Tax Planning 14% Flashcards
Cash- Basis Taxpayer
For income tax purposes, reports income as it is received and expenses as they are paid out. No receivable s as income, nor deduct promissory notes as payments
Exclusions from Income
-> not subtracted, NEVER included.
Gifts, inheritance, life insurance proceeds, scholarships, gain on sale of personal residence (up to a limit), qualified distributions from Roth IRA, comp from injury/sickness/employer sponsored accident/health plan, child support payments received
Deductions from Gross Income - to get AGI
Trade or business expense, deductions from loss on sale or exchange of property, deductions from rental and royalty programs, alimony payments (for divorce decrees prior to 12/31/2018), one-half of self-employment tax paid, 100% health insurance premium paid by a self-employed individual, contributions to pension, profit sharing, annuity plans, IRAs, etc., penalty on premature withdrawals from time savings accounts or deposits, interest on student loans, Health Savings Accounts, Teacher Expenses Deduction (up to $300 deduction for qualified expenses for primary and secondary professionals) permanent by PATH 2015
Included in Gross Income
Annuity payments, Compensation for services (including certain fringe benefits), gross income derived from business, gains derived from dealings in property, interest & dividends, Rent & royalties, Alimony for divorces prior to 2019, income from life insurance and endowment contracts, pensions, discharge of indebtedness, distributive share of partnership gross income, income in respect of a decedent, and income from an interest in an estate or trust.
Deductions from AGI - Standard or Itemized
Medical expenses, SALT, qualified charitable contributions, casualty losses, certain personal interest expenses, Qualified Business Income, Miscellaneous itemized deductions not subject to the 2% floor (2017-2025)
Below Market Loans Tax Treatment
If loan is less than $100k and investment income is less than $1,000, $0 imputed interest
Annuity Payments Exclusion Ratio - from income
Investment in the contract/Expected Total Return
Group term Paid by Employer- Taxation
Group term paid by employer is not taxable for first $50,000 (section 79), the cost of excess is determined by Uniform Premium Table I
Up to how much of SS is taxable
85%
Business Trip Expenses - Deductibility
Domestic trip - travel is only deductible if trip was primarily for business, work one day on vacation, one night of hotel and the one day of meals will be deductible since she worked for one day
Meals - Deductible Business Expenses
Employer can deduct 50% of meals with clients, prospective clients even if they do not reimburse employee expenses
Personal Residence Interest Deduction
limited to interest on the first $750,000 in home acquisition indebtedness
At-risk rules, passive losses can only offset passive gains
losses can be deducted to the extent of property (AGI 100k or lower) (100-150k .50 on every dollar phase out) /money that is at risk
ISO AMT at Date of Exercise
Market price- Exercise Price (bargin)
AMT
a taxpayer is liable for the greater of his regular tax liability or the AMT
Deductions for AMT
charitable contributions, deductions for estate tax for income in respect of a decedent, gambling losses to extent of winnings, casualty losses, medical expenses in excess of 7.5%, qualified business income, qualified resident interest, investment interest to extent of qualified investment income
AMT Preference Items
- Percentage Depletion
- take for regular tax in excess of the adjusted basis of the property at the end of the year is a preference item - Intangible drilling costs
- AMT requires 10-year amortization, currently deductible for regular taxes - Interest on Private activity bonds
- not taxable for regular tax, included in income for AMT, offset interest income in computing the AMT preference
Wash sale only applies if
Stock was sold at loss
Community Property Basis Rules
If one spouse dies, live spouse receives step up in Basis for both halves of property to FMV
Failure to File, Failure to pay
Failure to file (4.5%)
Failure to pay (.5%)
always equals 5% when don’t pay or file
Small Cases Division
No prepay, No trial by jury, Under 50k
US Tax Court
No prepayment, no trial by jury, have to pay penalties and interest after if ruled against
District Court
sympathetic case, less experience, prepayment of tax, trial by jury
US Federal Claims court
prepayment of tax, no trial by jury only in DC
Maximum accuracy related penalty for tax
20%
Half year depreciation convention
personal property placed in service
mid-month depreciation convention
Real property
mid-quarter depreciation convention
more than 40% personal property placed into service in last quarter
5 year depreciation convention
Autos, computers, office equipment
7 year depreciation convention
Office furniture and fixtures
27.5 depreciation convention
Rental home
39 year depreciation convention
office building
Amount of income subject to Self Employment Tax
92.35%
Self Employment SS tax
12.4 (6.2%x2)
Self Employment Medicare tax
2.9% (1.45%x2)
