Taxes Flashcards
1031 Realized Formula
(FMV Rcv’d + Boot) - Adjusted Basis
Depreciation Recapture Steps
(1245 & 1231 Gain)
- Cost - CRD = Adj. Basis
- Sale - Adj. Basis = Sale Gain
1245 Gain is LESSER of
A. CRD
B. Sale Gain
If 1245 is
A. CRD ⟶ Gain - CRD = 1231
B. Sale Gain ⟶ NO 1231
AGI Cap: Public Charity
- Cash = 60% AGI
- LTCG Prop = 30% AGI
- Ord. Income Prop = LESSER 50% AGI or basis
- What is MACRS 7yr. Property?
- What is Yr 1-2 Recovery %
Office furniture/fixtures
Yr 1 = 14.29%
Yr 2 = 24.49%
Corp. Accumulated Earnings Tax
20% above threshold
Regular corp > $250k
PSC >$150k
NOT Investment Income
Alimony post 2018
Active Biz Income
Tax-exempt Income
Qual. Dividends
Life Insurance Proceeds
What is the 179 Deduction?
Expense up to $1.22mil. of 1245 property in year of purchase
(Phaseout dollar for dollar for property costs > $3.05mil)
Installment Sale Gross Profit % Formula
Profit / Sale Price = Profit %
Note: Installment PMT x Profit % = Taxable gain
AGI Cap: Private Charity
- Cash = 30% AGI
- LTCG Prop = 20% AGI
- Ord. Income Prop = LESSER 30% AGI or basis
Substance Over Form Example
Pres. of XYZ has co. lend him $ without intent to repay
Substance is income, even thought the form is a loan
What is ordinary income property for charitable gifts?
Copyrights
Inventory
Art created by donor
STCG Prop
Use-unrelated Prop
Note: Assume stock/real estate gifted is use-unrelated
NOT Subject to SE Tax
- Dividends/Interest
- Capital Gains
- Real Estate $ (passive)
- LP Distribution
- S Corp Wages
- S Corp K1
YES Subject to SE Tax
- Net Sched C Income
- GP K1
- BoD Fees
- 1099 Wages
Cost Basis for Gift given at a Loss
When donee sells asset:
LOSS = FMV at date of gift
GAIN = donor basis
Assignment of Income Example
“Tree that bears the fruit”
Parent earns salary but assigns income to son
Parent is taxed, they bore the fruit
What is included in Gross Income?
- Wages/Salary/Tips
- Ord. Dividends
- Taxable Interest
- Biz Income
- Cap Gains
- Real Estate Income
- Alimony RCVD (pre-2019)
- Unemployment
- Punitive Damages
What are the Above the Line Deductions?
- IRA Contributions
- HSA
- Student loan interest ($2,500 max)
- SE Health Ins. Premiums
- 1/2 SE Tax (x .07065)
- Alimony (pre-2019)
Type of Gain/Loss for Sec 1244 Stock
Gain = Cap Gain rate
Loss = Ord. Inc.
- $50k max. deduct for SINGLE
- $100k max. deduct for MFJ
What are the qualifications to take advantage of Sec. 1244 Stock treatment?
- C or S Corp.
- Founded < $1mil.
- NO PSC
YES Investment Income
- Taxable Interest
- Non-qual dividends (stock)
- Royalties
- Rental Income (passive)
- STCG
Estimated Tax PMT to avoid penalty
LESSER OF:
90% of current year
or
100% of last year
*110% of last year if AGI > $150k
Real Estate Activity Deduction Phaseout
Deduction = $25k/yr
Phaseout:
$100k - $150k AGI
2-to-1 Phase out in range
> $150k AGI - NO deduction
Fed Disaster Deductible Loss Calc
LESSER: FMV or Basis
(-) Insurance Payout
(-) $100 floor
(-) (AGI x 10%)
= Deduction
Gross Income Exclusions
- Gifts
- Inheritance
- Child Support
- Muni Interest
- Worker’s Comp.
- Compensatory PMT
- What is MACRS 5yr. Property?
- What is Yr 1-2 Recovery %
Computers, Auto, Light Truck
Yr 1 = 20%
Yr 2 = 32%
Step Transaction Example
- ABC Co. sells to 3rd Party
- 3rd Party sells to subsidiary of ABC.
SE Tax Calc
SE Income x .1413
Round UP
1031 Basis Adjustment After Transaction
FMV - (Realized - Recognized)
1031 Recognized Gain
LESSER of:
Realized or Boot
No boot = 0 Recognized
What is included in Sched A?
ITEMIZED DEDUCTIONS:
- Gambling loss (offset wins only)
- Medical >7.5% AGI
- SALT, Property, Real Estate ($10k TTL combined)
- Mortgage interest <$750k
- Charity
- Fed disaster loss
- Margin interest (offset invest inc. only)
AMT Preference/Add Back
“IS IPOD”
ISO Bargain Element
SALT Deduction
Excess Intangible Drilling Cost
Private Activity Bond
Oil Gas % Depletion
Depreciation (MACRS)
Child Care Credit
Multiply Expense x 20%
1 Child = $3k Max. Expenses
2+ Child = $6k Max. Expenses
121 Exemption Widow(er) Provision
Widow(er) can claim full $500k 121 Exemption for 2yr after spouse’s death
Above the Line Adjustments
- IRA contributions
- Keogh, SEP
- 1/2 SE Tax (x .07065)
- SE Health Insurance Premiums
- Alimony (Pre-2019)
- $2,500 Student loan interest
- HSA Contributions
- Early withdrawal penalties
Estimated Tax Pmt Dates
April 15th
+2 June 15th
+3 Sept. 15th
+4 Jan. 15th
Frivolous Return Penalty
$5,000
Negligence Tax Return Penalty
20% of underpayment attributed to negligence
Civil Fraud Tax Return Penalty
75% of underpayment attributed to fraud
Failure to File
Failure to Pay
Penalties
Failure to File = 5% of PMT/mo. up to 25%
Failure to Pay = .5% of PMT/mo. up to 25%
Gross Income
- Wages/Salary/Tips
- Ordinary Dividends (Schd B)
- Taxable Interest (Schd B)
- Biz Income (Schd C)
- Cap Gains (Schd D)
- Real Estate Income (Schd E)
- Alimony Rcv’d (Pre-2019)
- Unemployment
- Punitive Dmg PMT
- Taxable SS
Are LTCG & Qual. Div Investment Income?
Only if taxpayer elects not to use LT Gain rates
Business Meal/Entertainment Deductions
Travel = 100%
Meals = 50%
Entertainment = 0%
What deductions/exemptions are eliminated?
- Itemized misc. expenses
- Personal exemptions
- Home office deduction for employees
- SE Still ok
Standard Deduction for Kiddie Tax with Earned & Unearned Income
GREATER of:
$1,300
or
Earned income + $450
FICA Tax %
< $168,600
Employer/Employee = 6.5% + 1.45%
> $168,600
Employer/Employee = 1.45%
Child/Dependent Care Credit
- Up to age 13yo
- Non-refundable
One Child = $3,000
Two + Children = $6,000
MULTIPLY EXPENSE BY 20%
Child Tax Credit
$2,000 per child <17yo
Up to $1,700 refundable
Adoption Credit
- Non-refundable
- ≤17yo
Expenses NOT Covered:
- Surrogate parenting
- Adopting Spouse’s child
Business Entity Shortcut:
Profitable
- C Corp
- PSC
Business Entity Shortcut:
Losses/Risk-Free
- Sole Proprietorship
- Partnership
Business Entity Shortcut:
Losses/Risky
- S Corp
- LLC
- LLP
1031 Shortcuts
No Boot = No Recognized Gain
Boot RCVD = Recognized Gain
Boot PAID = Add to basis
LTCG Brackets
10-12% Tax = 0% LTCG
22-35% Tax = 15% LTCG
35-37% Tax = 20% LTCG
Sec 121 <2yr Exemption
- Moving for “Unforeseen Circumstances”
- Typically moving for new job
NOTE: Must be ≥ 50mi Away
AMT Postpone/Avoid Strategy
- MORE Taxable Income
- Defer PMT of Property Tax, State Inc. Tax, Deductible Medical Exp., Charity
- Defer Exercise of ISO
- Purchase Public Muni, not private
AMT Preference Items
IPOD
- Excess Intangible Drilling Expense
- Private Activity Muni
- Oil & Gas % Depletion
- Depreciation (ACR/MACRS - No Straight Line)
AMT Add Back Items
- ISO Bargain Element
- SALT Deduction
Publicly Traded MLP Income
- Income not offset/sheltered from outside sources
- Schd B
Publicly Traded MLP Losses
- Can’t use losses to offset income from other sources
- Losses may carry forward
- Can only offset income from same MLP
Non Public PAL
(Passive Activity Losses)
PIGS need PALS
- Can only offset income from other Non Public Partnerships
Non Public PIG
(Passive Income Generator)
PIGS need PALS
- Can only net against losses from other Non Public Partnerships
Tax Treatment of Primary Residence Rental
If:
Rented for <15 Days/yr.
Then:
- Rental income is exempt from Gross Income
- No expense deduction
Tax Treatment of Vacation Home Rental
If:
Personally used for GREATER:
14 Days or 10% of Rental Days
Then:
- Property considered residence
- NO business deduction for expense
Retirement Phantom Income
- ESOP Distribution of Basis
- Secular Trust
Investment Phantom Income
- ZERO Coupon/STRIPS
- TIPS
- Declared, not received dividends
Tax Phantom Income
- K1 from LP/FLP
- Recapture
AGI Deductions: Public Charity
Cash = 60% AGI
LTCG Prop:
- FMV = 30% AGI
- BASIS = 50% AGI
Ord. Inc. Prop: LESSER
- 50% of AGI -or- BASIS
AGI Deductions: Private Charity
Cash = 30% AGI
LTCG Prop:
- FMV = 20% AGI
- BASIS = 30% AGI
Ord. Inc. Prop: LESSER
- 30% of AGI -or- BASIS
