Tax Flashcards
Gross income is all _______________ from whatever__________
all income from whatever source derived
Is gross income only cash?
NO - whatever form received, money, property, services
Business purpose doctrine is :
transaction will not be effective for income tax purposed unless it is intended to achieve a genuine business purpose other than tax avoidance
Substance over form doctrine:
allows the IRS to look at the real substance of a transaction instead of just the form as basis for taxation (e.g. a CEO taking out a loan instead of comp is still comp)
Assignment of income doctrine:
“fruit and tree”; if you earned the income you can’t assign it to someone else (if you’re the tree, has to be your fruit)
Tax benefit rule or doctrine
converts nontaxable receipts into taxable income; most common is receiving reimbursement for medical expenses year after you deducted them - those then are taxable
Constructive receipt doctrine or rule:
if there isn’t any substantial limitation on taking control of funds, then they are treated as taxed (think check in the mail you didn’t cash, dividends, matured and payable bond interest, etc.)
In personal services, the employer pays _____ compensation to the employee who receives ____ compensation
deductible compensation and the employee receives taxable compensation
Income from property is included in gross income, examples are:
interest from bonds, dividends from stocks, rental income, etc.
Qualified dividends may be taxed at the _____
lt capital gains rates of 0/15/20
Phantom income is income that has not yet been received in _____
cash
For phantom income, your basis is increased each year by the amount of ______ required to be recognized on the taxpayers income tax return
interest income
The income-producing property must be _____ for the income to be taxed to the assignee
assigned
Partnerships and S corps are _____ entitites
pass through
Partnership taxation entails:
- income from parternships taxed to partners at individual rates
- must file informational return (form 1065)
- each partner receives a K-1
- typically it will be self-employment income
- income for a limited partner is considered passive activity income
S Corp taxation entails:
- shareholders, rather than corp, pay the tax
- S corp files form 1120S
- each shareholder receives K-1 and it is considered passive activity income
- employee-shareholder receives W-2 for earned income and material participation rules apply
Income in respect of a decedent (IRD) means that income generated by assets of ______ that is ditributed from the _____ to the ______ is generally taxable
assets of an estate distributed by the estate to the benes is generally taxable
Examples of IRD:
- accrued rents
- salary earned before death
- distributions from qualified plan or IRA
- deferred comp, deductible contributions, and tax-deferred earnings in tax-advantaged accounts
- installment notes and annuity payments after death
For IRD, the character of the income to the decedent is the same as it is to the ______
recipient (i.e. if it was ordinary income to the decedent, it would be ordinary to the recipient)
For IRD, there is no _____ of tax basis at the date of death
no step up - no adjustment to FMV at date of death
A misc. itemized deduction (not subject to the 2% AGI floor) is _____ for the portion of any _____ attributable to the IRD on the tax payers income tax return when income is reported
allowed for any portion of estate tax attributable to IRD on the tax payers income tax return
Income distributed from a trust to beneficiaries is generally ______
taxable
Undistributed income from a trust is generally taxed to the _____
estate or trust
In community property states, _____ of earnings of each spouse during marriage is considered to be owned by the ______
one half of earnings owned by the other spouse during marriage
In CP states, if spouses living apart, then only taxed on your portion if the following conditions are met:
- lived apart for entire year
- did not file joint return
- no portion of earned income was transferred between the spouses
THe idea of “conduit for others” is that if say, a professor conducted a seminar, the fees would go to the university because he is an _____ of the university; he obtained _____ of the income, but he is a _____, so he isn’t taxed on that money
employee; he obtained possession of the income but he is a conduit for the university
For interest on laons below market rates, the lender may be required to _____ interest income
impute (recognize)
For below market loans, imputed interest is calc’d using _____ compounded ______ and adjusted _____
fed borrowing rates, compounded semi annually, adjusted monthly
Imputed interest rules apply to the following types of below market rate loans:
- gift loans (essentially a “gift” is made that is the amount of the imputed interest to the borrower)
- compensation related loans
- corporation-shareholder loans (loan to a non-employee shareholder)
- tax avoidance loans (loans that significantly affect the vborrorwer or lenders federal tax liability)
Exceptions and limitations to the imputed interest rule
- no imputed interest on loans less than $10k unless used to buy income producing property (also for compensation or corporation loans)
- On loans $10k to $100k, imputed interest cannot exceed borrower’s net investment income from all sources for that year
- if the purpose is tax avoidance, none of those exceptions apply
Cash and FMV of prized and awards are _____ in gross income
included
Employee achievement awards paid in _____ and less than ___ per year are excluded
paid in personal tangible property and less than $400 per year
If a winner of a prize chooses an annuity option, income is recognized each year but has to be for a term longer than _____
10 years
If winner gets a prize for nonprofit reasons, and turns proceeds over to another nonprofit, then income is ____
excluded
For annuities, withdrawals (including loans) on contracts issued after 8/13/1982 are included in _____ up to total _____
included in gross income up to total earnings (LIFO)
Exclusion amount for annuity payments =
(investment basis/expected return) x annuity payment
Annuity payments beyond the ____ expectancy are _____
annuity payments beyond the projected life expectancy are fully taxable
If annuitant dies before life expectancy, then unrecovered basis is _____ on the annuitants final income tax return
deductible
Employees can exclude premiums paid by their employers on the first _____ of group term life insurance
$50k
Partners, proprietors, and greater than 2% S Corp owners are _____ for the group term life insurance exclusion
ineligible
If group term is more than $50k, then have to use the monthly uniform premium table to calculate _____ of the benefit
taxable amount of the benefit
For discriminatory plans, key employees and highly compensated employees lose the _____ exclusion for group term
$50k
Are unemployment comp benefits included in gross income?
YES
For SS, what percent can be included in gross income?
85%
Amount of SS benefit subject to tax is based on taxpayers _____ income
provisional
Provisional income is AGI from all sources plus ____ of SS benefits received, foreign income previously excluded, and any tax-exempt interest income
50%
FICA tax consists of the _____ and the _____ taxes
SS tax and medicare tax
OASDI stands for:
old age, survivors, and disability insurance program
OASDI is ____ to wages for the employer share and ______ for employee share
6.2% and 6.2%
Self-employed people pay _____ in OASDI tax
12.4% (double)
The ceiling for OASDI tax is ____ in 2017
$127,200
Medicare tax is ____ for both employer and employee with no ____
1.45% for both, no cap
Self employed people pay ____ in medicare tax
2.9%
When calculating self-employment tax, taxpayer multiples net self-employment earnings by
92.35%
Self employed people can deduct the ____ share of tax paid as a deduction from AGI
employer’s share
The additional medicare tax of ____ applies to self employed individuals if they make over _____ single or ____ MFJ
0.9%; $200k or $250k
Is there an employer part of the additional medicare tax?
NO
What income is the additional medicare tax taxed on?
Incremental over the thresholds
Net investment income tax of _____ is imposed on unearned (investment) income of certain higher-income taxpayers
3.8%
Death benefits paid by an employer to an employee’s benes are ____ in the beneficiaries’ gross income
fully includable (NOT life insurance proceeds)
For windfalls, even if winner accepts prize money in form of annuity, full amount of the annuity must be included in income ______
immediately
There must be a _____ prize option with annuity over 10 year period - then income taxed as received
qualified
Structured settlement payments are generally ____
tax free (if compensatory damages)
Exception to structued settlement tax free payments are:
age, sex or racial discrimination
Punitive damages for structured settlements are generally ______
taxable, except if wrongful death
Earnings on lump-sum payments for damages are ____ taxable
ARE YES
Inheritances, gifts and bequests are _____ from gross income
excludable (except for IRD or income from income producing property)
In order for a scholarship to be excludable from gross income, recipient must be a ____
candidate for degree
If you get a scholarship in one year and dont spend all of it until the next, you do NOT have to include the excess above year 1 ______ expenses as income
qualified expenses
Employees of nonprofits are allowed to exclude a tuition waiver from gross income is the the waiver is pursuant to a ______ reduction plan
qualified tuition reduction plan
Payments by a donor directly to an educational institution are ____ payments, and not includable in students ____; also not subject to ____
qualified payments, not includable in students income, not subject to gift tax
Life insurance proceeds to the bene are generally ______ from income tax
exempt
If life insurance proceeds are received in installments, then interest is generally ____
taxable
Dividends from a life insurance policy are ____ taxable income unless the aggregate dividends received exceed the taxpayer’s ____ in the contract
not taxable unless they exceed the basis in the contract
Businesses cannot deduct life insurance premiums if that insurance covers the life of an _____ , ___ or ____ if the business is directly or indirectly a _____ under the policy
owner, officer or employee if business is directly or indirectly a bene of the policy
If you surrender a life insurance policy and receive lump sum cash value, must recognize the difference between the ____ and your ____
CV and your basis
Basis for a life insurance policy is generally ____ plus ____
premiums paid plus dividends
Are losses from a life insurance policy deductible?
NO
Withdrawals or loans from life insurance use the _____ accounting method
FIFO
If you transfer your life insurance contract for something of value, then the transferee must include the ____ in their _____
proceeds in their income if they are above the basis
Five reasons when a transfer-for-value will not be included in income for the transferee (who gets the policy) (for life insurance):
- transfers to the insured
- transfers to a partner of the insured
- transfers to a partnership in which the insured is a partner
- transfers to a corp in which the insured is an officer or shareholder
- transfers to a transferee whose basis is determined by reference to the transferor’s basis (tax-free exchange or gift)
Are viatical settlements included in gross income for the recipient?
NO
Terminally ill patient means they are expected to die within _____
24 months
Chronically ill means can’t perform at least ___- of ADL for at least _____ days; if receiving benefits, can only be excluded if they use them for _____
2 of 6 ADLs, 90 days, can only exclude if using for longterm care
Under the transfer-for-value rule, purchaser of a life insurance policy will be taxed on any benefits received in _____ of the purchaser’s _____
in excess of the basis
If you simply surrender a life insurance contract and receive cash, then taxable is the difference between the cash value received and investment in the contract (basis) T/F
T
If you make a nonviatical sale, then the proceeds are taxed as follows:
- adjusted basis is reduced by cost of insurance
- basis for purchaser will be deducted from death benefit received
- has to be sold to person who is unrelated and will suffer no economic harm at insured’s death
Modified endowment contract (MEC) is a life insurance policy after 1988 that fails the ___ test
7 pay test
7 pay test means that the total premiums paid in the first ____ years is more than the net level premiums if they offered a paid-up benefit option after the seventh year
7 years
Each time a policy undergoes a material change, has to pass the _____ test
7 pay test
Which accounting method is used for withdrawals from a MEC?
LIFO
Are MECs subject to a an early 10% withdrawal penalty before 59 1/2?
YES
Are MEC death benefit proceeds collected tax free?
YES, if no transfer-for-value applies
Premiums paid by the employer for accident and health plans are ____ by the employer and not ____ for the employee
deductible for employer and not included in gross income for employee
When are benefits paid for employer accident or health plans not taxable as income for the employee?
if for medical care of employee, spouse or dependent, or if for permanent loss or loss of use of function or body part for employee, spouse, or dependent (other benefits are included in gross income)
If a taxpayer pays for disability insurance with after-tax dollars, are benefits taxable?
NO
Are employer contributions to a medical or health savings plan included in employee income?
NO
Employees can exclude up to _____ in child care expenses paid by their employer
$5k
Employer paid education assistance is capped at _____
$5,250, both for undergrad and graduate, cannot discriminate for HCEs
For cafeteria plans, if you select the cash benefits, then those are ____
taxed
If there are “no additional cost” services given to employees, must meet criteria that:
- employee receives services, not property
- employer does not incur substantial cost or loss of revenue to provide
- services are offered to customers in ordinary course of business
- nondiscrimination, can’t just be for HCEs
Employee discounts can be _____ from income
excluded
Can’t exclude employee discount if discount is related to:
- can’t be real or investment property
- if isn’t for product/property that is in same line of business
- limited to gross profit if sold to a customer
- limited to 20% of customer price
- can’t be discriminatory to HCEs
Can you exclude employer payments or reimbursement for adoption expenses?
YES
TO exclude adoption assistance, must meet:
- employer has written adoption assistance plan
- non discriminatory
- 5% or less of total payments made each year by plan for to shareholders owning more than 5%
- employees are given adequate notice of eligibilty
- payments are traceable to qualified employee adoption expense
Total adoption excludable amount in 2017 was
$13,570
Personal auto use from an employer is typically ____
taxable
Can you exempt interest income from Series EE or Series I governemtn savings bonds if used for qualifying higher ed expenses?
YES
To exclude EE or I interest income for higher ed expenses, must:
be issued after 1989
issued to individual at least 24 years old
If married couple files separately, can they exclude EE or I higher ed expenses?
NO
QSBS stands for
qualified small business stock
noncorporate investors can exlude up to 50% of gain they realize on _____
QSBS, any remaining taxed at 28%
QSBS stock must be issued after ____ and held for at least ___
1993 and held for at least 5 years
If you forgive debt, does the borrower have to report that as income?
YES
To avoid double taxation of foreign income, make sure to claim the _____
credit for foreign taxes paid
You can exclude up to _____ for foreign earnings from US gross income
$102,100
Foreign earned income is for _____ provided
services
To qualify for the foreign exclusion, must be a ____ resident or present in foreign country for ____ days during any consecutive 12 month period
bona fide resident or present for 330 days
Foreign exclusion is capped at calculation of:
max exclusion x (number of days present/365)
CESA max contribution is ____ per beneficiary excluded
$2k
Can you contribute to a CESA and QTP in same year for same bene?
YES
Must distribute CESA funds before age ___ otherwise 10% penalty
30
Can you rollover a CESA to non family member taxfree?
NO, must be same family
Can you rollover a QTP to a non family member tax free?
NO
When can you deduct expenses from gross income in arriving at AGI?
- when expense incurred in carrying on trade or business (for sole proprietors, schedule C)
- when incurred in connection with property held for production of rents or royalties
Farm income and expense are reported on schedule ____
F
unreimbursed business expenses of an employee are deductible as misc itemized subject to ____ AGI floor
2%
Self-employed individuals can deduct the 6.2% OASDI and ____ medicare with no earnings limit
1.45%
If self-employment income is less than $400/year, then _____ is payable
no self employment tax is payable
Alimony paid to an ex-spouse is a _____ for AGI
deduction
If you receive alimony is it taxable?
YES
A viable, enforceable premarital agreement must be
- in writing,
- signed by both parties
- include net worth
- nothing about future alimony or child support
- some states require notarization and may be requried to be signed before wedding day
Payments to Keogh and SEP plans are deductible if established and funded by _____
extension due date
Moving expense are generally deductible if:
- incurred in conjunction with starting a new job
- distance between new job and old residence is at least 50 miles
- must be full time at new job for 39 weeks out of next 52 weeks
- if self-employed, must be 78 weeks out of 104 weeks
Deductible moving expenses include:
- moving of household goods and personal effects
- travel and out of pocket travel
- no meals, house hunting or temporary living arranagements
If reimbursed for moving expense, then they aren’t even on your ____ as income
W-2
Commuting expenses are generally _____
non deductible
If you forfeit a CD before maturity, then forfeited interest is ____
deductible
Capital losses can offset capital gains without ____
limit
Capital losses can offset ordinary income up to _____
$3k
Any capital losses unused after filing a final fed income tax return are ____ and _____ be reused
are lost and may not be reused
A corporation can only use capital losses to offset _____
capital gains
Self-emloyed people and 2%+ shareholders in S Corps can take a ____% deduction for health insurance
100%
Employees of small cos (50 employees or less) and self-emplyed people can deduct contributions to Archer _____
medical savings accounts
Archer MSA distributions not for medical expenses are taxable and subject to ____ penalty
20%, unless 65 or upon death or disability
Can you open a new Archer MSA?
NO
HSAs have a penatly of ___% for non healthcare costs
20%, except if over 65
Interest for qualified educational loans is generally ___-
deductible
Can you be a dependent and claim educational loan interest deduction?
NO
Max deduction for student loan interest is _____
$2.5k
Charitable deductions can only be up to ____ of AGI
<= 50%
Medical deductions can only be up to ____ of AGI
10%
Casualty losses can only be deductible up to ____ of AGI
> 10%
Misc. itemized dedcutions have to be ____ fof AGI
> 2%
AGI also serves as a benchmark for limiting passive rental real estate _____
losses
Alimony must meet all the following conditions;
- must be in cash
- agreement does not specify that payments are not alimony
- payee and payor are not members of same household
- no liability to make the payments after death
- payments are made direct to payee spoouse or to a third party for direct benefit of payee spouse
Alimony may be recaptured if it decreases more than _____ in any of the first three years
$15,000
Shortcut alimony recapture calc is:
P1 + P2 - 2P3 - $37,500
Alimony recapture is included in the gross income of the _____
payor
Property transfers between divorcing spouses must
- occur withing one year after marriage ceases
- no gain or loss recognized by transferor
- no deduction recieved for transferor
- not included in gross income of transferee
- basis is the same between the two
- if tranferee is nonresident alien, transferor must recognize gain/loss
- if liability recieved is greater than basis, then gain has to be recognized by transferor
Child support is ____ as taxable income by recipient, and ____ by payor
not included in taxable income and not deductible by payor
Kiddie tax applies to a dependent child who has not attained age _____ or a full time student who has not attained ____
19 or 24
Full time student counts as _____ out of the taxable year
5 months
Kiddie tax not applied if individual is 18 years old and earned income exceeds _____ of their support
50%
Unearned income above _____ is taxed at parents highest marginal rate
$2,100
Standard deduction for kiddie tax income is $350 + amount of _______ income, up to _____ limit
unearned income, up to $6,350 limit in 2017
Caring for an elderly parent or adult child depends on whether you can claim that person as a ______
dependent
Investment expenses are deductions for or from AGI
from
Deductions from AGI are reported on schedule ____
A
To be deductible, expenses must be ____ and ___
ordinary and necessary
If compensation paid by a corp is deemed “unreasonable”, excess amount is considered a ____
dividend, double taxed
Two methods of taxpayer accounting are ____ and ____
cash and accrual
Cash-basis taxpayer receives deduction when expense is ___, accrual when expense is ____
paid, incurred
Disallowed deductions:
- criminal stuff
- political contributions
- lobbying activities
- capital expenditures related to buidling betterment, improvements, etc.
- personal expenditures
- expenditures made on behalf of others (except for medical expenses)
- tax-exempt income related expenses
Hobby expenses must be ____ in order to be deducted (and meet 2% floor)
itemized
Rental income is excluded from gross income if it is a primary personal use residence, meaning only rented out for less than ____
15 days
Primarily rental use is greater than ___ days rented and no more than ___ days personal use
15 days rented, no more than 14 days personal use
If rental property is between primary and rental usage definitions, expenses can only be deducted up to extent of ____
income, and can’t take a loss
Related party losses are generally _____ for deduction purposes
not allowed, some exceptions
Attribution rules mean that a taxpayer is treated as having contstructive owernship of stock if owned _____ or ____ by related parties
directly or indirectly
Other deductions and losses include:
- legal and accounting fees (from AGI)
- worthless securities
- small business stock (limited to $50k annually)
Section 1244 allows small business stock losses to be treated as ____ losses, up to $50k annually - the rest get treated as _____
ordinary losses, rest get treated as capital losses
For bad debt to be a deduction, must use the ______ method
specific charge off method - can’t be for bad debt reserves
Business bad debt can only be written off if previously included in _____
reported income
To be a loan, there must be a _____ obligation to pay a specific amount
enforceable
Loss of deposits may be deducted as casualty losses but subjec tto ____ AGI limit and ___ floor
10% AGI limit and $100 floor
For businesses, casualty losses are not subject to the ____ AGI limit or $100 floor
10%
If property for rentals is completely destroyed, a business can deduct the _____; if partially destroyed, it is the lesser of the ______ or the decline in ____
adjusted basis; lesser of adj basis of decline in FMV
NOLs can be carried back ____ years preceding the loss or forward ____ following the year of the loss
2 years back, 20 years forward
Old NOLs are completely ____ before _____
old completely written off before more recent NOLs
Can elect to forego carryback for NOLs, but it is _____
irrevocable
What kind of employee unreimbursed expense are not subjec to 2% AGI floor?
handicapped individuals
moving expense are above the line
Can you use MACRS after using standard mileage rate for unreimbursed travel expenses?
NO
Deductions for employee travel must be away from ____
tax home
In order to deduct employee travel, must be an _____ trip
overnight
Meals are deductible, when allowed, up to ____
50%
For a foreign trip, if more than ___ of time was used for personal vacation then must allocate some of transpo costs to personal use
25%
To deduct education expense for employees, must be related to ____ or _____ existing skills, or to meet legally imposed requirements to ____ the job
maintaining or improving, to retain the job
Education employee deduction items include:
- direct expenses (books, tuition, typing/photocopy)
- indirect expenses (transpo, travel, lodging, laundry, 50% of meals)
Meals and entertainment are fully deductible for employees if
it is a company event
de minimus
transportation
included in comp
Cover charges, parking, and entertainment room rentals are ___ deductible for employees
50%
Is a deduction allowed for gifts to superiors at work
NO
Home office expenses are deductible if it is
- principal place of business
- used exclusively and regularly as place of business to meet clients or patients or in normal course of business
- separate structure not attached to dwelling
Home office expenses require that you allocate _____ of household expenses
allocate portion of total household expenses, cannot exceed net income of business
Home office expenses for self-employed individuals is ____ AGI, for employees is ___ AGI
for SE is for AGI, for employees is FROM AGI
Simplified home office deduction is ___ per square foot, max is ____
$5/sq ft, max is $1,500
Can a home office expense deduction create a loss?
NO
Job hunting expenses in the same _____ is deductible, whether or not you get the job
trade or business
Job hunting expenses for different trade of industry is _____ deductible
never
Major itemized deductions include:
medical taxes interest charitable contributions casualty losses
Misc. itemized deductions NOT subject to AGI 2% floor are
impairment related work expenses
gambling losses up to net winnings
annuity contract basis recovery
pro rata portion of estate taxes paid with respect to IRD
Itemized medical expense deductions are subject to ____ AGI floor
10%
What medical expenses are NOT deductible?
cosmetic
funerals
Deductible taxes include:
- state, local and foreign real property tax
- state and local property taxes
- state local and foreign income taxes
- state and local sales tax
Assessments are usually added to the ____ of the property
basis of the property
Interest on funds borrowed to acquire investment assets are ____
deductible
Investment interest deduction capped at ____ income
net taxable investment income
Investment expenese may be deducted but must be:
directly connected to producing income
do not include interest expense
does not include commissions
Net investment income =
gross investment income - deductible investment expenses above 2% AGI floor
Qualified residence interest is _____
deductible
Can you deduct interest from HELOCs not used for home improvements?
NO
Interest paid as points is ____ in year paid
deductible
Borrower who uses points can deduct points up to ____ provided plus seller-paid points
funds provided
For seller-paid points, it reduces the ____ of the property for the owner
reduces directly
you can deduct a prepayment penalty on your loan, T/F
True
If interest is paid for a business use or production of income, it is deducted ___ AGI, if for personal use, deducted ___ AGI
business is for AGI, personal is from AGI
Casualty losses must meet three criteria:
identifiable event
property damage
event is sudden, unusual, unexpected
Events that don’t count as casualty loss:
termites
drought-related
loss from deliberate act of taxpayer
if no insurance claim is made
Theft losses are deducted in year of ____
discovery
Deduct casualty losses, except theft, in year that losses were ______
incurred
Amount of loss for casualty deductions is lesser of
adjusted basis
decline in FMV
Casualty losses are reduced by _____ received, whether received or not
insurance recovery
Casuatly losses reduced by ____ floor and reduced by ___ of AGI
$100 and 10% of AGI
Personal use property losses are _____ deductions
itemized
For higher income taxpayers, itemized deductions are reduced by ____ of excess AGI above thresholds
3%
Qualifying organizations for charitable deductions include
public charities
private foundations
Deduction for charitable giving is in year paid for both ____ and ___ taxpayers
cash and accrual
If donation includes right to buy athletic tickets, only ____ of contribution is deductible
80%
THere is no deduction for volunteering services, but ____ are deductible
related personal expenses (mileage, rental value of property donated for use)
donating blood is a nondeductible expense
Overall ____ of AGI limit for charitable contributions
50%
Charitable contributions caryover is for ___ years
5
Max deduction of ___ of AGI for public charities, ___ of AGI for private charities
50% public, 30% private
Basis of property sold to charity in bargain sale is
(amont realized in sale/fmv of entire property) x adj basis of entire property
For partnerships and S Corps, charitable contributions are deducted by the ____ on their ____
partners on their individual tax returns because they are pass through entities
C corps can deduct the ____ of ordinary income property donated to charity
basis
C corps can deduct the ____ of capital gain property donated to charity
FMV
Max charitable deduction a C Corp can make is limited to ____ of the corporations taxable income
10%
Under at-risk rules, the maximum deductible loss is limited to the amount that the investor had _____
at risk!
The amount “at risk” is the total of the _____ and _____ , as well as the ___ for which the investor is _____
cash and property, as well as debt for which investor is personally liable (recourse debt)
For recourse debt, an investor cannot be allocated recourse liabilities in excess of _____
capital contribution and future contribution obligations
Passive activity losses may only be deducted against _____
passive activity income
Passive activity loss rules apply to all the following:
individuals estates trusts closely held C corps personal service corporations (PSCs)
Three types of income and losses are
passive
active
portfolio
Closely held C corps may offset passive losses against _____ income but not ____ income
can against active, but not against portfolio
An oil and gas activity that involves a working interest in any oil and gas property that a taxpayer owns directly, is ____ a passive activity
NOT
Passive activity loss rules apply to limited partnerships, which are _
publicly traded partnerships (PTP)
master limited partnerships (MLP)
and
nonpublicly traded or privately offered limited partnerships
An MLP is traded on ____
a publicly traded exchange
Losses from nonpublicly traded parternships (such as RELPS), can only be offest against income from other ____
nonpublicy traded partnerships
If you have multiple sources of passive activity losses and income, the net losses are distributed _____
pro rata amongst the different activities
Passive activities are defined as the taxpayer not having materially participated (except O&G) or rental activity ______
even if they did materially participate
Material participation for passive activity is a yes response to
500 or more hours in the year partiicpation
is your participation effectively ALL of the participation for all individuals
materially participate in 5 of last 10 yeasr
is it a personal service activity, particpate materially in last three yeras?
participate on a regular, continued, and substantial basis?
Losses from publicly traded partnerships can only be offset by income from the _____ publicly traded partenrship
the SAME
Losses from publicly traded partnerships can only offset income from the same publicly traded partnership, but can be carried forward until that PTP has ____
income or is disposed of
Real estate losses are NOT conidered passive if
real estae is greater thatn 50% of personal services in all trades of business for the year
performs more than 750 hours of service in real property trades of businesses in which they materially participate
Individuals can deduct up to _______ of rental real estate losses against active and portfolio income
$25,000
You get an additional standard deduction if you are ____ or ____
over 65 or blind
You can claim a personal exemption for yourself and for your _____
spouse
Can you claim a dependency exemption for someone who died during the year?
YES if all test are met
For parents of a child, if the child lived with each parent for the same amount of time, then child will be claimed as qualifying child for parent wit the highest _______
AGI
If niether person is the parent of a child who is being designated as a qualifying child, then they go to the person with the highest ______
AGI
The standard deduction for a person who can be claimed as a depended is the greater of the _____ or _______ plus $
$1,050 or earned income plus $350 (may not be the same for 2018 laws)
If you are claimed as a dependent on someone else’s returns, you cannot claim a _______
personal exemption
The personal and dependency exemptions ______ at certain _____
phase out at certain levels of AGI
The five filing statuses are:
single mfj mfs head of household qualifying widow with dependent child (surviving spouse)
Abandoned spouses who live apart may be able to file a __________ return
head of household
When is marriage status determined during th year?
last day of the tax year
Can MFS take advantage of the credit for child and dependent care expenses, earned income credit, or any education credits?
NO
To file head of household, have to be an ______ individual who maintains a household for a ______ for more than one half the tax year
unmarried, qualifying person
HOH filers must pay more than _____ the cost of maintaining the household for a qualifying person
half
You can use the widow filing status for _____ after death of spouse
2 years
To file for 1040EZ, must have less than _____ in income, no dependents claimed, no adjustments to income, and income is solely derived from wages, salaries and tips
$100k
What is a tax credit?
a dollar for doallar reduction of the income tax liability of the taxpayer
Refundable tax credits create a _______ even if the amount exceeds the taxpayer’s tax liability
refund
Personal tax credits include:
- credit for the elderly or disabled
- foreign tax credit
- child and dependent care credit
- adoption credit
- child tax credit
- american opportunity tax credit
- lifetime learning credit
If you don’t take all the depreciation allowed, do you still have to reduce the basis of the property by the allowable amount?
YES
MACRS is ____ declining basis for 10yr and less and _____ declining basis for 15 and 20 yr property
200% declining basis and 150% declining basis
Under MACRS, residential real estate has a _____ life and nonresidential a ____ life
27.5 years residential, 39 year life non residential
Section 179 allows for an annual write-off of the cost of tangible personal property used in a trade or business up to ______
$510,000
The basis of tangible personal property, after a section 179 deduction is made, is reduced by the _______
amount of the deduction
Are repairs to business property deductible?
YES
For intangible drilling and development costs, the two options are to _____ or to ________________
expense in current year or capitalize and deplete
The two depletion methods are ____ and ____
cost and percentage
Can use the cash-method of accounting for partnerships that don’t have ____ as partners, for C corps that have less than ____ in gross receipts, for certain farming businesses, and for qualified PSCs
don’t have c corps as partners, and c corps with less than $5M in gross receipts
Prepaid income for accrual taxpayers is taxed in the year of _____, not when incurred
year of receipt
For manufacturing contracts, must involve manufacturing something that is not normally in _______ and normally requires more than ______ to manufacture
not normally in inventory and more than 12 months to manufacture
Portion of completion method is used for _______ and is :
used for contracts and is total contract price x (cost incurred during current period/total estimated cost of contract)
Capital assets are ____ and most ____ assets
personal use and most investment assets
Are losses from personal-use assets deductible?
NO
The following are NOT capital assets (ACID)
accounts and notes receivable
copyrights and creative works
inventory
depreciable property or real estate
Ordinary assets, if sold, produce ______
ordinary income
Examples of ordinary assets are (IAWC)
inventory
accounts or notes receivable
works of art in the hands of the creator
copyright for the person who applied for and received it
Section 1231 assets include depreiable personal or real property and specifically____,___,___,___
timber coal and iron ore
livestock
unharvested crops
goodwill and intagibles
For those in the highest marginal bracket, capital gais are _______
20%
Adjusted basis in a property =
cost + capital additions - capital recoveries
Most common “capital recoveries” are
depreciation, theft, and casualties
Are realized losses from personal use assets recognized? Apart from casualty or theft
NO
For the recipient of appreciated property, the basis is calculated as
donor’s adj basis + (unrealized appreciation/(FMV-donor’s annual exclusion amount used for the gift)) x gift tax paid
If a person receives a gift of loss property, then the basis isn’t determined until the donee _____ of the property
disposes of it - the donor’s holding period transfers to the donee if sold again at a gain, does not transfer if sold for a loss
Alternate valuation date is _____ after the date of death, unless the property is disposed of before that
6 months
For deathbed gifts, the basis is the FMV at the ______ if they die within one year
date of the gift
Losses from sales between related parties are ____
disallowed
If a related party subsequently sells property acquired ina related party transaction for a gain, they can use the disallowed ______ to offset the gain
disallowed loss
The double basis rules means that you use the donor’s basis for _____ and the FMV of the acquired property for _____
gains, and FMV for losses
For wash sale, the new basis is the renewed acquisition price of the stock plus the _____
postponed loss
the general rule is that all gains are recognized in the year of _____ or ______, except for installment sales
sale or exchange
Worthless securities are considered disposed of on the last day of the _____
tax year
The following are not considered like-kind
personal use assets ordinary assets securities personalty exchange for realty livestock of different sexes real estate for domestic real estate
Boot in a 1031 exchange includes
cash
liabilities assumed by the other party
other non-like-kind property
A section 1033 involuntary conversion allows a taxpayer to _____ the recognition of gain realized from the involuntary conversion
postpone the gain
Section 1033 re involuntary conversions and postponing gains only applies to ______
gains
Partial exclusion for the section 121 sale of personal residence exclusion only comes into effect if you are moving for _____ or ____
a new job or health reasons
If you sell your house within two years of your spouses death, then you can get the full ______ amount on any gain
full exclusion amount of $500k
If a corporate bond is bought at a premium, taxpayer will reduce the basis by the amount of ______ taken (if elected)
amortization
OID bonds generate _____ income
phantom
NQSOs will create income recognition when the options are _____
granted
For NQSOs, the taxpayer will be taxed on the bargain element when the option is _____
exercised
The bargain element for NQSOs is considered _____ and taxed at _____ rates
compensation income and taxed at ordinary income rates
For ISOs, no income is recognized when the option is ______
granted
for ISOs, no regular tax is due when the option is _____
exercised
Tax is due for ISOs when the stock is _______
subsequently sold
Advantages of sole props:
no separate entity
not costly to establish
can respond quickly to business opps
easy to terminate business
Disadvantages of sole props
not easy to raise capital
unlimited liability
ends at death or incapacity
In liquidating a partnership, order of distribution is
creditors LPs shares of profits LPs return of capital Advances and loans made by GPs GPs share of profits GPs return of capital
A C corp will be considered a personal holding corp if it meets the ______ and the ______
ownership test (50% owned by 5 or fewer people) and the passive income test (60% of corp income consists of personal holding company income)
S corps do or do nothave the same flexibility to allocate income and deductions as partnerships?
DO NOT
Principal advantage of S corps is to avoid _____ like c corps have
doubel taxation
Built in tax may need to be paid by _____ that once were C corps
s corps
An llc can be taxed as
a SP
partnership
corporation
s corp
Are charitable donations allowed in a simple trust?
NO
Trusts are allowed a _____ for distributions made to beneficiaries
deduction
A trust is NOT entitlted toa ______
standard deduction
Accuracy related penalty for IRA is _____%
20%
Can a CFP represent you in a court case against the IRS?
NO
