Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

CFP - Finley > CFP - 4.1 Tax > Flashcards

CFP - 4.1 Tax Flashcards

1
Q

What is the taxable income formula?

A

INCOME minus EXCLUSIONS equals GROSS INCOME

GROSS INCOME minus DEDUCTIONS equals AGI

AGI minus the greater of the STANDARD DEDUCTION or ITEMIZED DEDUCTIONS equals

TAXABLE INCOME

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

What is the business purpose doctrine?

A

A business must have a valid business purpose and cannot be formed just to take advantage of lower tax rates on a transaction

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

What are tax law doctrines?

A

Made by the IRS to guide people in what is proper vs abusive tax management

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

What is the substance-over-form doctrine?

A

Allows the IRS to look through the formalities of a transaction to determine its actual economic substance

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

What is the assignment-of-income doctrine?

A

“Fruit and the tree” A taxpayer who earns income cannot assign that income to someone else for tax purposes

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

Jill is in the highest income tax bracket. She directs her employer to assign $18k of her income to her son who is in the lowest tax bracket. What is the tax consequence?

A

Can’t do this according to the assignment of income doctrine. Jill’s W-2 would include the $18k AND she would have made a gift of the $18k to her son. She would have to file a gift tax return.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

A corporate executive has the company loan him money rather than receive it as income. What is the tax consequence?

A

Substance-over-form: the IRS will likely deem this as income as the loan proceeds are in lieu of salary

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

What is the tax benefit doctrine?

A

The principle that if a loss was suffered in a previous year and taken as an income reduction for tax purposes, and an insurance reimbursement for that loss is received in the current year, that reimbursement must be counted as part of gross income for the current year

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

What is an example of the tax benefit doctrine?

A

Bob deducted medical expenses last year, then received reimbursement this year. The reimbursement will be considered income because he already got the tax benefit of the deduction.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

What is the constructive receipt doctrine?

A

If there is no substantial limit to the taxpayer’s right to bring the funds under personal control, the income is taxed as though it had been received

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

A payroll check is issued and available for pickup December 31st 2018. The employee picks it up January 3rd and cashes it January 4th 2019. What year is the income taxed?

A
  1. Constructive receipt.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

Dan is in a high tax bracket. He solely owns a rental property that generates $2k per month in rent. He instructs his tenant to pay the rent to his daughter who is in the lowest tax bracket. What is the tax consequence?

A

Assignment - Because Dan owns the property, the payment of rent is his that he has assigned to his daughter.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

What types of corporate structures are pass-throughs?

A

Partnerships and S corps

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

How is income taxed in a partnership?

A

Income is taxed to each partner at their own individual rates

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

Who pays tax on S corp income?

A

Shareholders

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

What form does a partnership have to file and what form do partners receive?

A

1065, informational return

K-1, self employment income

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

What form does an S corp file and what form do shareholders receive?

A

Form 1120S

K-1, passive income

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

What form do employees of S corps and partnerships receive?

A

S corp - W-2

Partnership - K-1, self employment income

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

How is trust income taxed?

A

Income distributed to beneficiaries is taxable to them as income. Undistributed income is taxable to the estate.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

When is a below-market loan’s interest imputed?

A

When the interest charged on the loan is less than the federal rate

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

How is imputed interest compounded?

A

Semi annually

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
22
Q

Can gift loans occur between businesses?

A

No, only between individuals

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
23
Q

How is imputed interest on a gift loan recognized?

A

The borrower has an interest expense, the lender has interest income. The lender is viewed as gifting the imputed interest to the borrower.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
24
Q

What are compensation-related below market loans?

A

Employer loans to employees. The imputed interest is treated as compensation and the loan amount is considered income.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
25
Q

What are corporation-shareholder loans?

A

The imputed interest is treated as a dividend to the shareholder

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
26
Q

No interest is imputed on gift loans, compensation-related loans, or corporation shareholder loans if the loan is ________ or less.

A

$10,000

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
27
Q

For below market loans above _____ but below ______, the imputed interest cannot exceed what?

A

$10k, $100k

The borrower’s investment or interest income from all sources for the year

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
28
Q

Richie loaned Beth $90k and didn’t charge her interest. Richie’s investment income was $200k. Beth’s income was $30k in salary and $3k in interest income. The relevant federal rate was 9%. How much imputed interest must Richie recognize?

A

$3,000. The loan is below $100k and Beth only had $3,000 in interest income for the year.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
29
Q

Employee achievement awards of less than $_____ per year based on length of service are excluded from gross income.

A

$400

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
30
Q

Rose wins the lottery. Her winnings are $1,000,000. She chooses to receive an annuity of $50,000 per year for 20 years instead of a lump sum. How are her winnings taxed?

A

She will be taxed on the annuity amount ($50k) in the year that the income is received.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
31
Q

Wendy is 55. She is receiving annuity payments of $1,500 per month over her life expectancy of 25.5 years. Her contributions to the annuity were after tax and her basis is $91,800. How much of the annuity payment must she recognize for tax purposes?

A

$1,500 x 12 x 25.5 = $459,000

91,800/459,000 = 20%

She can exclude 20% (3,600) each year and must claim 80% (14,400)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
32
Q

Employees can exclude premiums paid by their employers on the first $________ of group term life insurance - except for who?

A

$50,000

Partners, proprietors, and S corp owners who own more than 2%

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
33
Q

Are unemployment benefits included in gross income?

A

Yes

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
34
Q

Up to ___% of Social Security benefits may be included in gross income.

A

85%

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
35
Q

What is provisional income?

A

AGI from all sources plus 50% of SS benefits received, foreign income, and tax-free interest

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
36
Q

What two things make up the FICA tax?

A

Social Security Tax (OASDI) and Medicare Tax (HI)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
37
Q

What is the earnings ceiling for OASDI?

A

$128,400

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
38
Q

How much is the OASDI tax?

A

6.2% paid by employee and 6.2% paid by the employer

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
39
Q

What does OASDI stand for?

A

Old Age Social and Disability Insurance, (SS)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
40
Q

How much is the HI (Medicare) tax?

A

1.45% for employee and 1.45% for employer

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
41
Q

How much is the HI tax for self employed individuals?

A

2.9%, they pay the employee and employer parts together

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
42
Q

What is the earnings ceiling for Medicare?

A

there isn’t one

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
43
Q

What is the total self-employment FICA taxes?

A

15.3% (12.4% + 2.9%)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
44
Q

The Additional Medicare Tax is ____%

A

0.9%

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
45
Q

Who pays the additional medicare tax?

A

Only the employee. No employer share

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
46
Q

What corporate structure can avoid FICA taxes?

A

S Corp, as the earnings are not considered employment income

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
47
Q

What are DBO benefits and how are they taxed?

A

Death Benefit Only, fringe benefit paid by employer to employee’s beneficiaries and included in gross income

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
48
Q

Are compensatory damages taxable?

A

No, except in discrimination or defamation cases

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
49
Q

Are punitive damages taxable?

A

Yes

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
50
Q

Does the recipient of a gift have to include the FMV as income?

A

No

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
51
Q

Does the recipient of an inheritance include the FMV in gross income?

A

no, unless it is income in respect of a decedent (IRD)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
52
Q

Are scholarships included in gross income?

A

No, as long as they are used for qualified education expenses and the recipient is a candidate for a degree

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
53
Q

Are life insurance proceeds taxable?

A

Not if they are paid to the beneficiary

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
54
Q

What tax is due on life insurance proceeds that are received in installment payments?

A

Tax on the interest income

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
55
Q

When are life insurance dividends taxed?

A

When the aggregate received exceed the basis in the contract

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
56
Q

Can businesses deduct life insurance premiums if the company is directly or indirectly a beneficiary?

A

No

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
57
Q

Are losses on surrendered policies tax deductible?

A

No

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
58
Q

Withdrawals or loans from life insurance policies are received on a ______ basis when surrendered.

A

FIFO

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
59
Q

What is Transfer-For-Value Rule?

A

A transfer-for-value rule stipulates that, if a life insurance policy (or any interest in that policy) is transferred for something of value (money, property, etc.), a portion of the death benefit is subject to be taxed as ordinary income

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
60
Q

What are the Transfer For Value Rule Exceptions? (5)

A

Transfers to…

  1. The insured
  2. A partner of the insured
  3. A partnership in which the insured is a partner
  4. A corporation in which the insured is an officer or shareholder
  5. A transferee (such as a child)
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
61
Q

Are viatical settlement proceeds included in gross income?

A

No, as long as the recipient has been certified as terminally ill OR chronically ill and used for long-term care

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
62
Q

What is the definition of terminally ill?

A

Having a condition or illness that can reasonably be expected to result in death in 24 months or less

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
63
Q

What is the definition of chronically ill?

A

Unable to perform at least 2 activities of daily living for at least 90 days

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
64
Q

How are viatical settlement benefits taxed to the purchaser?

A

Benefits received over the basis and premium payments are included in gross income

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
65
Q

Is cost of insurance included in a cash surrender calculation?

A

NO

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
66
Q

Bob surrenders a policy with $80,000 of cash value. He paid $70,000 in premiums and the cost of insurance was $11,000. What is his income?

A

$10k

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
67
Q

Bob sells a policy with $80k cash value to Jim for $95k. He paid $70,000 in premiums and the cost of insurance was $11,000. How is he taxed on the transaction?

A

$95k - $70k - $11k = $36k.

Basis = $80k - $70k = $10k.

Capital gain of $26k

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
68
Q

How is Section 1202 qualified small business stock (QSBS) taxed?

A

Noncorporate investors can exclude up to 50% of the gain realized. Remaining gain is taxed at the 28% capital gains rate.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
69
Q

What is the tax consequence of a lender forgiving a debt?

A

The borrower must report the forgiven debt as income, except in the case of bankruptcy

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
70
Q

What is the tax consequence of a taxpayer paying a debt with appreciated property?

A

This is treated as though the taxpayer sold the property, then repaid the debt. They cannot give away the appreciation without paying taxes.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
71
Q

How is foreclosure taxed?

A

It is treated as a sale or exchange

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
72
Q

What is the max amount of foreign income that can be excluded from US gross income?

A

$103,900

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
73
Q

What qualifications must be met to qualify for the foreign exclusion?

A

The taxpayer must be a bona fide resident of the foreign country

OR

Be present in a foreign country for at least 330 days during any 12 consecutive months

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
74
Q

How is the foreign exclusion pro rated?

A

Max Exclusion (103,900) x (# of days in a foreign country / # of days in the year)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
75
Q

Can you contribute to a Coverdell and 529 in the same year for the same beneficiary?

A

Yes

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
76
Q

Coverdell amounts must be distributed by age _____ if not used.

A

30

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
77
Q

Can Coverdells be rolled over?

A

Yes, free of taxation and penalty if rolled over to a beneficiary who is a member of the same family

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
78
Q

Can Coverdells pay for K - 12 education?

A

Yes

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
79
Q

Can 529s pay for K - 12 education?

A

Yes, but there is a $10,000 limit per student

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
80
Q

Can 529s be rolled over?

A

Yes, free of taxation and penalty if rolled over to a beneficiary who is a member of the same family

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
81
Q

Are unreimbursed business expenses of an employee deductible?

A

No

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
82
Q

What 2 things can a business owner/taxpayer deduct expenses from gross income to arrive at AGI?

A
  1. Expenses incurred in carrying on a trade or business

2. Expenses incurred in connection with property held for the production of rents or royalties

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
83
Q

What Schedule are Farm income and expenses reported on?

A

Schedule F (duh)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
84
Q

How much self-employment tax can self-employed individuals deduct?

A
  1. 2% of OASDI up to SS taxable wage base and 1.45% with no earnings limit.
  2. 65% total
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
85
Q

What is the Social Security taxable wage base for 2018?

A

$128,400

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
86
Q

What is the self-employment tax applied to?

A

Net income from self-employment

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
87
Q

If net earnings from self-employment are less than $_____, no self employment tax is payable.

A

$400

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
88
Q

What is the formula for calculating the total amount of self employment tax below the taxable wage base?

A

SE Income x 0.9235 x 0.153

89
Q

What is the formula for calculating the deductible portion of the self-employment tax below the taxable wage base?

A

SE Income x 0.9235 x 0.0765

90
Q

Paul has net Schedule C income of $40,000. What is his self-employment tax due and what is his deductible portion of the self-employment tax?

A

$5,651.82 tax due

$2,825.91 deductible

91
Q

What is the formula for calculating the self-employment tax above the taxable wage base?

A

(Income - 128,400) x 2.9%

PLUS

128,400 x 15.3%

92
Q

Is alimony paid to an ex-spouse deductible from gross income?

A

Yes

93
Q

Is alimony received taxable?

A

Yes

94
Q

What are the requirements of a prenup?

A
  1. In writing
  2. Signed by both parties
  3. Complete disclosure of assets
  4. Nothing regarding future alimony or child support
95
Q

Is forfeited interest on early CD withdrawals deductible for AGI?

A

Yes

96
Q

Dan needs cash and he needs it now. His most liquid asset is a $10,000, 2.5%, 3 year CD with 18 months to go. He redeems the CD early and is charged 3 months interest as a penalty. What is the tax consequence?

A

He will owe income tax on the 3 month’s interest but can also deduct for AGI.

$62.50 income
$62.50 deduction

97
Q

What is the limit to which capital losses can offset capital gains?

A

There is no limit

98
Q

How much of capital losses are deductible against ordinary income?

A

$3,000

$1,500 for MFS

99
Q

Can unused capital losses on a final tax return be used by the estate or a beneficiary?

A

No, they are lost

100
Q

How much capital loss beyond capital gain can a corporation deduct?

A

None, they can can only be used to offset cap gains

101
Q

How long can unused capital losses be carried forward for corporations?

A

5 years

102
Q

Can unused capital losses be carried back?

A

Yes, up to 3 tax years

103
Q

Are capital losses carried forward or back treated as short term or long term?

A

Short term

104
Q

Which two types of taxpayers can deduct 100% of their health insurance amounts paid?

A

Self-employed

S-corp shareholders more than 2%

105
Q

What are the contribution limits for HSAs?

Single coverage =

Family coverage =

A

Single coverage = $3,450

Family coverage = $6,900

106
Q

HSA withdrawals that aren’t used for qualified medical expenses are subject to what?

A

Income tax and a 20% penalty

107
Q

At what age do HSA withdrawals start acting like Traditional IRA withdrawals?

A

65

108
Q

What is the maximum annual deduction for interest on student loans?

A

$2,500

109
Q

When CANT a taxpayer deduct for student loan interest besides phase out income?

A

If the taxpayer is claimed as a dependent

110
Q

What 3 itemized deductions use AGI to calculate the limit?

A
  1. Charitable (50%)
  2. Medical (7.5%)
  3. Casualty losses for federally declared disasters (>10%)
111
Q

Is there a liability to make alimony payments for any period after death of the payee?

A

No

112
Q

Do alimony payments have to be maid directly to the payee spouse?

A

No, they can be paid to third party (i.e. mortgage)

113
Q

What household rules for alimony?

A

Payments while you are in the same household are not considered alimony. If you are planning to separate within 1 month, then it is alimony.

114
Q

What triggers the alimony recapture rule?

A

A decrease by more than $15k from the 2nd year to the 3rd year or a significant decrease from the 1st year to the 2nd and 3rd.

115
Q

If alimony recapture is triggered, what is the tax consequence?

A

Part of the alimony deducted in the first or second year is going to count as income in the third year

116
Q

Why would someone purposefully trigger alimony recapture?

A

If they expect their tax bracket to be higher in year one than year 3

117
Q

Is child support received included in taxable income?

A

No

118
Q

Is child support paid deductible?

A

No

119
Q

Dave has to pay Michelle $4,000 per month according to their divorce settlement. When their daughter turns 18, the payments go down to $2,800 per month. How much can Dave deduct of the $4,000?

A

$2,800. Because the $1,200 goes away when the daughter turns 18, it is considered child support, which is never deductible.

120
Q

What are the age qualifications for the kiddie tax?

A

A dependent child under the age of 19 by the close of the tax year

OR

Full-time student under the age of 24 by the close of the tax year

121
Q

How many months of the year do you have to be a full-time student to be considered a full-time student for the whole year for tax purposes?

A

5 months

122
Q

The kiddie tax does not apply to individuals age 18 if their earned income for the taxable year exceeds ______% of their support

A

50%

123
Q

Unearned income above $______ is taxed at the estates and trusts tax rate (kiddie tax)

A

$2,100

124
Q

Lil Suzie is 14 and earned $2,200 in interest from her bank account. How much is taxable at the estates and trusts rate?

A

$2,200 - $2,100 = $100

125
Q

Suze is 14 and earned $2,200 in interest in her bank account. She also made $5,600 babysitting. What is her standard deduction?

A

$5,600 + 350 = $5,950

126
Q

Suze is 14 and earned $2,200 in interest in her bank account. She also made $5,600 babysitting. What is her taxable income?

A

$5,600 + $2,200 - $5,950 = $1,850

127
Q

What is the standard deduction for kiddies?

A

Earned income plus $350, capped off at $12,000

128
Q

What is the max standard deduction for kiddies?

A

$12k

129
Q

What percentage of self employment tax can be deducted?

A

50%, not both halves

130
Q

What is the “line” for above the line and below the line deductions?

A

AGI, above comes before, below comes after

131
Q

Expenses must be _____ and _____ to qualify for deduction.

A

Ordinary (customary to make the expenditure, not capital) and necessary (a prudent person would do the same thing in that situation)

132
Q

How do S corp shareholders prefer to be paid?

A

Distribution rather than salary. The distribution is usually treated as a tax-free return of capital. Salary would be subject to FICA taxes.

133
Q

What happens if the IRS deems a C Corp distribution as unreasonably high?

A

They will count it as a dividend and it will be double-taxed, once as earnings to the corp and once to the recipient shareholder as income.

134
Q

What are the two most common methods of accounting for tax payers?

A

Cash-basis and Accrual-basis

135
Q

When using the cash-basis method…

When can the taxpayer receive a deduction for the expense?

A

When it has been paid

136
Q

When using the accrual-basis method…

When can the taxpayer receive a deduction for the expense?

A

When it is incurred

137
Q

When using the cash-basis method…

When does the taxpayer recognize income?

A

When cash is received

138
Q

When using the accrual-basis method…

When does the taxpayer recognize income?

A

In the same year that it is reported on financial statements (accounts receivable). Doesn’t have to be received in cash.

139
Q

Are expenses to generate nontaxable income (like muni bonds) deductible?

A

No

140
Q

Are political contributions tax deductible?

A

No

141
Q

Are lobbying activities tax deductible?

A

No

142
Q

Are capital expenditures tax deductible?

A

No (except as depreciation, amortization, or depletion)

143
Q

Are expenditures on behalf of another taxpayer tax deductible?

A

No, except medical for a spouse or dependents

144
Q

What is the most a company can deduct for executive compensation?

A

$1,000,000

145
Q

Are startup expenses deductible?

For investigating a business similar to what they are in?

A

Yes, whether they acquire or not

146
Q

Are startup expenses deductible?

For investigating a business different to what they are in?

A

Only if they acquire. They can deduct $5k immediately and amortize the remaining costs over a 180 month period.

Expenses over $50k reduce the $5k dollar for dollar

147
Q

Vacation home rental income is excluded if it is rented less than _____ days of the year.

A

15

148
Q

Vacation home rental expense are not deductible if it is rented less than _____ days of the year.

A
  1. Mortgage, interest, taxes, and casualty losses still deductible.
149
Q

Vacation homes are classified as rental property if they are rented at least _____ days per year and not used for personal use more than ____ days or _____% of the time rented.

A

15, 14, 10%

150
Q

How much loss can be deducted on a rental vacation home and what is the phaseout?

A

$25k, phaseout at AGI between $100 - 150k

151
Q

What constitutes a mixed use vacation home and what are the tax rules?

A

Rented for 15 days or more but used for 14 or more or more than 10% of the rented days. Expenses can be deducted only to the extent of income - no deductible loss allowed.

152
Q

How are legal fees tax deductible?

A

Personal legal fees are not. Legal fees to acquire an asset are added to the basis.

153
Q

When are accounting and legal fees deductible?

A

Incurred in the determination of tax or in connection with trade, business, or production of rent/royalty, they are above the line deductible

154
Q

How are worthless securities tax deductible?

A

Capital loss in the year they become worthless. Up to $3,000 net capital loss deduction available

155
Q

How are small business stock (1244) losses treated?

A

They can be treated as an ordinary loss if they are bought from the corporation. The limit is $50k single, $100k joint. Anything beyond that is a capital loss.

156
Q

In order to qualify for Section 1244 treatment (small business stock), the company must receive less than $______ in capital for stock at the time of issue.

A

$1,000,000

157
Q

Does Section 1244 apply to losses or gains?

A

Losses only

158
Q

When can you deduct a bad debt?

A

only in the year it becomes worthless

159
Q

If you deduct a bad debt this year, but its repaid next year, what happens?

A

You have to recognize it as income

160
Q

When are business bad debts allowed?

A

If the income from the receivable was previously included as income

161
Q

Can bad debts be partially worthless and deducted for the following?

Business
Nonbusiness

A

Bus - yes

Non bus - no

162
Q

How are nonbusiness worthless debts treated?

A

as short term capital losses

163
Q

How are business worthless debts treated?

A

ordinary loss

164
Q

What is the purpose of a Net Operating Loss ? (NOL)

A

Help cyclical businesses - they have big losses one year and big income the next

165
Q

How can Net Operating Losses be carried forward and back?

A

Only carried forward, indefinitely

166
Q

What is the limit for Net Operating Loss in carry forward years?

A

80% of total taxable income

167
Q

Can taxpayers deduct expenses for home offices?

A

Yes, if they qualify

168
Q

What are the 3 tests for a home office?

A
  1. Principal place of business - used regularly with no other fixed location
  2. Used exclusively and regularly as a place of business used to meet clients or patients
  3. If a separate structure not attached to the dwelling, it must be used in connection with the trade or business
169
Q

Can home office expenses create a loss?

A

No they are limited to the gross income of the business and are deducted after mortgage interest and taxes.

170
Q

What are the two methods for calculating home office deductions?

A

Simplified and Regular

171
Q

Is there a difference in home office qualification for the simplified and regular methods?

A

No

172
Q

Is there a difference in the allowable square footage of home use for business for the simplified and regular methods?

A

Yes.

Simple cannot exceed 300 sq feet

Regular is the % of home used for business

173
Q

Is there a standard deduction for the simplified and regular methods?

A

Simplified yes, $5 per square foot with a $1,500 max per year

174
Q

Can you depreciate a home office for the simplified and regular methods?

A

Simplified no

Regular yes, recaptured on sale of home

175
Q

Can home office deduction exceed gross income from business use less business expenses for the simplified and regular methods?

A

No for either

176
Q

Can home office expenses be carried over for the simplified and regular methods?

A

Simplified no

Regular yes

177
Q

What is the AGI floor for deductible medical expenses?

A

7.5%

178
Q

Whose medical expenses can be deducted by the taxpayer?

A

Own, spouse, dependent

179
Q

What 4 things are covered as medical expense deductible items?

A
  1. Diagnosis, cure, mitigation, treatment, or prevention of disease, injury or accident
  2. Transportation for and essential to the items in #1
  3. Qualified long term care expenses
  4. Insurance premiums paid by taxpayer with after tax dollars for accident, health, and disability insurance
180
Q

What 2 things are never covered as deductible medical expenses?

A

Unnecessary cosmetic surgery and funerals

181
Q

What is the AGI floor for deductions for ambulance, tolls, and parking related to medical expenses?

A

10%

182
Q

When can a taxpayer deduct health insurance premiums and what is the limit?

A

When there is no employer paid plan available and the premiums are paid with after tax dollars. 100% can be deducted for AGI.

183
Q

What is the limit for deductible income and property taxes?

A

$10k ($5k for MFS)

184
Q

If person X pays person Y’s real estate taxes, who can deduct the tax?

A

Only person Y, the person the taxes are imposed on

185
Q

Are real estate assessments deductible?

A

No, but added to basis of the property

186
Q

How are apportion property taxes treated during a sale?

A

The tax is based on # of days each held the property. The buyer is considered the holder on the day of sale.

187
Q

Is personal interest deductible?

A

No

188
Q

What is investment interest and what can it be deducted against?

A

Interest on funds borrowed to acquire investment assets.

Can be deducted against interest, dividends, annuities and royalties. NOT CAPITAL GAINS NOT TAX FREE INTEREST

189
Q

Are investment expenses deductible?

A

No

190
Q

What is acquisition indebtedness?

A

Home equity loans secured by that property where the proceeds were used for acquisition or substantial home improvement

191
Q

What is the max allowable acquisition indebtedness for 2018?

A

$750,000 (half for MFS)

192
Q

Are points on a home loan deductible?

A

Yes, in the year paid for principal residence loans only

193
Q

Can interest paid on behalf of another be deducted?

A

No

194
Q

When can losses on nonbusiness property be deducted?

A

Only when caused by a federally declared disaster

195
Q

What is the deductible amount for federally declared disaster loss?

A

The lesser of the adjusted basis or the decline in FMV resulting from the event

196
Q

Can gambling losses be deducted?

A

Only to the extend of gambling winnings

197
Q

Is the value of time or services given to a charitable organization deductible?

A

No

198
Q

Is the value of blood donated to a blood bank deductible?

A

No

199
Q

Are donations to political groups or politicians running for office deductible?

A

No

200
Q

Are donations to foreign charitable organizations deductible?

A

Only Mexican, Canadian, and Israeli

201
Q

Are donations to lobbyists deductible?

A

No

202
Q

Are donations to labor unions or chambers of commerce deductible?

A

No

203
Q

Are donations to homeowners associations deductible?

A

No

204
Q

Are donations to religious organizations deductible?

A

Yes

205
Q

Are donations to federal, state, or local governments deductible?

A

Yes - gift to reduce public debt

206
Q

Are donations to hospitals deductible?

A

Yes, if they are nonprofits

207
Q

Are donations to public recreation facilities deductible?

A

Yes

208
Q

Are donations to public parks deductible?

A

Yes

209
Q

Are donations to Goodwill deductible?

A

Yes

210
Q

Are donations to Boy/Girl Scouts deductible?

A

Yes

211
Q

Are costs you pay for a student living with you sponsored by a qualified organization deductible?

A

Yes

212
Q

Are out of pocket expenses when you serve a qualified organization as a volunteer deductible?

A

Yes

213
Q

What are the two types of qualifying charitable organizations?

A

Public charities and Private foundations (conduct charitable activities instead of performing the activities themselves)

214
Q

Appraisals are not required for noncash property donations over $_____ and less than or equal to $______

A

$500 - $5,000

215
Q

If a donor donates $1,000 coins each to 6 different charities, is an appraisal required?

A

Yes, if similar items with a total value exceeding $5,000 are donated to multiple charities, an appraisal is required

216
Q

If the donor receives a benefit from the donated property, what is the consequence?

A

FMV of the benefit must be reduced from the deduction if the benefit is consequential

217
Q

What is the carryover limit for disallowed charitable donations?

A

5 years

218
Q

What is the $ limit of charitable deductions?

___% of AGI if it is a public charity.

A

50%

219
Q

What is the $ limit of charitable deductions?

___% of AGI if it is a private charity.

A

30%

CFP - Finley (11 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions