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CFP Flashcards > Tax Planning > Flashcards

Tax Planning Flashcards

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1
Q

Long-term capital gains rates are determined by (taxable/adjusted gross) income

A

taxable

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2
Q

Deductions for AGI
Educator Expenses

A

Up to $300/individual ($600 for two educators MFJ)

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3
Q

Additional 0.9% Medicare tax (is/is not) deductible as Self-Employment tax

A

is not

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4
Q

Alimony paid is deductible by payor and income to recipient if the divorce happened prior to ____

A

2019

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5
Q

Self-employed health insurance deduction is limited to ____ __________ ______

A

self-employment income

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6
Q

Itemized deduction for medical expenses exceeding ___% of Adjusted Gross Income

A

7.5%

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7
Q

Itemized deduction for investment interest expense is limited to ___ __________ ______

A

net investment income

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8
Q

Itemized deduction for cash donations is limited to __% of AGI

A

60%

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9
Q

Itemized deduction for casualty and theft losses must exceed __% of AGI threshold

A

10%

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10
Q

(Marginal/Average) tax rates show the amount of tax paid on the next dollar of earned income

A

Marginal

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11
Q

(Marginal/Average) tax rates show the overall share of income paid in taxes

A

Average

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12
Q

The taxpayer’s marginal tax rate will always be (higher/lower) than their average tax rate

A

higher

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13
Q

Average Tax Rate
Formula

A

Tax Paid / Taxable Income

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14
Q

Tax (deductions/credits) are more valuable to high-income taxpayers than low-income taxpayers

A

deductions

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15
Q

Tax (deductions/credits) benefit all taxpayers in the same amount regardless of their marginal tax rate

A

credits

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16
Q

Refundable Tax Credits

A
  • Earned Income Credit
  • Additional Child Tax Credit
  • American Opportunity Credit
  • Premium Tax Credit
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17
Q

Nonrefundable Tax Credits

A
  • Child and Dependent Care Credit
  • Child Tax Credit
  • Retirement Savings Contribution Credit
  • Lifetime Learning Credit
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18
Q

If a taxpayer is legally separated, they should use the ______ tax filing status

A

single

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19
Q

If one spouse is a non-resident alien, they (can/cannot) file Married Filing Jointly

A

cannot

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20
Q

For Married Filing Separately, if one spouse elects to itemize the other (must itemize/can choose independently)

A

must itemize

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21
Q

Head of Household Qualifications

A
  • Must be single or unmarried
  • Pay more than 1/2 the housing costs for a:
    • Qualifying child (lived with you more than 1/2 year)
    • Qualifying relative (at least 50% annual living expenses)
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22
Q

When a spouse dies, the surviving spouse can claim __________ filing status in the year of death, and __________ filing status for 2 years after

A

married filing jointly; surviving spouse

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23
Q

Quarterly Estimated Payment Dates

A

January 1 - March 31 = April 15th
April 1 - May 31 = June 15
June 1 - August 31 = September 15
September 1 - December 31 = January 15 (following year)

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24
Q

The IRS charges a penalty if a taxpayer does not…

A
  • file a tax return on time
  • pay any taxes owed on time and in the right way
  • prepare an accurate return
  • provide accurate information returns
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25
Q

Negligence Penalty

A
  • Deficiency of tax liability if there was no intent to defraud
  • 20% penalty applies to amount of the deficiency
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26
Q

Fraud Penalty

A
  • When a taxpayer intends to defraud
  • 75% penalty applies to the amount of the deficiency
27
Q

Failure to File Penalty

A
  • 5% of the unpaid taxes for each month or part of a month that a tax return is late
  • Maximum of 25%
  • Minimum penalty of $435 if the tax return is later than 60 days
28
Q

Failure to Pay Penalty

A
  • 0.5% per month the tax is unpaid
  • Maximum of 25%
29
Q

If both a Failure to Pay Penalty and a Failure to File penalty are applied in the same month…..

A

the Failure to File penalty is reduced by the amount of the Failure to Pay penalty for that month, for a combined penalty of 5% for each month or part of a month the return was late

30
Q

If a company’s gross receipts are greater than $_____, they must use the accrual method of accounting

A

$27 million

31
Q

In the hybrid accounting method, the accrual method must be used for:

A
  • inventory purchases
  • sales of inventory
32
Q

In a rising price environment, FIFO will show (higher/lower) profit than LIFO

A

higher

33
Q

In a rising price environment, FIFO will show (higher/lower) tax liability than LIFO

A

higher

34
Q

In a rising price environment, FIFO will show (realistic/overstated/understated) inventory value

A

realistic

35
Q

In a rising price environment, LIFO will show (realistic/overstated/understated) inventory value

A

understated

36
Q

In a falling price environment, FIFO will show (higher/lower) profit than LIFO

A

lower

37
Q

In a falling price environment, FIFO will show (higher/lower) tax liability than LIFO

A

lower

38
Q

In a falling price environment, FIFO will show (realistic/understated/overstated) inventory value

A

realistic

39
Q

In a falling price environment, LIFO will show (realistic/understated/overstated) inventory value

A

overstated

40
Q

Straight Line Depreciation
Half-Year (or Mid-Year) Convention

A

Only one-half of the full amount of depreciation can be taken in the year the asset was put into service; another half of the full depreciation amount is taken in the last year

41
Q

Using accelerated depreciation (increases/decreases/does not affect) cash flow

A

increases
(because it decreases taxes)

42
Q

Depreciation
Mid-Month Convention applies only to:

A
  • Residential real estate (27.5 years)
  • Non-Residential real estate (39 years)
43
Q

Property that qualifies for Section 179

A
  • Equipment purchased for business use
  • Tangible personal property used in business
  • Computers and off-the-shelf software
  • Office furniture and office equipment
  • Certain business vehicles
44
Q

Property that does not qualify for Section 179

A
  • Real property, including buildings, land, and land improvements
  • Air conditioning and heating equipment
  • Property used outside the US
  • Property used to furnish lodging
  • Property acquired by gift or inheritance
  • Property purchased from related parties
45
Q

The deduction of any elected Section 179 expense is limited to the firm’s ___ ______

A

net profit, not including any 179 expensing

46
Q

A sole proprietor (can/cannot) aggregate net business profit with unrelated W-2 wages for purposes of Section 179

A

can

47
Q

Property that is NOT classified as a capital asset:

A
  • accounts or notes receivable acquired in the ordinary course of a trade or business for services
  • copyrights; a literary, musical, or artistic composition; a letter, memo, or similar property, created by the taxpayer
  • inventory or property held primarily for sale to customers in the ordinary course of a trade or business
  • depreciable property used in a trade or business (1231 assets)
48
Q

What is the IRS default method to determine cost basis?

A

FIFO

49
Q

Methods to Determine Cost Basis
Average Cost Method

A

When an investor sells some, but not all, of their position in a particular asset, the cost basis is determined by averaging all their purchases
- preferred method of mutual fund custodians

50
Q

Methods to Determine Cost Basis
Specific Identification

A

The taxpayer selects which shares are to be reported as sold
- The best and most powerful method from a tax planning perspective

51
Q

Section 1231 Property
Qualifying Property

A
  • Property that is used in a trade or business, and
  • Property held for the production of income
52
Q

Section 1231 Property
Tax Treatment

A
  • Gains treated as capital gains
  • Losses treated as ordinary losses
53
Q

Section 1231 Property
Subcategories

A
  • Section 1245 Property
  • Section 1250 Property
54
Q

Section 1245 Property
Qualifying Property

A
  • Personalty (personal property)
  • ex: furniture, computers, carpet, light fixtures, etc.
55
Q

Section 1250 Property
Qualifying Property

A
  • Realty (real property)
  • ex: buildings, warehouses, barns, rental property, etc.
56
Q

Section 1031 only applies to ____ property

A

Section 1231 - Realty for realty

57
Q

In a 1031 exchange, a taxpayer has ___ days to identify potential replacement properties

A

45

58
Q

In a 1031 exchange, the replacement property must be received and the exchange completed no later than ___ days after the transfer of the property relinquished in the exchange

A

180
* or the due date (with extensions) of the tax return for the tax year in which the transfer of the relinquished property occurs, whichever is earlier

59
Q

1031 Exchange
5 Steps

A
  1. Amount Realized
  2. Realized Gain
  3. Recognized Gain
  4. Deferred Gain
  5. Substituted Basis
60
Q

1031 Exchange
Amount Realized

A

FMV of property received plus (or minus) boot

61
Q

1031 Exchange
Realized Gain

A

Amount realized less basis of property transferred

62
Q

1031 Exchange
Recognized Gain

A

Lesser of realized gain or boot received

63
Q

1031 Exchange
Deferred Gain

A

Realized Gain minus Recognized Gain

64
Q

1031 Exchange
Substituted Basis

A

FMV of property received minus deferred gain

CFP Flashcards (9 decks)

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