T1 - Tax Compliance + Planning for Individuals

Question 1

How are non-statutory employee stock options taxed? “Not Special Option”

Answer 1

1. They need to be readily determinable = Ordinary income when granted
2. If not determinable = Ordinary Income using FMV - Amount Paid for Option at Exercise Date

Question 2

How are incentive stock options taxed? “Ideal Special Options”

Answer 2

They are not taxed until you sell it.

Basis = Exercise Price + Amount paid for Option

Question 3

How are ESPP treated?

Answer 3

Same as ISO
Not taxed until sold

Basis = Exercise Price + Amount paid for Option

Question 4

Describe the requirements to recognize an ISO sale as a capital gain?

Answer 4

Hold 2 years from Grant Date
Hold 1 year from Exercise date

Question 5

What are the 3 categories of individual income?

Answer 5

1. Active - Salary and such
2. Passive - Business income and you dont actively participate + Rental income + limited Partnership Interest
3. Portfolio - Dividends, interest and capital gains/losses

Question 6

Tell me more about Passive Losses

Answer 6

1. Passive loss offset passive income in future years - Carry forward
2. Passive loss can offset active income in the year the property is disposed/dissolved
3. If you can’t deduct, it’s suspended

Question 7

State the Annual Exclusion for Gifts

Answer 7

1. Gifts up to $18,000 are excluded, $36,000 if you are married
2. Unlimited exclusions apply to:
   a. Married People
   b. Charitable gifts
   c. Tuition directly to the University
   d. Fees paid directly to the Hospital

Question 8

401K - Name the exceptions to the 10% Penalty Tax - DIE HARD CARES

Answer 8

H - homebuyer up to 10K
I - insurance (medical) if unemployed for 1 year
M - Medical expenses

D - Disability (permanently)
E - Education
A - Adoption or birth of child
D - Disaster up to $22,000

T - Terminal illness or death
E - emergency expenses (Personal or family up to $1000)
D- Domestic abuse (lessor of $10K or 50% of retirement)

Question 9

name the 2 types of Section 539 qualified tuition programs

Answer 9

1. prepaid tuition plan
   - pay for tuition and fees at current rates
   - tied to a state or school so if the tuition goes up it will go up to
   - lower risk but less flexibility
2. educational savings plan -
   - can use to pay more types of education expenses + any college and school
   - investment is subject to market conditions.
   - more flexibility but higher risk

Question 10

Ways you can EVADE taxes with Section 529 Plans

Answer 10

If there is leftover you can do the following:
1. Save for future education needs
2. given it to another family member
3. withdraw up to $10,000 to pay qualified education loans
4. Rollover up to $35K into an Roth IRA

Question 11

Limited on SEP IRA

Answer 11

This is for an Self employed man and his employees

His maximum contribution is the lessor of:
20$ of Self Employed income LESS 1/2 of SE Tax Deductions

OR

$69,000