Inventory, Accounts Receivable, and Notes Receivable are what type of Assets for tax purposes?
Ordinary Assets
Depreciable property in used in a trade or business that have been owned for more than a year for are what type of Assets for tax purposes?
Section 1231 Assets
Includes Realty and Depreciable Property
Assets that include property held for investment use or personal use
Capital Assets
Realized Gain Formula
Amt Realized - Adj Basis = Realized Gain or Loss
Any cash received, plus the FV of any property or services received, plus any liabilities assumed by the buyer LESS: selling expenses
Amount Realized
Cost of the property, which includes any capital improvements
Adjusted Basis
The adjusted basis the donor had in the property
GAIN Basis or Depreciable Basis
A gain is only recognized if the property is later sold for more than the GAIN BASIS
The lower of the FMV at the date of the gift or the adjusted basis of the donor
LOSS Basis
A loss is only recognized if the property is later sold for less than the loss basis
Property is sold is for an amount between the gain and loss basis
NO GAIN OR LOSS RECOGNIZED
What is the basis in property received from an inheritance?
FMV at the date of death
OR
Alternate Valuation Date, FMV 6 months after date of death
An individual can deduct how much $ from Ordinary Income due to a Net Capital Loss?
$3,000
If short term and net long term gains and losses are positive they are taxed as……….
ORDINARY INCOME
How far can a Corporation carry back/carry forward NET Capital Losses?
Back 3 years and forward 5 years
Can only be used to offset Capital Gain Net Income and cannot create a NOL or reduce taxable income
Takes gains on personally as ordinary income up to the amount of accumulated depreciation
Section 1245 Recapture of Depreciation for Section 1231 Assets
Recapture of accumulated accelerated depreciation on Section 1231 assets in excess of straight-line depreciation as ordinary income
Section 1250 for Recapture of Depreciation for Section 1231 Assets
If 1231 gains exceed 1231 Losses, the net gain is treated as a:
LONG TERM CAPITAL GAIN.
If 1231 Losses exceed 1231 Gains, the loss is deductible as :
ORDINARY LOSS
1231 Gains must be offset by net 1231 losses going back 5 years during the look back period, how are the losses absorbed by Gains treated?
ORDINARY INCOME
The balance is a 1231 gain
Under MACRS what methods are used for depreciation?
200% or 150% declining balance for personalty
Straight Line for Realty
A company’s Section 179 Deduction is limited to…
The amount up to the amount of business income
When “like kind” property is exchanged, no gain or loss is recognized unless…
Boot is received…which is cash or debt relief
The recognized Gain will be the amount of boot received.
An individual or married couple can exclude how much of a gain from the sale of their principal residence?
$250,000 if single
$500,000 if married
Stocks and dividend SPLITS are….
NOT a taxable event UNLESS there is an option to receive cash, which triggers a taxable event regardless if the Cash or Shares option is chosen.
Series EE Savings Bonds
Excludable from income in the same year that the taxpayer incurs higher education expenses and is ATLEAST 24 years old
Child Support is…
NOT taxable to the recipient or deductible for the payor
If a student is required to work as part of a scholarship…
The funds are taxable to the student.
Generally scholarships are not taxable up to the amount of tuition and expenses.
If jury duty funds are required to be given back to an employer…
They are eligible to be deduction from gross income to arrive at adjusted income
The value of an employee discount can be excluded from income if:
The value is up to 20% of services
Or No more than the avg gross profit percentage for goods
Insurance Premiums paid by the EMPLOYER that can be excluded from gross income:
Group term life coverage up $50k
Health Insurance Premiums
Disability Insurance Premiums
In a period of rising prices….LIFO will result
In a lower tax liability
In a period of rising prices…FIFO will result
In a higher tax liability
C Corps cannot use the cash method of accounting unless…
Their average annual gross reciepts for the previous 3 years do no exceed $5million
Deductions FROM AGI…
Are itemized deductions on schedule A
Deductions FOR AGI…
Deductions from Gross income to arrive at AGI, above the line items including: Alimony Trade or business expenses Rent or royalties expenses Losses 50% of self- employment tax 100% of medical insurance if self employed Moving Expenses IRA and Keogh Contributions Student Loan Interest
Charitable deduction is limited to….
50% of AGI
Non-Business Bad Debts are deductible as…
A short term capital loss in the year it was determined to be completely worthless
Partial Worthless Non-Business Bad Debts are NOT deductible
Business Bad Debts are deductible…
using the direct write off method only and they can be deducted to the extent the loan is partially worthless.
A taxpayer can deduct Rental Real Estate Passive Losses up to…
$25,000 in one year…person must own at least 10%
If the taxpayer’s AGI is above 100k, then the 25k is reduced by 50% of the taxpayer’s AGI above 100k.
So if your AGI is 150k and you have 30 k in rental losses, the 30 is reduced by 25K, half of 50k (150-100).
Hobby expense are deducted…
as 2% miscellaneous itemized deductions
When an activity generates a profit in 3 out of 5 consecutive years…
The burden of proof for proving a lack of profit motive can be shifted to the IRS
A relative that the taxpayer pays more than 50% of their support and they make less than 4,000 dollars
Qualifying Relative
The standard deduction is greater than the minimum if…
the taxpayer is over 65 or blind
What is the Self Employment Tax comprised of?
12.4% SS Tax
2.9% Medicare Tax
Capped at 117,000 of income
AMT Adjustments
Either Increase or Decrease Income for AMT
- Difference between AMT cost recovery and regular tax
- No installment method allowed
- No standard deduction or personal dependency exemption allowed
- Medical Expenses only in excess of 10% of AGI
- Interest on home equity loans not allowed unless to improve Residence
- No Phase out of itemized deductions
AMT Preferences
Always increase AMT Income
- Percentage depleted over adjusted basis
- Interest on Private Activity Municipal Bonds
- Excess Intangible drilling costs over 10 year straight line
- Pre 87 accelerated depreciation over straight line
Hope Credit/ American Opportunity Credit
2500 credit per year for each eligible student.
- 100% of the first 2000
- 25% of the next 2000 qualified education expenses
Lifetime Learning Credit
Up to a max of 2000 per taxpayer for qualified education expenses
Earned Income Credit
Married taxpayer…credit can result in a refund even if the taxpayer has zero tax liability
General Business Credit
Combination of several tax credits that are computed separately but combined into one amount to provide uniform rules to offset a taxpayer’s tax liability
If Boot is Received…
The gain recognized to the shareholder will be the lower of the
Realized Gain or FMV of the boot received
Shareholder’s basis in the stock he or she receives…
The basis of the transferred property, plus any gain recognized, less any boot received and less any liabilities assumed by the Corp
Corporations must accrual accounting UNLESS
Average Gross reciepts less than 5 million
Personal Service Corporation
S Corporation
Corporation year end
Can be chosen at their discretion June to June
S Corps and Personal Service Corps must be Calendar Year
M1- Schedule
Any non deductible expenses added back to book income to arrive at taxable income
Any non-taxable income would be subtracted
Net Operating Loss
Carried Back 2 years
Carried Forward 20 years
Dividends Received Deduction
Less than 20% ownership…70% DRD
20-79………………………………….80% DRD
80% or More………………………100% DRD