Corp / Entity Taxation Flashcards
(110 cards)
Expense Deduction in lieu of Depreciation
Section 179 expense
Limit = $510k for new/used personal property
Phase out dollar for dollar after $2,030,000
Deduction not permitted when net loss exists or if deduction would create a net loss
Corp Tax
Executive Compensation Deduction
Max = $1M (fixed / base salary)
Form 709
Gift tax form
tax paid by person giving the gift
Tax Due on Current Gifts
Formula…
Gross gifts in a calendar year (@FMV) - exclusion of $14k per donee per year - unlimited marital deduction - unlimited charitable gifts = taxable gifts this year
+ taxable gifts of prior years
= cumulative lifetime gifts
x tax rate
- tax paid
- credits
= tax due on current gifts
Estate Expenses and Deductions
Medical expenses
Administrative expenses
above = expense or liability, but not both
Unlimited charitable deduction
Unlimited marital deduction
above = discretionary deductions
Estate Transfer Tax
Formula…
gross estate - non discretionary deductions = adjusted gross estate - discretionary deductions = taxable estate \+ adjusted taxable gifts = tentative tax base at death x uniform tax rates = tentative estate tax - gift taxes payable = gross estate tax - applicable credit = estate tax due
Form 706
Filed if gifts exceed 2017 limit ($5,490,000)
Due in 9 months after death
Property transfers to corporations
Non-taxable upon formation, if resulting in 80% ownership
Taxable if not 80%, or subsequent to formation
Treated like a sale of property to corp at FMV
Corp Tax
Shareholder Tax Consequences
No gain/loss if:
1 - 80% control
2 - no receipt/loot
- ..
- no cash withdrawn
- excess debt put into corp
NBV assets - liabilities = gain/loss
Amortization
GAAP not equal to Tax
Tax = 15 yr SL
GAAP =
- public = impairment test / not amortized
- private = option to amortize over 10 years
Form 1041
US income tax return for estates and trusts
Complex Trusts
May accumulate current income
May distribute principle
May deduct charitable contributions
Permitted a $100 exemption in arriving at taxable income
Grantor Trust
Individual who established the trust retains control
Income tax of the grantor
Can be qualified shareholder of an S Corp
Typically included in the taxable estate of the grantor upon his/her death
Simple Trusts
Only make disbursements out of current income
Required to distribute all of its income currently
Cannot take a deduction for charitable contributions
Entitled to a $300 exemption
Trusts and Estates
Annual Estate Income Tax
Form 1041
Required when income exceeds $600
- exemptions for estates = $600
- no standard deduction allowed
Tax year return due 15th day of 4th month
Estate exempted from making estimated tax payments for first two tax years
Trusts and Estates
Income Distribution Deduction
Lessor of:
1 - actual distribution to beneficiary
2 - DNI (less adjusted tax-exempt interest)
Distributable Net Income
(DNI) formula…
estate / trust gross income (includes cap gains)
- estate / trust deductions
= Adjusted Total Income
+ adjusted tax exempt interest
- capital gains (attributable to corpus)
= DNI
Nontaxable Liquidation of a Partnership
“complete withdrawal”
beg. capital account
+ % of income/loss up to withdrawal
= Partners capital account
+ % of liabilities
= Adjusted basis at date of withdrawal
- cash withdrawn
= Remaining basis to be allocated to assets withdrawn
Gain recognized exception = $ > basis
Loss recognized exception = $ < basis (no other items)
LLC Key Points
Protects from liabilities like a corporation
Unlimited members
Sole prop can be single member LLC
Can’t IPO
LLC members can make changes / manage but shareholders generally cannot
Taxable Income to Partners
Income = taxable = increases basis
Withdrawal = nontaxable = decreases basis
Partnership Terminates when…
Ops cease
50% of cap and profits is sold or exchanged
Less than 2 partners
Partnerships
Property Subject to an (excess) liability
If debt relieved (negative basis) exceeds basis once everything is factored in, it results in a 0 basis and taxable gain as boot/loot to the partner
Partnership Initial Basis Calculation
Cash contributed \+ NBV property contributed - Liabilities assumed by partnership \+ Services rendered FMV (taxable as income to partner) \+ Share of partnership liabilities
How to lose S Corp Status
Voluntary revocation
Failure to meet eligibility requirements
- corp or foreign owner
+ 25% gross receipts from passive investment income for 3 consecutive years and had C corp E/P at end of each year
can re-apply in 5 years