Tax Planning Flashcards
1
Q
Who can take a qualified education interest deduction?
A
Only the taxpayer legally obligated to make the loan payments
2
Q
What is the corporate tax rate?
A
21%
3
Q
Where is qualified education (student loan) interest (max $2,500) deducted?
A
Adjustment to Income
4
Q
Where is educator expense deduction (up to $250) deducted?
A
Adjustment to Income
5
Q
Where are medical expenses (over 10% of AGI) deducted?
A
Itemized deduction
6
Q
Where are IRA contributions deducted?
A
Adjustment to income
7
Q
Where are Keogh contributions deducted for business owners?
A
Adjustment to Income
8
Q
Where are state and local income taxes (or sales taxes) and property taxes (up to $10,000 for all) deducted?
A
Itemized deduction
9
Q
Where is home mortgage interest deducted?
A
Itemized deduction
10
Q
Where is investment interest expense deducted?
A
Itemized deduction
11
Q
Where are discrimination lawsuite expenses deducted?
A
Adjustment to Income
12
Q
Where are charitable contributions deducted?
A
Itemized deduction
13
Q
Where are penalties on early withdrawal of savings deducted?
A
Adjustment to Income
14
Q
Where is alimony deducted?
A
Adjustment to Income
15
Q
Where are jury duty fees paid over to an employer deducted?
A
Adjustment to Income
16
Q
Where are casualty losses deducted?
A
Itemized deduction
17
Q
Where are moving expenses for members of the armed forces deducted?
A
Adjustment to Income
18
Q
Where are self-paid pension plans deducted?
A
Adjustment to Income
19
Q
What is MAGI?
A
AGI without the IRA deduction
20
Q
What makes an active participant in a defined contribution plan?
A
Any annual additions to the plan. May be employee contributions, employer contributions, or forfeitures.
21
Q
What makes an active participant in a defined benefit plan?
A
Anyone eligible to participate
22
Q
How much can an active participant below the phaseout range deductibly contribute to an IRA?
A
The full amount
23
Q
How much can an active participant with MAGI above the phaseout range deductibly contribute to an IRA?
A
$0
24
Q
For an active participant with MAGI within the phaseout range, how is their dedutible contribution calculated?
A
(top of phaseout range - MAGI)/phaseout range size = % of contribution that is deductible
25
If one spouse is an active participant and the other is not, which phaseout ranges will be used assuming they file taxes MFJ?
For the spouse who is an active participant, the MFJ range will be used. For the spouse who is not an active participant, the Spousal IRA range will be used.
26
The use of exclusions, deductions, and credits to reduce taxes?
Tax Avoidance
27
The use of IRAs, retirement plans, taxes, to avoid paying taxes today?
Tax Deferral
28
Putting income in other people's accounts under their Social Security number?
Income Shifting
29
Home mortage interest expense can be deducted up to what amount of acquisition indebtedness?
$750,000
30
How much of interest for "home equity" indebtedness can be deducted?
$0
31
When is interest on home equity indebtedness deductible?
When it is for acquisition or renovation
32
Where is unrecovered basis in a commercial annuity deductible?
Miscellaneous Itemized Deductions
33
Where are gambling losses (to the extent of gambling winnings) deductible?
Miscellaneous Itemized Deductions
34
Where are impairment-related work expenses of a handicapped individual deductible?
Miscellaneous Itemized Deductions
35
What is the amount of the Child Tax Credit?
$2,000 per qualifying child (under 17 at end of tax year); $500 for a dependent who is not a qualifying child
36
How is the Child Tax Credit phased out?
$50 for every $1,000 above $400,000 AGI for MFJ; $200,000 AGI for single
37
An amount by which nonitemizers reduce AGI to arrive at taxable income.
Standard Deduction
38
Personal expenses allowed as a deduction from AGI.
Itemized Deductions
39
Amount on which the income tax is computed
Taxable income
40
The amount of taxes owed after subtracting all allowable credits
Tax liability
41
A dollar-for-dollar offset against tax liability.
Tax credit
42
Items received by a taxpayer that represent an economic benefit that are not taxed.
Exclusions
43
What is the limit on the amount of credit available for the Child and Dependent Care Credit?
$3,000 for one child or $6,000 for two or more children
44
What percent of household and dependent care expenses is coverd by the Child and Dependent Care Credit?
35% down to 20% depending on AGI
45
Is the Child and Dependent Care Credit refundable or nonrefundable?
nonrefundable
46
Is the Child Tax Credit refundable or nonrefundable?
Up to $1,400 is refundable; the $500 credit for dependents is nonrefundable
47
What amount of credit is provided by the Residential Energy Credit?
10% credit for home energy efficiency improvements
48
What is the excess social security taxes credit?
a refundable credit for taxpayers who have too much Social Security tax withheld
49
What qualifies as income (7)?
1. Wages
2. Qualifying dividends
3. Social Security benefit
4. Alimony received (divorces before 2019)
5. Sole proprietorship income (loss)
6. Capital gains (loss)
7. Income (loss) from partnerships, rental property, etc.
50
What is excluded from income (6)?
1. Life insurance proceeds received by reason of death
2. A gift or most inheritances
3. Interest from municipal bonds
4. Child support received
5. Worker's Comp
6. Employee fringe benefits
51
How much in capital losses may be included in a year?
$3,000
52
How do you calculate the amount of tax credit it would tax to receive the same benefit as a tax deduction?
TC = d x m
d - deduction
m - marginal income tax bracket
53
How do you calculate the amount of deduction it would take to receive the same benefit as a tax credit?
d = TC/m
TC - tax credit
m - marginal tax bracket
54
Which type of municipal bond interest is included in the computation of AMT?
qualified private activity municipal bond interest
55
The method of accounting that recognizes income when it is actually received?
Cash method
56
The idea that money becomes taxable when it is actually received and receipt cannot be artificially pushed back.
Constructive receipt doctrine
57
Small businesses with inventories may use the cash method of accounting if they have ____ or less in average annual gross receipts in 3 prior years.
$26 million
58
The method of accounting that recognizes income when it is earned?
Accrual method
59
The method of accounting that is used for manufacture of unique items that are not completed in the tax year in which the contract is entered into?
Long-term Contract method
60
This inventory valuation method increases COGS when prices are rising.
LIFO
61
This inventory valuation method creates greater tax liability in inflationary times?
FIFO
62
This inventory valuation method reduces earnings when prices are rising?
LIFO
63
This inventory valuation method improves cash flow when prices are rising?
LIFO
64
This inventory valuation method matches higher-priced inventory items against revenues in times of declining prices?
FIFO
65
This inventory valuation method understates ending inventory when prices are rising?
LIFO
66
This inventory valuation method creates a higher earnings figure in times of inflation?
FIFO
67
This inventory valuation method has an ending inventory figure that represents current cost (replacement cost)?
FIFO
68
This inventory valuation method provides a more realistic financial picture as current costs are matched against current revenues?
LIFO
69
What business forms are conduit entities?
sole proprietorship, general partnership, limited partnership, S Corp
70
Which business forms limit liability?
Limited partnership (for limited partners), C Corp, S Corp, LLC
71
How is basis in a general partnership calculated?
cash + adjusted basis of property contributed + share of debt + flow-through of income - flow-through of loss and distributions
72
Who is eligible for the self-employed health insurance deduction?
a sole proprietor, partner, or >2% owner in an S corp
73
In which form of business is it easiest to raise business capital?
C Corp
74
How does debt affect basis in an S-Corp?
Borrowing does not establish basis for shareholders. Shareholder have adjusted basis in the corporation to the extent that they have actually loaned money to the corporation.
75
Which form of business is generally the most expensive?
C Corp
76
Which form of business is subject to double taxation?
C Corp
77
Which business forms are eligible for Section 1244 stock treatment?
C Corp and S Corp
78
To what extent are losses in an S Corp deductible?
to the extent of basis in stock and debt
79
What is the maxmium number of shareholders allowed in an S Corp?
100
80
How many classes of stock may an S Corp have?
1
81
Who may be a shareholder in an S Corp?
US citizens or residents or domestic trusts
82
What percent of shareholders must elect for S Corp status?
100%
83
What percentage of shareholders must elect to revoke S Corp status?
majority
84
What special tax treatment does Section 1244 stock receive?
Up to $50,000/$100,000 in annual loss can be treated as an ordinary loss rather than a capital loss
85
What stock is eligible for Section 1244 treatment?
First $1 million of stock issued after incorporation
86
Does Section 1244 stock still receive special treatment after it is sold?
No
87
This is a statutory entity that is recognized by state law but not federal taxation law?
LLC
88
How is an LLC taxed?
A single member LLC is a disregarded entity. Otherwise, it is taxed as a partnership by default. S Corp status can be elected.
89
How is the qualified business income deduction computed?
20% of the lesser of:
1. Qualified business income or
2. Taxable income (reduced by net capital gain)
90
What industries qualify as Specified Service Businesses for QBI purposes?
Health, Law, Accounting, Actuarial Science, Performing Arts, Consulting, Athletics, Financial Services, Brokerage Services
Call AAA For HeLP BS
91
What is the phaseout range for QBI?
$163,300 - $213,300 (single)
| $326,600 - $426,600 (joint)
92
What happens to a favored business within the phaseout range for QBI?
wage/property limit is phased in
93
How is the wage/property limit calculated for QBI?
For favored businesses above the phaseout range, the deduction is the lesser of:
1. 20% of QBI or
2. The greater of
a. 50% of the taxpayer's allocable W-2 wages paid by the business or
b. 25% of the taxpayer's allocable share of the W-2 wages paid by the business, PLUS 2.5% of the taxpayer's allocable share of the unadjusted basis of all qualified property of the business
94
Land, anything permanently affixed or attached to the land, and certain items that cannot easily be moved.
Realty
95
Any type of property that is not realty.
Personalty
96
Property that has physical existence and can be touched and felt.
Tangible property
97
Property, such as a leasehold interest in real estate or a stock certificate, that has no physical existence of its own, but represents the evidence of ownership or value.
Intangible property
98
Property held for the taxpayer's personal pleasure or enjoyment.
Personal Use property
99
What is the tax basis for purchased property?
Original cost + acquisition costs (including freight, installation, and taxes) + cost of subsequent capital improvements - amount of cost recovery deduction claimed
100
What is the tax basis for inherited property?
FMV on date of death or AVD
101
What is the tax basis for gifted property when FMV > donor's basis.
donor's basis
102
What is the tax basis for gifted property when FMV < donor's basis?
1. If sold for less than FMV on date received, basis is FMV on date of gift
2. If sold for more than donor's basis, basis is the donor's basis
3. If sold for a value between FMV on date received and donor's basis, tax payer reports neither gain nor loss
(Double basis rule)
103
How are acquisition costs treated for tax purposes?
capitalized and added to basis
104
How are repair costs incurred while the property is in service treated for tax purposes?
deductible in a business or rental setting
105
How are repair costs incurred before the property is in service treated for tax purposes?
they are considered improvement and are defined and capitalized
106
What is the de minimus rule for expenses?
expenses less than $2,500 can be repairs and can be deducted immediately
107
Can land be depreciated?
No
108
How must realty be depreciated?
Using straight-line depreciation only
109
How may personalty be depreciated?
Using MACRS, straight-line, or Section 179 expense election
110
How much bonus depreciation is allowed?
100%, though taxpayer may elect 50%
111
What property qualifies for bonus depreciation?
tangible property in the 3, 5, or 7 year classes
112
What is the 1/2 year convention?
Assets are deemed to be put in service half way though the year
113
How much depreciation may be expensed immediately under Section 179 in 2020?
$1,040,000
114
What property qualifies for Section 179 treatment? (4)
1. tangible property
2. Personalty
3. For use in active conduct of a trade or business
4. Qualified improvement property
115
There is a dollar-for-dollar phaseout of Section 179 for qualifying property placed in service over _______.
$2.59 million
116
Section 179 treatment is limited to
taxable income or earned income
117
What property is eligible for Section 1231 treatment?
Depreciable or real property used in a trade or business, or held for the production of income (rental activities)
118
Section 1231 allows gains to be treated as
long term capital gains
119
Section 1231 allows losses to be treated as
ordinary losses
120
How is Section 1245 (personalty) income taxed?
Ordinary income
121
How is unrecaptured Section 1250 (realty) income taxed?
25% LTCG ceiling or lower marginal rate
122
What is the Section 1231 lookback period?
5 years
123
If there are unrecaptured Section 1231 losses during the lookback period, how will current year net 1231 gains be treated?
As ordinary income to the extent of previous losses
124
A covenant not to compete that is entered into in connection with the acquisition of a business may be amortized over ____ years.
15 (also applies to other intangible property held in connection with a trade or business)
125
What property can be involved in a like-kind exchange?
realty for realty
126
Can U.S. realty be like-kind exchanged for foreign realty?
No
127
What are the tax benefits of a like-kind exchange?
It bypasses recognizing capital gains and defers it until the new property is sold
128
How is realized gain calculated in a like-kind exchange?
FMV of what was received - Adjusted basis of what was given up = realized gain
129
How is recognized gain calculated for a like-kind exchange?
```
Lesser of
1. Realized gain, or
2. Boot received (cash or other nonqualified property, net debt relief)
No losses may be recognized
Only recognize gain if there is boot
```
130
How is substitute basis caculated for a like-kind exchange?
FMV of qualified property received - deferred gain (realized gain - recognized gain)
131
According to Section 121, how much gain may a person exclude on the sale of a home?
$250,000/$500,000
132
How often may the Section 121 exclusion for gain on the sale of a home be utilized?
once every two years
133
Do you have to opt in to get installment sale tax treatment?
No, it is automatic, you have to opt out if you don't want it
134
How do you calculate the taxable portion of an installment sale payment?
1. Calculate the gross profit percentage
Profit/Total contract price = GPP
2. GPP x Payments received in current year
135
How is a casualty or theft loss calculated?
```
Lesser of
1. Decrease in FMV of the property or
2. Adjusted basis of the property
Reduced by
-Insurance
-$100 floor per occurance
-10% of AGI overall
```
136
Under the involuntary conversion rules, how long does a taxpayer have to replace their property?
Casulty - end of second year after gain realization
Condemned business realty - end of third year after gain
The period ends on the last day of the tax year.
137
Passive losses are dedutible to the extent of
passive income
138
Who do the passive loss rules apply to
individuals, closely held C Corps, personal service corps
139
To meet the material participation test, a person must participate _____ hours per year.
500
140
To meet the material participation test, a person may participate _____ per year if no one else participates more.
100
141
What is the maximum amount of annual loss allowed from active participation in rental real estate?
$25,000
142
How much ownership must a person have in order to be considered an active participant in rental real estate?
10% or greater, and not a limited partnership interest
143
What is the phaseout for active participation in rental real estate?
$100,000 to $150,000 AGI, phased out on a 2:1 basis, for every $1 of AGI above $100,00 the max loss allowable is reduced by 50 cents
144
What tax benefit is available for Low-Income Housing Activity?
$25,000 deduction-equivalent credit
145
What is the phaseout range for Low-Income Housing Activity?
$200,000 to $250,000 AGI for property placed in service before 1989
No phaseout for property placed in service after 1989
146
What tax benefit is available for Historic Rehabilitation Programs?
$25,000 deduction-equivalent credit
147
What is the phasehout range for Historic Rehabilitation Programs?
$200,000 to $250,000 AGI
148
When are real estate losses deductible?
1. More than 50% of hours are devoted to real property trades or business with material participation, and
2. More than 750 hours are in real property trades or businesses with material participation
149
How are losses treated for an Oil and Gas Working Interest?
They are not considered passive and are deductible without limit and without respect to AGI
150
How may passive losses be treated in a closely held C Corp?
They may be used to offset active income, but not portfolio income
151
How are losses handled in the case of a sale or exchange?
All losses are "freed up" and deductible in full against other income
152
How are passive losses treated at death?
Losses are deductible to the extent that the losses exceed the step-up in basis
153
How are passive losses treated in a gift?
losses are added to the basis of the gift
154
A vacation home that is used by the taxpayer more than 14 days/year may be rented less than ____ days/year and have rental income that is not taxable.
15
155
In the case of infrequent rentals and frequent personal use, what items are dedutible/nondeductible?
Deductible: real estate taxes, casualty losses, and mortgage interest (itemized deduction)
nondeductible: expenses
156
If a vacation home is rented more than 14 days per year, how much may the owner occupy the home and still receive the most favorable tax treatment?
Owner's personal use must not exceed the greater of
1. 14 days or
2. 10% of the number of days rented
157
For frequent rentals and infrequent personal use, what items are deductible?
deductible: a portion of depreciation, maintenance, and operating expenses
Not limited to gross rental income
158
For frequent rentals and frequent personal use, what is the limit on deductions?
Deductions are limited to rental income
159
How are losses from a publicly traded partnership treated?
Each PTP is treated separately and losses may only be netted against gains from that PTP. They may be carried forward and used against future income from that PTP. Income from a PTP cannot be offset by passive losses from any other source.
160
How is a lump-sum payment from a life insurance contract taxed?
FIFO - nontaxable up to basis in the contract (unless a MEC)
161
How is a lump-sum payment of surrender value before insured's death taxed?
To extend that surrender value exceed the insured's basis, taxable as ordinary income in year received
162
How are installment payments from a life insurance contract before insured's death taxed?
Insured's cost is prorated over installment period, with amounts received in excess of cost taxable as ordinary income
163
How is a lump-sum payment of policy proceeds to beneficiary upon insured's death taxed?
Exempt from income tax
164
How are settlement option payments of policy proceeds to beneficiary upon insured's death taxed?
May be partially taxable when paid or credited to beneficiary (annuity treatment)
165
A MEC is a life insurance contract that fails to meet what test?
the 7-pay test
166
A MEC must be issued after
June 21, 1988
167
How are distributions from a MEC treated for tax purposes?
On a LIFO basis; 10% penalty if under 59.5 years old
168
How are disability benefits taxed if the employer pays for the policy?
They are taxable
169
How are disability benefits taxed if the employee pays for the policy?
They are tax exempt
170
How are disability benefits taxed if both employer and employee pay for the policy?
They are partially taxable - the % paid by the employer will be taxable
171
Are taxable disability benefits subject to FICA and FUTA?
yes, for the first 6 months
172
Annuity contracts issued on or after _______ are taxed on a LIFO basis.
August 13, 1982
173
How is a fixed annuity exclusion ratio calculated?
Investment in contract/Total expected return
174
How is a variable annuity exclusion ratio calculated?
Investment/Number of payments
175
Long-term capital gains are netted with
Long-term capital losses in each bucket
176
How much capital loss is allowed in a year?
The lesser of ordinary income or $3,000
177
Do wash sale rules apply to brokers or dealers?
No
178
Interest on debt incurred to purchase investments
investment interest expense
179
How much investment interest expense is deductible?
It is deductible up to the amount of investment income (only interest, STCG, and non-qualified dividends unless the investors elects to not have preferential rates applied to LTCG)
180
When is there no deduction for investment interest expense?
if the funds are used to purchase muni bonds or single-premium life insurance
181
Can investment interest expense deductions be carried forward?
Yes
182
This allows taxapayers other than C corps who hold qualified small business stock for more than five years to exclude a portion or all of the gain on the sale of the stock?
Section 1202 Exclusion
183
What is the maxmium amount of eligible gain that may be excluded under Section 1202?
The greater of
1. 10 times the taxpayer's basis in the stock or
2. $10 million of gain from the stock
184
What are the two tests to qualify a product as life insurance (only need to meet 1)
1. Cash value accumulation test
| 2. Cash guideline premium test and corridor test
185
How is a stock redemption taxed?
It is treated as payment for stock and qualifies for CG treatment
186
To the extent a dividend exceeds the ________ the distribution is treated as a return of capital or a return of the shareholder's basis.
current and accumulated earnings and profits
187
If a dividend is treated as a return of capital, is it taxable?
It is not taxable income. It may be treated as a capital gain if it exceeds basis.
188
What is the standard deduction allowed for unearned income for a taxpayer eligible to be claimed as a dependent?
$1,100
189
For a dependent with earned and unearned income, the standard deduction is
the greater of
1. earned income + $350
2. Up to the amount of the full standard deduction of $12,400
190
How is unearned income taxed under the kiddie tax?
1. First $1,100 is tax free
2. Second $1,100 is taxed at the child's marginal tax rate
3. Above $2,200 in unearned income is taxed at the trust and estate rate
191
Junior is a dependent and had $2,300 of unearned income and $5,500 of earend income in 2019. How is his income taxed?
1. Find the amount of unearned income subject to the estate and trust rates
2,300 - 2,200 = $100
2. Calculate the standard deduction
5,500 + 350 = 5,850
3. Apply the standard deduction
7,800 - 5,850 = 1,950
$100 will be taxable and estate and trust rates
$1,850 will be taxable at the child's rate
192
When is interest on a US Savings Bond tax free?
When redeemed for qualified higher education - tuition and fees
193
What is the maximum credit from the American Opportunity Credit?
$2,500 per student
194
How many years does the American Opportunity Credit apply?
first four years of college
195
What constitutes qualified higher education expenses for the American Opportunity Credit?
tuition, required fees, course materials, and books
196
How much is availalble from the Lifetime Learning credit?
$2,000 max per taxpayer
197
How many years is the Lifetime Learning Credit available?
unlimited
198
What constitutes qualified higher education expenses for the Lifetime Learning Credit?
tuition, required fees and materials
199
How much may be contributed to a Coverdell ESA?
$2,000 annually per beneficiary
200
Can a Coverdell be used for private education?
yes, K-12
201
What is the AGI limit for a Section 529 plan?
none
202
How often can the investment mix of a Section 529 plan be changed?
twice a year
203
What qualified higher education expenses may be covered by a Section 529 plan?
tuition, fees, books, supplies, special-needs services, room & board if at least half time, computer, software, internet
204
How much may be spent annually from a 529 plan for elementary and secondary tuition?
$10,000
205
Cash donated to a charity may be deducted up to what % of AGI?
60% for public charity
| 30% for private charity
206
Ordinary income property donated to a charity may be deducted based on FMV or basis?
basis
207
What % of AGI can be deducted with a donation of ordinary income property?
50% for public charity
| 30% for private charity
208
Donation of long-term capital gains and use-related tangible personalty, when the FMV is deducted, are limited to what % of AGI?
30% for public charity
| 20% for private charity
209
Gifts of LTCG property to a public charity can deduct up to 50% if AGI if the property's ____ is used.
basis
210
For divorces before 2019, how is Alimony taxed?
taxable to the recipient and deductible by the payor
211
For divorces from 2019 and beyond, how is Alimony taxed?
Not deductible or includible; the payor will pay taxes on it
212
What form must Alimony payments be made in?
cash
213
When must Alimony payments end?
At the death of the recipient spouse
214
If alimony payments in the first year exceed average payments in the second and third year by more than ______, the excess amounts are recaptured in the third year.
$15,000
215
How is child support taxed?
nontaxable to the recipient; nondeductible by payor
216
If property is transferred by a property settlement in a divorce, what is the transferee's basis?
they assume the transferor's basis
217
If trust income is used or may be used for the benefit of __________ it will be taxed to the grantor.
the grantor or the grantor's spouse or to pay premiums for life insurance on the grantor or the grantor's spouse
218
A premarital agreement must be in ______.
writing
219
In a premarital agreement, a _______ of each party's net worth must be made.
full and complete disclosure
220
Self-employment income is always reduced by _____ prior to computation of self-employment tax.
7.65%
221
What is the self-employment tax?
15.3% up to wage base of $137,700
2.9% Medicare tax with no ceiling
Additional 0.9% Medicare tax for income over $200,000 for singles and $250,000 MFJ
222
Is distributive share of income from an S-Corp subject to self-employment tax?
No
223
How is net investment income calculated for purposes of the Net Investment Income Tax?
Investment income reduced by
1. penalty on the early withdrawal of savings
2. Investment interest expense
3. State, local, and foreign income tax on investment income
224
What items are not included in net investment income for purposes of the Net Investment Income Tax?
1. Muni bond income
2. Income from active trades or businesses
3. Income from "qualified" plans - including 401(k), 403(b), IRA, Roth IRA, & 457
225
What is the required tax payment
The lesser of:
90% of the current year tax or
100% (110% if AGI above $150,000) of the tax shown in the preceding year
226
What is the penalty for concealing income?
75% of the difficiency attributable to civil fraud
227
What is the penalty for filing a late tax return?
5% of the amount due for each month or part the return is late, up to a max of 25%
228
What is considered a substantial understatement?
The greater of
1. 10% of the required tax or
2. $5,000
229
What is the penalty for a substantial understatement/negligence?
20% of the portion of underpayment due to the understatement/negligence
230
A taxpayer must have a profit motive for engaging in a trade or business, or else loss will not be dedutible.
Hobby loss rule
231
Any arrangement by which the funds are attributed to a different tree from that on which they grew will not be recognized for tax purposes.
Assignment of income
232
To be given effect for tax purposes, a purported transaction must be real and bona fide - not mere paper fiction
Sham transaction
233
A recovery or reimbursement of a previously-deducted item will cause that recovery or reimbursement to be taxable.
Tax benefit
234
What is the tax penalty for accumulated earnings of a C corp?
20% penalty on the earnings of a C corp that are accumulated beyond the reasonable needs of the business
235
How much in earnings may a business accumulate without providing a valid business purpose?
$250,000 ($150,000 for PSC)
236
How is accumulated earnings tax calculated?
Taxable income - federal income tax - dividends paid - accumulated earnings credit = accumulated taxable income
Accumulated taxable income x 20% = Accumulated earnings tax
237
What is the penalty for failure to pay taxes?
0.5% of the tax due per month, up to a max of 25%
238
What is the penalty for a tax preparer understating the amount of tax owed?
$1,000
239
What are AMT preference items and adjustments? (4)
1. Incentive Stock Option bargain element
2. Private activity municipal bonds
3. Oil and gas percentage depletion
4. Depreciation (ACRS and MACRS)
IPOD
240
How is a casualty or theft loss calculated?
1. Start with the lesser of the property's basis or FMV
2. Subtract insurance coverage
3. Subtract $100 floor
4. Subtract 10% of AGI
5. The result is the deductible casualty loss
241
In order to claim a casualty loss, the loss must occur in
a federally declared disaster area
242
A private service corporation (PSC) is taxed at what rate?
21%
243
What forms of business are eligible for the QBI deduction?
All except for C corps
244
What is not included in QBI? (5)
1. Short or long term capital gain or loss
2. Any dividends
3. Any interest income other than that which is properly allocable to the trade or business
4. Any amount received from an annuity that is not in connection with the trade or business
5. Gains and losses from commodity transaction or foreign currency transactions
245
Where is the QBI adjustment made on the tax return?
It is an adjustment to taxable income
246
Those up to what marginal tax bracket will fall below the QBI phaseout range?
24%, the phaseout range begins at the 32% bracket
247
What businesses are excluded from the definition of a specified service business for QBI purposes?
engineering and architecture
248
Specified service business owners with AGI above the phaseout range may deduct how much for QBI?
No QBI deduction is allowed
