CFP INCOME TAX Flashcards

Question

Max charitable contribution and deduction

Answer 1

Taxpayer cannot deduct more than 60% AGI in the contribution year. Any excess amount can be carried forward as an itemized deduction for 5yrs or if sooner, death.

Answer 2

Churches, schools, hospitals, and all organizations organized and operated for charitable, religious, educational, or literary purposes, or prevention of cruelty to animals. ex. Red Cross, United way

Answer 3

Private charities, private non-operating foundations, fraternal orders, and war veterans organizations.

Answer 4

• At FMV is 30% AGI • At Basis is 50% AGI

Answer 5

• STCG property • Use-unrelated property (watch out for artwork and collectibles) • Art • Inventory • Copyright *Real estate and stock are always use related Deduction is always limited to basis

Answer 6

Step 1: (Sale price / FMV) x Basis = Adjusted Basis Step 2: Sale price - Adjusted Basis = Taxable gain

Answer 7

Treatment is barred if property to be received must be identified within 45 days after the transfer and/or the acquired property title isn’t received within 180 days after transfer

Answer 8

B Trust Nonmarital Family Applicable Credit Amount Applicable Credit Amount shelter Trust

Answer 9

• usually funded w/ lifetime exemption $12,060,000 • usually for surviving spouse’s benefit, they will receive income. Income stream CAN also be split among spouse and other individuals if decedent chooses. As long as no 5 or 5 or HEMS provisions, trust will not be included in surviving spouse’s estate • first to die controls • assets pass after surviving spouse’s death estate tax free to remainder beneficiary • could be either

Answer 10

• surviving spouse • passes by unlimited marital deduction • subject to estate tax after survivor dies • A Trust, Marital A Trust

Answer 11

• Current Income Interest Trust or C Trust • Simple • First to die controls • used when descendent wishes to provide surviving spouse w/ stream of income for life, yet also wishes to qualify the property for the marital deduction. • allows decedent to have post Morten control • included in gross estate of surviving spouse

Answer 12

• simple • foreign spouses

Answer 13

• donor receives income • no additions • fixed income payments of at least 5% • payable to any charity • 10% ending value

Answer 14

• donor receives income • additions allowed • income payments of at least 5%, revalued annually • payable to any charity • 10% ending value to charity

Answer 15

• income to donor • additions allowed • variable income payments • payable to 1 specific charity • can’t use Munis

Answer 16

• Donor needs income • no additions • fixed lifetime payments • payable to one specific charity • charitable deduction based on gift less annuity

Answer 17

• donor wants to give charity income • income or estate tax deduction • after period paid to charity, paid to non-charitable ben • no 5% payout rule

Answer 18

• 30% income tax deduction • payable to a charity or individual • can continue for indefinite period of time • must pay out at least 5%

Answer 19

• Owner needs income • Sale of property at FMV • PV of remaining payments is INCLUDED in owner’s estate • Property is secured • capital gain • DO NOT use if subject to recapture (1245 depreciation)

Answer 20

• owner needs income • No value is included in owner’s estate • capital gain • Assets can be depreciated • interest can be deducted • higher payout than installment sale • chosen when there’s an estate tax issue

Answer 21

• owner needs income (sale of property in exchange for periodic payments) • naked promise • no value included in owners estate • all gain is recognized in first year vs spread across annuity

Answer 22

• irrevocable trust that allow grantor to make gift of property in exchange for income interest • at end of term, corpus is distributed to remainder person • value of gift is discounted • owner must outlive term otherwise entire asset is brought back into estate • best asset is one likely to appreciate

Answer 23

• Owner wants to gift assets/income to family 1. Family member receives conduit income (don’t use if U-24 (kiddie tax)) 2. Business entity must be capital sensitive (not available if business is service related, like PSC)

Answer 24

• Owner wants to gift assets/income to family • Gift interests to limited partners to reduce estate 1. Qualifies for various “valuation discounts” allowing for lower gift tax 2. General partner maintains control

Answer 25

• owner wants to gift assets/income to family • gift FULLY depreciated property 1. lease payments are a business deduction, income to family member 2. DON’T use if child is U-24 (kiddie tax)

Answer 26

• owner wants to gift assets/income to family • irrevocable transfer of personal residence • at end of term, residence is ELIMINATED from estate (grantor must outlive term) • value of gift is discounted • can transfer up to 2 homes but 1 must be primary

Answer 27

• Home value $1mm+ • life expectancy should be at least 10yrs but preferably longer • donor continues to live in the residence • a large estate (at least above lifetime exclusions)

Answer 28

When Trust corpus passes to skipping person after death of non-skipping person. Trustee pays GST

Answer 29

When transferor (donor or estate) directly skips to the skipping person. Transferor pays GST. $16k annual exclusion allowed

Answer 30

When trust pays income to non-skipping person (still alive) and distributes to skipping person. Transferee (receiver) pays GST

Answer 31

Related person who’s at least 2 generations younger or unrelated persons who are more than 37.5 years younger

Answer 32

• FMV 6 months after death • AVD must lower federal tax liability and must cause reduction in the total value of the gross estate • Can’t be used when assets pass via unlimited marital deduction, or assets passing to friends/family that are less than $12.06mm

Answer 33

• disclaimer must be irrevocable refusal to accept the interest • refusal must be in writing • refusal must be received within 9 months • cannot have accepted any interest in the benefits

Answer 34

• used for postmortem estate liquidity • business must be incorporated (closely held stock) • value of stock must EXCEED 35% of decedent’s AGE • amount of stock redeemed as capital gain can’t exceed the sum of the estate taxes plus admin expenses

Answer 35

• used for postmortem estate liquidity • property must be in sole proprietorship, partnership, or corporation. • value of business must EXCEED 35% of decedent’s AGE • during first 4 years (of 14) can pay interest only on taxes due - int. Rate will be 2% on first $1mm (indexed to $1,640,000 in ‘22) and isn’t deductible

Answer 36

• used for postmortem estate tax reduction • real estate used for farming or closely held business • 50% of gross estate must consist of real and personal property • 25% of the gross estate must consist of real property • $750k reduction in decedent’s estate ($1,230,000 in ‘22) • must be qualified use: 5 out of 8 rule before death / 10 years after death

Answer 37

No, they use lifetime exclusion

Answer 38

Reversionary interest that exceeds 5% of trust value at CREATION is retained by the grantor. Ex. Grandpa transfers $500k to a trust for granddaughter and income is paid to granddaughter. After 10yrs the $500k reverts back to either grandparent (grantors), then the income paid to granddaughter is taxable to the grantor.

Answer 39

The grantor of a trust (rather than the Trust or the beneficiary) will be taxed on income produced by the trust.

Answer 40

Tainted Trust Defective Trust

Answer 41

• income is or can be distributed or accumulated for later distribution to grantor or grantor’s spouse • income is or can be used to discharge any legal obligation of the grantor • power to control the beneficial enjoyment of trust principle or income is held by grantor or grantor’s spouse • trust income is or can be used to pay premiums on life of grantor or grantor’s spouse

Answer 42

Pay lesser of: • pay 90% of current year’s tax liability • pay 100% of prior year’s tax liability (or 110% if prior year’s AGI is over $150k)

Answer 43

Interest, non-qual dividends, royalties, and short term gains.

Answer 44

They are not included as investment income to deduct against investment interest expense charges

CFP INCOME TAX Flashcards

(68 cards)