Tax Planning Flashcards
What are the two categories of assets for use and type
- Personal Use, investment or production use or for trade or business
- Capital Asset, ordinary asset or 1231 asset
What is a capital asset and what is not
Most personal use and investment assets.
NOT:
any depreciable property - 1231 asset
- inventory
- copyrights or creative works
- accounts and notes receivable
ACID ** to remember
What is an ordinary income asset
assets that when sold result in ordinary income to new owner
inventory, account receivable, copyright or creative works
What are section 1231 assets
assets used in trade or business.
either depreciable property or real property
ALSO INCLUDE
timber, coal, iron ore, certain livestock and unharvested crops
NOT
inventory, property held by taxpayer primarily for the sale to customers ordinary in trade or business, copyrights
So what is basis and why do we determine it?
*purpose is to allow taxpayers to recover the value of the asset used to purchase or acquire property.
- basis is usually returned to the taxpayer tax free, as a result of sale or depreciation deductions (recovery of capital doctrine)
Used to:
- determine the amount of gain or loss on a sale or other deposition of property
- determine amount that may be recovered tax free from depreciable deductions
-determine the obsolescence and sometimes for depletion
What is the cost basis and what is included
Property received in a sale or exchange.
calculated by the amount paid in cash, debt obligations etc…
- sales tax, freight and installation
- excise taxes, legal and accounting fees, revenue stamps
- recording fees, real estate taxes
When taxable property is exchanged the ___ is the cost of the property given in exchange.
FMV
When property is acquired by mortgage, the basis of the property is ___
FMV
When property is acquired as a dividend of some kind in exchange for services, the taxpayer basis is the ___ at the time of disposition
FMV
Describe the adjustments to basis (increase and decrease)
Property Acquired in Non Taxable Exchange.
Describe what happens when exchanged for like asset with a boot or no boot.
And for less than value of property
Adjuststable tax basis.
Like for Like - Carryover basis
Like for More plus boot -new asset has carryover basis plus boot
like for less plus boot received - asset has carryover basis - any boot received greater than the gain
Describe the basis rules for gifted property
General Rule: Donee’s basis is the same as donor’s basis
1st exception: when FMV is less then the donor’s basis then the double basis rules apply
if gains, then th asset is adjusted basis same as the donor and donee.
if loss then the donee basis is the FMV of the asset.
if between , no loss or gain
2nd Exception - when gift tax is paid this equation is used to determine basis of donee.
Donor Basis +
[(Net appreciation of gift/ value taxable gift)
x gift tax paid]
Describe the basic tax formula
Income
- less exclusions
GROSS INCOME
-Deductions for AGI
AGI
- greater of Standard Deduction/itemized
- 20% QBI
TAXABLE INCOME
Tax on taxable income
- tax credits
TAX DUE OR OWE
What are the two accounting methods are what mostly uses them?
Cash Basis
- most individuals
Accrual Basis
- most businesses
Describe Cash Basis
- received income when in their account, set apart for taxpayer, or made available for taxpayer to take out.
- gross income includes all income.
Constructive receipt doctrine.
