Tax Rates & Qualified Dividends

Question 1

Qualified Dividends

Answer 1

Taxed at capital gains rate rather than income rates

Question 2

How are Personal Use assets viewed when sold at a Loss? (Sold car at loss)

Answer 2

Losses are Disallowed for income tax purposes on personal use assets

Question 3

Wash Sale

Answer 3

You sold security at a loss and bought identical security within 30 days before or after date of loss sale

Does NOT apply to gains

Question 4

Wash Sale Loss Rules

Answer 4

Loss at date of sale is disallowed at that time, but is added to the cost of the new security to determine new basis

Question 5

Personal Residence Gain Exclusion

Answer 5

Own & Use home as Principal residence for 2 of last 5 years and have NOT used the exclusion within prior 2 years

Question 6

Personal Residence Gain Exclusion Amount

Answer 6

Single Taxpayer: exclude $250k of gain from sale of home

MFJ: $500k of gain if

Either spouse meets 2 year ownership requirement

And

Both spouse’s meet the 2 year use requirement

Question 7

Exceptions to the Personal Residence Gain Exclusion Rule

Answer 7

Change in employment (Qualified move for you or spouse)
Change in Health
Unforeseen Circumstance

Pro-Rate exclusion for # of months requirement met

(# months met / 24) x available exclusion = exclusion allowed

Question 8

Loss on Worthless Securities

Answer 8

Deductible in the year the security became completely worthless

Artificial sale date is the last day of the year which security became worthless
(Always 12/31 for calendar year taxpayers)

Question 9

Sec. 1244 - Limitation on Losses

Answer 9

Can deduct up to $50k ($100k MFJ) Loss on small business stock as an ordinary loss in any year

Question 10

Sec. 1244 Limitation on Losses: Small business stock Requirements?

Answer 10

Stock is in a domestic corpo

The corporation was a small business (Less than $1M in total capital contributions plus paid-in capital) (private company)

The loss was sustained by the original owner of the stock

Question 11

Section 1202: Qualifying Small Biz Stock Gains

Answer 11

Stock must’ve been acquired at original issue and held for at least 5 years

Question 12

Section 1202: Qualifying Small Biz Stock Gains: Amount eligible for Exclusion?

Answer 12

Amount of gain you can exclude is 100% if acquired after Sept. 27, 2010

10 times taxpayer’s basis in the stock

Or

$10 million (reduced by amount of gain eligible for exclusion in prior years)

Question 13

Constructive Receipt rules require that income is taxable when it’s:

Answer 13

Readily available to taxpayer and the income is not subject to limitations or restrictions

Question 14

Qualifying Widower Tax Status rules/timeline

Answer 14

Available for 2 years after death of spouse with dependent child

It is the same deduction as MFJ rates for those 2 years

Question 15

Additional Standard Deduction rules

Answer 15

$1,850 for Single, HOH.
$1,500 for all others

Age 65 or older

Or

Blind

If 65 or older AND blind:

You get both.
$1,850 x 2 = $3,700

Question 16

Qualifying Child Tax Credit Rules

Answer 16

$2,000 tax credit

Child doesn’t provide more than 50% of their support

Under age 17

Lived w/ taxpayer more than 50% of the year

Child, grandchild, step-siblings, half siblings

Under age 19 or student under age 24

Question 17

Qualifying Relative Tax Credit Rules

Answer 17

$500 tax credit

Doesn’t have to be related but lives w/ you all year and,

Provide more than 50% support for the dependent

Dependent’s Gross income less than $4,700

Dependent can’t be a qualifying child on any tax payer that year

Question 18

Tax on Annuity Payments: Exclusion Ratio

Answer 18

= (Investment in contract / Expected total return)

Inclusion ratio =
1 - Exclusion ratio

Question 19

Exclusion Ratio Ex: Buys $15,000 into annuity that pays $2,000 per year. Term is 10 years.

Answer 19

Exclusion ratio =
($15,000 / $20,000)= 0.75

$1,500 of each payment is excluded from gross income, $500 is included.

Question 20

Exclusion ratio on Annuity if it’s for Life?

Answer 20

They use your life expectancy. If life expectancy is for 10 years and you live beyond that, then the payments will be 100% taxable starting in year 11.

If die before the 10 years, you get deduction from gross income on last tax return. (If only lives 8 years, deduction of
($15,000 - ($1,500 x 8)) = $3,000)

Question 21

Tax on SS Benefits

Answer 21

Up to 85% of benefit may be taxable

Based on MAGI + 1/2 of their SS benefits compared to hurdle amounts

Question 22

SS Benefits Tax Hurdle amounts

Answer 22

MAGI + 1/2 SS benefit

MFJ $32,000 then $44,000

All others (except MFS is 0)
$25,000 then $34,000

1st Hurdle: 50% SS benefit or
50% x [MAGI + 0.50(ss benefit) - Hurdle 1

2nd Hurdle: 85% ss benefit or
85% x [MAGI + 0.50(ss) - Hurdle 2]

PLUS lesser of $6,000 MFJ or $4,500 all others
Or Taxable amount calculated under the 50% formula and only considering hurdle 1

Question 23

Below Market-Rate Loans

Answer 23

$0-$10,000 = $0 Imputed Interest

$10,001 to $100k = Lesser of: Borrower’s Net Investment Income or
Interest calculated using AFR less interest calculated using stated rate of loan (if Net Invest Income < $1,000 then $0 imputed interest).

> $100k then Interest calculated using AFR less interest calculated using stated rate of loan

Question 24

Items Excluded from Gross Income

Answer 24

Gifts/Inheritances
Life Insurance proceeds
Scholarships
Gain on sale of personal home
Qualifying distributions from Roth IRAs and Roth 401k/403b
Compensation for injuries and sickness