CFP Review T.R.E. (Part II) Flashcards

Question

retirement deferrals (certain plans)

Answer 1

excluded from federal income tax

Answer 2

excluded from federal income tax

Answer 3

excluded from federal income tax

Answer 4

constructive receipt

Answer 5

$1250 standard deduction OR earned income plus $400 (up to a maximum of $13,850) Net Unearned Income (NUI) = unearned income - $2500 (twice the std deduction)

Answer 6

the highest marginal rate of the parents

Answer 7

1. age (under 19, or under 24 and in school) 2. relationship 3. residency 4. joint return (cannot have filed with anyone)

Answer 8

The IRS is ok if you pay 100% of last year's tax liability or 90% of the current year's liability

Answer 9

filing taxes (failure to file) note: this is reduced to 4.5% if concurrent with failure to pay

Answer 10

paying taxes (failure to pay)

Answer 11

* you can claim anyone if they've lived with you for the entire year and you provided over 50% of their support (they cannot have made over the income threshold) 1. Cannot be qualifying child 2. Relationship/Residency Test 3. Support Test (provide over 50% of their support) 4. Income Test (gross taxable income is under the threshold)

Answer 12

Personal Use Investment or Production of Income Trade or Business (1231 assets)

Answer 13

most personal use assets and most investment assets are classified as capital assets - even though personal use assets DO NOT get any treatment for losses!! taxation purposes - capital assets gains are taxed at capital gains rates, losses are capital losses (offset against only ST or LT) 1231 assets for business or trade are taxed via depreciation methods (losses are ordinary, gains are capital gains) ordinary income assets are taxed as ordinary income (both losses and gains)

Answer 14

ACID: Accounts/notes receivable Copyrights and creative works Inventory Depreciable property used in trade or business *ordinary income assets ACI, D is 1231 property

Answer 15

ALWAYS long term capital gain

Answer 16

inherited - LONG term gifted - donor's holding period PLUS donee's holding period

Answer 17

death - FMV basis @ long term holding divorce - gift @ carryover basis gift - combine holding periods, basis carries over (except for gift tax paid and loss property - double basis)

Answer 18

Realized Gain is Economic or Inherent Gain at the time of the transaction. Recognized Gain is the part of Realized that is immediately taxable.

Answer 19

principal residence (owned and occupied!!) for 2 of last 5 years Exclusion can only be used once every two years 250k Single 500k MFJ A pro-rated exclusion can apply if the sale happens due to job change, change of health or other unforeseen circumstances (death, divorce, multiple birth from same pregnancy, bullying) Spouses must both meet the use requirement and not have used the exclusion in last 2 years, but either may utilize the ownership requirement

Answer 20

Qualified Small Business Stock -original issuee, paid for by cash/property (not services) can deduct 50k single or 100k MFJ losses against ordinary income any further losses are capital losses

Answer 21

* only real property * exchange one property for another without having to realize any gain or loss * $ must be held by an escrow agent while you have 45 days to identify property to roll over to * must be closed on by either 180 days OR the due date of tax return (including extensions) Form 8824

Answer 22

No Boot Received: Recognized Gain is zero When Boot is Received, just answer the recognized gain is the boot received Boot paid is added to Basis Basis carries over from the prior property

Answer 23

* 1031 (Like Kind Realty) - 45 days to find new prop, 180 days to close (or tax deadline) * 1032 (corporation stock for property) * 1033 involuntary conversions (fire, hurricane, eminent domain - wanting a new property instead of rebuilding on site -- 2-3 yr from yr end) *1035 ( life to life, life to annuity, annuity to annuity, but NOT annuity to life) * transactions between spouses incident to divorce (within 1 yr of divorce date)

Answer 24

If one spouse has met the occupancy and the other has not, split the 500k exclusion and apply the pro rata

Answer 25

1. Relationship - descendant, sibling or descendant of sibling, step child or foster 2. Abode - live with for more than 6 mo. of year 3. Age - <19 or <24 and in school* 4. Support - child cannot provide >50% support *Spring semester counts for age test

Answer 26

1. Relationship Test (no abode test) 2. Gross Income < $4300 3. Support (taxpayer provided >50%) 4. Not a qualifying child Joint return test - married dependent cannot file if they wish to be claimed Citizenship or Residency test- must be citizen or national of US or a resident of US, Mexico, Canada during some part of the year

Answer 27

MFJ: 1st Hurdle @ 32,000 2nd Hurdle @ 44,000 Single, HoH: 1st Hurdle @ 25,000 2nd Hurdle @ 34,000

Answer 28

Calculate the Maximum Deductible - 60% of AGI Calculate the eligible amounts given to 50% organizations (public charities) such as all churches, schools, hospitals and organizations such as United Way, Red Cross, Humane Society, etc. Calculate the eligible amounts given to 30% organizations (private charities) such as private non-operating foundations, war veteran groups, and fraternal orders.

Answer 29

Long-Term Appreciated Property, using FMV deduct up to 30% of AGI Use-unrelated Property, ST Capital Gain Property using basis deduct up to 50% of AGI

Answer 30

April 15 June 15 September 15 January 15

Answer 31

To avoid, pay the lesser of: 90% of the current year’s tax liability 100% of the prior year’s tax liability (or 110% if the last year’s adjusted gross income exceeded $150,000)

Answer 32

The second step in the 1040 calculation is adjusted gross income. It is Total Income (or Gross Income) less adjustments to income. The main Adjustments or Deductions to Income are: IRA Contributions Self-employment Tax Self-employment Health Insurance (100%) Keogh or SEP Alimony paid

Answer 33

Medical, Dental, and LTC (7.5% of AGI) Casualty and Theft Losses Real Estate Taxes** Investment Interest Expense Home Mortgage Interest State and Local Taxes** Personal Property Tax** Charitable Gifts **Limited to $10,000/yr.

Answer 34

First: Use the lesser of basis or FMV Second: Subtract any insurance coverage Third: Subtract $100 (floor) Fourth: Subtract 10% of AGI. Must be a presidentially declared “natural disaster”

Answer 35

All net UNEARNED income of a child who has: NOT attained age 18, or Turns 19-23 if a full-time student and who has at least one parent alive is taxed at parent’s rate regardless of the source of the assets. Children under 18 are entitled (2023) to a Standard Deduction amount ($1,250) and an additional $1,250 of unearned income will be taxed at the child’s rate (10% marginal tax bracket).

Answer 36

Net Schedule C Income General Partnership Income (K-1 income) Board of Directors fees Part-time earnings (1099) NOT wages or K-1 distributions from an S Corp

Answer 37

The Taxable Wage Base will not exceed $160,200 (2023). If you added up the self-employed income, and you exceeded $160,200, you did something wrong. Why? Social Security tax stops at $160,200 (2023). Shortcut: Multiply Total Self-employment Income by 0.1413

Answer 38

Cash: Mandatory where taxpayer’s records reflect only cash transactions, and there are no inventories. Accrual: Mandatory for purchases and sales over $25M where there are inventories. Hybrid: Combines accrual for inventory portion of business and cash for cash portion of business. Percentage of Completion: For long-term contracts where the contract will not be completed within the taxable year started.

Answer 39

Loan must be over 100k & net investment income must be over 1000 for interest to be imputed on below-market-rate loans

Answer 40

up to 5 years

Answer 41

Internal Revenue Code: Primary Source of all tax law. Treasury Regulations: Great authority, but not law. Revenue Rulings and Revenue Procedures: Administrative interpretation. May be cited. Congressional Committee Reports: Indicate the intent of Congress. May not be cited. Private Letter Rulings: Apply to a specific taxpayer . Judicial Sources: Court decisions interpret

Answer 42

Frivolous Return: $5000 Negligence: Penalty is 20% of the portion of the underpayment attributed to negligence. Civil Fraud: Penalty is 75% of the portion of the tax underpayment attributable. Failure to File: Penalty is 5% of the tax due per month, with a maximum of 25%. Failure to PAY: Penalty is 0.5% per month the tax is unpaid, with a maximum of 25% (Pay-Point)

Answer 43

To avoid, pay the lesser of: 90% of the current year’s tax liability 100% of the prior year’s tax liability (or 110% if the last year’s adjusted gross income exceeded $150,000)

Answer 44

April 15 June 15 September 15 January 15

Answer 45

Qualifying: Tangible Personal Property 1245 Property Non-Qualifying: Real Estate 1250 Property Intangible (owning a franchise)

Answer 46

Accelerating receipt of taxable income or deferring the payment of property taxes, state income taxes, deductible medical expenses or charitable giving, the regular tax (1040) may exceed the AMT payable (more taxable income) Deferring exercise of incentive stock options (preference item) to a later date or disqualifying the ISO so that it becomes NQSO (subject to ordinary income tax). Purchase public purpose muni bonds instead of private activity bonds.

Answer 47

A Add Back: Incentive Stock Option Bargain Element Property and Income Taxes

Answer 48

negligible

Answer 49

excluded from gross income and not deductible if sent

Answer 50

50% limit of gross or (basis / units recoverable )* units sold

Answer 51

Number of shareholders is limited to 100 The Corporation can only have a single class of outstanding Common Stock (no preferred), but the Common can be voting or non-voting. Must be a Domestic Corporation Only individuals, estates and certain Trusts may be shareholders. NOTE: Non-resident aliens (persons who are neither citizens nor permanent residents of the US) cannot be shareholders.

Answer 52

Cash invested Direct loans made to the partnership Partnership Debt: Loans made to the partnership - not the partner (bank loans) NOTE: S-Corp basis does NOT include bank loans even if the S-Corp owner personally guarantees the debt.

Answer 53

Ownership < 20% = 50% DRD Ownership 20> but <80 = 65% DRD Ownership >80% (affiliated corporations) = 100% DRD

Answer 54

= (Appreciation of the Property/ Taxable Gift) × Gift Tax Paid

Answer 55

AGI over 43k is 20% of qualified expenses (3k for one child, 6k for 2+)

Answer 56

Max age and service are age 21 and one year of service (21-and-one-rule) Special provision allows up to 2-year service requirement, BUT then employee is immediately vested (2-year/100%) Year of service is 1,000 hours (includes vacations, holidays and illness time) or 500 hours if worked 3 consecutive years

Answer 57

Base % + Permitted Disparity = Excess % Base % - DC plan contribution for compensation below integration level Permitted Disparity - Lesser of base % or 5.7% Excess % - DC plan contribution for compensation above integration leve

Answer 58

Base % + Permitted Disparity = Excess % Base % - DB plan contribution for compensation below integration level Permitted Disparity - Lesser of base % or 26.25% Excess % - DB plan contribution for compensation above integration level

Answer 59

Corporations Partnerships LLCs Proprietorships Tax-exempt entities

Answer 60

401(k) Plan Subject to ADP and ACP nondiscrimination tests

Answer 61

The statutory contribution using a match is $1/$1 on the first 3% employee deferral and $0.50/$1 on the next 2% employee deferral. If the employer chooses to use the non-elective deferral method, the employer must contribute 3% of all eligible employees’ compensation regardless of whether the employee is deferring or not. Employer contributions must be immediately vested.

Answer 62

is treated as a grantor trust for income tax purposes but as a completed gift for gift and estate tax purposes.

CFP Review T.R.E. (Part II) Flashcards

(87 cards)