Taxes Flashcards

Question

Self-employment income doesn’t include what?

Answer 1

Dividends or interest on investments Gains or deductions for losses from property, securities, or commodities Real estate income or rent paid Distributive share of income or loss of a limited partner Wages from an S corporation Distributions (K1 income) from an S Corp.

Answer 2

Net schedule C income General partnership income (K-1) Board of directors fees Part-time earnings (1099)

Answer 3

Salary or investment income

Answer 4

Calculate the total self-employment income then multiply by .1413 and round up

Answer 5

It is added to the taxpayers income tax liability than half is subtracted on front of the form 1040 and it is an above the line deduction

Answer 6

Up until age 13 Credit is a percentage of expenses for care of a dependent Limited to $3000 for one dependent or $6000 for two or more dependence Depending on income a credit percentage of 20% applies Example: $8000 in childcare for two children. Max is out the $6000. So that is $6000 x 20% =$1,200.00 that can become claimed If had been $1000 then they do not hit the limit so it $1000 x 20% =$200.00 can be claimed

Answer 7

$2000 for each qualifying child under age 17 Reduced by $50 for each $1000 above $400,000 MAGI MFJ and $200,000 MAGI unmarried Up to $1700 per child is a refundable tax credit Also a $500 family credit for each dependent who is not a qualifying child such as 17 or older, elderly parents, a disabled adult, child, etc., presuming that the taxpayer provides more than 50% of their support same phase out thresholds apply

Answer 8

No, because corporations cannot utilize net operating losses because they already pass through annual losses

Answer 9

Distinguishable from the owners personal affairs for both legal and tax purposes Advantages: Availability of retirement plans (Koegh, Sep) 100% of medical insurance premiums deductible No legal formalities Conduit of income or losses to owner files on schedule C Disadvantages: Unlimited liability Business dies with owner Capital structure depends on the owner’s personal resources

Answer 10

Advantages: availability of retirement plans (Koegh, SEP) 100% medical insurance premiums deductible Partnership agreement can be oral, written preferable Conduit of income or losses to owner Disadvantage: Unlimited personal liability Dissolves upon the death, bankruptcy, or incapacity of a partner Capital structure depends on resources of partners

Answer 11

May qualify to deduct up to 20% of their qualified business income QBI Depending on what tier they are in They may also offset losses from one pass through business to another pass-through business any losses that are not used can be carried forward to the next year

Answer 12

Tier one: Single taxpayers making less than $191,950 Joint filers making less than $383,900 in total taxable income Does not matter whether their business is a personal service firm or not Tier 2: Single filers with more than $241,950 or couples more than $483,900 in taxable income no deduction it pass through business is a personal service firm if they own any other pastor business they still get a deduction will be limited Tier 3: Incomes between those thresholds of one and two are eligible for a partial tax benefit, no matter the nature of their business phases out for personal service firms

Answer 13

Corporation or a partnership

Answer 14

Functions as a separate entity. Distributes after tax earnings to its owners distribution income is tax a second time at the owner level double taxation. Advantages: Separate tax entity, sale of stock to an unlimited number of investors, unlimited liability, continuity of life, dividend received deduction (50% rule) Disadvantages: Corporate formalities, dividends paid (after tax), accumulated earnings beyond certain limits, subject to double taxation

Answer 15

US corporations receive deductions for dividends received Owns 20% or less of distributing corporation. 50% of dividends received excluded from income of corporation Ownership between 20% and 80%: 65% exclusion of dividends Greater than 80% ownership: 100% exclusion of dividends

Answer 16

Any retained income is taxed at a flat 21% Businesses classified as a PSC: HALE H- heath (doctors dentist) A- accounting, architectural, actors L- law E- engineering

Answer 17

Function as a conduit for items of income, deductions, and tax credits must be unanimously, elected by a shareholders Files form 1120 S

Answer 18

Limited to 100 shareholders Single class of outstanding common stock can be voting or non-voting (no preferred) Domestic corporation Only individuals, states, certain trust, maybe shareholders US citizens or permanent resident aliens

Answer 19

Advantages: limited liability conduit of income or loss, losses limited up to bases basis equals cash plus direct loans made by the shareholder to the corporation (note: bank loans are not included in the S corporation’s owners basis, unlike a partnership in which they are) Ability of an owner to take excessive compensation and not have it classified as dividends Disadvantages: Corporate formalities Sale of stock Limited by eligibility standards

Answer 20

At least one general partner Limited partners are liable for partnership debt only to extent of their capital contributions as long as the limited partners role is passive

Answer 21

Business investment interest

Answer 22

Can generally accumulate $250,000, $150,000 for personal service corporate tax anything over that is taxed at 20% unless you can establish a bona fide business need The tax is imposed, in addition to the regular corporate tax

Answer 23

May file either form 1041 or 706 Deduction should be claimed on the return that provides the most tax advantage The deductions are administrative, cost accounting, and attorney fees, and expenses of preparing the estate return

Answer 24

Unfunded ILIT Yearly gift to the trust pays the life insurance premium Funded ILIT Investment income from investments in the trust, pays the insurance premium taxable to the grantor, all investment income earned above the premium is taxed to the trust

Answer 25

a conduit for forwarding income to the beneficiaries Beneficiaries pay taxes on it at their own marginal tax brackets Normally no distribution of corpus No charitable gifts

Answer 26

Income must or may be accumulated Income accumulated is taxed to the trust Income distributed as tax to the beneficiaries Corpus can be distributed, but does not have to be They can make charitable gifts

Answer 27

Inter vivos or grantor trusts

Answer 28

Basis is increased by: Legal fees, commissions, sales tax, freight, and improvements Basis is not increased by: Repairs, real estate taxes, or normal business expenses

Answer 29

It reduces the basis of the asset

Answer 30

Loss is measured using the fair market value on the date of the gift Gain is measured using the donor’s basis Sales price of the gift is in between the donors basis and the FMV on the date of the gift, no gain or loss is recognized

Answer 31

Community property states: Marital property enjoys a full step up in basis, if at least half of the whole property is included in the deceased spouses gross estate Non-community property states (common law states): Property only gets a half step up in basis

Answer 32

Applies to all recovery property placed in service after 1986 Straight line is an option but a half year convention must be used Requires mid Quarter convention if greater than 40% of the depreciable property is put into service by the business during the fourth quarter of its tax year Does not apply to land or intangibles

Answer 33

5 - year (1245 property): Computers, autos, and light duty trucks 7 year (1245 property): Office furniture and fixtures 27 1/2 year (1250 property): Residential rental property 39 year (1250 property): Non-residential real property

Answer 34

Business may expense up to $1,220,000 of qualifying property and the year of acquisition Qualifying property is generally tangible personal property (1245) purchased for use in a trade or business. Maximum cost that can be annually expensed is reduced dollar for dollar by the cost of the qualifying property that exceeds 3,050,000. Cannot create a loss with section 179 but can be carried over to the next year Making a section 179 election small firms can more easily deduct the cost of new assets and avoid the burden of maintaining the depreciation schedules

Answer 35

Exchange properties must be like kind Taxpayer must use the acquired property in trade or business

Answer 36

FMV of property received Adjusted basis of property given up Boot

Answer 37

Calculation #1: Realized again Total value received (FMV of property acquired + Boot) minus adjusted basis of property (Amount will be provided) Calculation #2 Recognized gain Lesser of realized, gain or boot received (if no boot is received recognized gain is zero) Calculation #3 Substitution basis FMV of property required less [ realize gain minus recognized gain]

Answer 38

Short-term gains are taxed at ordinary income rates Long-term collectible gains are subject to a tax rate of 28% Real property are subject to depreciation recapture rate when property is sold, and that has a 25%

Answer 39

$3000 can be deducted on the estates 1041 tax return however any unused carry forward losses or lost after the year of death

Answer 40

3.8% tax is the lesser of the following their net investment income, or the amount by which they’re modified gross income extends beyond their specific income threshold MFJ - $250,000 Single - $200,000

Answer 41

First and first out Average cost Specific identification; this allows the investor to maximize gain, neutralize gain, or maximize loss

Answer 42

$500,000 MFJ $250,000 single Must have lived in the residence two out of five year period Don’t meet the minimum two year residency requirement qualify for a partial exclusion (# of months / 24) No deduction for loss Both spouses must have lived in the house for two of five years , if not both are treated separately After the death of one spouse, you have two years to sell the home and claim the $500,000 deduction

Answer 43

Yes, if the requirements are satisfied

Answer 44

Recognized gain is what you report to the IRS and our tax on Realized gain is the amount of gain that has been realized before deductions, etc.

Answer 45

1. Look back and recapture the lesser of the total CRD taken or the gain realized as 1245 again (ordinary income) 2. Recover any excess gain as 1230 one game (capital gain) if total CRD taken are lower than the gain the excess is the gain minus the CRD‘s if the gain is less than the CRD‘s, there is no 1231 recovery Difference between the gain and the CRD is the 1231 gain No, 1231 gain when the gain is less than the CRD When the amount realized is less than the adjusted basis, the resulting loss is treated as an ordinary loss

Answer 46

Installment sale of tangible personal property, ALL depreciation recapture must be reported as income in the year of disposition serious disadvantage Taxpayer recaptures up to the amount of cost recovery, deduction client up to the gain realized ( $15,000 CRD but $3000 gain…only $3000 of the CRD is realized) Any access gain remains it is subject to installment sales rules

Answer 47

Charitable deduction is available, basis of the property sold to the charity, for less than fair market value must be allocated between the portion of the property sold, and the portion given to charity based on the fair market value of each portion Proceeds / FMV x basis = adjusted basis Proceeds minus adjusted basis = taxable gain

Answer 48

Real property not available for equipment. Real property refers to land at any structures permanently attached to it

Answer 49

High income households, claiming large, less than typical tax breaks such as tax exempt interest on private activity bonds

Answer 50

Post deduction 1040 income if itemizing or AGI if electing the standard deduction Add back any item that was deductible for the 1040 but not for AMT Add preference items Result equals AMT base Subtract exemptions Result equal AMTI (alternative minimum taxable income) Then calculate AMT (26% and 28% tax rates)

Answer 51

IPOD P - private activity municipal bond O & I - oil and gas percentage depletion. Excess Intangible trailing cost. Depreciation (ACRS / MACRS) but not straight line

Answer 52

Property, state, city, income, and sales taxes limited to $10,000 a year Incentive stock options, bargain element (ISO)

Answer 53

Difference between the regular tax and the alternative minimum tax (if the alternative minimum tax is more than the regular tax)

Answer 54

Accelerating the receipt of taxable income (more taxable income) Deferring the exercise of an incentive stock option ISO to a later date or disqualifying the ISO so it becomes a nonqualified stock option (income taxable) note: these are not regular options Purchasing public purpose, municipal bonds instead of private activity bonds

Answer 55

Off set passive income in non publicly traded passive activities, sold and realize the loss All losses are suspended until offset by income or sold Suspended losses are fully deductible in the year of disposition

Answer 56

$25,000 fee out for taxpayers with AGIs between 100,000 and 150,000 on a two for one basis

Answer 57

Less than 15 days and is excluded from gross income, but no deductions attributable to rental use

Answer 58

Longer of 14 days or 10% of the period of rental use If treated as a residence instead of a business expenses related to the property may not be deducted as a business expense

Answer 59

Generate a deduction equivalent tax credit up to $25,000 with no phase out To calculate determine the maximum marginal tax bracket then multiply $25,000 times the tax bracket for the credit

Answer 60

Active or portfolio income without limits and out without respect to the taxpayers AGI

Answer 61

Taxable year in which a married person dies, widow or widow can file a joint return with the deceased individual If maintains a home for a dependent child, the surviving spouse for two taxable years following the year death can use married filing jointly rates

Answer 62

Deductible, nor must the recipient declare the amounts as taxable income

Answer 63

Finalized before December 31, 2018 Cannot file a joint tax return or live together Made in cash Received by or for the benefit of the payee spouse , not child support Cannot extend beyond the death of the recipient spouse

Answer 64

Excess front loading of alimony, alimony decreases too fast, really is disguised as a proper settlement and will be recaptured as ordinary income Take the total of the first two years of alimony and subtract $37,500 If you have a third year alimony payment double the third year alimony payment then add it to the constant 37,500 only use the first two years and subtract the total constant of $37,500 plus the double third year payment that was added to the constant

Answer 65

Taxpayer received income becomes phantom income. The bank will charge the company the amount of right off as income and write the loss off.

Answer 66

Public charities are 50% organizations Private charities are 30% organization 60% if a cash donation Long-term capital gain property to a 50% organization is 30% if you use fair market value or 50% if you use basis. No basis is rarely advantageous to appreciated property. Guess of short term capital gains property is limited to the donated properties basis and 50% of AGI

Answer 67

Five year carryover and the year of contribution the actual deduction window was six years

Answer 68

Inventory, a copyright, a work of art created by the taxpayer, short term, capital gains, and use unrelated property Must use basis and are 50% of AGI

Answer 69

Above the line

Answer 70

Entertainment expenses are no longer deductible

Taxes Flashcards

(102 cards)