Tax Planning Review Flashcards
Calculate the gain for regular tax and AMT tax purposes in the following scenario:
George is granted 1 ISO with an exercise price of $25 on 1/1/2016
George exercises the ISO on 1/2/2017 when the market price is $40
George sales the stock on 1/3/2019 for $60
his gain for regular tax is $35 long term
($60 - $25)
his gain for AMT is $20
($60 - $25 - $15) – $15 is the bargain element
true or false?
travel to and from doctor location is included when determine if medical expenses are itemized
true
true or false?
nursing home costs are a deductible medical expense
false
true or false?
cosmetic surgery is a deductible medical expenses
false
true or false?
funerals are not a deductible medical expense
true
true or false?
state and property taxes are deducted to the person who the taxes are imposed on regardless of who actually pays them
true
interest on mortgages up to $_____ is tax deductible
$1 million
casualty losses are deductible up to the less of ____ or ___ subject to a ___% AGI hurdle and $___ floor
decline in value ; basis ; 10% ; $100
Larry had art he had purchased for $15k. The FMV is now $10k. The art was stolen from his apartment. During the year he had salary of $30k and no other deductions. Calculate Larry’s itemized deduction from the theft of the art
lesser of basis or decline in value ($10k)
- 10% AGI hurdle of $3,000
- $100 floor
= $6,900
the general carry over for charitable contributions is ___ years
5
when the spread between the basis and a taxpayers AGI is large, the tax payer should use ___ election in regards to charitable contributions
fair market value
when the spread between the basis and taxpayers AGI is small, the tax payer should use ___ election in regards to charitable contributions
basis
for kiddie tax purposes, what is the child’s standard deduction equal to?
the greater of $1,050 or earned income + $350
the child tax credit is refundable to the extent of ___% of the taxpayer’s earned income in excess of $_____
15% ; $3,000
the child tax credit is reduced $____ for each $1,000 by which MAGI exceeds $___ for MFJ and $____ for single filers
50 ; 110k ; 75k
a tax credit of $1,000 for 2017 is available for each qualifying child under age ___
17
what are the qualifications for the child and dependent care tax credit?
keep a home
have earned income
pay expenses
have a dependent <13 or a spouse who is physically or mentally incapacitated
when is the adoption tax credit taken?
in the year the adoption becomes final
true or false?
you can use the adoption credit on costs associated with adopting your spouse’s child from another marriage
false
true or false?
the adoption credit can be used on the costs of surrogate
false
is the adoption credit refundable?
no
any unused adoption credit can be carried forward for ___ years
5
___ is a business owned by an individual, who is personally liable for the obligations of the business
sole proprietorship
___ is an association of two or more persons, who jointly control and carry on a business as co-owners for the purpose of making a profit
general partnership
____ is a partnership in which at least one partner is a general partner and at least one partner is a limited partner who does not participate in management decisions
limited partnership
____ are not material participants, but ___ are material participants
limited partners ; general partners
CPA’s and attorneys are usually set up as ___
limited liability parnterships
____ is an entity where the owners have limited liability for debts and claims of the business even while participating in management
LLC
which 4 ways can a LLC be taxed?
sole prop
partnership
s corp
corp
___ is separate legal entity that is created by state law and operates under a common name through its elected management
corporation
owners of corporations have ___ liability
limited
the objective of the _____ tax is to discourage individual taxpayers from using the corporate entity solely for tax avoidance
personal holding company
what two tests must be met to qualify a corporation as a personal holding company?
ownership test
passive income test
the ownership test states that any time during the last half of the taxable year greater than ___% of the value of outstanding stock of the corporation is owned by five or fewer individuals
50%
the passive income test states that at least ___% of the corporation’s adjusted ordinary gross income consists of personal holding company income
60%
the objective of the ____ tax is to discourage individual taxpayers from using the corporate entity solely for tax avoidance
accumulated earnings tax
the accumulated earnings tax rate is __% on the amounts deemed to be in excess of the corporation’s reasonable needs
20%
which of the following are at risk of being taxed as a personal service corporation?
- doctors
- architects
- accountants
- lawyers
- engineers
all are at risk
any income retained by a personal service company is taxed at a flat rate of ___%
35%
___ is a corporation with a maximum of 100 shareholders
S corp
true or false?
S corps don’t have to be domestic companies
false, they do
what is the main advantage of a S corp?
avoids the double taxation status of a C corporation
a shareholder who owns more than ___% of a S corp’s stock will be treated as a partner
2%
true or false?
non resident aliens cannot be shareholders of a S corp
true
a taxpayer of any age can exclude from income up to $____ of gain if single and up to $____ if mfj
$250k ; $500k
____ allows a surviving single spouse to qualify for the up to _____ exclusion if the sale occurs no later than ___ years after their spouse’s death
Mortgage forgiveness debt relief act of 2007 ; $500k ; 2
____ is property that is rented for less than 15 days
personal use
if you rent a property for less than 15 days, can you exclude rental income from gross income?
yes
if you rent a property for less than 15 days, how do you account for the mortgage interest you paid on the property?
you can deduct it as an itemized deduction
if you rent a property for less than 15 days, are all expenses deductible?
no only mortgage interest and taxes are deductible as itemized deductions
rental property is classified as property that was rented for at least ___ days and is not used for personal use more than the greater of ___ days or ___% of rental days
15 ; 14 ; 10
true or false?
with mix used property you can deduct a loss
false
what happens under mixed use property when your expenses exceed your rental income?
you can only deduct expenses up to your gain so your net becomes $0
what are the two tests that must be met in order to qualify for the $25k rental real estate loss deduction?
- active participant (make management decisions)
2. own 10% or more of all interests in activity
true or false?
property transfers between a divorcing spouses are tax free with no step up in basis for the receiver
true
true or false?
you can exchange an annuity for a life insurance policy
false
true or false?
you can exchange an annuity for another annuity
true
true or false?
you can exchange a life insurance policy for an annuity
true
true or false?
annuities and life insurance policies can be exchanged for qualified LTCI policies
true
what happens in the following scenario:
Chelsea sold one share of stock with an adjusted tax basis of $100 and a fair market value of $70. Two weeks later, she buys the same stock for $50.
Chelsea has a loss but it is disallowed because of wash sale rules. Her $30 loss will be added to the basis in the new stock she purchased. So her new basis is $80
1202 (small business stock) must be held for ___ years to receive favorable tax treatment
5
____% of realized gain can be excluded if 1202 (small business stock) is held for 5 years or more
50%
after the 50% exclusion on 1202 stock is used, the remaining gain will be taxed at ____%
28%
the maximum amount that can be excluded under 1202 stock is $____ or ___ times the taxpayer’s basis in the stock
$10million ; 10
the 3.8% net investment surtax is applied to the less of ____ or ____
net investment income or the excess of MAGI over the threshold amount
true or false?
nonresident aliens will be subject to the net investment income surtax
false
how much of a loss can be deducted for section 1244 stock?
$50k for single ; $100k for MFJ
true or false?
1244 stock losses are deductible as ordinary losses up to certain limits
true
what is a material participant?
- someone who works more than 500 hours
- someone who works more than 100 hours and at least as much as any other participant
- someone who provided substantially all the participation in the activity for all participating individuals
what are the tax preference items for AMT purposes?
percentage depletion in excess of adjust basis
interest on certain private activity bonds
excess of accelerated depreciation over straight line
excluded amount of section 1202 stock issued before 2010
intangible drilling costs
how to calculate AMTI
Regular taxable income \+ positive AMT adjustments - negative AMT adjustments \+ tax preference items = AMTI
how to calculate AMT
AMTI - AMTI exemption = minimum tax base x AMT rate = Tentative AMT - regular income tax on taxable income = AMT
