Tax Flashcards
investment interest deduction
-limited to net investment income
-no investment income= no deduction for margin interest
=not for margin interest to purchase tax-exempt (muni!)
investment income includes:
interest, dividends, royalties, ST gains
*(qualified dividend only qualifies if opted-out of reduced LT gains rate)
what qualifies as investment income? (gain election)
income from property held for investment: interest, (dividends), royalties, STG
- dividends included if elected out of reduced rates
- LTG included only if elected out of long term rate (elects STCG)
Meals and Entertainment Expense
Meals travel, business 50%
NO ENTERTAINMENT- instead ask for reimburse (tax free)
Employer reimbursement:
employer can reimburse in full, but only claim deduction 50%
kiddie tax and muni bonds
muni bond income not included in unearned income bc muni bonds are federal tax-exempt
standard deduction for kiddie when both earned and unearned income
standard deduction is greater of:
$1100 unearned OR earned+$350(max) ($12,200 total max)
SE income included and not included
Included: NET schedule C, Gen partnership income (K-1), Board of directors fees, 1099
NOT included: real estate income/rent paid to you, share of income/loss from limited partner, wages from S corp (fica wages), K-1 income from S corp
FICA (Federal Insurance Contribution Act) taxes
employee and employer each pay 6.2% + 1.45% up to W-2 $132,900
over that, each pays Medicare tax of 1.45%
child dependent care credit (nonrefundable) under age 13
allowable expense $3000 one child, $6000 two or more, and take 20% ($1200 credit) (so $6000 is the max)
child tax credit (partially refundable) under age 17
under 17! $2000 ($1400 of it is refundable) credit for each child (phaseout in tax table)
ex: $4000 owed in tax, 3 kids- $2000+$2000+$1400
other tax credits
Elderly,disabled credit (nonrefundable)- 65 and disabled
Foreign tax credit (non)- take credit OR deduct
Earned income credit (refundable)
Installment sale- Gross Profit Percentage
gain recognized in each year (related party- don’t sell within 2 yrs or it’ll collapse)
Profit/Total contract price= GPP
Ex: $10k basis, $100k sale= $90k profit
$90k/$100k=90%, so for all future payments, 90% is reported as LTCG (if property owned LT) and 10% is return of basis
Section 1244 qualified small business stock (simply add to document!)- what does it do?
- applies to first million of stock (C or S)
- loss of $100,000/$50,000 (JT/single) is ORDINARY loss
- allows you to take $100,000 ordinary loss plus $3000 capital loss if business fails (instead of just $3000/yr and carry forward forever)
sole proprietorship- interest paid on business loans
unlimited deduction!
QBI (qualified business income)
up to 20% of QBI can be deducted from pass through entities like sole p, S corp, LLC, partnerships etc.
up to $421,400 (married), $160,700 (single) taxable income
if business income exceeds $421,400, lesser of 50% of W2 payments
original basis and adjusted basis
adjusted basis is original basis (includes attorney fees, title, etc)- (less) cost-recovery deduction (depreciation)
Ex: bought building for $20,000 down and $100,000 mortgage and sold for $180,000 and took $18,000 depreciation. Adjusted basis is $120,000-$18,000; gain is $180,000-$102,000=$78,000
MACRS, 179…(197?)
you can either amortize using MACRS or 179 it (election to expense up to $1 million ish- tangible (1245) property like computers- limited to taxable earned income.
197 - intangibles like franchise , goodwill
1031 like-kind exchange
business-personal ok if personal is to be used for business
real estate only
Holding period (ST, LT, collectible rates)
-ST and 1245 recaptures- ordinary
-LT:
0% for (10-12% bracket);
15% (bracket 15%-39.6%);
20% (bracket above 39.6%)
passive activities, passive loss
like non-publicly traded partnerships (RELPs- real estate limited partnerships), no material participation
$3000 loss can’t be deducted for PASSIVE loss, that’s just for capital losses
[loss from LLC where active participant- deductible up to basis]
phantom income by category (duplicate)
Insurance: any lapse with a loan; section 162 life/disability
Investments: zero/strip income, TIPS, dividends declared but not paid, CG, [dividends reinvested?]
Tax: K-1 income from LP/FLP, recaptures
Retirement: ESOP distribution (basis only), secular trust
divorce property settlements (and life insurance)
any transfer of property between spouses incident to a divorce is tax-free.
life insurance can also be transferred as nontaxable transfer of property (and not as alimony or child support)- this is exception to “transfer for value” rule
payee assumes payer spouse’s basis if property is transferred (no step up)
front-loading of alimony
too much in 1st 3 years- must be recaptured as ordinary income
- no alimony 3rd year: 1st+2nd-$37,500=subject to recap
- third year payment made: (3rd x 2) +$37,500=
then that number is subtracted from 1st 2 years
(exceeding by more than $15k is a problem- can’t decrease substantially)
- P. T38
(charitable contribution)ordinary income property- limited to BASIS
property that would produce ordinary income if sold:
Use-unrelated property (like artwork, collectibles), Short-term capital gains property, inventory, work of art by taxpayer, copyright
SS taxation; MAGI
Muni bonds added to AGi for SS tax calculation