Taxes Flashcards
Are hobby losses deductible?
No, they are not deductible
What are the penalties for a frivolous return?
$5000
What is the penalty for negligence on a tax return?
20% of the portion of the tax under payment attributed to negligence
What are the penalties for civil fraud on a tax return?
75% of the portion of the tax underpayment attributable to fraud
What are the failure to file a tax return penalties?
5% of the tax due per month with a maximum of 25%
What is the failure to pay penalty on a tax return?
.5% per month each month the taxes unpaid with a maximum of 25%.
Itemized deductions are on what tax form
Schedule A
Interest and ordinary dividends are put on what tax form
Schedule B
Profit or loss from a business are on what tax form
Schedule C
Capital gains and losses are on what tax form
Schedule D
Supplemental income and loss
From rental real estate, royalties, partnerships, S corporations, states, trust, REMICs, etc. are put on what tax form
Schedule E
Profit or loss from farming is on what tax form
Schedule F
Household employment, taxes for Social Security, Medicare, withheld income, and federal unemployment (FUTA) taxes are put on what tax form
Schedule H
Self-employment tax is put on what tax form
Schedule SE
A work of art created by the taxpayer and given to charity is valued at what
Basis
Charitable gift deductions for cash from AGI
60% public charity
30% private charity
Remember five year unused carryover
What is the charitable gift deduction from AGI for short term gain property, ordinary, income property?
LESSOR of adjusted basis or FMV (No Choice!!!)
50% public
30% private
Remember five year carryover of unused deduction
What is the charitable gift deduction for long-term capital gain property from AGI?
You get to CHOOSE to use the adjusted basis or FMV
Public: 30% FMV, 50% basis
Private: 20% for both FMV or basis
Remember five year carryover for all unused charity deductions
What is the deduction from AGI when gifting unrelated use property?
LESSOR of the adjusted basis or FMV no CHOICE
Public 50%
Private 20%
Remember five year carryover for all unused charity deduction
Does the built in gains tax apply to S corporations or C corporations?
Built in gains tax applies only to S corporations that were formally C corporations
Built in gains taxes paid by the corporation entity and not the shareholders. Corporate tax rates apply to the built-in gain rate not a shareholders individual tax rates.
Is the day of disposition or the day of acquisition included in the holding period for determining whether the gain is long-term or short-term?
The day of disposition, but not the day of acquisition
Are worthless securities treated as long-term or short-term losses?
They are treated as becoming worthless at year end and treated as a long-term loss no matter how long they are held
In a gift loan the amount of the imputed interest constitute a gift from the lender to the borrower. What are the rules?
Gift loans greater than $10,000 and less than or equal to $100,000, no interest is imputed if the borrowers investment income for the year does not exceed $1000
For a gift loan of more than $100,000 the prevailing federal rate of interest will be imputed
Section 179 property what qualifies
Depreciable tangible personal property that is purchased by the taxpayer for business or trade
Property that is held for the production of income (inventory and other specified assets do not qualify for section 179 treatment)
A new office desk generally would qualify
The cost of the property is expensed for the current year rather than capitalized and appreciated overtime
How do you calculate the annual depreciation using the straight line method in the first year?
The annual depreciation deduction under the straight line method is the adjusted basis of the property at the beginning of the tax year, less the salvage value divided by the remaining useful life of the asset
However, you must remember to use the half year convention which would be half of a full year (if bought in the last quarter you may have to use the quarter convention)
How long must you hold 1202 stock for it gain to be excluded from your taxable income?
Five years
Section 1202 allows capital gains from qualified small business stocks to be excluded from federal tax.
What is a voluntary employee benefit association (VEBA)?
It’s a type of organization (trust or corporation) established by an employer or through a collective bargaining agreement to hold funds used to pay benefits under an employee benefit plan.
Income is exempt from regular income income tax if the VEBA meet the requirements of section 501C
Under the passive activity rules if a rental is 30 days or less and significant personal services are provided is the activity a service or a rental activity?
A service
When calculating insurance coverage from an employer above the $50,000 that is tax-free to the employee always use what premium rate?
The IRS rate per $1,000 never the employer cost rate
Is theft, a covered casually loss for tax purposes?
No, it is no longer a covered casualty loss
Net operating losses are not allowed for what business entities and are they still available?
Not allowed for partnerships and S corps
Starting in 2018, net operating losses are not allowed
Alimony and separate maintenance payments are they deductible
Yes, both are deductible if before 2019
Our private schools public charities for charitable contributions?
Yes, all schools and churches are public charities
Can you recognize a loss in a transaction to a related party?
No, but the related party can use your loss, but any unused loss is than gone forever
Are incidents to a divorce like a qualified domestic relations, orders, subject to the early withdrawal penalties, if not put into another 401(k) or an IRA?
No, not subject to the 10% early withdrawal penalties, but is subject to ordinary income tax
Our fines or penalties that result from a law violation deductible?
No
When taking the home office business deduction can u take a depreciation deduction as well?
Yes, a 10% depreciation deduction is also allowed based on the cost of the home
It should be noted that in order to take this deduction gross income from the business must be sufficient to cover all of his other operating expenses in addition to the home office deduction, home office expense cannot create a loss
What is a capital asset?
It is defined by what is not considered a capital asset
A capital asset is any asset that is not a copyright or creative work, accounts, or notes receivable, depreciable property used in a trade or business or for production of income (such as a computer) or inventory
When can an S Corp. be terminated?
When earnings are more than 25% of gross receipts for three consecutive years come from certain types of passive income and the corporation has accumulated earnings and profits from its operations prior to the S election
Only a majority vote by shareholders is needed to terminate
Failure to meet any requirement of an S corporation can cause termination; there is no minimum number of violations that need to be met
What is capitalization?
Is an accounting method in which a cost is included in an asset value and expense over the assets useful life, rather than expense in the period cost was incurred.
A Partners basis in a Partnership is increased by what?
Increased by his or her capital contributions, his or her distributive share of partnership income, and his or her share of liabilities assumed
A nonbusiness bad debt (Personal bad debt) is treated how?
Regardless of holding period, it is treated as a short-term capital loss, and the $3,000 limit offset against ordinary income limit applies.
Section 1231 recapture losses that are not recaptured from previous sales have how long of a look back period?
5 years
Are Fringe benefits deductible for an S corporation?
No and they are not tax free for the greater than 2% shareholders.
If you own or purchase company stock, how are the dividends treated and what happens if you recieve a tax-free distribution from them?
You will pay taxes on the dividends and you will reduce your basis on the stock in the amount of the distribution.
