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CFP Prep > Tax Planning (14%) > Flashcards

Tax Planning (14%) Flashcards

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1
Q

Form 1040 Tax Formula “the Tax Flow”

A

Income from whatever source derived
Minus exclusions
Gross Income
Minus deductions for AGI (Above the Line)
AGI
Minus: i. Deductions from AGI (Below the Line)
ii. Itemized vs Standard Deduction
iii. Qualified Business Income Deduction
Taxable Income
Time Tax Rate
Gross Tax
Minus Tax Credits
Final Tax Due
Minus prepayments
Net tax payable or refund due

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2
Q

Tax Exclusions

A

Mafias Padded Mics

Muni Bond Interest
Accident and Health Plans: Employer Premiums
Fringe Benefit
Inheritances & Gifts
Accident and Health Plans: Amounts Received
Scholarships

Personal Residence
Adoption Assistance
Death Benefits
Dependent Care Assistance Programs
Education Assistance: up to $5,250
Debt Discharged (certain circumstances)

Meals and Lodging for EE’s
Interest on Series EE or I bonds
Compensatory Damages Compensation
Support Payments Received (Child Support and 2019+ Alimony)

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3
Q

Above the line deductions
Deductions For AGI

A

Education Expenses
Gov’t officials, performing artists, and reservists who travel 100+ miles - business expenses
HSA Contributions with after-tax money
Moving Expenses for active-duty military
1/2 SE Tax
SEP and SIMPLE contributions
SE Health Insurance Premiums
Early withdrawal penalties (CD’s)
Alimonypaid under 2018 & earlier agreements
Traditional IRA contribution (subject to phaseout)
Student Loan Interest (max $2,500)

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4
Q

HSA Contribution Guidelines

A

HDHP coverage on 1st day of last month
Not claimed as a dependent
Can contribute until April 15 of next year
Must be 65 or younger
Cannot be covered by Medicare
$4,150 max contribution for single
$8,300 max for MFJ
+$1,000 for 55+

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5
Q

Self-Employment Tax Deduction Calculations

A

Net self-employment profits x 0.9235.
0.9% Medicare tax NOT deductible
50% of SE Tax (after .9235 calculation)

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6
Q

Simplified Employee Pension Plan (SEP)

A

Lesser of:
i. $69,000
ii. 25% of SE Earnings
iii. (Net SE Profit - SE Tax) * 20%

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7
Q

Savings Incentive Match PLan for Employees (SIMPLE)

A

$16,000
If over 50, +$3,500

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8
Q

Self Employed Health Insurance Premiums

A

Deduction above the line for coverage on SE individual, spouse, and dependents.
Limited to SE income
*Not available if other health insurance coverage options are available.
100% deductible for qualified premiums

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9
Q

Traditional IRA Contributions

A

If covered by a workplace plan, covered person phase out limits:
Single - $77,000 - $87,000
MFJ - $123,000 - $143,000

Phase out for NON covered spouse:
MFJ - $230,000 - $240,000

MFS - $0 - $10,000

$7,000 - Contribution Limit
Over 50, +$1,000

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10
Q

Itemized Deductions
Below-the-Line deductions
Deductions ‘from’ AGI

A

Unreimbursed Medical and Dental Expenses (7.5% haircut)
SALT ($10,000 limit)
Interest Paid (up to $750k loan) (Primary and Secondary Residence)
Investment Interest limited to net investment income
Gifts to Charity (max 60% of AGI)
Casualty & Theft Losses (Federally declared disaster” losses - 10% of AGI haircut

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11
Q

Marginal Tax Rate

A

HIghest bracket you fall into

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12
Q

Average Tax Rate

A

Tax Paid / Taxable Income

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13
Q

Tax Deductions

A

Reduce Taxable Income
Adjusted before tax tables are used
Reduces by a marginal percentage
More valuable to high-income earners because reduces high marginal tax.

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14
Q

Tax Credit Features

A

Lowers tax due
Adjusted after tax due is calculated
Reduces on a dollar-to-dollare basis
Benefits all taxpayers the same regardless of their marginal tax rate.
Can be refundable or nonrefundable

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15
Q

Tax Credit Examples

A

Refundable:
Earned Income Credit
Additional Child Tax Credit
American Opportunity Credit
Premium Tax Credit

Nonrefundable Credits:
Child and Dependent care Credit
Child Tax Credit
Retirement Savings Contribution Credit
Lifetime Learning Credit

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16
Q

Tax Schedules A-H

A

A = Itemized Deductions
B = Interest & Dividend Income
C-= Self-Employment
D = Capital Gains / Losses
E = Rental Real Estate & Royalties
F = Farming profit/loss
G = N/a
H = Household

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17
Q

Form 8606

A

Nondeductible IRA’s

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17
Q

Form 4868

A

Extension of Time to File

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17
Q

Form 5498

A

IRA Contribution Individuals

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18
Q

5 tax filing statuses

A

Single
Head of Household
MFJ
MFS
Qualifying Widower with Dependent Child

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19
Q

Requirements to file single

A

On 12/31, either:
Unmarried, or
Legally separated

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20
Q

Requirements to file MFJ

A

Not allowed if one spouse is a non-resident alien.

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21
Q

Requirements to file Head of Household

A

Single
Pay more than 1/2 of housing costs
Qualifying child lived w/ you more than 1/2 year, or
Qualifying relative providing 50%+ living expenses

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22
Q

Requirements to file MFS

A

If one elects to itemize, the other must as well.
-Lose child and dependent care credits
-Lose earned income credit
-Lose AOTC credit
-Lose LLC credit
-Lose Student Loan Interest Credit

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23
Q

Requirements to file Qualifying Widow(er)

A

Not remarried
Year of Death = File MFJ
Year 1 and 2 after death = QW
must pay 50%+ of household expenses and claim qualifying child as a dependent

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24
Q

Dates for Estimated Payments

A

4/15 for Q1
6/15 for April/May
9/15 for June, July, August
January 15 of following year - for Sept, Oct, Nov. Dec.

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25
Q

Amounts to avoid underpayment penalty

A

90 % of current year
100% of prior year

If AGI = $150,000+
90% of current year
110% of prior year

Quarterly payments must be 25% of these amounts

26
Q

When must accrual method be used?

A

-When there is inventory
-3yr avg gross receipts exceeds $30 million

27
Q

3 Inventory Methods

A

Fifo
Lifo
Specific Identification (allowed when able to differentiate)

28
Q

Sec. 179

A

Up to $1,220,000 of cost.
Can’t exceed net-profit - can carry-over. MACRS can go negative
Sole prop can aggregate net business profit and unrelated W-2 wages.

29
Q

Useful Lives

A

ACHORN
Autos - 5 yrs
Computers - 5 yrs
Heavy Machines - 7 yrs
Office Furniture - 7 yrs
Residential Real Estate 27.5 yrs
Commercial Real Estate - 39 yrs

30
Q

Netting Capital Gains

A
  1. Separate S-T and L-T gains
  2. Net each basket
  3. Net S-T and L-T
    Can also be subject to 3.8% NIIT
31
Q

Unrecaptured 1250 gains

A

Taxed at 25%.
It is only applicable to the sale of depreciable real estate.

32
Q

Annual Capital Loss Limit

A

$3,000 capital loss can be claimed each year.
$1,500 is the max for MFS
Carry-forward indefinitely.

33
Q

Capital Gains Tax Rates

A

0/15%/20%
Applies to LTCG and
Qualified Dividends.
Add LTCG to Taxable Income and stack up next to the Cap Gain brackets.

34
Q

§1231 property

A

Umbrella over §1245 and §1250
§1231 = Property used in trade or business, and Pheld for production of income.
§1245 - personal property
§1250 - real property

35
Q

Accounting for §1245 Dispositions

A

Sold above cost basis = Cap Gain, plus depr recapture
Sold below cost basis / Above tax basis = Depr. Recapture.
Sold below adjusted basis = Ordinary Loss

36
Q

Accounting for §1250 Dispositions

A

Commercial Buildings, Warehouses, barns, rental properties, etc.
Sold above cost basis = Cap Gain, plus Depr recapture at 25%
Sold below cost basis / above tax basis = ‘unrecaptured gain’ and taxed at 25%
Sold below adjusted basis = ordinary loss

37
Q

Loss on sale to related party

A

Deferred loss:
1. Sold above basis = net gain against deferred loss.
2. Sold below basis = loss only at seller’s loss.

38
Q

At-Risk Loss Rules

A

Can only take a current year pass-through loss up to the amount at-risk. Extra loss is suspended until additional at-risk amount exists.

39
Q

Passive Losses

A

Can only deduct passive losses against passive income. Extra passive losses will be suspended.
Private Interest vs. Publicly Traded Partnership (PTP) cannot be netted.

40
Q

Publicly Traded Partnership (PTP) - netting loss rules

A

PTP losses can only be netted against income from the same PTP. It can only happen with prior suspended losses offsetting current year income.

41
Q

R/E is passive unless what?

A

Investor ‘actively participates’:
Owns 10%+ of the property AND
substantial involvement in managing the property

42
Q

R/E Active participant loss limits and phaseouts

A

$25,000 max if AGI <$100,000
$25k phased out if AGI $100,000 - $150,000

43
Q

Personal Use Real Property Tax Reporting for rental

A

Not required to report rental income if usage is 14 days or less.
Only for primary residence and vacation home

44
Q

Rental Use of Real Property tax reporting

A

Personal use cannot exceed greater of 14-days or 10% of days rented - or becomes mixed use property.
All expenses are allowed.
Passive losses limited to $25k (subject to phase out)

45
Q

Mixed-Use Property

A

Allocate expenses b/w personal use and rental use.
Deductions are limited to net income - no loss allowed. Unused losses are carried forward.

46
Q

IRC 121 - Rules for full exclusion

A

$250k/$500k.
No deduction for home sold at loss.
Available 1x every 2-years.
Owned and Used as primary for 2 of 5 years. Both spouses must meet usage, only 1 spouse needs to meet ownership

47
Q

IRC 121 - Reasons for Reduced Exclusion

A

-Job relocation
-Job change
-Unemployment
-Health Issues
-Divorce
-Birth of twins +
-Disaster damage
-Condemnation
-Unforeseen

48
Q

Charitable donation limit for LTCG property

A

Public Charity
Use FMV - deduct up to 30% of your AGI
Use Bais you can deduct up to 50% of your AGI

Private Foundation
FMV - 20%
Basis - 30%

Carryover excess donation for 5-years

49
Q

Charitable donation limit for cash gifts

A

Public Charity - 60%

Private Foundation - 30%

50
Q

Charitable donation limit for Ordinary Income property (STCG’s, Art, Inventory)

A

Public Charity - 50% of AGI

Private Foundation - 30% of AGI

51
Q

Charitable Contributions - Use-Related vs. Use-Unrelated

A

Related = art to an art institute.
Unrelated = art to a school, which is sold and proceeds used for something else.

52
Q

Charitable Donation of Use-Related Property

A

FMV = 30% of AGI
Basis = 50% of AGI
Same as gift of LTCG property

53
Q

Charitable donation of Use-Unrelated proeperty

A

Tax Deduction for Lesser of Cost Basis or Fair Market Value

54
Q

Charitable Record Keeping Requirements

A

Written acknowledgement for $250+.
Charity to provide written disclosure to donor who receives goods or services of $75+
Form 8283 for Non-Cash gift of $500+
Appraisal for $500,000+

55
Q

Imputed Interest

A

-Net Investment Income <$1,000 - n/a
-N/a for Loans <$10,000, or due in 6-mo or less
-Loans $10,000 - $100,000 = Imputed -Interest is charged at lower of AFR or Net Investment Income
-Loans Over $100,000 = AFR

56
Q

AMT Planning Strategy

A

Accelerate income into the AMT year.
Defer tax deductions until a regular tax year.
Until AMT liability equals regular tax liability

57
Q

AMT ISO Tax Consequences

A

Exercise Price minus Grant/Strike Price

58
Q

AMT formula

A

Regular Taxable Income
+Preferences
+Standard Deduction (not allowed in
AMT)
+/- Adjustments
AMTI
Less Exemption Amount
AMT Base
Times AMT Tax Rates
Gross AMT Tax
Less AMT Foreign Tax Credit
Tentative Minimum Tax
Less regular tax liability
AMT

59
Q

Kiddie Tax - Who it applies to?

A

Children 18 and under.
Full-time students 23 and under
Net Unearned income over $2,600 subject to parents’ marginal rate.

60
Q

Kiddie - Standard Deduction

A

$1,300 or
Earned income plus $450.
Max of $1,4600 (regular standard deduction.

61
Q

Kiddie Tax Calculation for Unearned Income

A

first $1,300 - tax free;
Next $1,300 - 10% ($130)
Balance multiplied by parents’ tax rate. (this is kiddie tax)
Add together for total tax owed on kid’s unearned income.
Subtract kiddie tax from kid’s regular tax due

62
Q

What constitutes Investment Income

A

Non-Qualified Annuities
Passive activities.
Interest, Dividend, cap gains

NOT:
wages, unemployment, alimony, tax exempt interest, distributions from qualified plans

63
Q

When does NIIT apply

A

Tax applies to lesser of:
i. Net Investment Income;
ii. Excess of modified AGI over $200k single, $250k married.

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