Tax Planning And Charitable Giving Flashcards
What is ordinary income?
Income taxed at regular federal income tax rates (e.g. wages, interest).
What is capital gain income?
Profit from selling investments; long-term gains are taxed at lower rates.
What is tax-exempt income?
Income not subject to federal income tax, like municipal bond interest.
What is the Net Investment Income Tax (NIIT)?
An additional 3.8% tax on investment income for high earners.
What is a qualified dividend?
A dividend meeting IRS rules for long-term capital gains tax treatment.
What is tax deferral?
Delaying taxes until withdrawal—used in Traditional IRAs and 401(k)s.
What is tax-free growth?
Earnings grow and can be withdrawn tax-free in Roth accounts if qualified.
What is an RMD?
Required Minimum Distribution—mandatory withdrawals starting at age 73.
What is the penalty for missing an RMD?
25% of the shortfall, reduced to 10% if corrected quickly.
What is the RMD rule for Roth 401(k)s?
They have RMDs unless rolled into a Roth IRA.
What is a QCD?
Qualified Charitable Distribution—direct IRA-to-charity transfer, tax-free and counts toward RMD.
What is a Roth conversion?
Moving pre-tax retirement funds into a Roth, triggering current taxes.
When is a Roth conversion beneficial?
During low-income years, market dips, or to reduce future RMDs.
What is a backdoor Roth IRA?
Contribute to a Traditional IRA, then convert to a Roth to bypass income limits.
What is the pro-rata rule?
Taxes on Roth conversions are based on ratio of pre-tax to after-tax IRA funds.
What is a mega backdoor Roth?
After-tax 401(k) contributions rolled into a Roth IRA or 401(k).
What is the QBI deduction?
A 20% deduction on qualified business income from pass-through entities.
What income qualifies for QBI?
Sole props, S-Corps, partnerships—excluding wages and capital gains.
What is the QBI phaseout for single filers in 2025?
Starts at $197,300, fully phased out at $247,300 for some businesses.
What is an S-Corp salary strategy?
Pay reasonable wages and take distributions to reduce payroll taxes.
What is depreciation?
Deducting an asset’s cost over its useful life.
What is Section 179?
Immediate deduction of business equipment purchases up to IRS limits.
What is the annual gift tax exclusion in 2025?
$18,000 per recipient.
What is the lifetime gift/estate exemption in 2025?
$13.61 million per person.
