Tax Planning Flashcards

Question

Substance over form

Answer 1

The substance of a transaction governs its tax consequences. When there is no intent to repay a loan, or no written loan agreement.

Answer 2

Income is taxed to the tree that grows the fruit even though it may be assigned to another.

Answer 3

April 15, June 15, September 15, January 15 1, 2, 3, 4

Answer 4

20% of the portion of the underpayment attributed to negligence.

Answer 5

75% of the portion of the tax underpayment ONLY not interest deficiency.

Answer 6

5% of the tax due per month, with a max of 25%.

Answer 7

0.5% per month of the tax unpaid, with a max of 25%.

Answer 8

To avoid this penalty, pay the LESSOR of: 1) 90% of current year's tax liability. 2) 100% of previous year's tax liability (or 110% of previous year if gross income exceeded $150,000).

Answer 9

AGI is the second step in the 1040 calculation. AGI = Gross Income - Adjustments. Adjustments: - IRA contributions - Student loan interest ($2,500 limit) - Self-employment tax (.07065) - HSA - 100% Self-employment health insurance - Keogh or SEP - Moving expenses (Active military) - Penalty for early withdrawal of savings - Alimony paid for a PRE-2019 divorce - $4,000 educational expense (AGI limits apply and used as an alternative to AOC)

Answer 10

- Medical, Dental, and Qualified LTC (7.5% of AGI). - Casualty and theft losses (federally declared disaster). - Real Estate, State and Local; sales, and Personal Property taxes up to $10,000. - Investment interest expense (up to net investment income) - Home mortgage interest - Mortgage insurance qualified residence (<$100,000 AGI) - Charitable gifts

Answer 11

Must be a federally declared disaster 1) Use the LESSOR of Basis or FMV 2) Subtract any insurance coverage 3) Subtract $100 floor 4) Subtract 10% of AGI

Answer 12

All unearned income of a child who has not attained age 18 or turns 19-23 if a full-time student and who has at least one parent alive is taxed at parents rate regardless of the source of the assets. REDO THIS CARD.

Answer 13

- Net Schedule C income - General partnership income (K-1) - Board of Director Fees - Part-time earnings (1099) - NOT wages or distributions (K-1 income) from an S-CORP. Nothing from an S-Corp is considered self-employment income.

Answer 14

- Credit for child & dependent care expenses ($600 for 1, $1,200 for 2+). - Child tax credit (up to $1,600/child could be refundable. $2,000 if you pay taxes). PR. - Adoption credit. NR. - Elderly and disabled credit (65 and/or disabled). NR. - Foreign tax credit. NR. - Earned income credit. REFUNDABLE.

Answer 15

- Cash: Mandatory where taxpayer's records reflect only cash transactions, and there are NO inventories. - Accrual: Mandatory for purchases and sales where there ARE inventories. - Hybrid: Combines accrual for inventory portion of business and cash for cash portions of business. - Percentage of Completion: For long term contracts where the contract will not be completed within the taxable year started.

Answer 16

TCJA eliminated miscellaneous itemized deductions and the opportunity to deduct hobby related expenses. Any activity generating income (profit) in 3 out of 5 consecutive years is a business. For horses, 2 out of 7 consecutive. CANT DEDUCT EXPENSES UNLESS ITS A BUSINESS EARNING AN ACTUAL PROFIT FOR FHE YEARS STATED ABOVE.

Answer 17

90% of the total current year tax liability $4,100 is $3,690. Rose actually paid $3,700 ($4,100-$400). There is no failure to pay the total amount due because she fulfilled the 90% rule by paying slightly more than 90%. There is no penalty, but interest may be due.

Answer 18

Tax liability is the ACTUAL tax paid. Be careful of this estimated tax/withholding tax/underpayment questions.

Answer 19

- Alimony received, divorced before 2019. - Punitive damages (Except wrongful death). - Real estate: Schedule E. - IRA distributions. - Capital gains and losses: Schedule D. - Ordinary dividends: Schedule B. - Taxable Social Security. - Taxable interest: Schedule B. - Pensions and Annuities - Wages, Salaries, Tips. - Unemployment income. - Business income and losses: Schedule C.

Answer 20

- Child Support - Inheritances - Gifts - Compensatory damages - Workers' compensation - Municipal bond interest

Answer 21

GROSS INCOME - Adjustments (above the line) = AGI (the line) - Deductions (below the line) = TAXABLE INCOME x Tax-rate = TAXABLE CALCULATION - Credits + Other taxes = TAX LIABILITY - Quarterly payments/Withholdings = NET TAX DUE or REFUND

Answer 22

- Occasional overtime meal money, cab fare, theater or sporting event tickets (not season tickets). - Discounts on services are limited to 20% off the selling price charged to customers. - Premiums the employer pays to a health plan for the employee, the spouse, or the dependents. - Group life policy up to $50,000 (paid by employer). - Company car for business purposes. - Transit pass: $300/month - Parking: $300/month - An employee may exclude up to $5,000 ($2,500 MFS) paid or incurred by the employer for dependent care assistance. - $5,250/year (aggregate) exclusion from gross income for employer-provided education assistance. - $10,000 exclusion from gross income for employer-assistance programs for qualified adoption expenses. - Value of discounts on company products if it does not exceed the employer's gross profit %.

Answer 23

- Health insurance premiums paid for self-employed, partners, and more than 2% owners of an S corporation are taxable income (100% is deductible as an adjustment). This does not include disability insurance premiums. - Insurance premiums your employer pays on a group life policy in excess of $50,000 if the plan is nondiscriminatory, are taxable (per table I).

Answer 24

Usually yes

Answer 25

Keogh or SEP (self employed) Moving expenses (active military) IRA contributions Student loan interest Self-employment tax. ONE HALF! (half of .1413 calc.) HSA Alimony paid pre-2019 Penalty for early withdrawal of savings Educational expense ($4,000. AGI limits apply and used as an ALTERNATIVE to AOC). Self-employment health insurance (100%)

Answer 26

Qualifying individuals may claim an above the line deduction on the front of the 1040. Limited to $2,500.

Answer 27

AGI + tax-exempt interest, non-taxable social security income, student loan interest, etc. The most common usage of MAGI will be surrounding tax-exempt interest in determining whether social security benefits are taxable.

Answer 28

$1,500 MFJ $1,850 Single If 65+ AND blind, you get the elderly AND blind deductions combined ($3,000 MFJ per individual, or $3,700 S) Blindness has no age requirement.

Answer 29

- Medical, dental, & qualified LTC expenses. - State, local, sales, real estate, and personal property taxes limited to $10,000. - Mortgage insurance qualified residence (<$100,000 AGI). - Home mortgage interest (separate from above). - Charitable gifts - Investment interest - Casualty losses (if federally declared disaster area).

Answer 30

- Proceeds of a mortgage loan must be to buy, build, or improve. Secured by home. - Only interest paid on first $750,000 ($375,000) - Includes principal mortgage and home equity loans. - Up to $1M is grandfathered for pre-12/15/17

Answer 31

Investment interest is interest paid on indebtedness for property held for investment (margin). *MAX INVESTMENT INTEREST DEDUCTION IS LIMITED TO THE TAXPAYER'S NET INVESTMENT INCOME* Can be carried over indefinitely.

Answer 32

- Interest, non-qualified dividends, royalties, and short-term gains. - A qualified dividend will only qualify as investment income if the taxpayer elects not to use the reduced tax rates (uses OI rates). - LT gains will only qualify as investment income if the taxpayer elects not to use LT rates (uses OI rates) - In other words, the taxpayer needs to elect out of qualifying rates and elect ST cap gains rates (OI rates). *Assume ordinary income rates*

Answer 33

- Must be self-employed - Prove the space is used exclusively and regularly - There must be no other fixed location of the trade or business where the taxpayer conducts substantial business. - Gross income - business expenses = amount that can be deducted for home office expense (depreciation, home maintenance, etc.)

Answer 34

YES from 2018-2025.

Answer 35

- Meals for entertaining clients and wooing prospects may be deductible IF BUSINESS IS ACTUALLY CONDUCTED, taxpayer present, not lavish. 100% deductible. - Expenses for recreation, social, or similar activities for the benefit of employees, other than HCEs, are still deductible (office parties). - Business meals for the convenience of the employER, where no business is being done, are now only 50% deductible. - Meals for employees while travelling are 50% deductible. - Tickets to sporting or cultural events are not deductible.

Answer 36

- For WAGES in excess of $200,000 S, $250,000 MFJ, $125,000 MFS, the Medicare tax rate will increase to 2.35% (1.45% + .9%). The additional .9% is added to the 1.45% if over the threshold. - If less than $200,000, the rate will remain at 1.45%. - An additional 3.8% Medicare tax will be applied to INVESTMENT INCOME for taxpayers with annual income of more than $200,000 S, $250,000 MFJ. Investment income includes LTCG and distributions from NQ annuities.

Answer 37

It is a tax to discourage the shifting of income to children.

Answer 38

To the following with UNEARNED income greater than $2,500 with at least one living parent: - 17 years old or younger - 18 where earned income is less than half of support - 19-23 where earned income is les than half of support and full time student

Answer 39

The amount of the earned income + $400 is used in step one of Kiddie tax calculation.

Answer 40

Yes. Never a grandparent even if they are the ones providing the unearned income.

Answer 41

$1,250 standard deduction $1,250 @10% (Childs rate) Remainder @ Parents tax rate

Answer 42

Standard deduction is the GREATER of $1,250 OR earned income + $400 (but no more than the single person standard deduction $13,850). Next $1,250 @ 10% Remainder @ Parents tax rate

Answer 43

- SE pay their own Social Security and Medicare taxes. Since SE function as both the employer and employee, they pay both halves of the tax. - SE tax is based on NET EARNINGS.

Answer 44

- Dividends or interest on investments. - Gains (or deductions for losses) from property, securities, or commodities. - Real estate income or rents paid. - Distributive share of income or loss of a LIMITED PARTNERSHIP - WAGES from an S-CORP - DISTRIBUTIONS from an S-CORP (K-1 income). Wages and distributions from S-corps are never included in self-employment income.

Answer 45

- NET schedule C income. DONT GET FOOLED BY NET. - General partnership INCOME (K-1 income) - Board of director fees - Part-time earnings (1099) It is NET schedule C income plus the others. Distributions/income from a General Partnership is SE income. ANY DISTRIBUTION FROM AN S CORP IS NOT SE INCOME. IN RELATION TO SE INCOME QUESTIONS, WHEN YOU SEE S-CORP CROSS IT OFF.

Answer 46

It is added to the taxpayers income tax liability, and then HALF is subtracted on the front of the 1040 (half of .1413).

Answer 47

- Until age 13 - No MAGI Phaseout - 20% credit for expenses actually paid. - up to $3,000 for 1 child, or $6,000 for two children (20% is either $600 or $1200).

Answer 48

- Has MAGI phaseout - Individuals may claim a child tax credit of $2,000 for each qualifying child under 17 years old. - Reduced by $50 for each $1,000 above $400,000 MAGI for MFJ and $200,000 MAGI for unmarried individuals. - Up to $1,600/child is a refundable credit. - There is also a $500 family credit for each dependent who is not a qualifying child, presuming 50% of their support is provided. Same phaseout as above. ie: Alex Brooks.

Answer 49

No. Credits come into play later in the tax calculation.

Answer 50

- Credit of 50%, 20%, 10% of retirement plan/IRA contribution depending on AGI. - No credit is available for taxpayers over $73,000 MFJ. - max credit is $2,000 S / $4,000 MFJ.

Answer 51

- $15,950 per eligible child. - If adopting a special needs child, full credit is claimable even if expenses are less than the full amount. - There is an AGI phaseout. - Foreign national expenses can only be claimed when adoption is FINAL.

Answer 52

- 65, or, - under 65, is retired with a permanent and total disability, AND receives disability income.

Answer 53

For low income earners with earned income under certain limits. This is a refundable credit.

Answer 54

- A deduction is worth more to a high-bracket taxpayer, and a credit is worth more to a low-bracket taxpayer. - Deduction = multiply for credit equivalent - Credit = divide for deduction equivalent DM CD

Answer 55

- Firms realize revenue from services performed in the year RECEIVED. - Firms match expenses against revenues in the year the expense is PAID, regardless of when the liability was incurred. - Most businesses with $29 million OR LESS in average revenues will now use the cash method of accounting.

Answer 56

- Firms realize revenue when the services they provide is complete, regardless of when payment is received. - Firms match expenses against revenues in the year the firm INCURS the liability for the expense. - No longer mandatory for purchases and sales where there are inventories, UNLESS the corporation or other business averages over $29 million in revenues during prior three years.

Answer 57

- Permits the capital gain recognized to be spread over the life of the note rather than be recognized entirely in the year of the sale. Exclusions: - All payments are received in the year of the sale - publicly traded securities - loss property - sold to related party who turns and sells it within 2 years

Answer 58

Gain realized / Total contract price. Gain / Price. Gains are Capital gains. LT or ST depending on holding period of newly acquired property, not previous owners holding period.

Answer 59

Net business income will be HIGHER. Low initial cost, selling for higher price. Think about it. Its not difficult.

Answer 60

Can create gains, losses, or neutralize a gain or loss. Good being able to manipulate appearance of profits or losses.

Answer 61

- If a firms operations result in excess deductible expenses over income, this generates a NOL. - If a firm has no taxable income, there is no tax cost. - Excess expenses can be carried forward. - TCJA limited the amount of deduction but allows for carryforward.

Answer 62

Schedule C losses attributable to a sole proprietorship may be claimed on that proprietor's personal 1040 and thus reduce AGI and ultimately taxable income.

Answer 63

T. Gifts are subject to gift tax, and occasional tickets are non-taxable, but many games are taxed.

Answer 64

Investment income. ie: interest, ordinary dividends, stcg.

Answer 65

Current cost.

Answer 66

No, because they already pass-through annual losses.

Answer 67

Unused charitable deduction. 5 years or death.

Answer 68

- Responsible for operating the business on a day-to-day basis. - Business operations are undistinguished from the owner's personal affairs for both legal and tax purposes. Advantages - Conduit of income and losses on Schedule C - 100% medical insurance premiums deductible - Keogh and SEP available. Disadvantages - Unlimited liability - Business dies with owner

Answer 69

- Conduit of income and losses on Schedule C. - 100% medical insurance premiums deductible. - Keogh and SEP available. - Partnership agreement can be oral. - Unlimited personal liability - Partnership dissolves with death/incapacity

Answer 70

- Can be either a Partnership or a Corporation - Classified as a Partnership unless it has more than two corporate characteristics (centralization of management, continuity of life, limited liability, free transferability of interest). - LLC's may operate like a general partnership, where members can be involved in daily operations without losing their limited liability status.

Answer 71

TCJA created a tax deduction for certain taxpayers of up to 20 percent of income from partnerships, sole proprietorships, and other pass-through business, but the taxpayer must have Qualified Business Income (and must be a pass-through entity). QBI is the net income (profit) from pass-through business (rental income, PTPs, REITs). The total amount of QBI is determined by EACH separate business that the taxpayer owns.

Answer 72

< 364,200 MFJ get full 20% deduction, even if a PSC.

Answer 73

> $464,200 MFJ No deduction if a PSC. Limited deduction if any other PT business.

Answer 74

Between $364,200-$464,200 Partial tax benefit no matter the nature of the business, but PSCs phaseout eventually.

Answer 75

A partnership where the general partners are not personally liable for malpractice-related claims arising from the professional misconduct of another GP. Useful for a partnership that wants to convert from an entity where one or more partners have unlimited liability. In general, when forming a new entity, the flexibility of an LLC generally makes it preferable to an LLP.

Answer 76

- Separate tax entity - Double taxation - Corporate profits are taxed at a flat 21%, and then if those after-tax earnings are distributed to its owners, the distributed income is taxed a second time at owner level. Advantages - Separate tax entity - Sale of stock to unlimited number of investors - Dividend-received deduction (50% rule) - Limited liability - Continuity of life Disadvantages - Corporate formalities - Dividends paid (after-tax) - Accumulated earnings are subject to double taxation

Answer 77

- A US corp investing in another US corp gets a deduction for dividends received. - 50% received can be excluded from income if owns 20% or less of distributing corp. - 65% if between 20%-80%. - 100% if >80%

Answer 78

- C or S corp that was initially capitalized with no more than $1 million. - Loss of $100,000/year on a joint return ($50,000 otherwise) is considered to be an ORDINARY LOSS, rather than a capital loss. Can take a 1244 loss and capital loss in the same year tho if greater than 100k/50k of loss.

Answer 79

- C corporations owned by HALE individuals. - Any retained income by these PSCs are taxed at a flat 21% like other C Corps. Health (doctors, dentists, etc.) Accountants, Architectural, Actors, Athletes Law Engineers

Answer 80

- functions as a conduit for items of income, deductions, and tax credits. Eligibility - Max 100 shareholders - Single class of common stock, but can be voting AND/OR non-voting (no preferred stock). - Must be domestic corporation - Only individuals, estates, and certain trusts can be shareholders (US citizens or perm residents). Advantages - Limited liability - Conduit income or loss to owner but limited losses up to basis. - BASIS = CASH + DIRECT LOANS BY SHAREHOLDER Disadvantages - Corporate formalities - Sale of stock limited by eligibility standards

Answer 81

- At least one GP, and could have many LPs. - LP are liable for partnership debt only to the extent of their capital contributions (conduit taxation).

Answer 82

C Corporation - Separate tax entity - Dividend-received deduction (50%, 65%, 100%) PSC - Flat 21% tax rate like C Corps

Answer 83

Sole Proprietorship - Keogh/SEP - 100% medical, dental, & LTC insurance deductible for owner - Lack of continuity Partnership - Keogh/SEP - 100% medical, dental, & LTC insurance deductible for owner - Lack of continuity - Losses up to basis

Answer 84

S Corporation - Pension plan - 100% medical, dental, & LTC insurance deductible for >2% owner - Losses up to basis - No more than 100 shareholders - Only one class of stock (no preferred) - Must be domestic corporation - Shareholders must be US citizens or residents - All shareholders must consent to the election LLC - Limited liability like a corporation - Losses up to basis like a partnership LP - LPs cannot actively participate in business - Losses up to basis

Answer 85

- Taxable income or loss is reported on Schedule C (profit/loss from business). - If the Sole Prop operated at a loss, the Schedule C loss carries to the first page of the 1040. - If business loss exceeds other income, certain taxpayers can carry forward as an NOL indefinitely. * If a business owner borrows money for business purposes relating to a sole prop, the interest paid without limit on the debt is deductible on schedule C*

Answer 86

- Files form 1065 for informational purposes only. - Each partner includes in their return the distributed share of the partnership income/loss reported on Form K-1. - Losses are deductible up to basis. - BASIS = CASH CONTRIBUTED BY PARTNER + DIRECT LOANS MADE BY THE PARTNER + LOANS MADE TO THE PARTNERSHIP (BANK LOAN)

Answer 87

- Losses up to basis - Basis = cash + direct loans made by the shareholder. Unlike Partnerships, bank loans made directly to the corp are not included in basis.

Answer 88

- If the entity is treated as a partnership, only an informational return is filed, and the income subject to tax will pass through to the individual members. - If the entity is treated as a corporation, the business itself is a taxable entity and normally files 1120 or 1120s.

Answer 89

- Unless specifically exempt, a corporation that accumulates earnings and profits to avoid income tax to its shareholders is subject to an annual accumulated earnings penalty tax equal to 20% (not 21%) of the amount accumulated for the year. - This penalty tax is in addition to the regular 21% corporate tax. - A regular corporation can generally accumulate $250,000 ($150,000 PSC) WITHOUT ESTABLISHING A BUSINESS NEED. Anything over these limits will face penalty tax, UNLESS THERE IS A BONA FIDE BUSINESS NEED. If there is a bona fide need, corps can avoid the penalty tax! - This is to encourage corps to pay dividends.

Answer 90

Filing: 1120 Employee: W-2 Distribution: 1099 (dividends)

Answer 91

Filing: Schedule C Employee: Schedule C Distribution: N/A

Answer 92

Filing: 1065 Employee: W-2 Distribution: K-1

Answer 93

Filing: 1120S Employee: W-2 Distribution: K-1

Answer 94

- Any taxable income for the year. - Gross income of $600 or more. - A beneficiary who is a resident alien.

Answer 95

- Trust income is, or may be distributed or accumulated for later distribution to grantor and/or spouse. - Trust income is, or may be used to discharge any legal obligation of the grantor - Trust income actually is used to discharge a legal obligation of the grantor - Power to control beneficial enjoyment of the trust principal or income is held by either the grantor or spouse. - Trust income is, or may be used to pay premiums on life insurance on the life of either the grantor or spouse.

Answer 96

- Yearly gift to the trust pays the life insurance on the grantor. This is not taxable income to the grantor.

Answer 97

- Lump sum gift of ILIT investments, and then the income from those investments pays the premium of the life insurance on the grantor. The amount of the actual premium paid is taxable income to the grantor, and the remainder of investment income is taxed to the trust if accumulated, or to the beneficiary if distributed.

Answer 98

If the grantor retains: - A right to income, or the right to use or enjoy trust property (beneficial enjoyment). - A reversionary interest that exceeds 5% measured at the time of death. You don't want a trust to be tainted for income AND estate tax purposes.

Answer 99

Conduit. The trust (or estate) passes its income (and deductions) through to the beneficiaries who then report the income, and pay taxes on it at their own marginal tax brackets (DNI). In this case, a simple trust/estate is a separate tax entity but operates as a tax conduit.

Answer 100

Separate tax entity for tax purposes if it meets both of the following: - It is irrevocable, and there is no grantor control. - Income is accumulated. Most irrevocable trusts are complex trusts.

Answer 101

- Income is distributed vs. Income must or may be accumulated - Income taxed to bene vs. Income accumulated taxed to trust, income distributed taxed to bene. - Normally no distribution of corpus vs. Corpus can be distributed - No charitable gifts vs. May make charitable gifts.

Answer 102

Yes. If it distributes all income, it is a simple trust. If it accumulates income, it is a complex trust.

Answer 103

Deductions for a trust are very similar for deductions an individual can elect. A couple exceptions are: - charitable deduction is only allowed for complex trusts. - Depreciate, cost recovery, and depletion are calculated in the same manner as for individuals. - Carryforwards are available. - Admin expenses are allowed. - A trust is allowed a deduction for all income that it is required to distribute regardless if that income is actually distributed.

Answer 104

- A complex trust that is REQUIRED to distribute all of its income has an exemption of $300. - A complex trust that is NOT REQUIRED to distribute income has an exemption of $100.

Answer 105

Distributable net income. DNI limits the amount that trust (or estate) beneficiaries must report as gross income for income tax purposes. DNI rules also allow the trust or estate to: - Claim a deduction for the amount distributed. - Limit the portion of the distribution that is taxable to the beneficiaries. - Ensure that the character of the distribution remains the same for the beneficiary as it was to the trust. There is no double taxation of trust income because the trust receives a deduction. This deduction is equal to the lesser of the amount distributed to the beneficiaries or the DNI.

Answer 106

Grantor trust. For tax purposes.

Answer 107

- Legal fees - Commissions - Sales tax - Freight - Improvements Repair vs. Replace: Replacing is an improvement, and increases basis. Repairs DO NOT increase basis. Repairs are typically deducted as expenses.

Answer 108

Cost basis - Cost recovery (deductions). Deductions generate tax savings and reduces the basis of the asset.

Answer 109

Recovery of certain capital expenditures that are not ordinarily deductible in a manner that is similar to straight line. Cost recovery for intangibles under section 197.

Answer 110

When an asset (bond) is discounted from par value, the discount must be accreted over the life of the asset. Each year, the accreted portion, or earned portion, is included as taxable interest income, which increases basis. Accretion creates no current year cash, and is considered Phantom Income.

Answer 111

- For gift tax purposes, the value of the gift when given, is FMV. - If FMV on the date of the gift is greater than the donor's adjusted basis, then use the donor's adjusted basis.

Answer 112

If FMV on the date of gift is less than the donor's adjusted basis in the gift, then the following occurs: - A loss is measured using the FMV - A gain is measured using donor's basis - If the sale price is in between the two, no gain or loss is recognized.

Answer 113

Holding period for gifts carries over from the donor. Holding period for inherited property is LT no matter what.

Answer 114

Community = California In community property states, marital property enjoys a full step-up in basis if at least one-half of the whole property is includable in the deceased spouses gross estate.

Answer 115

Noncommunity = New York. NY is Common to me!!! In a noncommunity property state, property only gets a half step-up in basis.

Answer 116

Depreciation/cost-recovery deductions are allowance for the exhaustion and wear and tear of property used in a trade or business, or held for the production of income.

Answer 117

Modified Accelerated Cost Recovery System. Applies to all recovery property, except for land or intangibles, placed into service after 1986. Straight-line is an option under MACRS, but a half-year convention must be used.

Answer 118

5 year- Computers, Autos, Trucks (light duty). 1245 property. 7 year- Office furniture and fixtures. 1245 property ____________________________________________________________________ 27.5 year- Residential rental property. 1250 property. 39 year- Non-residential real property. 1250 property.

Answer 119

MACRS SL 5 year 7 year 5 year 7 year 1 20% 14.29% 10% 7.14% 2 32% 24.49% 20% 14.29%

Answer 120

Tax law allows businesses to EXPENSE, rather than capitalize, a limited dollar amount of tangible property during a taxable year.

Answer 121

Under the TCJA, a business may expense up to $1,160,000 (23) of qualifying property in the year of acquisition. Qualifying property is generally tangible personal property (CATO, 1245 only) purchased for trade or business. Deduction is reduced dollar for dollar by the cost of qualifying property (placed into service during the taxable year) that exceeds $2,890,000. (23) Expense limited to taxable income from ANY trade or business of the taxpayer... Cannot create loss, but can be carried forward. Always take the immediate deduction instead of depreciating

Answer 122

REPAIR If certain requirements are met, 1245 property could be expensed immediately under Section 179.

Answer 123

No gain or loss will be recognized on the exchange of certain properties held either for an investment or for productive use in a trade or business.

Answer 124

Real estate is the only property eligible for like-kind exchange treatment. Personal property was eliminated. Exchange must be like-kind, and acquired property must be used in trade or business. Personal residence can't be exchanged for rental property. Must be used as investment property to defer gain under Section 1031 like-kind.

Answer 125

Yes, it is added to FMV of property acquired in a like-kind exchange.

Answer 126

1) FMV of the property received 2) Adjusted basis of property given up 3) Boot

Answer 127

Total value received - adjusted basis of own property. (FMV + Boot received) - (adjusted basis of own property + Boot paid)

Answer 128

LESSOR of Realized gain (STEP 1) or Boot received,

Answer 129

FMV of property acquired - (realized gain - recognized gain) FMV of property acquired - (step 1 - step 2) *Typically the answer to this step is original basis + Boot paid.

Answer 130

Boot received = recognized gain Boot paid is added to own basis Basis carries over from last property

Answer 131

- Must be IDENTIFIED within 45 days. - Must be RECEIVED within 180 days.

Answer 132

It collapses. The gain not recognized in the exchange is recognized on the date of the turn-around sale.

Answer 133

- LTCGs are subject to preferred tax table. - STCGs are subject to Ordinary Income rates. - LT collectibles are subject to 28% tax rate. - Real property (1250) LT gains are subject to capital gains tax table, but a special 25% depreciation recapture rate is applied when the property is sold.

Answer 134

$3,000 can be claimed in the year of death on the estates 1041, but anything remaining is lost.

Answer 135

FIFO Specific ID Average cost

Answer 136

Realized is what sum at the sale before exclusions or deductions. Recognized is the sum that is actually paid taxes on.

Answer 137

Yes if all the requirements are met.

Answer 138

If a taxpayer makes an installment sale of tangible personal property, all depreciation recapture must be reported as income IN THE YEAR OF DISPOSITION. This is a serious disadvantage. IF THERE IS NO DEPRECIATION, THERE IS NO RECAPTURE.

Answer 139

No loss deduction is allowed for any loss or other disposition of stock or securities if within a period beginning 30 days before and ending 30 days after the SALE, the taxpayer acquires (buys) substantially identical stock or securities. 30 days before and after the sale.

Answer 140

If a charitable deduction is available, the basis of the property sold to the charity for less than FMV must be allocated between the portion of the property sold and the portion given to charity. SIMPLY PUT, BASIS IS REDUCED BY THE % DISCOUNT THAT IS GIVEN! Bargain price / FMV = % % x Basis = Basis % Bargain price - Basis % = taxable gain

Answer 141

- A separate method of calculating income tax liability. - It is to prevent the taxpayer from reducing tax liability below reasonable levels. - TCJA (Trump Act) retained individual AMT, but repealed corporate AMP. - The maximum AMT rate is 28% versus the 37% regular tax maximum rate that applies for 2018 through 2025. - There is an exemption phaseout for AMT!

Answer 142

1) Start with regular post-deduction 1040 income if itemizing, or AGI if electing standard deduction. 2) Add back exclusion items (items that were deductible for 1040 but not for AMT). 3) Add back Preference items. 4) Result equals AMT base 5) Subtract exemptions 6) Result equals AMTI 7) Multiply by 26% and 28% tax rates

Answer 143

F. C corps are no longer subject to AMT.

Answer 144

- Accelerating the receipt of taxable income. - Deferring the payment of property taxes, state income taxes, deductible medical expenses, or charitable giving. - Deferring the exercise of an ISO (add back item) to a later date. - Disqualifying the ISO so it becomes a NQSO (income taxable). - Purchasing PUBLIC purpose muni bonds instead of private activity bonds.

Answer 145

Itemized deductions (mortgage interest & charitable giving) reduce the regular taxes and could indirectly trigger AMT by "uncovering the rock". Add-back items (real estate & local taxes) are added back to taxes which increase the possibility of paying AMT. AMT is calculated based on AGI.

Answer 146

Yes it does, because when there are no itemized deductions to add back, there are no AMT preference items or add-back items.

Answer 147

Yes. Certain entities are for informational purposes only.

Answer 148

Other passive activities

Answer 149

portfolio income, compensation, or business income.

Answer 150

Losses from Non-publicly traded limited partnerships (PALs) can only be used to offset income from Non-publicly traded limited partnership (PIGs). THESE ARE ON THE RIGHT SIDE OF THE DIAGRAM. The netting process is done on Schedule E along with active participation.

Answer 151

Master Limited Partnership

Answer 152

Portfolio income, Schedule B.

Answer 153

Losses, passive income

Answer 154

loss, the SAME partnership.

Answer 155

Until offset against income in the SAME partnership, or until the partnership is SOLD or DEATH, in which case the loss can be fully deducted in the year of disposition.

Answer 156

Yes income comes out as PORTFOLIO INCOME, but losses in a PTP stay in and do not get netted.

Answer 157

$25,000. Any additional losses can be carried forward. This deduction has an AGI phaseout between $100,000-$150,000 on a 2 for 1 basis.

Answer 158

15 or fewer days. Deductions

Answer 159

LONGER of 14 days, 10% of the period of rental use. If treated as a residence, expenses related to renting are not deductible, and visa versa if treated as a business.

Answer 160

- These are not passive participation and are exempt from PAL rules. - Losses that the taxpayer is personally liable for can be deducted against ACTIVE OR PORTFOLIO INCOME WITHOUT LIMIT AND WITHOUT PHASEOUT. - Must be an active participant, any limited role will become passive loss.

Answer 161

- Become a GP of a oil and gas working interest that has losses. - Low income housing (no phaseout)

Answer 162

C corporation, PSC. This is an exception for closely held C corps, but not for S corps.

Answer 163

Pre 2019, Alimony payment is deductible, Alimony reception is includable in income. Post 2019, Alimony is neither deductible or includable. Pre 2019 divorces can adopt the new rules if divorce agreement is modified.

Answer 164

- Transfers of non-cash items DO NOT qualify as alimony. - Cash payments to third parties for ex-spouses rent, mortgage, tax, tuition etc. can qualify if pursuant to the divorce instrument. - Even if required by the divorce instrument, payments made to maintain the property OWNED BY THE PAYOR and USED BY THE PAYEE DO NOT QUALIFY. - If the PAYEE spouse OWNS life insurance on the life of the PAYOR spouse, the policy payments made by the payor WILL QUALIFY as alimony if required by the divorce instrument.

Answer 165

Excess front-loading of alimony will be recaptured as ordinary income. The constant is $37,500. If there is payment in the third year, double the payment and add to the constant of $37,500, and that becomes the new constant that is subtracted from the first two years.

Answer 166

Public charities are 50% organizations. Churches, schools, hospitals. United Way, Red Cross, Humane Society, etc. Private charities are 30% organizations. Private nonoperating foundations, Frats, VFWs.

Answer 167

Calculate the maximum deductible. 60% of AGI. A taxpayer cannot deduct more than 60% of AGI for cash gifts to a public charity.

Answer 168

Calculate the eligible amounts given to PUBLIC CHARITIES.

Answer 169

Calculate the eligible amounts given to PRIVATE CHARITIES.

Answer 170

There is a carryover, and its limited to 5 years or death if sooner.

Answer 171

An individual's deduction ceiling for gifts of appreciated long-term capital gains property to Public charities is 30% of AGI if using FMV, or 50% of AGI using Basis. Use 30% of AGI using FMV. It is rarely to the individuals advantage to valuate the appreciated property at basis. Public Organizations - 30% of AGI using FMV. 3 letters in FMV = 30%. - 50% of AGI using Basis. 5 letters in Basis = 50%.

Answer 172

OI property is property that, if sold, would produce ordinary income, not capital gains. Types of OI property are: - Inventory - A copyright - Use-UNrelated property - Work of art CREATED BY THE TAXPAYER - Short-term capital gains property *THE DEDUCTION IS LIMITED TO 50% OF AGI USING BASIS FOR CHARITABLE GIVING* Stock and real estate are always presumed to be use-RELATED

Answer 173

The allowable deduction for PRIVATE charities is 30% of AGI, as opposed to the 60% of AGI for PUBLIC charities.

Answer 174

$500. If charity sells turns and sells the vehicle without putting to use or improvement, the maximum deduction would be the amount of gross proceeds the charity received from the sale of the vehicle without any improvements.

Answer 175

If a corporation (other than an S corp) makes a gift of inventory, it can deduct its basis plus one-half of the property's unrealized appreciation. The claimed deduction may not exceed twice the basis of the property. The inventory must be for the ill, needy, or care of infants.

Answer 176

- Up to $100,000 of loss is treated as ordinary loss. - Any loss in excess of the $100,000 annual ordinary loss is treated as a capital loss.

Answer 177

Yes, it steps up fully to the fmv at the date of death.

Answer 178

Yes. Schedule E income from active participation in RENTAL ACTIVITIES can be used to offset other passive losses.

Answer 179

The deduction is limited to fair market value ($40,000). Debbie cannot claim a deduction for more than the value that is transferred to the charity. Debbie should have sold the stock for $40,000. Then she could take a $10,000 LTCL. Then she could have donated the sale proceeds (approximately $40,000).

Answer 180

No. If youre under the filing threshold for your age and given filing status, you do not need to file. An exception to this is if you have self-employment income greater than $400.

Answer 181

Lower LTCG rates.

Answer 182

$29 million, three years, accrual method of accounting.

Answer 183

T. S-corporations, LLCs, and Sole props. S-corporations, LLCs, and Sole props. S-corporations, LLCs, and Sole props. S-corporations, LLCs, and Sole props. S-corporations, LLCs, and Sole props. S-corporations, LLCs, and Sole props. S-corporations, LLCs, and Sole props. S-corporations, LLCs, and Sole props. S-corporations, LLCs, and Sole props. S-corporations, LLCs, and Sole props.

Answer 184

A revocable trust is a more popular alternative to probate for many estate planning clients. Most grantors name themselves trustee of their living trust for life. At the trustor's death, the revocable trust becomes irrevocable, and either terminates with the corpus distributed, or continues until a later date. An irrevocable trust is a non-grantor trust where all rights of property transferred to the trust are given up.

Answer 185

Qualifying: apartment complex for shopping center. Farm for a ranch. Non qualifying: inventory of a business, principal residence, tangible personal property

Answer 186

Depreciation recapture may apply to all MACRS property (only 1245) When a business purchases equipment and takes depreciation, the CRD’s offset the business’s ordinary income. When a business sells the equipment for a gain the business must do the following: 1. Look back and recapture the LESSER of total CRDs taken or the gain realized as 1245 gain. Ordinary income. 2. Recover any excess gain as 1231 gain. Capital gain.

Answer 187

- May occur in a tax shelter created prior to the 1986 Act where real properties, having declined in market value, are refinanced or the debt is forgiven. - Income arises from the debt forgiven. - Phantom income could also come from zero bonds, S-corps K-1s with no cash distributed, etc.

Answer 188

Yes they are

Answer 189

Ordinary dividends are taxed at the taxpayers ordinary (higher) tax bracket. Qualified dividends meet the criteria to be taxed at the lower long-term capital gains rates. Qualified Qualifies. A dividend is considered to be qualified if you have held a stock for more than 60 days in the 121-day period that began 60 days before the ex-dividend date. Most dividends from US corporations are QDs.

Answer 190

YES! through 2025.

Answer 191

It is the GREATER of the limited deduction of $1,250, OR the amount of earned income + $400, NOT TO EXCEED THE FULL SINGLE TAXPAYER STANDARD DEDUCTION AMOUNT OF $13,850.

Answer 192

Cash method of accounting. It is the easiest to maintain.

Answer 193

Losses from the business can be claimed on the owners 1040. Schedule C losses attributable to a sole proprietorship may be claimed on that proprietors personal 1040 and thus reduce AGI and ultimately taxable income.

Answer 194

Sole proprietorships, partnerships, S corporations, and LLCs

Answer 195

Corporate stockholders may receive return on their investment as a dividend. Corporations cannot deduct a dividend that is distributed. Corporate dividends are taxed both at the corporate level and again to shareholders. Double taxation. S corporations, LLCs, and sole proprietorships are conduit entities and avoid double taxation.

Answer 196

Estates file on form 1041. Because the estate is a separate entity, it is entitled to certain deductions such as administration or costs, accounting and attorney fees, and expenses for preparing the estate return. Expenses can be taken from the income tax return 1041 or as deductions from the gross estate 706.

Answer 197

197 pertains to amortizing intangible assets or capital expenditures. 179 pertains to expensing tangible property. 197 is closer to heaven, good will is intangible.

Answer 198

If separate returns are being filed by a married couple living in a community property state, one-half of the community income generally must be reported by each spouse. In most other community property states, INCOME FROM SEPERATELY OWNED PROPERTY IS TREATED AS SEPARATE INCOME.

Answer 199

Pre-2019 divorce, cannot file a joint, tax return or live together, payment must be made in cash, received by or for the benefit of the payee spouse, and cannot extend beyond the death of the recipient spouse.

Answer 200

NO. Can only be offset by pub to pub, or non-pub to non-pub (or passive income)

Answer 201

THINK ORDINARY INCOME! Interest, dividends, royalties, and short-term gains qualifies as investment income. Dividends will be included as investment income only if the taxpayer elects not to use the reduced rates. Long-term gains are included only if the taxpayer elects out of long-term rates (and elects short-term cap gains treatment). Same with qualified dividends, unless it says they opted out of reduced rates and used OI rates, don’t count it.

Answer 202

These are payroll taxes. FICA is Social Security and Medicare FUTA is Unemployment

Answer 203

Employee and Employer EACH pay 6.2% + 1.45% or a total of 15.3% up to the w-2 wage base of $160,200. After $160,200 EACH pays 1.45% or a total of 2.9% (unlimited).

Answer 204

Yes, at 1.45% for the employee, and 1.45% for the employer for a total of 2.9% for an unlimited amount. This is the Medicare tax portion of FICA that continues on for unlimited amount over the $160,200 wage base.

Answer 205

Adoption expenses incurred during the tax year PRIOR to the year the adoption is finalized, may be claimed as a credit IN THE YEAR THE ADOPTION IS FINALIZED. Adoption expenses incurred during the year the adoption becomes final or the year following the finalization will be claimed IN THE YEAR THEY ARE INCURRED.

Answer 206

interest paid on Sole proprietor loans. Reflected on schedule C

Answer 207

Only pass through entities. C corps cannot use it

Answer 208

Five years. You make the gift in the current year and then you have five additional years. Total of six installments.

Answer 209

Foreign tax credit

Answer 210

Schedule H

Answer 211

REPEALED!!! NONE!!

Answer 212

NO!! Think about this. It is gift taxed, not income taxed.

Answer 213

FIFO reflects current cost. LIFO reflects understated inventory.

Answer 214

If the entity is formed as a partnership, only an information return is filed. Income subject to tax will pass through to the individual members. If the entity is formed as a corporation, the business itself is a taxable entity and normally files using a form 1120 or 1120s.

Answer 215

When the amount realized is less than the adjusted basis, the resulting loss is treated as an ordinary loss, not a capital loss.

Answer 216

A closely held C corporation that is not a PSC may use passive losses to offset active, but not portfolio income. This is an exception for closely held C corporations only

Answer 217

1. More widely recognized, and can be enforced while a durable power of attorneys authority may not be. 2. You can specify management by the trustee in the event of grantors incapacity. 3. Continues after death, while a durable power ceases at death.

Answer 218

No, just income is distributed. Recognized capital gains from the sale of securities are added to corpus, it is not distributed

Answer 219

Yes you can. If a current year gift is made, 17k plus > of $5000 or 5%.

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