TCP Deck #1 Flashcards
(31 cards)
Alternative minimum tax (AMT)
Tax preferences (ALWAYS ADD/increase AMTI)
- Private activity bond interest
- Excess intangible drilling costs
- Excess percentage depletion
- Small business stock gain exclusion (7%)
Alternative minimum tax (AMT)
Adjustments (Add or deduct)
+ Local & state income taxes or general sales tax, property taxes
+ Incentive stock options (exercise price - market price)
+/- Excess depreciation on personal property*
- Refunds of local and state income taxes included as income
+ Standard deduction
*If the depreciation deduction allowed for regular tax is greater than the amount for AMT, the excess tax depreciation is added back for AMTI.
Calculations initial contribution (or amount paid, if purchased)
Increased by:
- Additional contributions
- Share of increase in partnership liabilities
- Share of partnership income/other income
Decreased by
- Cash and property distributions
- Share of reduction in partnership liabilities
- Share of partnership losses/other deductions.
Do not include nonrecourse debt
Kiddie tax
Applies to all children who are under 18, or if their earned income does not exceed 50% of their total support for the year, are 18 or between 19 and 23 and are full time students.
Flexible spending account (FSA) vs Health Savings Account (HSA)
-FSA: Can be used with low deductible insurances plans
-HSA: Require a qualified high-deductible plan
Estimated tax payments
A) 100% of prior year tax if your AGI is <= $150,000
B) 110% of prior year tax if your AGI >= $150,000
C) 90% of current tax year
*The lesser of A or B and C
Active participation exception for rental real estate
- A taxpayer who actively participates is permitted to deduct up to $25,000 of the loses (after offsetting passive income) against non passive income.
- Its reduced by 50% for AGI over $100,000
- Eliminated for AGI over $150,000
Selling of an entire interest passive activity – Losses being deductible
Current or suspended losses are used to offset active, portfolio and passive income, including any gain on the sale
Foreign tax credit limitation calculation
- The amount of foreign tax credit is limited if the U.S. effective tax rate exceeds the foreign effective tax rate.
- Tax payers may claim the lesser of the foreign tax paid or the calculated limitation
Limit = U.S. tax on worldwide income X Foreign source taxable income / Worldwide taxable income
Allocation of suspended losses
The allocation formula is: [Net passive loss x (Loss from activity / Total losses]
Bargain element
The FMV of any property received is included in compensation.
The difference between the FMV on the date of exercise and the exercise price is the bargain element
Future interest gift
- Must be reported as a taxable gift, regardless of size, at the present value of the future interest, not the gift’s value at the time it was given.
- No annual exclusion is allowed for the gift of future interest.
Real estate professional – actively participate MAGI over $100,000
- Special deduction up to $25,000 to offset nonpassive income
- Deduction reduced by 50% of MAGI over $100,000
No special deduction if MAGI > $150,000
Probability
- The ability of a surviving spouse to take advantage of any unused portion of their deceased spouse’s unified transfer exemption
- To take advantage of this exemption, the estate is required to file an estate tax return on Form 706 on a timely basis.
Present interest gifts
-Current transfer of wealth that can be accessed by the recipient immediately (i.e. cash)
-Subject to gift taxes for the year the taxpayer transfers property to the recipient
Passive income
- Trade or business activities in which the taxpayer does not materially participate (ie. partnerships, S corporations)
Foreign earned income exclusion
Only earned income (not passive or investment income) is eligible for the foreign earned income exclusion.
ISQs (qualified stock options)
vs.
NQSOs (non qualified stock options)
Employees often prefer ISOs to NQSOs because taxation is deferred until the stock acquired through option exercise is sold, rather than when the options are exercised. If statutory holding periods are met gain is recognized on the sale of stock is taxed at preferential rates.
Employee tax treatment of nonqualified stock options (NQSOs)
Grant date - not taxable
Exercise date - taxable as ordinary compensation
FMV - Exercise price
Sales date - Taxable as capital gain/loss*
Sales price - FMV on exercise date
Employee tax treatment of incentive stock options (ISOs)
Grant date - not taxable
Exercise date - not taxable
Sales date - Taxable as long-term capital gain/loss
Sales price - Exercise price
Joint tenancy
- The ownership of property by two or more persons with each having an undivided interest in the property.
- Upon the death of one of its owners, a property owned in joint tenancy automatically goes to the survivors and bypasses the estate of the decedent.
Calculating the net tax savings
Multiple the expense/contribution by the applicable tax rates
Coverdell Education Savings Account - Education IRA
- Contributions are not deductible
- Withdrawals of earnings will be tax-fee if used to pay the qualified education expenses of the designated beneficiary
- Max annual amount to contribute is $2,000
- Contribution is phased if AGI is $95,000 - $110,000 (single); $190,000 - $220,000 (married)
Tenants in common
Each owners interest goes into the estate to be distributed to the heirs
