Tax Only Flashcards
How is shareholder basis calculated for a new interest in a corporation?
Adjusted basis of property transferred + Gain recognized (if less than 80% ownership) - Boot received = Shareholder basis If shareholders have 80% control after a property transfer; no taxable event occurs. If liabilities exceed basis on contributed property to a corporation; a gain is recognized.
How is gift taxation different from estate taxation?
Property transferred while taxpayer is living
Under what accounting basis are individual tax returns prepared?
Cash Basis. Note: This basis is NOT allowed for Corporations; Partnerships with a C-Corp partner; or for inventories.
What is the Interstate Income Act of 1959?
Restricts a state’s authority to tax interstate commerce Also called Public Law 86-272
True or false? Partnerships are a taxable entity.
False. Income and expenses flow through to the partner to be taxed via a Form K-1.
What is the basic calculation for basis in property?
Cost of property + Purchase expenses + Debt assumed + Back taxes and interest paid = Basis Note: taxes and interest related to time when a taxpayer did not own the property are not deductible - they are added to basis.
How is shareholder basis calculated for a TRANSFEROR of an interest in a corporation?
Transferor’s basis + Gain recognized by shareholder = Basis OR FMV of Corporate Interest - Adjusted basis of property = Gain
What is the annual exclusion amount for a taxpayer’s gift taxation? What is required to get the exclusion?
$13;000 per year per spouse to each individual In order to get the exclusion; the recipient must immediately acquire a present interest in the property and get unrestricted access to the property and all of its benefits
What are the deductions to arrive at Adjusted Gross Income (AGI) for individuals?
*MSA/HSA contributions *Investment penalties for early withdrawal *Self-employed medical insurance premiums *Self-Employment Tax (approx. 50%) *IRA Contributions *Student loan interest (can’t be another taxpayer’s dependent) *Moving expenses *Alimony *Tuition - can’t take AOC/Lifetime Learning Credit for same expense *Teacher expenses *Attorney fees in discrimination lawsuit
What are the principles of the Interstate Income Act of 1959?
A state can’t collect income tax on sales within its borders as long as the orders are filled and shipped outside of the state Applies to tangible property only Does not protect a Corporation in the state where incorporated Does not protect from taxes using metrics other than income (Ex: Sales Tax)
When exchanging property for a partnership interest; how is gain or loss recognized?
Neither gain nor loss is recognized in an exchange of property for a partnership interest. It is a non-taxable event.
What is the recipient or donee’s basis on gifted property?
Sold at a gain: use donor’s basis Sold at a loss: use lesser of donor’s basis or FMV at time of distribution Sold in between donor’s basis and FMV: No gain or loss
What basis do shareholders and corporations use for property?
They both use ADJUSTED BASIS; NOT FMV of property.
If a gift is an annuity; what value is used for the gift?
If the gift is an annuity; use Present Value to determine the gross gift
Which items can be carried over to future years on an individual tax return?
Investment interest expense in excess of investment income Charitable contributions Excess Section 179 Capital losses AMT Paid Passive Activity Losses
What is the Uniform Division of Income for Tax Purposes Act (UDITPA)?
Uniform criteria for determining taxable income of multi-state corporations Also known as the Multi-State Tax Compact
What is a partner’s basis in partnership property?
Initial basis for partnership property is the basis of the property that was contributed or exchanged for the partnership interest.
What is the basis and holding period of inherited property?
FMV at date of death or alternate valuation date (6 months later) If alternate date is elected by property is sold before 6 month window; use FMV at date of death. Property inherited is LTCG property regardless of how long it is held by the recipient.
Describe how loss is taken on Section 1244 small business corporation stock?
A loss on worthless stock is an ordinary loss.
What is the basic gift tax calculation?
Gross Gifts - 1/2 of Gifts (treated as given by spouse) - Total # of donees x $13;000 exclusion = Taxable gift
Characterize the following carryover: Passive Activity Loss
No carryback Can carry forward indefinitely
What are the basic principles of UDITPA?
Designed to ensure a company is not taxed more than once on its income Forces a corporation to segregate Business Income from Non-Business Income
When services are exchanged for a partnership interest; how is this treated for tax purposes?
It is a taxable event; treated the same as compensation for the services. The taxable income equals the % of partnership interest received times the FMV of the partnership. i.e. the FMV of the interest received is the taxable income for the service provider.
What is the holding period on a stock dividend?
Holding period of new stock received from a dividend takes on the holding period of the original stock