Tax Planning Strategies for Business Entities Flashcards
Is it best to avoid AMT (alternative minimum tax)?
Yes.
What’s the best strategy if AMT can’t be avoided? Why?
Accelerate income into the AMT year since it will be taxed at a maximum rate of 20% (there is a point one should stop accelerating because otherwise, AMT will equal regular tax liability).
What’s the best strategy if TP is not subject to AMT in Ye 1, but expects to be in Yr 2?
- Defer expenses that are deductible for AMT in Yr 2.
* Accelerate item into Yr 1 that would increase adjusted current earnings in Yr 2.
When can a corporation elect to deduct accrued charitable contribution?
When it will be paid in the first three-and-a-half months following the year-end.
When can a corporation have an increased deduction of charitable contribution? How is the amount computed?
When giving inventory to use for ill, needy, or infants.
Lower of;
AB of property + 50% x (FMV-AB) or 2 x AB.
What is NOT the goal of tax advice? IS?
Not: minimize tax liability.
IS: Maximize after tax income.
What are 2 factors that must be considered for tax advice?
Tax effects and non-tax factors.
What is one of the tax strategies for those who own business?
Hire children as employee - their wages will be taxed at a lower tax rate.
When forming a business, what must be made sure?
Rules are met to defer gains and losses.
Partnership: what is a useful strategy to use additional losses by partners on their tax returns?
Increase basis in partnership interest with partnership debt.
Regular corporation: what’s a good strategy re: tax-free fringe benefits? Does this work for other entities?
Use them to maximize benefits to employees/owners and their family members.
No: there are restrictions for others (partnership - partners are not employees and fringe benefits are guaranteed pmts - reported as ordinary income. This applies to most S corporation - those who owns more than 2% - because most S corporation owners own that).
Regular and S corporation: What must be recognized when property dividend is given that has appreciated value? How does this affect strategy?
Gain, but not loss, must be recognized.
Property with loss should never be distributed as dividend because loss will disappear.
(No G/L recognized in partnership).
