Taxes

Question 1

Distribution from cash value of MEC taxable?

Answer 1

Yes subject to ordinary tax plus 10% penalty if under 59.5

Question 2

S Corp losses deductible?

Answer 2

Yes up to basis, includes contributions and loans to company

Question 3

What AGI is active participation deduction eliminated?

Answer 3

$150k

Question 4

What % of entertainment expenses deductible?

Answer 4

0%

Question 5

Sources of Federal Tax Law/Authority (6)

Answer 5

Internal Revenue Code
Treasury Regulations
Revenue Rulings and procedures
Congressional Committee reports
Private Letter Rulings
Judicial sources

Question 6

Step Transaction

Answer 6

Ignore the individual transactions and instead tax the ultimate transactions

Question 7

Sham Transaction

Answer 7

A transaction that lacks a business purpose and will be ignored for tax purpose

Question 8

Substance Over Form

Answer 8

The substance of a transaction and not merely its form governs its tax consequences

Question 9

Assignment of Income

Answer 9

Income is taxed to the tree that grows the fruit even though it may be assigned to another prior to receipt

Question 10

Dates for paying Estimated Taxes (4)

Answer 10

April 15
June 15
September 15
January 15

Question 11

IRS Penalty- Frivolous return

Answer 11

$5,000

Question 12

IRS Penalty- Negligence

Answer 12

Up to 20% of underpayment attributed to negligence

Question 13

IRS Penalty- Civil Fraud

Answer 13

Up to 75% of underpayment attributed to fraud

Question 14

IRS Penalty- Failure to file

Answer 14

5% per month, max 25%

Question 15

IRS Penalty- Failure to Pay

Answer 15

.5% per month with max 25%

Question 16

How much to avoid underpayment penalty

Answer 16

Lesser of:

90% of current year’s tax
100% of prior year (110% for AGI over $150k)

Question 17

Adjustments For AGI (5)

Answer 17

IRA
SE Tax
SE health insurance
Keogh or SEP
Alimony (pre 2019 divorce)

Question 18

Schedule A Itemized Deductions (6)

Answer 18

Medical, Dental, LTC (7.5% of AGI)
Casualty and theft
Taxes- Real Estate, State and local, Personal Prop- total $10k
Home mortgage or Investment Interest
Charitable Gifts

Question 19

Casualty Losses deduction calculation

Answer 19

Use lesser of basis or FMV
- insurance coverage
-$100 floor
- 10% of AGI

Federally declared disaster only

Question 20

Kidde Tax

Answer 20

Unearned net income over $2500 taxed at parents rate

$1250 deductible
$1250 @ 10%

Question 21

Self Employment tax rate

Answer 21

14.13%

Question 22

Tax Credits (6)

Answer 22

Credit for child/dependent care
Child Tax credit ($1600 per refundable)
Adoption Credit
Elderly and disabled credit
Foreign tax credit
Earned Income Credit

Question 23

S Corp Eligibility (4)

Answer 23

100 shareholders or less
Single class of common stock
Domestic only, no non-resident alien shareholders
Individuals, Estates, and trusts can be shareholders

Question 24

Tax Basis -Partnership/ LLC

Answer 24

Cash Invested
Direct loans made to partnership
Partnership Debt

Question 25

Tax Basis- S Corp

Answer 25

Cash Invested
Direct loans made to S Corp

Question 26

Property Classes (4)

Answer 26

5 Year- Computers, Autos, Trucks (1245)
7 Year- Office equipment (1245)
27.5 year- Residential Real Estate (1250)
39 year- Non-Residential Real Estate (1250)

Question 27

Capital Gains & Losses Netting

Answer 27

ST gains and losses netted
LT gains and losses netted

ST and LT gains/losses then netted

$3,000 loss can be used

Question 28

Sale of Personal Residence (Sec 121)

Answer 28

$250/$500k gain tax free if lived 2/5 years

Prorated if less than 2 years and moves due to health reasons or new job

Question 29

Recapture (1245)

Answer 29

1st: recapture lesser of depreciation or gain realized (ordinary income)
2nd: recover excess gain as 1231 Capital gain

Question 30

AMT Preference Items (IPOD)

Answer 30

Intangible drilling costs excess
Private activity muni bond
Oil and Gas depletion
Depreciation

Question 31

AMT Add Back/ Not Deductible (3)

Answer 31

Add Back:
ISO bargain element
Property & Income Taxes

Non Deductible:
Standard Deduction

Question 32

Postponing AMT (4)

Answer 32

Accelerate receipt of income
Delay payment of property taxes, state
income taxes, medical expenses, or
charitable giving
Defer exercise of ISO, or exercise early to disqualify
Purchase public vs private purpose munis

Question 33

Historic Rehab Program facts (3)

Answer 33

Passive activity
Deduction equivalent tax credit up to $25k
Phase Out $200-250k

Question 34

Low Income Housing Credit facts (4)

Answer 34

Passive activity
Deduction equivalent tax credit up to $25k
No phase out
10 year credit period

Question 35

Phantom Income -Insurance (2)

Answer 35

Lapse of policy loan
Section 162 life/disability

Question 36

Phantom Income- Investments (3)

Answer 36

Zero/strip income
TIPS
Declared but not paid dividends

Question 37

Phantom Income- Retirement (3)

Answer 37

NUA
20% withholding on plan distributions
Secular Trust

Question 38

Phantom Income- Tax (2)

Answer 38

K1 Income
Recapture

Question 39

Steps to calculate Charitable Giving Deduction (3)

Answer 39

Calculate maximum deductible (60% of AGI)
Calculate eligible amounts for 50% organizations (public charities)
Calculate eligible amounts for 30% organizations (private charities)

Question 40

Charitable Giving- types of property (3)

Answer 40

Cash- 60% of AGI
Long term appreciated property- use FMV and 30% of AGI
Use-unrelated, ST cap gain- use basis and 50% of AGI

Question 41

Not covered by SS (7)

Answer 41

Federal employees since before 1984
Some Americans working abroad
Student nurses, Student working for college
Railroad employees
Child under 18 employed by parent (unincorporated business)
Ministers, religious orders, Christian Science
Tribal councils