Brainscape's Knowledge GenomeTM


Top Flashcards (Certified)
All Flashcards

CFP Memorize > Income Tax > Flashcards

Income Tax Flashcards

(55 cards)

Start Studying
1
Q

Exclusions Gross Income

A
  • Gifts
  • Inheritances
  • Child Support
  • Muni Bond Income
  • Worker’s Comp
  • Compensatory Damages
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

Frivolous Return Penalty

A

$5,000

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

Negligence on Return Penalty

A

20% of underpayment due to negligence

“Negligence” is a blatant disregard for tax law or failure to report material information

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

Fraudulent Return Penalty

A

75% of underpayment due to fraud

“Fraud” is the willful and intentional disregard for tax law in an attempt to cover information or reduce tax payment

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

Estimated Tax

Avoid Penalty amounts

A

Pay:

90% of current year’s tax liability
Or
100% of last year’s tax payment
110% if AGI > $150K

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

Failure to Pay Penalty

A

0.5% per month on tax due, up to 25% max

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

Failure to File Penalty

A

5% per month on tax due, up to 25% max.

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

Hobby Loss Rule

A

Can deduct expenses (to the extent of revenues) subject to 2% of AGI if…

Enterprise generates net income for less than 3 of 5 consecutive years

Horses - 2 of 7 consecutive years

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

Step Transaction

A

“Step-out, then Step-back-in”

XYZ inc. sells property to ABC inc. then ABC inc. sells to a subsidiary of XYZ.

Tax the ultimate transaction, ignore the individual transaction.

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

Sham Transaction

A

“Internal sale”

XYZ inc. sells property to subsidiary of XYZ inc.

Ignored for tax purposes, lacks economic substance

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

Substance over Form

A

Paying your own salary and calling it something else besides income

CEO takes a loan from the company with no intent to repay - it is really compensation

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

Assignment of Income

A

“Tax the tree that bears the fruit”

Man tries to funnel income to his son who has a lower tax bracket.

The man is taxed on the income, not his son.

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

Adjustments to Gross Income

“For AGI”

“Bottom Front of 1040”

A
  • Educator Expenses
  • HSA
  • Moving Expenses
  • 1/2 Self-Employment Tax Deduction (.07065)
  • SEP/ Keogh contributions
  • Alimony Paid
  • penalty on early withdrawal
  • IRA Contributions
  • Student Loan Interest
  • 100% of Self-employment health insurance
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

Deductions From AGI

“Below the line deductions”

Back of 1040

A

Standard or Itemized Deductions

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

Standard Deduction Amounts

A

Single $6,300; married $12,600; head of household $9,250

Elderly or Blind: single $1,550; married $1,250

Child unearned income: $1,050 (kiddie tax)

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

Itemized deductions

A

(Schedule A)

  • Medical, dental, qual LTC > 10% of AGI (Age +65 >7.5% until 2016)
  • State and Local Taxes; sales tax
  • personal property tax
  • Charitable Gifts
  • mortgage insurance (
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

Itemized Deductions Limitation

A

Deductions are reduced by 3% of AGI above $258,250 (single) or $309,900 (joint). Cannot exceed 80% of deductions amount.

This does not apply to medical expenses, investment interest, wagering losses, or casualty and theft losses.

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

Qualified Residence Interest Rules

Limits on Mortgage Interest Deduction

A

All loans on residence +$1MM and money is used to build, buy, or improve:

Only interest on first $1MM is deductible

Any other purpose: interest on first $100K is deductible

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

Limit on Investment Interest Deduction

A

Total amount up to net investment income

Ex: Investment Income of $2,500 in 2015
Margin interest paid: $5,500

Can deduct only $2,500

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

Qualified Dividends

A

Taxed at LTCG rates; not ordinary income

Taxpayer can elect to pay ordinary income so as to boost investment income amount - higher interest expense deduction

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

Investment Expenses Calculation

A

Subtract investment expenses (advisor fees, cost of execution, etc.) from investment income

THEN subtract 2% of AGI

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

Tier II Miscellaneous Deductions reduced/offset by…

A

2% of AGI “2% calculation”

Subtract 2% of AGI from aggregate miscellaneous deductions

Exceptions (Tier I deductions): impairment-related work expenses for handicapped, gambling losses

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

Casualty and Theft Loss “Floor”

24
Q

Calculation for Deductible Casualty and Theft Loss

Study These Flashcards
A
  • Lesser of FMV or basis
  • Subtract insurance coverage
  • Subtract $100 floor
  • Subtract 10% of AGI
25
Casualty and Theft loss offset by...
10% of AGI SUBTRACT 10% of AGI from net losses after insurance coverage and floor
26
Home Office Tax treatment
Miscellaneous Tier II deduction Offset by 2% of AGI *can have no other fixed location where taxpayer conducts business ** cannot create a loss
27
Entertainment Expenses Deduction Limit
50% of expense... Corporations: Pay 100% of the amount and deduct 50% on 1120 corporate return Self-Employed: Pay 100%, deduct 50% on line 24 Schedule C Salaried Employee: Non-reimbursed expenses, deduct 50%, offset by 2% of AGI on Schedule A
28
Personal Exemptions
$4,000 - You; unless you are someone else's dependent - Spouse; filing jointly - child under age 24 and full-time student; under 19 not student - Parent earning above $2,000 MAGI including Social Security
29
Personal Exemption Phaseout
2% per $2,500 of AGI above $309,900 married, jointly *just remember it's subject to phaseout, no calculation necessary
30
Fringe Benefits - Tax Free
- Occasional use items - Company house, yacht, tickets (not season tickets) - Health premiums paid by employer - Group life premiums paid by employer up to $50K - Company Car for business - commuter pass $130/mo - Employer provided parking spots $250/mo - Exclude up to $5,000 ($2,500 married) for dependent care paid by employer - Discounts on company products not exceeding employer's gross profit % - Discounts on services limited to 20% of selling price -
31
Fringe Benefits Taxable
- health insurance premiums paid to self-employed, partners, and > 2% owners of an S-Corp (100% is deductible on front of 1040)** - Insurance premiums on group life +$50,000 of death benefit if plan is nondiscriminatory **heavily tested!!**
32
Not included in Self-employment income
- Dividends or interest on investments - Gains (or deductions from losses) for property, securities, or commodities - Real Estate income or rents paid - Distributive share of income or loss of a limited partner - Wages from an S-Corp - Distributions from an S-Corp (K-1)
33
Self-Employment Income
- Net Schedule C income - GP income (K-1) - Board of directors fees - part-time earnings (1099)
34
Self Employment tax Shortcut
Step 1: Calculate self-employment income | Step 2: multiply by .1413
35
Child Care Credit Keys
$3,000 per child up to $6,000 for two or more children. 20% credit Ex: two kids receiving day care $10K $6,000 x 0.2 = $1,200 credit
36
Child tax credit
$1,000 for each child under 17, phased out $50 for every $1,000 over $110,000 MAGI married, $75,000 single Ex: MAGI for couple $120,000 with one child, credit is $500 ($10,000 over, 10 x $50 = $500; $1,000-500= $500 credit)
37
Adoption Tax Credit
Max $13,400... Up to adoption related expenses, unless adopting a special needs child - then you get the full amount
38
Formula for credit equivalent to deduction
Deduction x Tax Bracket = Credit **Credit is worth more to a low bracket payer, deduction is worth more to high bracket**
39
Inclusions Gross Income
Schedule B - Ordinary Dividends - Taxable Interest - Business Income(and losses) Schedule C - Cap G/L - Real Estate Income Schedule E - Punitive damages(except wrongful death) - wages, salaries, tips - IRA distributions - Pension and Annuity distributions - Alimony Received - Unemployment Income - Taxable Social Sec.
40
Deduction for Charitable Giving
Choice to elect: FMV up to 30% of AGI OR Basis up to 50% of AGI (FMV 3 letters; BASIS 5 letters)
41
Constant for Divorce Recapture
Add all payments together and subtract $37,500
42
Basis increases with
Legal fees, commissions, sales tax, freight, improvements NOT repairs, real estate taxes, or normal business expenses - these are all deductible expenses
43
Gross Profit Percentage Calculation
Profit / Contract Price = GPP
44
Calculation of gain on installment sale (seller)
GPP x Cash Received from installment sale *recognized in year of sale and each subsequent year
45
NOL Net Operating Losses
Excess loss above gross income Reported as a loss for the year up to the gross income, the rest is carried over: Forward 20 years or back 2 years **NOT available to Partnerships or S-Corps
46
MACRS Table 1st and 2nd Year
5 year - 20%, 32% 7 year - 14.29%, 24.49% Straight line: Half of MACRS
47
179 deduction
Up to $25,000 deduction on purchase of 1245 property in year of acquisition
48
Collectibles Cap Gain Rate
28%
49
Real Estate Loss Deduction and Phaseout
$25,000 on active and portfolio income Phaseout AGI $100,000-150,000 *Same credit for low income housing, but no phaseout.
50
Standard Deduction for Blind or elderly
$1,250 married | $1,550 single
51
File Schedule ___ for nanny or caretaker in the house.
Schedule H H is for "Household"
52
Charitable deduction for donation of time or service
NONE Cannot deduct this even if charity is a qualified charity
53
Receipt of goods or services in lieu of charitable donation (tax treatment)
Can only deduct the excess of the donation relative to the value. (Ex. At a charitable auction, your client bids on and wins a $2,000 TV for $2,500. The maximum charitable deduction amount is $500)
54
Charitable Deduction carry-forward term
5 years
55
ISO "bargain element"
Excess of FMV over the option price at exercise. *AMT Add Back Item

CFP Memorize (6 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2025 Bold Learning Solutions. Terms and Conditions