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Tax Planning Flashcards

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1
Q

Who can take a qualified education interest deduction?

A

Only the taxpayer legally obligated to make the loan payments

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2
Q

What is the corporate tax rate?

A

21%

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3
Q

Where is qualified education (student loan) interest (max $2,500) deducted?

A

Adjustment to Income

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4
Q

Where is educator expense deduction (up to $250) deducted?

A

Adjustment to Income

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5
Q

Where are medical expenses (over 10% of AGI) deducted?

A

Itemized deduction

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6
Q

Where are IRA contributions deducted?

A

Adjustment to income

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7
Q

Where are Keogh contributions deducted for business owners?

A

Adjustment to Income

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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

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9
Q

Where is home mortgage interest deducted?

A

Itemized deduction

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10
Q

Where is investment interest expense deducted?

A

Itemized deduction

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11
Q

Where are discrimination lawsuite expenses deducted?

A

Adjustment to Income

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12
Q

Where are charitable contributions deducted?

A

Itemized deduction

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13
Q

Where are penalties on early withdrawal of savings deducted?

A

Adjustment to Income

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14
Q

Where is alimony deducted?

A

Adjustment to Income

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15
Q

Where are jury duty fees paid over to an employer deducted?

A

Adjustment to Income

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16
Q

Where are casualty losses deducted?

A

Itemized deduction

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17
Q

Where are moving expenses for members of the armed forces deducted?

A

Adjustment to Income

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18
Q

Where are self-paid pension plans deducted?

A

Adjustment to Income

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19
Q

What is MAGI?

A

AGI without the IRA deduction

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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.

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21
Q

What makes an active participant in a defined benefit plan?

A

Anyone eligible to participate

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22
Q

How much can an active participant below the phaseout range deductibly contribute to an IRA?

A

The full amount

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23
Q

How much can an active participant with MAGI above the phaseout range deductibly contribute to an IRA?

A

$0

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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

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25
Q

If one spouse is an active participant and the other is not, which phaseout ranges will be used assuming they file taxes MFJ?

A

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.

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26
Q

The use of exclusions, deductions, and credits to reduce taxes?

A

Tax Avoidance

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27
Q

The use of IRAs, retirement plans, taxes, to avoid paying taxes today?

A

Tax Deferral

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28
Q

Putting income in other people’s accounts under their Social Security number?

A

Income Shifting

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29
Q

Home mortage interest expense can be deducted up to what amount of acquisition indebtedness?

A

$750,000

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30
Q

How much of interest for “home equity” indebtedness can be deducted?

A

$0

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31
Q

When is interest on home equity indebtedness deductible?

A

When it is for acquisition or renovation

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32
Q

Where is unrecovered basis in a commercial annuity deductible?

A

Miscellaneous Itemized Deductions

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33
Q

Where are gambling losses (to the extent of gambling winnings) deductible?

A

Miscellaneous Itemized Deductions

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34
Q

Where are impairment-related work expenses of a handicapped individual deductible?

A

Miscellaneous Itemized Deductions

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35
Q

What is the amount of the Child Tax Credit?

A

$2,000 per qualifying child (under 17 at end of tax year); $500 for a dependent who is not a qualifying child

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36
Q

How is the Child Tax Credit phased out?

A

$50 for every $1,000 above $400,000 AGI for MFJ; $200,000 AGI for single

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37
Q

An amount by which nonitemizers reduce AGI to arrive at taxable income.

A

Standard Deduction

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38
Q

Personal expenses allowed as a deduction from AGI.

A

Itemized Deductions

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39
Q

Amount on which the income tax is computed

A

Taxable income

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40
Q

The amount of taxes owed after subtracting all allowable credits

A

Tax liability

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41
Q

A dollar-for-dollar offset against tax liability.

A

Tax credit

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42
Q

Items received by a taxpayer that represent an economic benefit that are not taxed.

A

Exclusions

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43
Q

What is the limit on the amount of credit available for the Child and Dependent Care Credit?

A

$3,000 for one child or $6,000 for two or more children

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44
Q

What percent of household and dependent care expenses is coverd by the Child and Dependent Care Credit?

A

35% down to 20% depending on AGI

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45
Q

Is the Child and Dependent Care Credit refundable or nonrefundable?

A

nonrefundable

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46
Q

Is the Child Tax Credit refundable or nonrefundable?

A

Up to $1,400 is refundable; the $500 credit for dependents is nonrefundable

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47
Q

What amount of credit is provided by the Residential Energy Credit?

A

10% credit for home energy efficiency improvements

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48
Q

What is the excess social security taxes credit?

A

a refundable credit for taxpayers who have too much Social Security tax withheld

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49
Q

What qualifies as income (7)?

A
  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.
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50
Q

What is excluded from income (6)?

A
  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
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51
Q

How much in capital losses may be included in a year?

A

$3,000

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52
Q

How do you calculate the amount of tax credit it would tax to receive the same benefit as a tax deduction?

A

TC = d x m
d - deduction
m - marginal income tax bracket

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53
Q

How do you calculate the amount of deduction it would take to receive the same benefit as a tax credit?

A

d = TC/m
TC - tax credit
m - marginal tax bracket

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54
Q

Which type of municipal bond interest is included in the computation of AMT?

A

qualified private activity municipal bond interest

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55
Q

The method of accounting that recognizes income when it is actually received?

A

Cash method

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56
Q

The idea that money becomes taxable when it is actually received and receipt cannot be artificially pushed back.

A

Constructive receipt doctrine

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57
Q

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.

A

$26 million

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58
Q

The method of accounting that recognizes income when it is earned?

A

Accrual method

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59
Q

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?

A

Long-term Contract method

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60
Q

This inventory valuation method increases COGS when prices are rising.

A

LIFO

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61
Q

This inventory valuation method creates greater tax liability in inflationary times?

A

FIFO

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62
Q

This inventory valuation method reduces earnings when prices are rising?

A

LIFO

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63
Q

This inventory valuation method improves cash flow when prices are rising?

A

LIFO

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64
Q

This inventory valuation method matches higher-priced inventory items against revenues in times of declining prices?

A

FIFO

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65
Q

This inventory valuation method understates ending inventory when prices are rising?

A

LIFO

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66
Q

This inventory valuation method creates a higher earnings figure in times of inflation?

A

FIFO

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67
Q

This inventory valuation method has an ending inventory figure that represents current cost (replacement cost)?

A

FIFO

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68
Q

This inventory valuation method provides a more realistic financial picture as current costs are matched against current revenues?

A

LIFO

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69
Q

What business forms are conduit entities?

A

sole proprietorship, general partnership, limited partnership, S Corp

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70
Q

Which business forms limit liability?

A

Limited partnership (for limited partners), C Corp, S Corp, LLC

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71
Q

How is basis in a general partnership calculated?

A

cash + adjusted basis of property contributed + share of debt + flow-through of income - flow-through of loss and distributions

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72
Q

Who is eligible for the self-employed health insurance deduction?

A

a sole proprietor, partner, or >2% owner in an S corp

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73
Q

In which form of business is it easiest to raise business capital?

A

C Corp

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74
Q

How does debt affect basis in an S-Corp?

A

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.

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75
Q

Which form of business is generally the most expensive?

A

C Corp

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76
Q

Which form of business is subject to double taxation?

A

C Corp

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77
Q

Which business forms are eligible for Section 1244 stock treatment?

A

C Corp and S Corp

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78
Q

To what extent are losses in an S Corp deductible?

A

to the extent of basis in stock and debt

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79
Q

What is the maxmium number of shareholders allowed in an S Corp?

A

100

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80
Q

How many classes of stock may an S Corp have?

A

1

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81
Q

Who may be a shareholder in an S Corp?

A

US citizens or residents or domestic trusts

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82
Q

What percent of shareholders must elect for S Corp status?

A

100%

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83
Q

What percentage of shareholders must elect to revoke S Corp status?

A

majority

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84
Q

What special tax treatment does Section 1244 stock receive?

A

Up to $50,000/$100,000 in annual loss can be treated as an ordinary loss rather than a capital loss

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85
Q

What stock is eligible for Section 1244 treatment?

A

First $1 million of stock issued after incorporation

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86
Q

Does Section 1244 stock still receive special treatment after it is sold?

A

No

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87
Q

This is a statutory entity that is recognized by state law but not federal taxation law?

A

LLC

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88
Q

How is an LLC taxed?

A

A single member LLC is a disregarded entity. Otherwise, it is taxed as a partnership by default. S Corp status can be elected.

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89
Q

How is the qualified business income deduction computed?

A

20% of the lesser of:

  1. Qualified business income or
  2. Taxable income (reduced by net capital gain)
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90
Q

What industries qualify as Specified Service Businesses for QBI purposes?

A

Health, Law, Accounting, Actuarial Science, Performing Arts, Consulting, Athletics, Financial Services, Brokerage Services
Call AAA For HeLP BS

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91
Q

What is the phaseout range for QBI?

A

$163,300 - $213,300 (single)

$326,600 - $426,600 (joint)

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92
Q

What happens to a favored business within the phaseout range for QBI?

A

wage/property limit is phased in

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93
Q

How is the wage/property limit calculated for QBI?

A

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
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94
Q

Land, anything permanently affixed or attached to the land, and certain items that cannot easily be moved.

A

Realty

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95
Q

Any type of property that is not realty.

A

Personalty

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96
Q

Property that has physical existence and can be touched and felt.

A

Tangible property

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97
Q

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.

A

Intangible property

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98
Q

Property held for the taxpayer’s personal pleasure or enjoyment.

A

Personal Use property

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99
Q

What is the tax basis for purchased property?

A

Original cost + acquisition costs (including freight, installation, and taxes) + cost of subsequent capital improvements - amount of cost recovery deduction claimed

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100
Q

What is the tax basis for inherited property?

A

FMV on date of death or AVD

101
Q

What is the tax basis for gifted property when FMV > donor’s basis.

A

donor’s basis

102
Q

What is the tax basis for gifted property when FMV < donor’s basis?

A
  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
Q

How are acquisition costs treated for tax purposes?

A

capitalized and added to basis

104
Q

How are repair costs incurred while the property is in service treated for tax purposes?

A

deductible in a business or rental setting

105
Q

How are repair costs incurred before the property is in service treated for tax purposes?

A

they are considered improvement and are defined and capitalized

106
Q

What is the de minimus rule for expenses?

A

expenses less than $2,500 can be repairs and can be deducted immediately

107
Q

Can land be depreciated?

A

No

108
Q

How must realty be depreciated?

A

Using straight-line depreciation only

109
Q

How may personalty be depreciated?

A

Using MACRS, straight-line, or Section 179 expense election

110
Q

How much bonus depreciation is allowed?

A

100%, though taxpayer may elect 50%

111
Q

What property qualifies for bonus depreciation?

A

tangible property in the 3, 5, or 7 year classes

112
Q

What is the 1/2 year convention?

A

Assets are deemed to be put in service half way though the year

113
Q

How much depreciation may be expensed immediately under Section 179 in 2020?

A

$1,040,000

114
Q

What property qualifies for Section 179 treatment? (4)

A
  1. tangible property
  2. Personalty
  3. For use in active conduct of a trade or business
  4. Qualified improvement property
115
Q

There is a dollar-for-dollar phaseout of Section 179 for qualifying property placed in service over _______.

A

$2.59 million

116
Q

Section 179 treatment is limited to

A

taxable income or earned income

117
Q

What property is eligible for Section 1231 treatment?

A

Depreciable or real property used in a trade or business, or held for the production of income (rental activities)

118
Q

Section 1231 allows gains to be treated as

A

long term capital gains

119
Q

Section 1231 allows losses to be treated as

A

ordinary losses

120
Q

How is Section 1245 (personalty) income taxed?

A

Ordinary income

121
Q

How is unrecaptured Section 1250 (realty) income taxed?

A

25% LTCG ceiling or lower marginal rate

122
Q

What is the Section 1231 lookback period?

A

5 years

123
Q

If there are unrecaptured Section 1231 losses during the lookback period, how will current year net 1231 gains be treated?

A

As ordinary income to the extent of previous losses

124
Q

A covenant not to compete that is entered into in connection with the acquisition of a business may be amortized over ____ years.

A

15 (also applies to other intangible property held in connection with a trade or business)

125
Q

What property can be involved in a like-kind exchange?

A

realty for realty

126
Q

Can U.S. realty be like-kind exchanged for foreign realty?

A

No

127
Q

What are the tax benefits of a like-kind exchange?

A

It bypasses recognizing capital gains and defers it until the new property is sold

128
Q

How is realized gain calculated in a like-kind exchange?

A

FMV of what was received - Adjusted basis of what was given up = realized gain

129
Q

How is recognized gain calculated for a like-kind exchange?

A 
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
Q

How is substitute basis caculated for a like-kind exchange?

A

FMV of qualified property received - deferred gain (realized gain - recognized gain)

131
Q

According to Section 121, how much gain may a person exclude on the sale of a home?

A

$250,000/$500,000

132
Q

How often may the Section 121 exclusion for gain on the sale of a home be utilized?

A

once every two years

133
Q

Do you have to opt in to get installment sale tax treatment?

A

No, it is automatic, you have to opt out if you don’t want it

134
Q

How do you calculate the taxable portion of an installment sale payment?

A
  1. Calculate the gross profit percentage
    Profit/Total contract price = GPP
  2. GPP x Payments received in current year
135
Q

How is a casualty or theft loss calculated?

A 
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
Q

Under the involuntary conversion rules, how long does a taxpayer have to replace their property?

A

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
Q

Passive losses are dedutible to the extent of

A

passive income

138
Q

Who do the passive loss rules apply to

A

individuals, closely held C Corps, personal service corps

139
Q

To meet the material participation test, a person must participate _____ hours per year.

A

500

140
Q

To meet the material participation test, a person may participate _____ per year if no one else participates more.

A

100

141
Q

What is the maximum amount of annual loss allowed from active participation in rental real estate?

A

$25,000

142
Q

How much ownership must a person have in order to be considered an active participant in rental real estate?

A

10% or greater, and not a limited partnership interest

143
Q

What is the phaseout for active participation in rental real estate?

A

$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
Q

What tax benefit is available for Low-Income Housing Activity?

A

$25,000 deduction-equivalent credit

145
Q

What is the phaseout range for Low-Income Housing Activity?

A

$200,000 to $250,000 AGI for property placed in service before 1989
No phaseout for property placed in service after 1989

146
Q

What tax benefit is available for Historic Rehabilitation Programs?

A

$25,000 deduction-equivalent credit

147
Q

What is the phasehout range for Historic Rehabilitation Programs?

A

$200,000 to $250,000 AGI

148
Q

When are real estate losses deductible?

A
  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
Q

How are losses treated for an Oil and Gas Working Interest?

A

They are not considered passive and are deductible without limit and without respect to AGI

150
Q

How may passive losses be treated in a closely held C Corp?

A

They may be used to offset active income, but not portfolio income

151
Q

How are losses handled in the case of a sale or exchange?

A

All losses are “freed up” and deductible in full against other income

152
Q

How are passive losses treated at death?

A

Losses are deductible to the extent that the losses exceed the step-up in basis

153
Q

How are passive losses treated in a gift?

A

losses are added to the basis of the gift

154
Q

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.

A

15

155
Q

In the case of infrequent rentals and frequent personal use, what items are dedutible/nondeductible?

A

Deductible: real estate taxes, casualty losses, and mortgage interest (itemized deduction)
nondeductible: expenses

156
Q

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?

A

Owner’s personal use must not exceed the greater of

  1. 14 days or
  2. 10% of the number of days rented
157
Q

For frequent rentals and infrequent personal use, what items are deductible?

A

deductible: a portion of depreciation, maintenance, and operating expenses
Not limited to gross rental income

158
Q

For frequent rentals and frequent personal use, what is the limit on deductions?

A

Deductions are limited to rental income

159
Q

How are losses from a publicly traded partnership treated?

A

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
Q

How is a lump-sum payment from a life insurance contract taxed?

A

FIFO - nontaxable up to basis in the contract (unless a MEC)

161
Q

How is a lump-sum payment of surrender value before insured’s death taxed?

A

To extend that surrender value exceed the insured’s basis, taxable as ordinary income in year received

162
Q

How are installment payments from a life insurance contract before insured’s death taxed?

A

Insured’s cost is prorated over installment period, with amounts received in excess of cost taxable as ordinary income

163
Q

How is a lump-sum payment of policy proceeds to beneficiary upon insured’s death taxed?

A

Exempt from income tax

164
Q

How are settlement option payments of policy proceeds to beneficiary upon insured’s death taxed?

A

May be partially taxable when paid or credited to beneficiary (annuity treatment)

165
Q

A MEC is a life insurance contract that fails to meet what test?

A

the 7-pay test

166
Q

A MEC must be issued after

A

June 21, 1988

167
Q

How are distributions from a MEC treated for tax purposes?

A

On a LIFO basis; 10% penalty if under 59.5 years old

168
Q

How are disability benefits taxed if the employer pays for the policy?

A

They are taxable

169
Q

How are disability benefits taxed if the employee pays for the policy?

A

They are tax exempt

170
Q

How are disability benefits taxed if both employer and employee pay for the policy?

A

They are partially taxable - the % paid by the employer will be taxable

171
Q

Are taxable disability benefits subject to FICA and FUTA?

A

yes, for the first 6 months

172
Q

Annuity contracts issued on or after _______ are taxed on a LIFO basis.

A

August 13, 1982

173
Q

How is a fixed annuity exclusion ratio calculated?

A

Investment in contract/Total expected return

174
Q

How is a variable annuity exclusion ratio calculated?

A

Investment/Number of payments

175
Q

Long-term capital gains are netted with

A

Long-term capital losses in each bucket

176
Q

How much capital loss is allowed in a year?

A

The lesser of ordinary income or $3,000

177
Q

Do wash sale rules apply to brokers or dealers?

A

No

178
Q

Interest on debt incurred to purchase investments

A

investment interest expense

179
Q

How much investment interest expense is deductible?

A

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
Q

When is there no deduction for investment interest expense?

A

if the funds are used to purchase muni bonds or single-premium life insurance

181
Q

Can investment interest expense deductions be carried forward?

A

Yes

182
Q

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?

A

Section 1202 Exclusion

183
Q

What is the maxmium amount of eligible gain that may be excluded under Section 1202?

A

The greater of

  1. 10 times the taxpayer’s basis in the stock or
  2. $10 million of gain from the stock
184
Q

What are the two tests to qualify a product as life insurance (only need to meet 1)

A
  1. Cash value accumulation test

2. Cash guideline premium test and corridor test

185
Q

How is a stock redemption taxed?

A

It is treated as payment for stock and qualifies for CG treatment

186
Q

To the extent a dividend exceeds the ________ the distribution is treated as a return of capital or a return of the shareholder’s basis.

A

current and accumulated earnings and profits

187
Q

If a dividend is treated as a return of capital, is it taxable?

A

It is not taxable income. It may be treated as a capital gain if it exceeds basis.

188
Q

What is the standard deduction allowed for unearned income for a taxpayer eligible to be claimed as a dependent?

A

$1,100

189
Q

For a dependent with earned and unearned income, the standard deduction is

A

the greater of

  1. earned income + $350
  2. Up to the amount of the full standard deduction of $12,400
190
Q

How is unearned income taxed under the kiddie tax?

A
  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
Q

Junior is a dependent and had $2,300 of unearned income and $5,500 of earend income in 2019. How is his income taxed?

A
  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
Q

When is interest on a US Savings Bond tax free?

A

When redeemed for qualified higher education - tuition and fees

193
Q

What is the maximum credit from the American Opportunity Credit?

A

$2,500 per student

194
Q

How many years does the American Opportunity Credit apply?

A

first four years of college

195
Q

What constitutes qualified higher education expenses for the American Opportunity Credit?

A

tuition, required fees, course materials, and books

196
Q

How much is availalble from the Lifetime Learning credit?

A

$2,000 max per taxpayer

197
Q

How many years is the Lifetime Learning Credit available?

A

unlimited

198
Q

What constitutes qualified higher education expenses for the Lifetime Learning Credit?

A

tuition, required fees and materials

199
Q

How much may be contributed to a Coverdell ESA?

A

$2,000 annually per beneficiary

200
Q

Can a Coverdell be used for private education?

A

yes, K-12

201
Q

What is the AGI limit for a Section 529 plan?

A

none

202
Q

How often can the investment mix of a Section 529 plan be changed?

A

twice a year

203
Q

What qualified higher education expenses may be covered by a Section 529 plan?

A

tuition, fees, books, supplies, special-needs services, room & board if at least half time, computer, software, internet

204
Q

How much may be spent annually from a 529 plan for elementary and secondary tuition?

A

$10,000

205
Q

Cash donated to a charity may be deducted up to what % of AGI?

A

60% for public charity

30% for private charity

206
Q

Ordinary income property donated to a charity may be deducted based on FMV or basis?

A

basis

207
Q

What % of AGI can be deducted with a donation of ordinary income property?

A

50% for public charity

30% for private charity

208
Q

Donation of long-term capital gains and use-related tangible personalty, when the FMV is deducted, are limited to what % of AGI?

A

30% for public charity

20% for private charity

209
Q

Gifts of LTCG property to a public charity can deduct up to 50% if AGI if the property’s ____ is used.

A

basis

210
Q

For divorces before 2019, how is Alimony taxed?

A

taxable to the recipient and deductible by the payor

211
Q

For divorces from 2019 and beyond, how is Alimony taxed?

A

Not deductible or includible; the payor will pay taxes on it

212
Q

What form must Alimony payments be made in?

A

cash

213
Q

When must Alimony payments end?

A

At the death of the recipient spouse

214
Q

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.

A

$15,000

215
Q

How is child support taxed?

A

nontaxable to the recipient; nondeductible by payor

216
Q

If property is transferred by a property settlement in a divorce, what is the transferee’s basis?

A

they assume the transferor’s basis

217
Q

If trust income is used or may be used for the benefit of __________ it will be taxed to the grantor.

A

the grantor or the grantor’s spouse or to pay premiums for life insurance on the grantor or the grantor’s spouse

218
Q

A premarital agreement must be in ______.

A

writing

219
Q

In a premarital agreement, a _______ of each party’s net worth must be made.

A

full and complete disclosure

220
Q

Self-employment income is always reduced by _____ prior to computation of self-employment tax.

A

7.65%

221
Q

What is the self-employment tax?

A

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
Q

Is distributive share of income from an S-Corp subject to self-employment tax?

A

No

223
Q

How is net investment income calculated for purposes of the Net Investment Income Tax?

A

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
Q

What items are not included in net investment income for purposes of the Net Investment Income Tax?

A
  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
Q

What is the required tax payment

A

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
Q

What is the penalty for concealing income?

A

75% of the difficiency attributable to civil fraud

227
Q

What is the penalty for filing a late tax return?

A

5% of the amount due for each month or part the return is late, up to a max of 25%

228
Q

What is considered a substantial understatement?

A

The greater of

  1. 10% of the required tax or
  2. $5,000
229
Q

What is the penalty for a substantial understatement/negligence?

A

20% of the portion of underpayment due to the understatement/negligence

230
Q

A taxpayer must have a profit motive for engaging in a trade or business, or else loss will not be dedutible.

A

Hobby loss rule

231
Q

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.

A

Assignment of income

232
Q

To be given effect for tax purposes, a purported transaction must be real and bona fide - not mere paper fiction

A

Sham transaction

233
Q

A recovery or reimbursement of a previously-deducted item will cause that recovery or reimbursement to be taxable.

A

Tax benefit

234
Q

What is the tax penalty for accumulated earnings of a C corp?

A

20% penalty on the earnings of a C corp that are accumulated beyond the reasonable needs of the business

235
Q

How much in earnings may a business accumulate without providing a valid business purpose?

A

$250,000 ($150,000 for PSC)

236
Q

How is accumulated earnings tax calculated?

A

Taxable income - federal income tax - dividends paid - accumulated earnings credit = accumulated taxable income
Accumulated taxable income x 20% = Accumulated earnings tax

237
Q

What is the penalty for failure to pay taxes?

A

0.5% of the tax due per month, up to a max of 25%

238
Q

What is the penalty for a tax preparer understating the amount of tax owed?

A

$1,000

239
Q

What are AMT preference items and adjustments? (4)

A
  1. Incentive Stock Option bargain element
  2. Private activity municipal bonds
  3. Oil and gas percentage depletion
  4. Depreciation (ACRS and MACRS)
    IPOD
240
Q

How is a casualty or theft loss calculated?

A
  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
Q

In order to claim a casualty loss, the loss must occur in

A

a federally declared disaster area

242
Q

A private service corporation (PSC) is taxed at what rate?

A

21%

243
Q

What forms of business are eligible for the QBI deduction?

A

All except for C corps

244
Q

What is not included in QBI? (5)

A
  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
Q

Where is the QBI adjustment made on the tax return?

A

It is an adjustment to taxable income

246
Q

Those up to what marginal tax bracket will fall below the QBI phaseout range?

A

24%, the phaseout range begins at the 32% bracket

247
Q

What businesses are excluded from the definition of a specified service business for QBI purposes?

A

engineering and architecture

248
Q

Specified service business owners with AGI above the phaseout range may deduct how much for QBI?

A

No QBI deduction is allowed

CFP (9 decks)

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