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Danko: CFP Prep > Income Tax > Flashcards

Income Tax Flashcards

(77 cards)

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1
Q

Investment Interest Deduction

A

limited to net investment income, which includes:
- interest
- nonqualified dividends
- royalties
- short-term gains

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2
Q

Entertainment, Meals, Travel deduction %

A

0%
50%
100%

reimbursements are tax free

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3
Q

Self-Employment Tax Calculation

A

ONLY net earnings from self-employment

Multiply SE income by .1413 & round up

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4
Q

Dependent Care Credit

A

Helps offset dependent care exprenses for child under 13

1 child = $3, 2+ = $6k

X 20%

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5
Q

Child Tax Credit

A

Child under 17

$2,000 per child, $1,700 refundable

Phase out: $400k MFJ, $200k S

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6
Q

Related party tax trap

A

property sold to a related party using an installment sale who in turn sells it within 2 years. All gain is taxed to seller. related party still pays yearly installment

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7
Q

Sale of Residence (Section 121)

A

2 of 5 years

$500k, $250k

must move 50 miles if using exception of moving because of new job

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8
Q

$25,000 loss for Active Particpants

A

may deduct up to $25,000 per year of net losses from real estate activity from their active or portfolio income

AGI phase out: $100k-$150k 2 for 1

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9
Q

Appreciated gift: basis & holding period to donee

A

Carryover basis + carryover holding period

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10
Q

Depreciated gift (loss property): basis & holding period to donee

A

Dual basis: FMV and donor’s basis.

If donee sells above donee’s basis = use donee’s basis
If donee sells below FMV = use FMV as basis
If donee sells between FMV & donor’s basis = no tax zone

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11
Q

Taxation of gift subject to debt

A

Tax is based on net value of gift (property less amount owed)

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12
Q

Six fully deductible gifts (i.e. exempt gifts) no matter how much you pay during your lifetime

A

Payments to:
1) School for tuition
2) Doctor for medical care
3) Charity
4) Spouse
5) political organization
6) POTUS

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13
Q

Parent gives puts $119,000 into an irrevocable trust with Crumey provisions that state she can only spend it after she graduates from college in two years. What is her taxable gift?

A

$100,000.

$100,000 = gift of future interest. File 709
$19,000 = gift of present interest. No filing of 709

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14
Q

What is Schedule A?

A

Allowable Itemized Deductions

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15
Q

What does Schedule B represent?

A

BODI = B is Ordinary Dividends and Interest

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16
Q

What is the purpose of Schedule C?

A

Conduit Entities

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17
Q

What does Schedule D refer to?

A

DC = DC is the Capital = Capital Gains/Losses

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18
Q

What is Schedule E used for?

A

Real Estate

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19
Q

What is Schedule H?

A

Household Employees

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20
Q

Define Step Transaction

A

Ignore the individual transactions and only tax the ultimate transaction

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21
Q

What is a Sham Transaction?

A

Economic substance is ignored because it lacks a business purpose

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22
Q

Explain Substance Over Form.

A

Look at economic outcome of the transaction

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23
Q

What is Constructive Receipt?

A

Getting the benefit without paying for it

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24
Q

What is the penalty for Failure to File?

A

Five %

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25
What is the penalty for Failure to Pay?
Point 5%
26
What is the penalty for Fraud?
75%
27
What is the Estimated Tax Rule?
Pay lesser of 90% of current year's tax liability or 100% of prior year's liability (110% if AGI > $150k)
28
What is Gross Income?
Wages, Salaries & Tips, Taxable interest, Ordinary Dividends, Business income & losses, Capital gains & losses, Real Estate, Other sources like alimony pre-2019
29
What are the tax-free fringe benefits?
* Company car * Dependent care ($5k) * Education Assistance program ($5,250) * Parking spot ($315/m cap) * Highway transit pass ($315/m cap)
30
What items are excluded from income?
* Inheritances * Gifts * Municipal bond interest * Compensatory damages * 14 days of rent * Workers comp * Alimony post 2019
31
What are Adjustments to Gross Income?
* IRA contributions * Keogh or SEP contributions * Student loan interest * ½ of Self-employment tax * Alimony paid pre 2019 divorce * HSA * Self-employment health insurance
32
What is the Standard Deduction for Single filers?
$15k
33
What is the Standard Deduction for Married Filing Jointly?
$30k
34
What is the Kiddie Tax threshold for unearned income?
<16 or a dependent
35
What are the tax rates for Kiddie Tax?
* 0-$1,350: 0% * $1,350 - $2,700: 10% * $2,700+: parent's tax rate
36
What is Self-Employment Tax?
Includes Schedule C income, GP income (k-1), Board of Director Fees, Part-time earnings
37
What is the formula for calculating Self-Employment Tax owed?
0.1413 x net Schedule C earnings
38
What is the Original Basis?
What you paid for the property
39
What is the basis for a Gift?
Carryover basis & carryover holding period (unless loss property)
40
What is the basis for Inherited property?
Full step up to FMV at DOD for community property; step up for non-community property
41
What is Adjusted Basis?
I have to add or subtract costs to basis
42
What are the Modified Accelerated Cost Recovery System (MACRS) Property Classes?
* Computers, Autos, Trucks (1245) 5 years * Office Furniture & Fixtures (1245) 7 years * Residential Rental Property (1250) 27.5 years * Nonresidential Real Property (1250) 39 years
43
What is Depreciation Recapture?
CRDs taken are given back at ordinary income up to OG basis, anything above taxed at LTCG
44
What is the Section 179 election?
Business owners can expense tangible personal property purchased for use in trade or business up to $1.25M
45
What is the treatment of Installment Sales?
Spreads out capital gains over life of note unless related party resells in 2 years
46
What is the Wash Sale Rule?
You can't deduct a loss on a security if you buy something substantially identical 30 days before or after realizing the loss
47
What is a Like-Kind Exchange?
Swap properties and defer gains if exchanged properties are like-kind and used in trade or business
48
What is Capital Gains & Losses?
Net STCG with STCL; LTCG with LTCL; $3k net losses offset ordinary income in a single year
49
What is the exclusion for Selling Residence (Section 121)?
$250K/$500K exclusion for primary residence if owned for 2/5 years preceding sale
50
What is the Alternative Minimum Tax (AMT)?
A tax system that ensures that individuals pay at least a minimum amount of tax
51
What are the steps to calculate AMT?
* Find the river (post-deduction 1040 income) * Add back BET * Add cement to AMT Rock with IPOD preference items * Calculate AMT payable
52
What is the Bargain Element in the exercise of an ISO?
BET ## Footnote BET refers to the Bargain Element that is added back for tax calculations.
53
What is the SALT limit?
$10,000 limit ## Footnote SALT stands for State And Local Taxes.
54
What are some examples of AMT preference items?
* Intangible excess drilling costs * Private activity muni bonds * Oil and gas percentage depletion * Depreciation (ACRS/MACRS) – not straight-line
55
What is the AMT payable metaphorically compared to?
Part that sticks out of the river ## Footnote This metaphor illustrates how AMT is a component of taxable income.
56
What is a preference item in tax terms?
IPOD ## Footnote IPOD refers to items that can influence the Alternative Minimum Tax.
57
How can one reduce AMT?
Raise the river ## Footnote This metaphor suggests increasing deductions or credits to lower AMT.
58
What is the benefit of Section 1244 Stock?
Loss of $50k (single)/$100k (joint) per year to offset active sweat income
59
What is the cap for capital gains/losses that can offset active sweat income?
$3,000 cap ## Footnote This applies each year against active sweat income.
60
What is the maximum rental real estate offset for taxpayers who participate?
$25,000 ## Footnote This is available if AGI is below $100,000.
61
What happens to the rental real estate offset if AGI exceeds $150,000?
$0 offset
62
What is the 2-for-1 reduction rule for rental real estate losses?
Reduction applies up to $25,000 for AGI between $100,000 and $150,000
63
What is the Augusta Rule?
Rent your house for < 15 days/year = tax-free income
64
What determines the limitation for living in a vacation home?
Longer of (1) 14 days or (2) 10% of rental period
65
What is the Childcare credit amount?
$3,000/kid, $6,000 max ## Footnote Available if parents both work and for children <13 years old.
66
What is the Child Tax Credit amount?
$2,000/kid ## Footnote No maximum age limit, but MAGI phaseout at $200k/$400k.
67
What is the Adoption credit maximum per child?
$17,280 ## Footnote Available for adoptions, with a MAGI limit of $259,190.
68
What is the Low-Income Housing Credit benefit?
Generates deduction equivalent up to $25,000 w/o phaseout
69
What qualifies a surviving spouse for tax benefits?
Qualified Surviving Spouse (QSS) allowed for 2 years
70
What is the status of the dependency exemption?
0 (eliminated)
71
What is the deduction limit for cash charitable contributions?
Up to 60% AGI
72
What is the deductibility of long-term appreciated property?
30% AGI this year write-off ## Footnote Must be held for more than 1 year.
73
What is the deductible value for gifts at basis?
50% of AGI this year write-off
74
What is the deductible value for gifts at FMV?
30% of AGI this year write-off
75
What is required for vehicle donations over $500?
Need written acknowledgement
76
What is the deduction limit for ordinary property?
Basis only
77
What is the write-off limit for loss property?
50% AGI this year's write-off

Danko: CFP Prep (6 decks)

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