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Emily CFP Cards > Tax Planning > Flashcards

Tax Planning Flashcards

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1
Q

Taxable income x tax rate(s) =

A

gross tax

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2
Q

What are 4 common refundable credits?

A

1) AOTC
2) earned income credit
3) additional child tax credit
4) premium tax credit

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3
Q

What are 4 common non-refundable credits?

A

1) child/dependent care credit
2) child tax credit
3) retirement savings contribution credit
4) LLC

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4
Q

Tax penalty for negligence to file (with no intent to defraud):

A

20% applied to amount of deficiency

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5
Q

If you are able to deduct a traditional IRA contribution, is it above the line or below the line?

A

above

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6
Q

Gross income - deductions =

A

AGI

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7
Q

Margin interest deductibility is capped by what?

A

NII

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8
Q

What is the SALT tax cap?

A

$10,000

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9
Q

What is the formula for calculating an equivalent deduction when given a tax credit?

A

credit / MTB

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10
Q

What is the formula for calculating an equivalent tax credit when given a deduction?

A

credit x MTB

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11
Q

When a taxpayer intends to defraud, what is the penalty applied to the amount of the deficiency?

A

75%

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12
Q

What is the penalty for a frivolous return?

A

$5,000

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13
Q

The penalty for failure to file is what?

A

5% of unpaid taxes for each month, up to a maximum of 25%

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14
Q

Income - exclusions =

A

gross income

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15
Q

How much of self-employed health insurance (if qualified) can be deducted for AGI?

A

100%

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16
Q

What is the minimum penalty for a tax return that is later than 60 days late?

A

$510

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17
Q

What is the self-employment tax formula?

A

Step 1: multiply net SE earnings by 92.35%
Step 2: multiply SS wage base ($168,600) by 15.3%
Step 3: multiply the difference between $168,000 and step 1 by 4.9%

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18
Q

AGI - below the line deductions (greater of standard deduction or itemizing) =

A

taxable income

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19
Q

Gross tax - tax credits =

A

final tax due

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20
Q

If AGI is $150,000 or less, you must pay how much to avoid a penalty on estimated quarterly payments?

A

90% of this year’s estimated tax OR 100% of prior year’s tax, whichever is less

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21
Q

If AGI is $150,000 or more, you must pay how much to avoid a penalty on estimated quarterly payments?

A

90% of this year’s estimated tax OR 110% of prior year’s tax, whichever is less

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22
Q

Taxpayers using the accrual method usually report income when?

A

in the year it is earned

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23
Q

Taxpayers using the cash method of accounting usually report income when?

A

when expenses are actually paid

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24
Q

During a rising price environment, using FIFO for inventory will result in:

A
  • higher tax liability
  • higher profits
  • realistic inventory valuation
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25
Q

During a rising price environment, using LIFO for inventory will result in:

A
  • lower tax liability
  • lower profits
  • understated inventory valuation
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26
Q

During a declining price environment, using FIFO for inventory will result in:

A
  • lower profits
  • lower tax liability
  • realistic inventory valuation
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27
Q

During a declining price environment, using LIFO for inventory will result in:

A
  • higher profits
  • higher tax liability
  • overstated inventory valuation
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28
Q

What is the useful life for automobiles?

A

5 years

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29
Q

What is the useful life for computers?

A

5 years

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30
Q

What is the useful life for heavy machinery?

A

7 years

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31
Q

What is the useful life for office furniture?

A

7 years

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32
Q

What is the useful life for residential real estate?

A

27.5 years

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33
Q

What is the useful life for non-residential (commercial) real estate?

A

39 years

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34
Q

Depreciation reduces what?

A

basis

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35
Q

What are the requirements for property to be depreciable?
1)
2)
3)
4)

A

1) must be owned by the taxpayer
2) must be used in a business or an income-producing activity
3) must have a determinable useful life
4) must be expected to last more than 1 year

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36
Q

When does depreciation begin?

A

when the property is placed in service

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37
Q

When does depreciation end?

A

when the property has been fully recovered or when it’s retired from service (whichever comes first)

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38
Q

What is the annual straight line depreciation formula?

A

cost/useful life

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39
Q

How do you determine “cost” in the straight line depreciation formula?

A

purchase price or basis - salvage value = “cost”

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40
Q

What is the mid-year convention in straight-line depreciation?

A

only 1/2 of the full amount of depreciation can be taken in the first year, then in the last year, the other 1/2 is taken

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41
Q

Real-estate uses what depreciation convention?

A

mid-month

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42
Q

Using MACRS/accelerated depreciation does what for cash flow?

A

increases cash flow

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43
Q

Use this depreciation method if there is a need for even, predictable deductions over the useful life of property

A

straight-line

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44
Q

Use this depreciation method if there is a need for larger deductions in earlier years of the useful life of property

A

MACRS/accelerated

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45
Q

What is the amount of the Section 179 deduction?

A

$1,220,000

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46
Q

Section 179 pertains to what kind of property?

A

property that is used in a trade or business but not held to produce income

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47
Q

In order for a copyright to be considered a capital asset, it must be:

A

anything NOT created BY the taxpayer or FOR the taxpayer

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48
Q

What is not considered a capital asset?

A

A - accounts receivable
C - copyrights (created by the taxpayer or for the taxpayer)
I - inventory
D - depreciable assets

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49
Q

What is the tax rate for collectibles?

A

28%

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50
Q

Long-term capital gain assets are taxed at what rates?

A

0/15/20 capital gains rates

51
Q

If a taxpayer is in the 10-12% tax bracket, what capital gains rate do you apply?

A

0%

52
Q

If a taxpayer is in the 22-35% tax bracket, what capital gains rate do you apply?

A

15%

53
Q

If a taxpayer is in the 37% tax bracket, what capital gains rate do you apply?

A

20%

54
Q

Short-term capital assets are taxed at what rates?

A

ordinary income

55
Q

Unrecaptured 1250 gains are taxed at what rate?

A

25%

56
Q

How much of a capital loss can be claimed each year (S, MFJ, HoH)?

A

$3,000

57
Q

How much capital loss can be claimed each year for MFS?

A

$1,500

58
Q

Section 1231 property is:

A
  • property used in a trade or business
  • property held for production of income
59
Q

Section 1231 gains are taxed as:

A

capital gains

60
Q

Section 1231 losses are taxed as:

A

ordinary losses

61
Q

Section 1245 property is:

A

“personalty” used in a trade or business for the production of income

62
Q

Section 1250 property is:

A

“realty” used in a trade or business for the production of income

63
Q

A taxpayer has how many days from the date of the transfer of relinquished Section 1031 property to identify a replacement property?

A

45

64
Q

For Section 1031, the replacement property must be received, and the exchange completed, no later than how many days after the transfer?

A

180 days

65
Q

Section 1031 like-kind exchanges only applies to which kind of property?

A

Section 1231 (used in a business to produce income)

66
Q

The lesser of realized gain or net boot received

A

recognized gain

67
Q

How can suspended losses be released if property is sold in a taxable transaction?

A

the full amount of suspended losses may be used to offset gain on the activity, as well as income such as active and portfolio income

68
Q

How can suspended losses be released with a gift?

A

suspended losses are added to the donee’s basis and, therefore, are not deductible by the donor

69
Q

How can suspended losses be released with a related party transaction?

A

losses remain suspended to the seller; when the related party sells the property to an unrelated party, the original seller can then deduct those losses

70
Q

How can suspended losses be released in a divorce?

A

suspended losses are added to the basis of the spouse receiving the property

71
Q

How can suspended losses be released with an inheritance?

A

suspended losses are deductible on the decedent’s final tax return only to the extent that they exceed the step-up in basis

72
Q

What are the 2 requirements to be considered an “active participant” in real estate activities?

A

1) taxpayer ownership of at least 10% of the property AND
2) substantial involvement in managing the property

73
Q

Active participation taxpayers may deduct up to how much loss each year?

A

$25,000

74
Q

You can rent your primary residence or secondary residence for _____ days or less and it still be considered personal use

A

14

75
Q

For property to qualify as rental use, personal use cannot exceed the greater of:

A
  • 14 days or
  • 10% of the number of days the primary residence is rented
76
Q

Section 121 refers to what?

A

exclusion of gains from the sale of a home

77
Q

What is the ownership test for using Section 121?

A

must have owned the property for 2 out of the last 5 years

78
Q

What is the usage test for Section 121?

A

must have used the property as a personal residence for 2 out of the last 5 years

79
Q

If married, both spouses must meet what test for Section 121?

A

usage

80
Q

If married, only one spouse must meet what test for Section 121?

A

ownership

81
Q

Qualified plans can exclude employees who do not work more than ____ per year

A

1,000

82
Q

Short-term capital assets are taxed how?

A

ordinary income

83
Q

Final Tax Due minus _________________ equals Net Tax Payable or Refund Due.

A

prepayments

84
Q

Taxpayers may deduct up to a _________ loss provided they actively participate in the endeavor.

A

$25,000

85
Q

Mutual fund custodians prefer to report cost basis information using ____________________.

A

average cost method

86
Q

Cash gifts to a public charity are deductible up to ___% of AGI

A

60%

87
Q

LTCG gifts to a public charity, elected at FMV, are deductible up to ___% of AGI

A

30%

88
Q

LTCG gifts to a public charity, elected at basis, are deductible up to ____% of AGI

A

50%

89
Q

Ordinary income property (STGC, art, inventory) gifts to a public charity are deductible up to ___% of AGI

A

50%

90
Q

Cash gifts to a private foundation are deductible up to ____% of AGI

A

30%

91
Q

LTCG gifts to a private foundation, elected at FMV, are deductible up to ___% of AGI

A

20%

92
Q

LTCG gifts to a private foundation, elected at basis, are deductible up to ____% of AGI

A

30%

93
Q

Ordinary income property (STGC, art, inventory) gifts to a private foundation are deductible up to ___% of AGI

A

30%

94
Q

Donors must have written acknowledgement from a charity for any single contribution of _____ or more before donors can claim a charitable contribution on their tax return

A

$250

95
Q

Charitable donation less than $250 requires what?

A

receipt

96
Q

What is the mileage rate for deducting mileage if a tax payer elects to NOT deduct actual costs of operating a vehicle

A

14 cents per mile

97
Q

Donors who purchase items at a charity auction may claim a charitable contribution deduction for:

A

the excess of the purchase price paid for an item over its fair market value (FMV)

98
Q

Members of the Reserves are able to deduct expenses (travel, meals, lodging) if performing services & ______ miles from home

A

100+

99
Q

A performing artist is permitted to deduct business expenses in 2024 if:

A
  • performing arts services for two or more employers
  • $200+ received from each
  • expenses exceed 10% of gross income received
  • AGI < $16,000
100
Q

If a loan amount (to a friend or family member) is below $10,000, what does the lender have to impute?

A

$0

101
Q

If a loan amount (to a friend or family member) is between $10,000 and $100,000, and the NII is equal to or less than $1,000, what does the lender have to impute?

A

$0

102
Q

When gift loans are greater than $10,000 but less than or equal to $100,000, what must the lender impute?

A

the lesser of AFR or NII

103
Q

If a gift loan exceeds $100,000, what must the lender impute?

A

AFR

104
Q

If a taxpayer is subject to AMT in the current year, what are two things that can be done to avoid AMT?

A

1) accelerate income into the AMT year
2) defer tax deductions to a different year

105
Q

AMT preference items _____ AMTI

A

increase

106
Q

AMT adjustment items ______AMTI

A

increase or decrease

107
Q

The Net Investment Income tax is:

A

3.8%

108
Q

What are the age limits for kiddie tax?

A

19 or 24 (full time student, dependent)

109
Q

To qualify for the child and dependent care credit:

A
  1. child or dependent care expenses must be incurred to enable the taxpayer to be gainfully employed, and
  2. the taxpayer must maintain a household for a dependent under the age of 13 or an incapacitated dependent or spouse
110
Q

What is the dollar amount ceiling for an individual child/dependent care credit?

A

$3,000

111
Q

What is the dollar amount ceiling for multiple child/dependent care credit?

A

$6,000

112
Q

The minimum tax credit (20%) is applied once a taxpayer’s AGI exceeds:

A

$43,000

113
Q

The child/dependent credit rate is reduced by 1 percentage point for each $2,000 (or fraction thereof) of AGI in excess of:

A

$15,000

114
Q

The Child Tax Credit is available to parents with dependents under the age of:

A

17

115
Q

Taxpayers with eligible children will be able to claim a child tax credit worth up to:

A

$2,000 per child

116
Q

The Child Tax Credit is _____ refundable

A

partially

117
Q

Parents of eligible children must have an AGI of less than ________ for single filers and _______ for married filing jointly to claim the full credit.

A

$200,000 ; $400,000

118
Q

U.S. persons are required to file an FBAR if:

A

1) U.S. person had a financial interest in or signature authority over at least one financial account located outside of the US, and
2) the aggregate value of all foreign financial accounts (FFA) exceeded $10,000 at any time during the calendar year reported.

119
Q

Limited Liability Partners are responsible for:

A

their own acts, and the acts of individuals under their direction. LLPs are not liable for actions of other partners. (attractive to public accounting firms)

120
Q

If a business has inventory but no service portion of the business, the _____ method of accounting must be used

A

accrual

121
Q

The IRS looks at which loans to determine if interest must be imputed?

A
  1. gift loans
  2. corporate shareholder loans
  3. compensation related loans
122
Q

Can AMT credit be carried over?

A

yes, until final tax return

123
Q

Federal estate tax is due _______ after death

A

9 months

Emily CFP Cards (7 decks)

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