Tax Flashcards
(41 cards)
Which authority is the source that explains intent of tax laws
Congressional committee reports
Are personal exemptions allowed
No. personal exemptions are suspended for 2018 through 2025
what are the key requirements for being able to take Medical Expense Reimbursements deductions?
Unreimbursed medical expenses only (Reimbursed doesn’t count)
subject to 7.5% of AGI Floor (expenses above/exceeding 7.5% are deductible)
Must be itemized
it includes medical insurance Preimums
What’s the formula for Equivalent Tax Credit or Deduction
TC = TD x Marginal Tax Rate
TD = TC / Marginal Tax Rate
What type of income is subject to self-employment tax
Self-EARNED income
Single individual doing the work themselves
General partnership operating income
1099
NOT Included are:
- distributions from limited partnerships
- S-copr wages
- INT and DIV from investments
Is child responsible for kiddie tax due?
Yes. Child is still resonpsible to pay taxes that are taxed at parent’s rates. It’s child’s reponsibility to pay for all earned and unearned income in their name
What all sources of income are considered investment income?
Interest income (aka portfolio income)
Orinary Dividends( aka dividends treateds OI)
Short-term cap gains
NOT Included: LTCG
Is there a phase out for itemized deductions?
No. Not for tax years 2018 through 2025
What’s the difference between these accounting methods? Cash, Accruals and Hybrid
** Cash: **
* REVENUE = Year received (constructive receipt) ;
* Expenses = Year Paid (appropriate for biz less than $30Mil avg. revenue)
Accrual (MUST BE used if biz has inventory or 3 yr revenue exceed $31M)
* REVENUE = Year Earned
* Expenses = Year Incured
Hybrid = Combo of both (accrual for inventory portion of the biz and cash for service portion of the biz)
What’s the installment sale accounting method?
it permist the cap gains recognized to be spread over the life of the note rther than recognized entirely in the year of the sale. Property must be held for (i.e. not sold) for at least 2 subsequent years. If it’s sold before the 2 yr period, OG seller has to recognize the all cap gains (no defferal)
Example: You buy a land for $100k, then sell it to someone for $1M, they pay you $100K per year for 10 years. taxation of gains is prorated and partially deffered.
How do you calculate the annual gains to be realized in the installment sale method?
(Pruchase price - sale price) / Total cotract price = % of gain to be realized.
Installment amount X % of gains to be realized = $$$ of gain per year (typcally LT CG, but can be short-term too)
Explain FIFO vs. LIFO inventory costing methods?
FIFO = Increase earnings; Increase taxes (i.e. tax liability); current cost inventory
LIFO = Reduce earnings; Deferral of taxes; Understate Inventory
During period of rising prices (Inflation): Use LIFO to redue taxable income; thus reducing taxes (also reduced accounting income and earnings per share)
LIFO = Using cost of current goods and services is high;
FIFO= Usting cost of old goods and services first
Which inventory cost convention produes the highest prices ?
Specific Identification method (can only be used when firm can differentiate inventory by purchase lot)
Match inventory valuation = cost of goods sold
What is NOL and how is it taxed?
net operation loss
If NOI - NOL = 0, no taxes due in the current year
If NOL > NOI = Losses can be carried forward indefinitely
Match the price envrionment to accounting method?
Inflation (Rising Prices): LIFO = Low prifit, low tax and Understated inventory
Falling Prices : FIFO = Low profit, low tax, realistic inventory
Which types of interest is deductible on a business owner’s personal tax returns? and what are their limits?
Business Investment Interest paid (or “expensed”) = Unlimited
Mortgage Interest on primary residence (upto mortage of $750K; limit is not on the amount of interest paid)
Margin Interest = limited to Net investment income
Personal loan interest = NOT deductible
What kinds of share can S Corp issue?
Common stocks only ! (not preferred)
If you materially participate in a business, what kind of business can you have?
Sole Prop
S - Corp
General Partnership
(Cannot be Limited Parntership)
Which type of trust does not have to use a calendar year to file a tax return?
Charitable Trust
(All trusts except 501(a) or charitable must file on calendar year tax return)
what makes a trust a grantor trust?
Grantor is taxed on the income produced by the trust
Trust income is or may be, (For grantor and/or their spouse)
1. distrubted or accumulated for later distrubtion to either grantor or grantor spouse
2. used to discharge any legal obligation
3. discharge legal support obligation
4. beneficial enjoyment
5. pay premium on life insurance on the grantor or grantor’s spouse life
What’s another name for grantor trust?
Defective or tainted trust
What are the characteristics of complex trust?
TAXED as a seperate entity
- MUST be Irrevocable (NON-Grantor trust)
- MAY distribute income
- income may be accumulated (required by trust docs or trustee has discretion)
- distributed income is taxed to the bene; accumulated income is taxed to the trust
- corpus MAY be distributed
- MAY make charitable gifts
What are the characteristics of SIMPLE Trust?
AKA Conduit for Distributions
- MUST obtain a Federal TIN to file a tax return
- All trust income MUST be distribute
- Treated as a TAX ENTITY subject to $300 peronal exemption
- Corpus not distribued till trust termination
- No charitable gifts can be made
Trust Taxable Income Deductions
**Distribution Deductions: ** = Deduction allowed for all income required to be distributed (regardless of actual distribution)
CHARITABLE deductions = only allowed for COMPLEX TRUSTs
* Net operating carry forwards are allowed
Admin Expense Deductions = Trustee fees & commissions, attorney fees, accountant and tax prep fees, probate cour fees, fiduciary bond preimium
Personal Exemptions = Simple Trust = $300; Complext Trust $100; Estates $600
some “uncommon expenses 2% itemized deductions floor)
