Tax Planning 14%

Question 1

Cash- Basis Taxpayer

Answer 1

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

Question 2

Exclusions from Income
-> not subtracted, NEVER included.

Answer 2

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

Question 3

Deductions from Gross Income - to get AGI

Answer 3

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

Question 4

Included in Gross Income

Answer 4

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.

Question 5

Deductions from AGI - Standard or Itemized

Answer 5

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)

Question 6

Below Market Loans Tax Treatment

Answer 6

If loan is less than $100k and investment income is less than $1,000, $0 imputed interest

Question 7

Annuity Payments Exclusion Ratio - from income

Answer 7

Investment in the contract/Expected Total Return

Question 8

Group term Paid by Employer- Taxation

Answer 8

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

Question 9

Up to how much of SS is taxable

Answer 9

85%

Question 10

Business Trip Expenses - Deductibility

Answer 10

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

Question 11

Meals - Deductible Business Expenses

Answer 11

Employer can deduct 50% of meals with clients, prospective clients even if they do not reimburse employee expenses

Question 12

Personal Residence Interest Deduction

Answer 12

limited to interest on the first $750,000 in home acquisition indebtedness

Question 13

At-risk rules, passive losses can only offset passive gains

Answer 13

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

Question 14

ISO AMT at Date of Exercise

Answer 14

Market price- Exercise Price (bargin)

Question 15

AMT

Answer 15

a taxpayer is liable for the greater of his regular tax liability or the AMT

Question 16

Deductions for AMT

Answer 16

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

Question 17

AMT Preference Items

Answer 17

1. 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
2. Intangible drilling costs
   - AMT requires 10-year amortization, currently deductible for regular taxes
3. Interest on Private activity bonds
   - not taxable for regular tax, included in income for AMT, offset interest income in computing the AMT preference

Question 18

Wash sale only applies if

Answer 18

Stock was sold at loss

Question 19

Community Property Basis Rules

Answer 19

If one spouse dies, live spouse receives step up in Basis for both halves of property to FMV

Question 20

Failure to File, Failure to pay

Answer 20

Failure to file (4.5%)
Failure to pay (.5%)
always equals 5% when don’t pay or file

Question 21

Small Cases Division

Answer 21

No prepay, No trial by jury, Under 50k

Question 22

US Tax Court

Answer 22

No prepayment, no trial by jury, have to pay penalties and interest after if ruled against

Question 23

District Court

Answer 23

sympathetic case, less experience, prepayment of tax, trial by jury

Question 24

US Federal Claims court

Answer 24

prepayment of tax, no trial by jury only in DC

Question 25

Maximum accuracy related penalty for tax

Answer 25

20%

Question 26

Half year depreciation convention

Answer 26

personal property placed in service

Question 27

mid-month depreciation convention

Answer 27

Real property

Question 28

mid-quarter depreciation convention

Answer 28

more than 40% personal property placed into service in last quarter

Question 29

5 year depreciation convention

Answer 29

Autos, computers, office equipment

Question 30

7 year depreciation convention

Answer 30

Office furniture and fixtures

Question 31

27.5 depreciation convention

Answer 31

Rental home

Question 32

39 year depreciation convention

Answer 32

office building

Question 33

Amount of income subject to Self Employment Tax

Answer 33

92.35%

Question 34

Self Employment SS tax

Answer 34

12.4 (6.2%x2)

Question 35

Self Employment Medicare tax

Answer 35

2.9% (1.45%x2)