Tax Planning Flashcards

Question

Tax Form 1099-DIV

Answer 1

Dividends and distributions

Answer 2

Interest income

Answer 3

Non-employee compensation

Answer 4

Miscellaneous income

Answer 5

Retirement Distributions

Answer 6

IRA contribution individuals

Answer 7

Non-deductible IRAs

Answer 8

Child/dependent care, earned income, adoption, AOTC, LLC, student loan interest

Answer 9

Child tax credit and savers credit

Answer 10

For a widow/er, file MFJ in year of spouses death. File as Qualified Widow/er in year 1 and 2 immediately following as long as not remarried.

Answer 11

4/15 6/15 9/15 1/15

Answer 12

To avoid a penalty on underpayment, the estimated quarterly payments must be 25% of the lesser of the following: 90% of the tax liability shown on the return for the current year 100% of the tax liability shown on the return for the prior year if the taxpayer’s AGI for such prior year was $150,000 or less If AGI is greater than $150,000 MFJ or $75,000 MFS, no penalty if the taxpayer estimated tax payments in the current year equal to: 110% of the prior year’s tax, or 90% of the current year’s tax

Answer 13

“Ray Allen #20 was negligent in handling of exit from Celtics” No intent to defraud. 20% penalty applied to amount of deficiency

Answer 14

Intent to defraud 75% penalty applied to amount of deficiency

Answer 15

“Go pound sand” written on tax return $5000 penalty

Answer 16

5% of the unpaid taxes for each month or part of a month that a tax return is late, up to 25% max Minimum penalty of $435 if later than 60 days

Answer 17

0.5% per month the tax is unpaid up to a max of 25%

Answer 18

If the tax withheld from W-2 and/or estimated payments is less than; -90% of current year liability -100% of the prior year -110% if taxpayers AGI is greater than $150k MFJ

Answer 19

If both applied in same month, the Failure to File penalty is reduced by the amount of the Failure to Pay Penalty for that month, for a combined penalty of 5% for each month or part of a month that the return was late.

Answer 20

S Corp - Pass thru; treat dividend distro’s as tax benefit -> no income tax on them! C Corp - Partnership - Pass thru Limited Liability Co - Pass thru Sole-proprietor

Answer 21

Recognize expenses when they are actually paid and receive when they are actually or constructively received. Constructive receipt occurs when the finds are available without restriction. Tax return is always cash basis.

Answer 22

Revenue recognized when the right to receive it exists (e.g. AR) Expenses recognized when the liability can clearly be established, not when payment made (e.g. AP)

Answer 23

Revenue: Cash = Received. |. Accrual = Earned Expenses: Cash = Paid. |. Accrual = Incurred

Answer 24

RISING PRICES. |. FIFO. |. LIFO Profit. Higher. Lower Tax Liability Higher. Lower Inventory Value. Realistic. Understated

Answer 25

“ACHORN” & 27.5 -> two 7’s, two 5’s Autos. 5 yrs Computers. 5 yrs Heavy Machines. 7 yrs Office Furniture. 7 yrs Residential Real Estate. 27.5 yrs Non-res Real Estate. 35 yrs

Answer 26

“ACID” Accounts Receivable Copyrights Inventory Depreciable Property used in trade or business (Sec 1231 assets)

Answer 27

$3000 Carry forward to the loss indefinitely

Answer 28

Property used in trade/business. Property help for production of income GAINS taxed as capital gains. LOSSES taxes as ordinary income.

Answer 29

1245 Property - “Personalty” - furniture, computers, office equipment 1250 Property - “Realty” - commercial bldgs, barns, rental properties

Answer 30

Allows for the deferral of gain or loss recognition on realty for realty exchanges. Must exchange realty for realty Boot is non-qualifying property (e.g. cash, debt assumption, inventory, and personalty)

Answer 31

45 days from the date of transfer of the relinquished property to id potential replacement properties. 180 days to complete the exchange from beginning to end

Answer 32

Spouse Child Grandchild Parent Sibling Related entities: taxpayer owns 50% or more of a company

Answer 33

(1) Sold at a loss to a related party PAUSE -> wait to see what happens when related party sells again (2a) Sold above RP2’s basis and greater than RP1’s disallowed loss -> USE ALL OF LOSS (2b) Sold above RP2’s basis but below RP1’s disallowed loss -> USE PARTIAL AMOUNT TO = 0 (2c) Sold below RP2’s basis -> USE NO DISALLOWED LOSS but report RP2’s loss

Answer 34

Taxpayer may deduct up to $25,000 annually in losses if an “active participant” Meaning… 1) Taxpayer own at least 10% of the property, and 2) Substantial involvement in managing the property

Answer 35

MAGI under $100k = 100% of $25k allowed MAGI btwn $100k to $150k = 2k to 1k reduction MAGI greater than $150k = zero allowed

Answer 36

Allowed to rent for 14 days or less -> DO NOT have to report income

Answer 37

Personal use cannot exceed the GREATER of; -14 days, or -10% of the number of days the property was rented

Answer 38

Personal usage is GREATER than; -14 days or -10% of the number of days the property was rented Expenses are to be allocated btwn personal use and rental use Deductions are limited to gross rental income (may have net income of $0 but not negative)

Answer 39

Allows for the exclusion of gains on the sale of a person residence for up to $250k (single) or $500k (MFJ)

Answer 40

Ownership Test: Must have owned the property for 2 out of the last 5 years Usage Test: Must have used the property as the personal residence for 2 out of the last 5 years If married; ONE spouse to meet ownership test, both to meet the usage test

Answer 41

Job relocation Employment change leaves one unable to pay living expenses Qualifying for unemployment benefits Health issues Divorce Birth of twins or more Damage to home from disaster Condemnation or seizure Other unforeseen circumstance

Answer 42

Charity makes use of the donated property in a manner consistent with its exempt purpose Donor picks; FMV @ 30% of AGI or Basis @ 50% of AGI

Answer 43

Unrelated to the exempt purpose/function of the qualified organization. E.g. Painted donated to a university but sold for proceeds. Results in a deduction only for the LESSER of; -Cost basis, or -FMV

Answer 44

IRS imputes an interest charge if the taxpayer charges less than an adequate rate of interest on a loan.

Answer 45

$1,000 - Net investment income of this amount or less is not imputed on loans btwn $10k - $100k $10,000 - Loans below this amount, no imputed interest. $10,000 to $100,000 - Loans btwn these two amounts, lesser of borrower’s NII or AFR amounts $100,000 - Loans greater than this amount, must use provided AFR amount

Answer 46

“RAAG TA” REGULAR TAXABLE INCOME +tax pref’s +std deduction +/- AMT adjustments & tax pref’s AMTI -exemption amount AMT BASE *AMT tax rates GROSS AMT TAX -AMT foreign tax credit TENTATIVE MINIMUM TAX -regular tax liability AMT

Answer 47

Accelerate income into the AMT year Defer tax deductions until a regular tax year Optimal strategy would be to do as above until the AMT liability EQUALS the regular tax liability

Answer 48

US taxpayer required to file an FBAR if: (1) had a financial interest in or signature authority over at least one financial account outside USA (2) aggregate value of all foreign financial accounts (FFA) exceeded $10k at any time during the year (3) must file FinCEN (Financial Crimes Enforcement Network) Form 114 by tax day

Answer 49

Requires certain taxpayers holding financial assets outside USA that meet certain threshold reporting obligations to report those assets to the IRS on Form 8938. -If you are required to file form 8938, you must report your financial account maintained by a foreign financial institution (e.g. savings, deposits, checking, brokerage accounts)

Answer 50

MFJ - US Resident: Total value of foreign assets is more than $100k on last day of year or $150k at any point Single/MFS - US Resident: Total value of foreign assets is more than $50k on last day or $75k at any point MFJ - Non-US Resident: Total value of foreign assets is more than $400k on last day or $600k at any point Sing/MFS-Non-US Resident: Total value of foreign assets is more than $200k on last day or $300k at any point

Answer 51

Applies to children under age 19 or full-time students under 24. Net UNEARNED income more than $2,300 threshold amount is subject to tax at the highest marginal tax rate of the child’s parents. Net unearned income below the threshold is not subject to Kiddie Tax.

Answer 52

Example: $15k net of unearned income from 17 yr old. -First $1150 is tax-free (dependent’s std deduction) -Next $1150 taxed at child’s rate, typically 10%, or $115, -Remaining $12,700 taxed at parent’s tax rate (assume 22%), thus $2794 (this is Kiddie Tax) -Final total tax owed = $2,909 (115 + 2,794)

Answer 53

Earned income = 7k; Unearned income = $2,500; 15 yr old; 24% parent’s tax bracket (1) Child’s taxable income = Gross Income - (Std Deduct (greater of $1150 or Earned income + $350)) $9,500 - $7,350 (earned income + $350) $9,500 - $7350 = $2,150 (2) Amt taxed @ parent’s highest marginal rate (24%): Unearned Income - first $1150 - $1150 Std Deduct $2,500 (unearned) - $1150 - $1150 = $200 Parents tax due = $200 * 0.24 = $48 (3) Amount taxed at child’s rate: Child’s taxable income - amt taxed at parent’s $2,150 - $200 = $1950 Child’s tax due = $1950 * 0.10 = $195 (4) Total tax due = $48 + $195 = $243

Answer 54

Amount by which the sum of gross investment income and the capital gain net income exceeds the allowable deductions

Answer 55

Note: NII thresholds on provided Tax Tables Individuals, estates, and trusts subject to 3.8% tax on net investment income; Tax applies to the lesser of…. -Net Investment Income, or -excess of MAGI over $250k for MFJ/$200k for Single

Answer 56

1) If no boot received, Recognized Gain is $0 2) When boot is rcvd, answer to Recognized Gain is total of boot rcvd 3) Any boot paid is added to Basis 4) Basis carries over from prior property

Answer 57

Historic rehab programs that are held as passive activity may generate a deduction-equivalent tax credit up to $25k. The credit phases out btwn $200k and $250k of AGI. To calculate the credit: If marginal tax rate is 25%, multiple $25k by 25% to get a credit of $6,250

Answer 58

Low-income housing programs that are help as passive activity may generate a deduction-equivalent tax credit up to $25k. There is NO PHASE OUT. Thus produces a higher credit. The low-income housing credit is allowed annually over a 10-year “credit period.” The depreciation is straight-line over 27.5 years.

Answer 59

4/15 6/15 9/15 1/15

Answer 60

Quarterly payment to be 25% of the lesser; 90% of current year, or 100% of previous year if AGI was $150k or less If AGI greater than $150k (or $75k MFS); 110% of prior year, or 90% of current year

Answer 61

On 12/31 either unmarried or legally separated

Answer 62

As of 12/31, married Income + deductions for both Not allowed if one spouse a non-resident alien Jointly and separately liable If spouse dies in given year, living spouse to file as MFJ in that year

Answer 63

2 separate returns filed Each spouse, separate items + income, deduction, and credits If one elects to itemize, both must *Remember: IRS does not like MFS, thus many credits and threshold limits are unfavorable; Lose: child & dependent care, earned income, adoption, AOTC, LLC, student loan interest Reduced: child tax credit, savers credit

Answer 64

Must be single or unmarried Pay more than 1/2 of housing costs Qualifying child: lived w/ you for more than 1/2 year Qualifying relative: providing at least 50% annual living expenses

Answer 65

No married MFJ = year of spouse death QW = year 1 and year 2 after death 50% of household expenses Claim qualifying child as a dependent

Answer 66

-Allows for the bigger deductions up front -Increases cash flow

Answer 67

“JD Martinez #28 rookie card” 28%

Answer 68

GAIN -> treat normally LOSS -> pause and wait for sale to unrelated party

Answer 69

“A before P” At-risk rules state that a taxpayer can only deduct losses to the extent that there is enough basis (or the amount at risk) Example: Taxpayer as $20k at risk prior to current year’s pass-through loss of $17k. No issues as far as at-risk. $17k loss will be allowed and the taxpayer’s amount at-risk is reduced to $3k. Only take losses to amount at-risk.

Answer 70

Tim (Single) owns a rental condo w/ reported loss of $10k for the current year. AGI is $126,420. How much rental loss can Tim recognize? Step 1) $126,420 (MAGI) - $100k (low end of phase out) =$26,420 (excess MAGI) /2 =$13,210 Step 2) $25k (Statutory loss limit) -$13,210 (disallowed portion) =$11,790 max allowable loss Since Tim’s loss was $10k, he can deduce the entire amount

Answer 71

Step 1) Exclusion Reduction = Tax Exclusion * (# of days in home/730 days) Step 2) Calc gain on home sale Step 3) Exclusion Reduction - Gain = Taxable Amount

Answer 72

Property that, if sold, would result in ordinary income or short-term capital gain. Ordinary income property includes: -Capital assets held for 12 months or less -Property created by the donor (e.g. works of art, literary compositions, letters, etc.) -Inventory

Answer 73

Gift Loan: provided out of love, affection, or generosity Corp Shareholder Loan: From a corp to its shareholder Compensation-Related Loans: From employer to employer

Answer 74

Deductions are generally more beneficial to high-bracket taxpayers because there are several deductions (e.g. mortgage interest, capital gains on retirement investments) which affect the wealthier classes more than poor/middle-class

Answer 75

“HEAL” - Health, Engineering, Architecture, Law Must exclusively provide services in the health, engineering, accounting, architecture, or law. They may also provides services in the fields of performing arts or consulting.

Answer 76

Donor must obtain an appraisal for each item and include a copy of the appraisal with the tax return. The taxpayer must file Form 8283, “Section B Non-cash Charitable Contributions” along with her return

Answer 77

Flat tax Proportional tax requires that everyone pay the same rate, no matter the individual’s income (e.g. sales tax).

Answer 78

Step up in basis for 1/2 property

Answer 79

The taxpayer’s basis in the debt.

Answer 80

The deficiency attributed to negligence.

Answer 81

Takes place when a taxpayer uses gains on the sale of property to buy similar property. Personal use property includes, stocks, bonds, investors, and partnership interests.

Answer 82

0.5% per month - Failure to pay - up to max of 25%

Answer 83

Used to report income, gain, losses, deductions, and credits from the operation of a partnership.

Answer 84

(A) the realized gain, or (B) the net boot received

Tax Planning Flashcards

(113 cards)