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Taxes Flashcards

1
Q

1031 Realized Gain Formula

A

(FMV Rcv’d + Boot) - Adjusted Basis

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2
Q

Depreciation Recapture Steps
(1245 & 1231 Gain)

A
  1. Cost - CRD = Adj. Basis
  2. Sale - Adj. Basis = Sale Gain

1245 Gain is LESSOR of
A. CRD
B. Sale Gain

If 1245 is
A. CRD ⟶ Gain - CRD = 1231
B. Sale Gain ⟶ NO 1231

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3
Q

What is MACRS 7yr. Property?

A
  • Office furniture/fixtures
  • Basic equipment/machinery
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4
Q

Corp. Accumulated Earnings Tax

A

20% above threshold

Regular corp > $250k
PSC >$150k

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5
Q

NOT Investment Income

A

“Angsty Teens Quit Life”

Active Biz Income
Tax-exempt Income
Qual. Dividends (Not invest income for deductions)
Life Insurance Proceeds

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6
Q

What is the 179 Deduction?

A

Expense up to $1.22mil. of 1245 property in year of purchase
- excess can be carried forward

(Phaseout dollar for dollar for property costs > $3.05mil)

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7
Q

Installment Sale Gross Profit % Formula

A

Profit / Sale Price = Profit %

Note: Installment PMT x Profit % = Taxable gain

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8
Q

Substance Over Form Example

A

Pres. of XYZ has co. lend him $ without intent to repay

Substance is income, even thought the form is a loan

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9
Q

What is ordinary income property for charitable gifts?

A

Copyrights
Inventory (cont. limited to cost)
Art created by donor
STCG Prop
Use-unrelated Prop

Note: Assume stock/real estate gifted is LTCG/USE RELATED

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10
Q

NOT Subject to SE Tax

A

“Dogs Chase Rabbits, Lazy Squirrels Sleep”

  • Dividends/Interest
  • Capital Gains
  • Real Estate $ (passive)
  • LP Distribution
  • S Corp Wages
  • S Corp K1
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11
Q

YES Subject to SE Tax

A
  • Net Sched C Income
  • GP K1
  • BoD Fees
  • 1099 Wages
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12
Q

Cost Basis for Gift given at a Loss

A

When donee sells asset:

LOSS = FMV at date of gift
GAIN = donor basis

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13
Q

Assignment of Income Example

A

“Tree that bears the fruit”

Parent earns salary but assigns income to son

Parent is taxed, they bore the fruit

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14
Q

Type of Gain/Loss for Sec 1244 Stock

A

Gain = Cap Gain rate

Loss = Ord. Inc.
- $50k max. deduct for SINGLE
- $100k max. deduct for MFJ

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15
Q

What are the qualifications to take advantage of Sec. 1244 Stock treatment?

A
  • C or S Corp.
  • Founded < $1mil.
  • NO PSC
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16
Q

YES Investment Income

A
  • Taxable Interest
  • Ord/Qual dividends (stock)
    • NO itemized offset with Qual dividends!
  • Royalties
  • Rental Income (passive)
  • STCG
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17
Q

Estimated Tax PMT to avoid penalty

A

LESSER OF:

90% of current year
or
100% of last year

*110% of last year if AGI > $150k

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18
Q

Real Estate Activity Deduction Phaseout

A

For active participants, not material!

Deduction = $25k/yr

Phaseout:
$100k - $150k AGI

2-to-1 Phase out in range

> $150k AGI - NO deduction

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19
Q

Fed Disaster Deductible Loss Calc

A

LESSOR: FMV or Basis
(-) Insurance Payout
(-) $100 floor
(-) (AGI x 10%)
= Deduction

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20
Q

Gross Income Exclusions

A
  • Gifts
  • Inheritance
  • Child Support
  • Muni Interest
  • Worker’s Comp.
  • Compensatory PMT
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21
Q
  1. What is MACRS 5yr. Property?
  2. What is Yr 1-2 Recovery %
A

Computers, Auto, Light Truck

Yr 1 = 20%
Yr 2 = 32%

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22
Q

Step Transaction Example

A
  1. ABC Co. sells to 3rd Party
  2. 3rd Party sells to subsidiary of ABC.
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23
Q

SE Tax Calc

A

NET SE Income x .1413
Round UP

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24
Q

1031 Substitute Basis
(Adjustment After Transaction)

A

FMV - (Realized - Recognized)

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25
1031 Recognized Gain Shortcut
LESSOR of: Realized or Boot No boot = 0 Recognized
26
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)
27
121 Exemption Widow(er) Provision
Widow(er) can claim full $500k 121 Exemption for 2yr after spouse's death
28
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
29
Estimated Tax Pmt Dates
April 15th +2 June 15th +3 Sept. 15th +4 Jan. 15th
30
Frivolous Return Penalty
$5,000
31
Negligence Tax Return Penalty
20% of underpayment attributed to negligence
32
Civil Fraud Tax Return Penalty
75% of underpayment attributed to fraud
33
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%
34
Gross Income
- Wages/Salary/Tips - Ord/Qual Dividends (Schd B) - Taxable Interest (Schd B) - Cap Gains (Schd D) - Biz Income (Schd C) - Real Estate Income (Schd E) - Alimony Rcv'd (Pre-2019) - Unemployment - Punitive Dmg PMT - Taxable SS
35
Are LTCG & Qual. Div Investment Income?
Only if taxpayer elects not to use LT Gain rates
36
Business Meal/Entertainment Deductions
Travel = 100% Meals = 50% Entertainment = 0%
37
What deductions/exemptions are eliminated?
- Itemized misc. expenses - Personal exemptions - Home office deduction for employees - SE Still ok
38
Standard Deduction for Kiddie Tax with Earned & Unearned Income
GREATER of: $1,300 or Earned income + $450
39
FICA Tax %
< $168,600 Employer/Employee = 6.2% + 1.45% >$168,600 Employer/Employee = 1.45% >$200,000 Employee add .9% to 1.45%
40
Child/Dependent Care Credit
- Up to age 13yo - Non-refundable One Child = $3,000 max. exp. Two + Children = $6,000 max. exp. *MULTIPLY EXPENSE BY 20%*
41
Child Tax Credit
$2,000 per child <17yo Up to $1,700 refundable
42
Adoption Credit
- Non-refundable - ≤17yo Expenses NOT Covered: - Surrogate parenting - Adopting Spouse's child
43
Business Entity Shortcut: Profitable
- C Corp - PSC
44
Business Entity Shortcut: Losses/Risk-Free
- Sole Proprietorship - Partnership
45
Business Entity Shortcut: Losses/Risky
- S Corp - LLC - LLP
46
1031 Shortcuts
No Boot = No Recognized Gain Boot RCVD = Recognized Gain Boot PAID = Add to basis
47
LTCG Brackets
10-12% Tax = 0% LTCG 22-35% Tax = 15% LTCG 35-37% Tax = 20% LTCG
48
Sec 121 <2yr Exemption
- Moving for "Unforeseen Circumstances" - Typically moving for new job NOTE: Must be ≥ 50mi Away
49
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
50
AMT Preference Items
IPOD - Excess Intangible Drilling Expense - Private Activity Muni - Oil & Gas % Depletion - Depreciation (ACR/MACRS - No Straight Line)
51
AMT Add Back Items
- ISO Bargain Element - SALT Deduction
52
Publicly Traded MLP Income
- Income not offset/sheltered from outside sources - Schd B
53
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
54
Non Public PAL (Passive Activity Losses)
PIGS need PALS - Can only offset income from other Non Public Partnerships
55
Non Public PIG (Passive Income Generator)
PIGS need PALS - Can only net against losses from other Non Public Partnerships
56
Tax Treatment of Primary Residence Rental
If: Rented for <15 Days/yr. Then: - Rental income is exempt from Gross Income - No expense deduction
57
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
58
Retirement Phantom Income
- ESOP Distribution of Basis (NUA) - Secular Trust
59
Investment Phantom Income
- ZERO Coupon/STRIPS - TIPS - Declared, not received dividends
60
Tax Phantom Income
- K1 from LP/FLP - Recapture
61
AGI Deductions: Public Charity
Cash = 60% AGI LTCG/Appreciated Prop: - FMV = 30% AGI - BASIS = 50% AGI Ord. Inc. Prop: LESSOR - 50% of AGI - BASIS
62
AGI Deductions: Private Charity
Cash = 30% AGI LTCG Prop: - FMV = 20% AGI - BASIS = 30% AGI Ord. Inc. Prop: LESSOR - 30% of AGI -or- BASIS
63
1031 Adjusted Basis Formula
Cost - CRD
64
Refundable Tax Credits
- Child tax (partial - max. $1700/ea) - Earned Income
65
QBI keys
PASS THROUGH ONLY QBI = Net income - Below the line - Up to 20% deduction of QBI - US-Sourced income only - Personal service S-Corp subject to phase out
66
GP/Sole Prop Advantages
- Keogh/SEP Access - 100% medical ins. premium deduct - No legal formality - Conduit income/loss
67
GP/Sole Prop Disadvantage
- Unlimited Liability - No life continuity - Capital depends on biz owner personal assets
68
C Corp Advantages
- Separate tax entity - Unlimited stock holders - Limited liability - Continuity of life - Dividend rcv’d deduction
69
C Corp Disadvantages
- Corporate formalities - Potential double taxation of accumulated earnings
70
Corp Dividend Deduction Rates
<20% = 50% Deduction 20-80% = 65% Deduction > 80% = 100% Deduction
71
S Corp Advantages
- Limited Liability - Conduit income/loss - Basis = cash + DIRECT loans
72
S Corp Disadvantages
- Corporate formalities - Only single class of stock (common only) - Limited 100 shareholders - Basis only contribution and direct loan, no third party loan
73
Accrual Accounting Keys
Mandatory when: - $25mil+ sales - Inventory
74
Schedule H
Household Employee
75
Schedule C
“Career” SE Business income (sole prop, single LLC) - NO - partnership, S-Corp income
76
Schedule E
- Real Estate - K-1 (S-Corp, partnership, estate)
77
Schedule B
- Ordinary/Qual dividends - taxable interest - Public MLP income
78
Schedule D
“Delighted/defeated” Cap Gains / Cap Losses
79
Active Participation Keys
- Makes decisions - Not involved day-to-day - $25k deduction limit - Phase out $100-$150k 2-for-1
80
Material Participation Keys
- Regular, substantial, continuous involvement - No deduction limit - No phase out
81
Alimony Recapture
(-) $37,500 from front-loaded PMT over year 1-2
82
Installment Sale Recapture Keys
- Full recapture recognized at time of sale - taxed - Remaining gain reported over installment
83
How is loss treated with rental property sale?
Current year loss & passive loss carryforward = 100% deductible (No AGI limit)
84
NOL Keys
- NOL created when deductions exceed income - C-Corp carry-forward can only offset up to 80% of taxable income - NO NOL carry-back after 2017
85
PSC Keys
- Flat 21% Tax - NO Pass-through "HALE" - Health (Dr., DDS, Etc.) - Accounting, Architect, Actor, Athlete - Law - Engineering
86
LP Keys
- Must have min. 1 Gp - Unlimited Liability - Basis = Cont. / Personal Loan / Bank Loan - Income/Loss reports on K-1

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