Tax Flashcards

Question

Section 1231

Answer 1

gains: capital gain tax treatment (when held long term) losses: ordinary losses

Answer 2

depreciable personal property (furnishings, equipment) recapture of any gain that was depreciated, taxed as ordinary income. remaining gain is section 1231 gain

Answer 3

depreciable real property recapture: 25% tax on unrecaptured gain (unless tax bracket us lower) section 1231 for remaining gain

Answer 4

can exclude $250k S/$500k MFJ of gain on sale of home must be owned by at least one spouse and used by BOTH over the last two of the 5 years to qualify can only use exclusion every two years

Answer 5

rented less than 15 days per year exclude income expenses are non deductible except mortgage interest and taxes

Answer 6

rented 15 or more days and not used for personal use the greater of 14 days per year or 10% of the rental days losses deductible up to $25k. phase out AGI $100k-$150k - lose $1 for every $2 above $100k report income and deduct expenses on schedule E

Answer 7

rented more than 14 days and personal use exceeds rental standard deduct expenses cannot deduct loss report income and deduct expenses on schedule E

Answer 8

involuntary conversion: theft, destruction, requisition, condemnation must replace within two years (3 years for government takings) if amount reinvested is less than the amount realized from the conversion then gain recognzied

Answer 9

gain is deffered if exchanged realty for realty. must be for trade, business, or investement receipt of boot will result in the recognition of some gain if there is a realized gain if boot is given will add to the basis in the new property

Answer 10

exchnages of annuities and life insurnace

Answer 11

related party transactions applies to when a **loss** would occur sell for a loss to a related party: realized loss is NOT recognized related party's basis: * **Original basis** for **gain purposes** * **FMV** at time of purchase for **loss purposes** holding period begins on date of purchase from related party

Answer 12

carry over basis (pensions, annuities, installment sales)

Answer 13

**Donor's basis + [(FMV-donor's basis) / (FMV - annual exclusion)] X gift tax paid = Donee's basis** donors _holding period carries over_ if no gift taxes are paid, then carry over basis *FMV = FMV on date of gift*

Answer 14

realized loss is disallowed basis of the new stock will include the unrecovered portion of the basis of the formerly held stock

Answer 15

only applies to first $1million of stock initially issued by a C corp or S corp loss deductible as an ordinary loss maximum loss $50k S / $100k MFJ remaining loss is capital loss claimed on form 4797

Answer 16

1. recognize 25% gain (recapture amount) 2. then capital gain

Answer 17

* more than 500 hours of participation * more than 100 hours and at least as much as any other participant * participation of the tax payer ws substantially all of the participation in the activity

Answer 18

* activity where the tax payer does not materilaly participate * rental activities, except real estate professionals, even if the tax payer does materially partipate

Answer 19

1. at risk rules: *amount at risk = cash and property invested + recourse debt (personally liable) + share of income* 2. passive losses can only be offset against passive income

Answer 20

cannot be used to offset losses from nonpublically traded partnerships OR other publically traded partnerships must be _the same_ publically traded parternship

Answer 21

regular taxable income + positive AMT adjustments - AMT adjustments + tax preferences = AMTI

Answer 22

AMTI - AMTI exemption = minimum tax base X AMT rax rate = tentative tax - regular income tax on taxable income = AMT

Answer 23

* half of **S**E tax * SE **H**ealth insurance deduction * **I**RA deduction * **T**uition and fees deduciton * certain **B**usiness expenses * **E**ducator expenses * **A**limony (pre 2019) * **M**oving expenses (members of armed forces) * **S**tudent loan interest deduction * **H**SA deduction * **Q**ualified plans, SEPs, SIMPLES SHIT BEAMS HQ

Answer 24

amortization of intangibles (ex good will and franchises) uses straight line depreciation

Answer 25

**Frivolous Return**: $5000 **NeGliGence:** Penalty is 20% (2 g's) of the portion of the underpayment attributed to negligence. **Civil Fraud:** Penalty is 75% of the portion of the tax underpayment attributable. **Failure to File:** Penalty is 5% of the tax due per month, with a maximum of 25%. **Failure to PAY:** Penalty is 0.5% per month the tax is unpaid, with a maximum of 25% (Pay-Point)

Answer 26

Basis = taxpayer's investment in any asset or property right Basis is increased by legal fees, commissions, sales tax, freight and improvements (hint: CLIFS) Basis is NOT effected by repairs (deductable expense), real estate taxes, or normal business operating expenses Improvements MUST be capitalized

Answer 27

* Miscellaneous deductions * Unreimbursed personal casualty losses (unless federal distater) * Home office deduction for employees (Self-employed individuals can still claim deduction) Stricter limit on Meals and Entertainment Expense * No Entertainment deduction * Meals for EEs while traveling are 50% deductible * Travel is 100% deductible * Office parties still deductible * Tickets to sporting and cultural events NOT deductible

Answer 28

First: Use the lesser of basis or FMV Second: Subtract any insurance coverage Third: Subtract $100 (floor) Fourth: Subtract 10% of AGI. \*Must be a presidentially declared "natural disaster"ca

Answer 29

Insurance: * Lapse of Policy Loan * Section 162 Life/Disability Investments: * Zero/Strip Income * TIPS * Declared but not paid Dividends Tax/Retirement: * K-1 Income from LP/FLP * Recapture * NUA * 20% withholding plan distributions, Secular Trust

Answer 30

The Taxable Wage Base will not exceed $142,800 (2020). If you added up the self-employed income, and you exceeded $142,800, you did something wrong. Why? Social Security tax stops at $142,800 (2020). Shortcut: Multiply Self-employment Income by 0.1413

Answer 31

**Cash:** Mandatory where taxpayer's records reflect only cash transactions, and there are no inventories. **Accrual**: Mandatory for purchases and sales over $25M where there are inventories. **Hybrid:** Combines accrual for inventory portion of business and cash for cash portion of business. **Percentage of Completion:** For long-term contracts where the contract will not be completed within the taxable year started.

Answer 32

boot received = recognized gain boot paid = added to basis basis carried over from last property

Answer 33

NOL = excess of deductible expenses over gross income allowed for self-employed, corporations, estates, and trusts CANNOT be carried back but may be carried forward indefinitely

Answer 34

To avoid, pay the lesser of: 90% of the current year's tax liability 100% of the prior year's tax liability (or 110% if the last year's adjusted gross income exceeded $150,000)

Answer 35

Property sold to charity for less than FMV. Calculation: Sale Price / FMV x basis = adjusted basis Sale Price - adjusted basis = taxable gain

Answer 36

**realized gain:** economic or inherit gain at the time of transaction * *realized gain = sale price - commissions paid on sale* * *adjusted basis = purchase price + commissions paid on purchase* **recognized gain**: part of realized gain that is _immediately taxable_ * recognized gain = realized gain - adjusted basis

Answer 37

**Advantages** * Separate tax entity, taxed at flat 21% * Dividend-received deduction (50% exclusion) * Limited liability & continuity of life **Disadvantages** * corporate formalities * Dividends paid (after-taxs) * Accumulated earnings \> double taxation above $250k

Answer 38

* Health Care Premiums * Insurance Premiums on non-discriminatory group life policy up to $50k * Company car for working conditions only * Employer-provided transit passes ($270/mo. cap) or parking ($270/mo. cap) * Occasional overtime meal money, cab fare, theater or sporting event tickets * Discounts on services limited to 20% of selling price charged to customers

Answer 39

5 year lookback ## Footnote **_Step 1:_** total gain in current year - current year recapture - unrecaptured lossses **over past 5 years** = capital gain (section 1231) **_Step 2:_** total gain in current year - capital gain (section 1231) = gain taxed as ordinary income

Answer 40

purchase price - depreciation = adjusted basis

Answer 41

dedcutible agaisnt active or portfolio losses without limit and without respect to AGI

Answer 42

can deduct $25k of losses against active and portfolio income reduced by 50% of the taxpayers AGI in excess of $100k. entirely phased out at $150k

Answer 43

holding period is long term only $3,000 may be recognized in the current year, rest carried forward

Answer 44

income reported when cash is collected and expenses are reported when cash payments are made, used when there are no inventories can be used by: * individuals * partnerships or corporations if gross receipts for all prior years do not exceed $26 mil * certian farming businesses * qualified personal esrvice corporations: accounting, law, engineering, health, consulting architecture, acturarial science or performaing arts

Answer 45

reporting of expenses in the same tax year that it is reported in the taxpayers financial statements and income when earned used wen there are inventories and over $26 million

Answer 46

to be deductible must have a debtor-creditor relationship lender must have a basis in the loan

Answer 47

**FICA tax total = 7.65% EE and 7.65% ER + (additional medicare if applies)** * Social Security tax (OASDI) 6.2% ER + 6.2% EE capped at SS taxable wage base ($142,800) * Medicare tax (HI) 1.45% EE + 1.45% ER * .9% additional medicare tax on income above $200k S/$250k MFJ * only paid by EE * net investment income tax of 3.8% on investment income over certian thresholds SE will pay both portions

Answer 48

taxed directly to proprietor files schedule C with individual form 1040

Answer 49

flow through entity ## Footnote income and deductions flow through to partners, retian their character - reported on **_Schedule K-1_** each partner receives a K-1 for their allocation, which are then reported on the individual return 1040

Answer 50

* begins with contributions and is adjusted by earnings and losses * cash contribution = cash contributed * property contribution = carryover basis * distributions will reduce basis * share of liabilites assumed by partnership will reduce basis

Answer 51

personal holding company tax personal service corporation tax accumulated earnings tax

Answer 52

* if div receiving corp owns _less than 20%_ of div paying corp then _50% deduction_ of divs recieved * if div receiving corp owns _at least 20%, but less than 80%_ then _65% deduction_ of divs received * if div receiving corp _80% or more_ of div paying corp than _100% deduction_ of divs received

Answer 53

* GOAL: discourage people from using a corporate entity for tax avoidance * personal holding company if: * **_ownership test:_** more than 50% of the valuye of stock is owned by 5 or fewer individuals * AND **_passive income test:_** 60% of corps adjusted ordinary gross ncome consists of personal holding company income * undistributed personal holding company income = corps adjusted taxable income - divs paid decution * undistributed personal holding company income taxed at **personal holding company tax rate of 20%**

Answer 54

* personal service corportations: HAALE PSC * **H**ealth, * **A**rchitechture * **A**ccounting * **L**aw * **E**nginerring * **P**erforming arts * actuarial **S**cience * **C**onsulting * at least 95% of stock is held by active or retired employees * innome earned taxed to the corporation at a **_flat rate of 21%_**

Answer 55

taxes paid by the corporation, not the shareholders * built in capital gains tax * LIFO recapture * Excess net passive income tax

Answer 56

treated as partner fringe benefits included in shareholders gross income accident and health premiums are deductible by corporation

Answer 57

Donee's basis = FMV on date of gift holding period = starts on date of gift gift tax paid at time of gift is NOT allocated to basis

Answer 58

donee's basis = carryover basis holding period = carryover gift tax paid is NOT allocated to basis

Answer 59

no gain or loss is recognized

Tax Flashcards

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