Tax Planning

Question 1

Which imposed the first constitutional federal income tax?

Answer 1

Revenue Act of 1913

Question 2

Private letter ruling

Answer 2

Applicable on a case-by-case basis
Written decision by the IRS that is sent in response to a taxpayer’s request for guidance on unusual circumstances or complex questions about their specific tax situation

Question 3

If all netting of gains/losses results in a loss, what is the maximum loss that can be taken against ordinary income?

Answer 3

$3000

Question 4

When may you use the qualifying widower status when filing tax return?

Answer 4

For the 2 years following the year of the spouse’s death

Question 5

Preference items for AMT

Answer 5

Qualified private-activity municipal bond interest

The excess of percentage depletion over the property’s adjusted basis

Question 6

The Tax Reform Act of 1986 was roughly revenue neutral because:

Answer 6

It was intended to raise or lower taxes.

Question 7

What venue is a jury trial available for tax controversies?

Answer 7

A U.S. District Court

Question 8

Best source for obtaining a plain language understanding about the current tax law

Answer 8

Commerce Clearing House Federal Tax guide

Question 9

The best source of gathering information about the intent of recent changes in the tax law might be:

Answer 9

Congressional Committee Reports

Question 10

How is the loss on small business stock section one recognized

Answer 10

Ordinary loss

Question 11

Maximum annual capital loss deduction

Answer 11

$3,000

Question 12

How are qualified dividends taxed

Answer 12

At set dollar breakpoints

Question 13

Standard deduction for dependents

Answer 13

The greater of $1,250 or $400 plus earned income (not to exceed the normal standard deduction)

Question 14

Net operating loss

Answer 14

Can only offset 80% of current year’s income

Question 15

Amount of tax withholding for income under $150,000

Answer 15

90% of this years tax liability or 100% of last years tax liability

Question 16

Increase in donees basis

Answer 16

(Appreciation of the Property/Taxable Gift) x Gift Tax Paid

Question 17

Section 1245 recapture does not apply to business equipment held for 17 months or longer if:

Answer 17

The property was abandoned as worthless

Question 18

Section 1245

Answer 18

Applies to gain resulting from a reduced basis due to depreciation

Question 19

Substitute Basis (Like-Kind exchange)

Answer 19

Fair market value of an asset, reduced by gain realized, but not recognized

Question 20

High deductible health policy minimum deductible

Answer 20

$3000

Question 21

The amount of costs that qualify for dependent care credit…

Answer 21

Is the lesser of actual costs or $3000 for one qualified individual, and $6000 for two or more qualified individuals

Question 22

Max AGI and amount of reduction for dependent care credit

Answer 22

$43,000; 20%

Question 23

3 qualifications of income

Answer 23

Active, passive and portfolio

Question 24

Rules for Material Participation:

Answer 24

1. More than 500 hours of participation
2. Taxpayer is the only one who substantially participates
3. Taxpayer spends greater than 100 hours in the tax year and no one else spends more
4. Tax payer has materially participated in any 5 of the previous 10 years
5. The activity is a personal services activity and the individual has materially participated in and 3 people prior 6 years

Question 25

Tax preparer penalty for willful or reckless conduct

Answer 25

The greater of $5000 or 50% of the income derived by the preparer of the return

Question 26

Penalty for filing a fraudulent income tax return

Answer 26

75% of the penalty

Question 27

What taxes are deductible to self-employed?

Answer 27

State income/sales tax (whichever is higher) and real estate taxes up to $10,000

Question 28

Amount of margin interest deductible (assuming no special elections)

Answer 28

Sum of Net investment income

Question 29

Requirements for satisfying bona fide resident test necessary for excluding foreign earned income

Answer 29

Established permanent quarters in the foreign country
Intend to work in the foreign country for an indefinite period of time

Question 30

With regard to Sections 1245 and 1250, Section 1231 will be applied only when

Answer 30

Any depreciable property is sold at a profit above its original cost

Question 31

Capital recovery

Answer 31

Expensing of certain acquisition costs

Question 32

Salvage value

Answer 32

Estimated value of an asset at the end of its useful like. Represents the amount that a company could sell the asset for after it has been fully depreciated

Question 33

S Corporations

Answer 33

Prohibited from having more than one class of stock

Question 34

What is are the possible implications of the IRS deeming the operation to be a Personal Holding Company (PHC)?

Answer 34

A penalty tax of 20% can be imposed on the undistributed PHC income

Question 35

The qualified dependent test:

Answer 35

1. Gross Income
2. Support
3. Member of household or family
4. Citizenship or residence
5. Joint return

Question 36

Qualifying Child Tests:

Answer 36

1. Relationship test
2. Abode test
3. Age test
4. Support test

Question 37

What is the requirements for deducting rental income?

Answer 37

At least 10% owner
Actively participate
AGI of less than $100,000 (if over $100,000, deduction is reduced $1 for every $2 dollars AGI exceeds $100,000) cap off at $150k
$25,000 max deduction

Question 38

The AMT credit

Answer 38

Cannot be used to offset a taxpayer’s future AMT minimum tax liabilty

Question 39

Unearned Income Medicare Contribution

Answer 39

3.8% Medicare tax if your MAGI exceeds $200,000 ($250k if you’re MFJ)