated Earnings tax
- Parent must have 80% of the voting power and own 80% of the stock value.
111
Corporate Distribution - Shareholders
- Use FMV of Property
- Distribution is a dividend to the extent of current accumulated earnings and profits (ordinary income)
- Remainder is return of basis, then capital gain
112
Corporate Distribution - Shareholders (Formula)
Dist Amount = FMV of Property + Cash - Liabilities Assumed
Shareholder Basis = FMV of Property + Cash Rec'd
113
Corporation Distribution - FMV Below Basis
NO LOSS.
114
Corporate Distribution - Capital vs. Not-Capital
Capital: Capital Gain
| Not-Capital: Ordinary Income
115
Order of Distribution Treatment
1. Dividend to the extent of current & accumulated earnings & profits
2. Shareholder basis is then exhausted
3. Remainder is Capital Gain
116
Accumulated Earnings & Profits (Formula)
Beginning AE&P + Net Income + Gain on Distribution - Distribution (cannot create deficit) - NOL of prior years = Ending AE&P
117
Accumulated Earnings & Profit
All Positive: Deplete current amount w/ the dividend first
Current +, Accumulated -: Deplete only current amount
Both Negative: Current E&P cannot add to the deficit
118
Stock Redemptions
Result in a Capital Gain to the shareholder
119
Liquidation - Capital Property vs. Not Capital
Capital: Capital Gain
Not Capital: Ordinary Income
Gain characteristic is the same for both the corporation and the shareholder.
120
Liquidation - Loss Treatment
Corporation: Depends on if property is capital in nature, otherwise ordinary loss
Individual: Capital Loss only
121
Complete Liquidation of a Sub
No G/L to parent Company.
122
Consent Dividend
- Consented by the BOD but not yet paid.
| - Treat as if distributed by the end of the year.
123
Personal Holding Companies
- Banks/Financial Institutions cannot be PHC
- 5 or fewer individuals own more than 50% of the stock
- 60% of the income must be passive
- PHC tax is a self assessing 20% tax rate.
124
Corporate Accumulated Earnings Tax Credit
Greater of $250K or the legitimate balance based on future needs
125
S- Corporations - Shareholders
- Only individuals, estates, and trusts
- Domestic Only
- Up to 100 shareholders allowed
- Only one class of stock allowed
126
S-Corporation Election
- Must be made by March 15th and counts as being an S-Corp since the beginning of the year.
- Must use calendar tax year.
- 100% of shareholders must consent
- Termination: 50% of shareholders must consent
127
S-Corp Rules
- No Foreign taxes paid deduction allowed
- No Investment Interest Expense allowed
- No 179 Deduction
- No 1231 G/L
- No Charitable Contributions
- No Portfolio Income
128
S-Corp Shareholder Basis (Formula)
Beginning + Share of Income Items - Distributions - Non-deductible expenses - Ordinary Losses = Ending
129
Built-In Gains (C-Corp to S-Corp)
Prevents a C-Corp from avoiding double taxation by converting to an S-Corp
FMV of Assets @ S-Corp Election Date - AB of Assets = Built-in Gain x 35% Corporate Tax Rate
130
Gift Taxation Exclusion - Donor
$14K exclusion for ea. spouse is allowed
131
Gift Tax - Donee
Property rec'd through gifts are not income to the recipient.
- Loss on Sale of Property - Basis is FMV at date of gift
- Gain on Sale of Property - Basis is the same as donor
No G/L if Donor Basis
132
Gift Tax Returns
- Calendar-year tax basis only
| - Due April 15th
133
Trust Taxation - Complex Trust
- Income distributions are optional
- Accumulation of income OK
- Charitable Contributions OK
- Distribution of Trust Corpus is allowed
- Exemption: $100
134
Trust Taxation - Simple Trust
- Income distributions are mandatory
- Accumulation of income is disallowed
- No Charitable Contributions
- Distribution of Simple Trust Corpus is disallowed
- Exemption: $300
135
Estate Tax Exemption
First $5.3M is exempt
| 40% taxation on amounts over $5.3M
136
Medical Expenses after Death
Paid after death but incurred w/in one year of death go on decedent's personal tax return.
137
Taxable Gross Estate (Formula)
```
Cash + Property FMV @ Death
Less: Funeral Costs
Debts/Mortgages
Casualty Losses
Charitable Bequests
State Death Tax
```
138
Tenancy by Entirety
1/2 of Marital assets go to decreased spouse's estate
139
Tenancy in Common
FMV of deceased's property goes to heirs
140
Estate Tax - Life Insurance Proceeds
Life insurance proceeds in husband's name go onto his estate regardless of beneficiary
141
DNI (Formula)
DNI = Taxable Income - Expenses (from income production)
142
AB in Property
Cost + Expenses + Debt + Back taxes/Interest Paid = Basis
143
Gifted Property
Gain: Use donor's basis
Loss: Lesser of donor's basis or FMV at time of distribution
144
Sale of an Asset Gain Calculation
Selling Price (Cash Rec'd + Liability) - AB of Property = Gain
145
Like-Kind Exchange
Lesser of Realized Gain or Boot Rec'd
146
Boot (Formula)
Cash Rec'd + Unlike Property Rec'd + Liability passed to other party
147
Involuntary Conversion
Occurs when you receive money for a property involuntarily converted.
No gain if you reinvest the proceeds completely.
148
Wash Sale
- 30 day rule applies
- Disallowed loss adds to basis of new stock
- New stock takes on date of acquisition of old stock
149
Sales between Related Parties
Seller cannot take loss on sale, but the gain is always recognized.
150
Capital Gain/Loss Property Classification
- Inventory is NOT a capital asset.
- Business property is NOT a capital asset.
- A/R is NOT a capital asset.
- Goodwill is a capital asset.
Capital Assets: personal investments over 1 year.
151
Capital G/L (Non-Corporations)
- Net all STCG & STCL
- Net all LTCG & LTCL
Carryforwards always maintain their original character.
152
Capital Losses - Individuals
Offset $3K of ordinary income w/ a $3K capital loss
| No carryback allowed for individuals.
153
1231 Property
Real or Personal Property held more than 1 year.
154
1231 G/L
Gain: LTCG
Loss: Ordinary Income
155
1245 (Personalty) Depreciation Recapture
You sell a piece of depreciated machinery at a gain.
Amt. of Depreciation is ordinary income.
Remainder is 1231 Capital Gain.
There are NO 1245 Losses.
156
1250 (Realty) Depreciation Recapture
You sell a building at a gain.
There are NO 1250 Losses.
Entire gain is 1231 gain.
Corps: Sec.291 requires 20% of depreciation classified as an ordinary gain. Remainder is 1231 LTCG.
