Remember and Understand - Individual and company tax Flashcards
What are passive activities for federal income tax purposes of INDIVIDUALS
A passive activity is any activity in which the taxpayer does not materially participate
Examples: rental activities, interests in limited partnerships, and S corporations
What are the 5 different filing status?
- single
- married filing jointly
- married filing separately
- head of household
- qualifying widower with dependent child
What is the criteria for filing single
Unmarried or legally separated from spouse at the end of the year
What are the criteria for filing married filing jointly
- married and living together as spouses
- living together in a recognized common law marriage
- married and living apart but not legally separated or divorced
What is the criteria for filing married filing separately?
- Married
- if one spouse wants to be responsible only for own tax or
- if both spouses do not agree to file a joint return
What is the criteria for head of household?
- Individual not married, legal separated or is married and lives apart from their spouse for at least 6 months of the year
- not a qualifying widower
- not a nonresident alien
- individual maintained a home that, for more than half the taxable year, is the principal residence of a
- son or daughter who is a qualifying dependent
- A dependent relative who resides with the taxpayer or
- a dependent father or mother, regardless of whether they live with the taxpayer
What is the criteria for filing qualifying widower?
- unmarried at end of tax year
- surviving spouse must maintain a household, which for the entire taxable year was principal place of abode of a son, stepson, daughter, or stepdaughter and
- the son, stepson, daughter qualifies as a dependent of the taxpayer
The taxpayer qualifies for this status for 2 years after year of death of the spouse
What are the requirements for an individual to meet the definition for a qualifying child?
CARES C - Close relative A - Age limit (19/24) R- Residency and filing requirement E - Eliminate gross income test S - Support test
What are the requirements for an individual to meet the requirements for qualifying relative
SUPORT
S - Support (over 50%) test
U- under a specific amount of taxable gross income test
P - Precludes dependent filing a joint tax return test
O- only citizens (residents of US, Canada, Mexico)
R- relative test OR
T - Taxpayer lives with individual for the WHOLE year
What is the age test for meeting the qualified child?
19 or
24 - in a full time school program
What are the requirements for a corporation to file a consolidated return
i. Parent –Subsidiary Relationships may file a consolidated return
1. An affiliated group (where a common parent directly owns 90% or more of the voting power of all outstanding stock and 80% or more of the value of all outstanding stock of each corporation) of corporations may elect to be taxed as a single unit
ii. Brother and sister relationships may not file a consolidated return
Recall eligible shareholders for an S corporation
i. Shareholders may be individuals, estates (testamentary and bankruptcy) and trusts including:
1. Grantor trusts during the life of the grantor plus 60 days
2. Testamentary trusts for 60 days after the stock is transferred to the trust
3. Stock voting trusts
4. Qualified subchapter S trusts
5. Electing small business trusts
Recall S corporation eligibility requirements for federal income tax purposes
- Qualified corporation
ii. Eligible shareholders
iii. Shareholder limit
iv. One class of stock
Explain the procedures to make a valid S corporation election for federal income tax purposes?
i. All current shareholders must consent to the election
ii. It must be unanimous
iii. The election may be made on form 2553 either A) during the preceding year or B) on or before the 15th day of the third month of the current taxable year
How can an s corp status be terminated
Holders of a majority of the stock consent to a voluntary termination
- The corporation fails to meet any of all of the eligibility requirements
- More than 25% of the corporations gross receipts come from passive activities for three consecutive years and the corporation had C corporation earnings and profits at the end of each year
What are factors that cause a built in tax gains to apply for federal income tax purposes
i. Built in gains tax occurs when a C corporation becomes an S corporation
What are partnership elections applicable to a partnership for federal income tax purposes
i. 754 election –
1. Have the option to make a section 754 election when certain distributions of property from the partnership to a partner occur or when there is a transfer of a partnership interest by sale or exchange or upon the death of a partner
2. 743(b) adjustment follows 754
a. The section 743 (b) adjustments equal the difference between the value of the outside basis to the transferee partner (i.e., purchase price) and his share of the partnerships inside basis of the assets.
ii. 179 election – dollar limit on use of the election per year
What are situations where a partnership would be terminated
i. There are three ways a partner may terminate a partnership interest:
1. Complete withdrawal
2. Sale of partnership interest
3. Retirement or death
ii. Two main reasons include
1. There is only one partner left
2. 50% of partnership interest is sold within a 12 month period
What are the tax classification options for an LLC
i. Can be either corporations or partnerships
Recall and explain the differences between simple and complex trusts for federal income tax purposes?
a. Simple – a trust that requires all income to be distributed each year, that does not make any charitable contributions and that does not make any distributions, except out of current income
b. Complex – all others
What are the requirements to qualify as an IRC Section 501 C tax exempt organization
- make a written application for exempt status
- Be approved by the IRS
- Become incorporated under the standard procedures
- Issue capital stock
- include in the articles of organization the fact that the articles limit the purpose of the entity to the charitable exempt purpose
What are the requirements to maintain exempt status
- no part of the net earnings may inure to the benefit of any private foundation or individual
- no substantial part of the activities may be nonexempt activities (propoganda)
- the organization may not directly participate or intervene in any political campaign
Note: The organization must also file the required annual information tax forms (if applicable) - if the organization fails to file for 3 years the tax exempt status will be revoked
What is the definition of unrelated business income
gross income from any unrelated trade or business regularly carried on, minus business deductions connected therewith
What is the required percentage for related parties
Owning 50% or more of a corporation
