Tax Planning Flashcards
Generally, an allocation of partnership income or loss is not certain to be recognized unless the partnership maintains ______________ in accordance with partnership allocation rules.
A special basis adjustment is reflected in ______________ only if it is allocable, under the basis adjustment rules, to property the partnership currently owns, and the change in the property’s tax basis also increases or decreases its book value on the partnership’s records.
capital accounts
Kacy’s business generated revenue of $2,300,000 and she was paid $1,700,000 in income from the business last year. Kacy is in the 40% income tax bracket. She paid $561,000 in tax. What was Kacy’s effective tax rate?
33%
If an individual taxpayer contributes long-term capital gain property to a qualified private foundation and wants to deduct fair market value of “qualified appreciated” stock, the deduction would be subject to what limit?
20 percent of the taxpayer’s AGI
The amount of capital losses allowed to offset ordinary income in a given year is ________.
$3,000
The form provided to partners that details information about the partner’s distributive share of the partnership’s income or loss from business items and separately stated items, such as dividend income, capital gains and charitable donations is called __________________.
Schedule K-1
The TCJA of 2017 changed the Kiddie Tax rules so that certain unearned income of children (some up to age 24) would be taxed at the __________________, not as was taxed formerly at the ________________.
The SECURE Act reversed this part of the TCJA beginning in 2020 and beyond but gives taxpayers the choice of tax law application in 2018 and 2019.
estate tax rates; parents’ ordinary income rates
The income tax basis of property acquired from a decedent is generally __________________.
fair market value of the property on the date of the decedent’s death
A trust must pay income taxes on income received by the trust, subject to certain exceptions. The general rule is that ______________________________________________. The trust must also pay income taxes on other items of income received.
the trust must pay taxes on capital gains except in the final year of the trust when capital gains pass through to and are taxable to the beneficiaries.
I. Self-employed health insurance
II. Qualified home mortgage interest deduction
III. Qualified medical expenses
IV. State and local taxes paid
V. Alimony paid
VI. IRA and retirement plan contributions
VII. Charitable contributions
qualified home mortgage interest deduction; qualified medical expenses; state and local taxes paid; charitable contributions
What are the estimated tax payment rules that taxpayers must follow in order to avoid interest/penalties?
If prior year AGI was $150,000 or less, to avoid underpayment penalties, pay 100% of prior year tax or 90% of current year tax, whichever is less.
If prior year AGI was over $150,000, to avoid underpayment penalties, pay 110% of prior year tax or 90% of current year tax, whichever is less.
Ross buys shares of small cap index ETF for $250,000 and sells them for $175,000 12 months and ten days later. Ross has second thoughts and buys shares of the same fund for $100,000 15 days after he sold shares. What are the tax ramifications of these transactions?
long-term capital loss of $75,000 disqualified initially for tax purposes but added to basis of the new transaction
Thomas exercised 1,000 incentive stock options (ISOs) of his employer, Drums, Inc. The exercise cost was $8 per option at the same time the stock was trading for $60 per share. Thomas pays the company $8,000 and, in return, receives stock valued at $60,000. For regular tax purposes, Thomas [does / does not] report income for regular tax purposes; for AMT purposes, he has a positive adjustment of $____________________.
does not; $52,000
Generally speaking and in most partnerships when income is distributed to a partner, she pays taxes on the income and/or her basis goes _________; and when she contributes property or assets to the partnership, her basis goes _________.
down; up
To qualify as Section 1244 stock, the stock must be issued _____________________________. A corporation is not a small business corporation unless the aggregate amount of money and other property received by the corporation for stock, as contributions to capital, and as paid-in surplus ____________________. If property is received for the stock, it is valued for purposes of the $1 million limitation based on its adjusted basis, reduced by any liability to which it is subject.
when the corporation is a small business corporation; does not exceed $1 million
The following term is used to describe a strategy in which one intends to allocate income to different individuals or entities for which lower rates are available. U.S. tax law often prohibits such; consequently, taxable income is ultimately taxed at higher rates.
tax bracket stacking
Typically, trusts are only taxed on which of the following?
capital gains and undistributed distributable net income
hich of the following are included for calculating gross income?
I. alimony received II. pension distributions III. prizes and awards IV. gifts and inheritances V. qualified muni-bond interest VI. qualified scholarships
II & III only
Mike donates long-term gain property worth $800,000 to a qualified public charity. Mike’s adjusted gross income is $2,000,000. Mike’s basis in the property for tax purposes is $700,000. What is the maximum deduction Mike can take this year based on these facts?
$700,000 (FMV up to 30% or basis up to 50% of AGI)
For 2018 and beyond, there is a limit to the amount of qualified residence interest that is deductible for loans taken after 12-15-2017.
The aggregate amount of acquisition indebtedness may not exceed _________ and the aggregate amount of home equity indebtedness may not exceed _________; interest attributable to debt over these limits is nondeductible personal interest.
These amounts are halved for a married individual filing a separate return.
$750,000; $0
The basis in a partnership _________ by ordinary business income, capital gains and dividend income; and __________ from ordinary business loss, capital loss and cash distributions.
If a partner is allocated income (taxable), but receives no cash distribution of that income, the partner is _____________ in the partnership.
increases; decreases; increasing his basis
Jack gave his daughter, Ellen, a limited partnership interest in a real estate activity. Suspended losses amounted to $30,000. Jack’s adjusted basis at the time of the gift was $40,000 (fair market value was greater than $40,000). What is Ellen’s basis in the property?
$70,000
A loss of up to _________ (for those married filing jointly) may be taken for qualified Section 1244 stock. Additional losses are treated as ____________. In order to qualify as Section 1244 stock, all money and other property received for stock, contributions to capital, or paid-in-surplus must not have exceeded ________.
$100,000; capital losses; $1 million
