Tax Planning Flashcards
Taxable income x tax rate(s) =
gross tax
What are 4 common refundable credits?
1) AOTC
2) earned income credit
3) additional child tax credit
4) premium tax credit
What are 4 common non-refundable credits?
1) child/dependent care credit
2) child tax credit
3) retirement savings contribution credit
4) LLC
Tax penalty for negligence to file (with no intent to defraud):
20% applied to amount of deficiency
If you are able to deduct a traditional IRA contribution, is it above the line or below the line?
above
Gross income - deductions =
AGI
Margin interest deductibility is capped by what?
NII
What is the SALT tax cap?
$10,000
What is the formula for calculating an equivalent deduction when given a tax credit?
credit / MTB
What is the formula for calculating an equivalent tax credit when given a deduction?
credit x MTB
When a taxpayer intends to defraud, what is the penalty applied to the amount of the deficiency?
75%
What is the penalty for a frivolous return?
$5,000
The penalty for failure to file is what?
5% of unpaid taxes for each month, up to a maximum of 25%
Income - exclusions =
gross income
How much of self-employed health insurance (if qualified) can be deducted for AGI?
100%
What is the minimum penalty for a tax return that is later than 60 days late?
$510
What is the self-employment tax formula?
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%
AGI - below the line deductions (greater of standard deduction or itemizing) =
taxable income
Gross tax - tax credits =
final tax due
If AGI is $150,000 or less, you must pay how much to avoid a penalty on estimated quarterly payments?
90% of this year’s estimated tax OR 100% of prior year’s tax, whichever is less
If AGI is $150,000 or more, you must pay how much to avoid a penalty on estimated quarterly payments?
90% of this year’s estimated tax OR 110% of prior year’s tax, whichever is less
Taxpayers using the accrual method usually report income when?
in the year it is earned
Taxpayers using the cash method of accounting usually report income when?
when expenses are actually paid
During a rising price environment, using FIFO for inventory will result in:
- higher tax liability
- higher profits
- realistic inventory valuation
During a rising price environment, using LIFO for inventory will result in:
- lower tax liability
- lower profits
- understated inventory valuation
During a declining price environment, using FIFO for inventory will result in:
- lower profits
- lower tax liability
- realistic inventory valuation
During a declining price environment, using LIFO for inventory will result in:
- higher profits
- higher tax liability
- overstated inventory valuation
What is the useful life for automobiles?
5 years
What is the useful life for computers?
5 years
What is the useful life for heavy machinery?
7 years
What is the useful life for office furniture?
7 years
What is the useful life for residential real estate?
27.5 years
What is the useful life for non-residential (commercial) real estate?
39 years
Depreciation reduces what?
basis
What are the requirements for property to be depreciable?
1)
2)
3)
4)
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
When does depreciation begin?
when the property is placed in service
When does depreciation end?
when the property has been fully recovered or when it’s retired from service (whichever comes first)
What is the annual straight line depreciation formula?
cost/useful life
How do you determine “cost” in the straight line depreciation formula?
purchase price or basis - salvage value = “cost”
What is the mid-year convention in straight-line depreciation?
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
Real-estate uses what depreciation convention?
mid-month
Using MACRS/accelerated depreciation does what for cash flow?
increases cash flow
Use this depreciation method if there is a need for even, predictable deductions over the useful life of property
straight-line
Use this depreciation method if there is a need for larger deductions in earlier years of the useful life of property
MACRS/accelerated
What is the amount of the Section 179 deduction?
$1,220,000
Section 179 pertains to what kind of property?
property that is used in a trade or business but not held to produce income
In order for a copyright to be considered a capital asset, it must be:
anything NOT created BY the taxpayer or FOR the taxpayer
What is not considered a capital asset?
A - accounts receivable
C - copyrights (created by the taxpayer or for the taxpayer)
I - inventory
D - depreciable assets
What is the tax rate for collectibles?
28%
Long-term capital gain assets are taxed at what rates?
0/15/20 capital gains rates
If a taxpayer is in the 10-12% tax bracket, what capital gains rate do you apply?
0%
If a taxpayer is in the 22-35% tax bracket, what capital gains rate do you apply?
15%
If a taxpayer is in the 37% tax bracket, what capital gains rate do you apply?
20%
Short-term capital assets are taxed at what rates?
ordinary income
Unrecaptured 1250 gains are taxed at what rate?
25%
How much of a capital loss can be claimed each year (S, MFJ, HoH)?
$3,000
How much capital loss can be claimed each year for MFS?
$1,500
Section 1231 property is:
- property used in a trade or business
- property held for production of income
Section 1231 gains are taxed as:
capital gains
Section 1231 losses are taxed as:
ordinary losses
Section 1245 property is:
“personalty” used in a trade or business for the production of income
Section 1250 property is:
“realty” used in a trade or business for the production of income
A taxpayer has how many days from the date of the transfer of relinquished Section 1031 property to identify a replacement property?
45
For Section 1031, the replacement property must be received, and the exchange completed, no later than how many days after the transfer?
180 days
Section 1031 like-kind exchanges only applies to which kind of property?
Section 1231 (used in a business to produce income)
The lesser of realized gain or net boot received
recognized gain
How can suspended losses be released if property is sold in a taxable transaction?
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
How can suspended losses be released with a gift?
suspended losses are added to the donee’s basis and, therefore, are not deductible by the donor
How can suspended losses be released with a related party transaction?
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
How can suspended losses be released in a divorce?
suspended losses are added to the basis of the spouse receiving the property
How can suspended losses be released with an inheritance?
suspended losses are deductible on the decedent’s final tax return only to the extent that they exceed the step-up in basis
What are the 2 requirements to be considered an “active participant” in real estate activities?
1) taxpayer ownership of at least 10% of the property AND
2) substantial involvement in managing the property
Active participation taxpayers may deduct up to how much loss each year?
$25,000
You can rent your primary residence or secondary residence for _____ days or less and it still be considered personal use
14
For property to qualify as rental use, personal use cannot exceed the greater of:
- 14 days or
- 10% of the number of days the primary residence is rented
Section 121 refers to what?
exclusion of gains from the sale of a home
What is the ownership test for using Section 121?
must have owned the property for 2 out of the last 5 years
What is the usage test for Section 121?
must have used the property as a personal residence for 2 out of the last 5 years
If married, both spouses must meet what test for Section 121?
usage
If married, only one spouse must meet what test for Section 121?
ownership
Qualified plans can exclude employees who do not work more than ____ per year
1,000
Short-term capital assets are taxed how?
ordinary income
Final Tax Due minus _________________ equals Net Tax Payable or Refund Due.
prepayments
Taxpayers may deduct up to a _________ loss provided they actively participate in the endeavor.
$25,000
Mutual fund custodians prefer to report cost basis information using ____________________.
average cost method
Cash gifts to a public charity are deductible up to ___% of AGI
60%
LTCG gifts to a public charity, elected at FMV, are deductible up to ___% of AGI
30%
LTCG gifts to a public charity, elected at basis, are deductible up to ____% of AGI
50%
Ordinary income property (STGC, art, inventory) gifts to a public charity are deductible up to ___% of AGI
50%
Cash gifts to a private foundation are deductible up to ____% of AGI
30%
LTCG gifts to a private foundation, elected at FMV, are deductible up to ___% of AGI
20%
LTCG gifts to a private foundation, elected at basis, are deductible up to ____% of AGI
30%
Ordinary income property (STGC, art, inventory) gifts to a private foundation are deductible up to ___% of AGI
30%
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
$250
Charitable donation less than $250 requires what?
receipt
What is the mileage rate for deducting mileage if a tax payer elects to NOT deduct actual costs of operating a vehicle
14 cents per mile
Donors who purchase items at a charity auction may claim a charitable contribution deduction for:
the excess of the purchase price paid for an item over its fair market value (FMV)
Members of the Reserves are able to deduct expenses (travel, meals, lodging) if performing services & ______ miles from home
100+
A performing artist is permitted to deduct business expenses in 2024 if:
- performing arts services for two or more employers
- $200+ received from each
- expenses exceed 10% of gross income received
- AGI < $16,000
If a loan amount (to a friend or family member) is below $10,000, what does the lender have to impute?
$0
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?
$0
When gift loans are greater than $10,000 but less than or equal to $100,000, what must the lender impute?
the lesser of AFR or NII
If a gift loan exceeds $100,000, what must the lender impute?
AFR
If a taxpayer is subject to AMT in the current year, what are two things that can be done to avoid AMT?
1) accelerate income into the AMT year
2) defer tax deductions to a different year
AMT preference items _____ AMTI
increase
AMT adjustment items ______AMTI
increase or decrease
The Net Investment Income tax is:
3.8%
What are the age limits for kiddie tax?
19 or 24 (full time student, dependent)
To qualify for the child and dependent care credit:
- child or dependent care expenses must be incurred to enable the taxpayer to be gainfully employed, and
- the taxpayer must maintain a household for a dependent under the age of 13 or an incapacitated dependent or spouse
What is the dollar amount ceiling for an individual child/dependent care credit?
$3,000
What is the dollar amount ceiling for multiple child/dependent care credit?
$6,000
The minimum tax credit (20%) is applied once a taxpayer’s AGI exceeds:
$43,000
The child/dependent credit rate is reduced by 1 percentage point for each $2,000 (or fraction thereof) of AGI in excess of:
$15,000
The Child Tax Credit is available to parents with dependents under the age of:
17
Taxpayers with eligible children will be able to claim a child tax credit worth up to:
$2,000 per child
The Child Tax Credit is _____ refundable
partially
Parents of eligible children must have an AGI of less than ________ for single filers and _______ for married filing jointly to claim the full credit.
$200,000 ; $400,000
U.S. persons are required to file an FBAR if:
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.
Limited Liability Partners are responsible for:
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)
If a business has inventory but no service portion of the business, the _____ method of accounting must be used
accrual
The IRS looks at which loans to determine if interest must be imputed?
- gift loans
- corporate shareholder loans
- compensation related loans
Can AMT credit be carried over?
yes, until final tax return
Federal estate tax is due _______ after death
9 months
