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CFP Review > Income Tax > Flashcards

Income Tax Flashcards

1
Q

Doctrine in which a court disallows a loss on the sale of an asset because the sale was not bona fine and was made for the purpose of realizing a loss.

A

Sham transaction.

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2
Q

Is a gift of $30,000 taxable income?

A

No

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3
Q

Ineligibility to claim a casualty loss deduction.

A

Vandalism, earthquake, hurricane, sonic boom; anything that is not federally declared disaster.

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4
Q

Phase-out limits of itemized deductions.

A

None-it got repealed in the tcja.

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5
Q

Requirement to file taxes.

A

Required if net earnings from self employment are at least $400.

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6
Q

What form to use to amend the tax return?

A

Form 1040X

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7
Q

Does penalty amount calculation include tax and/or interest deficiency?

A

Tax deficiency only.

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8
Q

Inclusion/exclusion of scholarship in taxable income.

A

Exclusions: tuition and books. Inclusions: room and board

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9
Q

What is not included in investment income?

A

Any long-term capital gains or qualified dividends.

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10
Q

1099 “consultant” status

A

As a 1099 worker, the company isn’t required to pay withhold income or FICA tax.

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11
Q

Accounting method for $25m+in revenue.

A

Accrual

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12
Q

Inventory methods

A

LIFO and FIFO

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13
Q

Can a limited partnership limit a general partner’s personal liability to the business?

A

No

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14
Q

Which types of businesses must file federal tax returns?

A

All - certain entity returns are for info. purposes only.

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15
Q

Basis of an owner of S corporation. Inclusion of the business’ bank loan that requires owner’s personal guarantee?

A

The bank loan will not increase basis.

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16
Q

Why choose LLC over an S corp?

A

LLC allows to take more losses than an S corp. Basis for an S corp would be limited to cash invested in the business and direct loans, but not corporate debt.

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17
Q

Taxation of a HALE (Health, accounting, law, and engineering) corporation.

A

HALE are PSC and taxed at 21%. A PSC with accumulated earnings > $150K will be exposed to 20% accum. earnings tax.

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18
Q

Filing status that helps reduce business owner taxes?

A

C corp.

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19
Q

Revocable vs. Irrevocable trust

A
  1. If income is distributed from the irrevocable trusts it will be taxed as DNI.
  2. If income accumulates in the irrevocable trust, it will be personal tax.
  3. Grantor of the revocable trust will pay any income tax liability.
20
Q

Inclusion of property taxes and utilities in the adjusted basis calculation?

A

No as they’re currently deductible as expenses.

21
Q

Step-up basis rule for community state and common state ( eg. Jtwros)

A

Community State: both are full step up.
Common stale: only the deceased’s gets the step-up.
The survivor’s basis includes the deceaseds.

22
Q

Macrs definitions

A
  1. It’s used to depreciate non-residential real property.
  2. Requires the half-year convention for the acquisition year.
  3. Requires mid-quarter convention if 740% of the depreciable property is put into service by the business during the 4th quarter of the tax year.
23
Q

Section 179 rules vs MACR rule depreciation.

A

Current deduction (section 179) is more cost effective than future depreciation (MACR depreciation).

24
Q

Recognition of gain for in-kind exchange.

A

Lessor of realized gain or boot received. If no boot is received (the person is giving boot) then no gain is recognized.

25
Q

Section 1244 stock.

A

A gain on a sale on a small business stock is a capital gain. $50K (single) or $100K (married) is maximum of loss treated as an ordinary loss. Any excess of $100K loss will se treated as capital losses limited to $3K per year.

26
Q

1031 exchanges’ applicability for real property and equipment?

A

Real property-yes.
Equipment - no.

27
Q

Is property tax itemized deduction a preference item or add-back item?

A

Yes its an add-back.

28
Q

Will selling your home reduce the amt payable?

A

Yes because it increases regular taxes for paying off mortgage (lower itemized deduction).

29
Q

Capital loss carry forward treatment for a deceased.

A

Loss can be claimed in the year of death (max $3K). Any unused can forward losses are lost after the year of death.

30
Q

Relationship between marginal income and tax- exempt securities.

A

The lower the marginal income, the less advantageous the tax-exempt income is.

31
Q

Publicly traded partnership (ptp) rules also known as master limited partnerships (mlps).

A

Income reported as portfolio income on schedule B. Losses may not be used to offset passive income-must carry forward and only used against the future income from the same partnership.

32
Q

Treatment of losses from active participation

A

Considered as passive losses and can be netted against passive income.

33
Q

Tax treatment of a debt relief.

A

IRS will treat it as if the taxpayer received income. Creation of phantom income.

34
Q

Charitable donation by a sole- proprietor. What’s the tax treatment?

A

Any donation made by an individual sole-proprietor through his business is considered as being made by the person, not the business. Schedule A as itemized deduction.

35
Q

Valuation of D stag property as charitable donation.

A

Valuation at basis even if its use-related.

36
Q

Entity: liability-risk-free. Guarantee partnership debt, and will have sporadic losses.

A

Partnership

37
Q

Entity: can take losses up to investment (basis).

A

S-corp

38
Q

Casualty loss calculation.

A
  1. Less of basis or FMV.
  2. Minus insurance coverage
  3. Minus floor ($100)
  4. Minus 10% of AGI

Equals deductible casualty loss.

39
Q

Inexpensive fringe benefits.

A

Section 125 plan, group life insurance up to $50K, and group dental.

40
Q

Surrender cost calculation for a mec policy.

A

[( FMV - basis) x tax rate] + 10% penalty on (FMV - basis). All ordinary income tax.

41
Q

10% penalty for a mec distribution before what age?

A

59 1/2

42
Q

Tax treatment of charitable gifts of inventory.

A

Based on what the property can se sold for.

43
Q

10% penalty for annuitizing an annuity.

A

Does not apply since the contract B annualized.

44
Q

Is there self-employment tax of salary and distribution from s-corp?

A

No. Salary paid by an s-corp is subject to FICA, not self-employment. Distribution excess earnings passed thru an s-corp are treated cis k-1 investment income, not self-employ.

45
Q

What is schedule h?

A

Household employees

46
Q

What is alimony recapture?

A

When there’s no alimony paid in the third year, subtract $37,500 from the total alimony paid in year 1 and 2.

47
Q

Capital gain brackets: 0%, 15%, 20%

A

0%: 10-12%
15%: 22-35%
20%: 35-37%

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