Tax Planning Flashcards

Question

Business Entities: C Corp

Answer 1

Limited Liability - Yes, for all shareholders Number of Owners - no restrictions Classes of Ownership - multiple classes are permitted Levels of income tax - Two Deductibility of Losses - Shareholders may not deduct any of the corporation's losses Dissolution - Most complex Best Suited for - Single or multiple owner businesses; owners need company funded benefits and liability protection

Answer 2

Limited Liability - Generally, no; however limited partners have protection from the partnership's debts Number of Owners - Must have at least two (the general partners) Classes of Ownership - multiple classes are permitted Levels of income tax - One Deductibility of Losses - Partnership may deduct the partnership's losses only to the extent of their tax bases in the partnership interest, which includes their allocable share of debt for which they are liable Dissolution - Easy Best Suited for - Business with partners; taxes or product liability are NOT a concern

Answer 3

Limited Liability - No restrictions Number of Owners - No restrictions Classes of Ownership - Multiple classes are permitted Levels of income tax - One Deductibility of Losses - Members may deduct the LLC's losses only to the extent to their tax bases in their partnership interest, which includes their allocable share of the debt for which they are liable Dissolution - Complex Best Suited for - Single or multiple owner businesses; Owners need limited liability but partnership tax treatment

Answer 4

Limited Liability - No Number of Owners - One Classes of Ownership - None Levels of income tax - One Deductibility of Losses - Losses are deducted on owner's tax return Dissolution - Easiest Best Suited for - Single owner business; taxes or product liability typically NOT a concern

Answer 5

S-corps, Partnerships, and LLCs At-risk rule: a taxpayer can only deduct losses to the extent that there is enough basis (or the amount at-risk). - at-risk rules are ALWAYS applied BEFORE passive activity rules Passive activity rules: - A taxpayer can only use passive losses to the extent they have passive income. - Any passive losses in excess of passive income will be suspended due to the passive activity rules.

Answer 6

- Private interest passive losses are allowed to be netted against other private interest passive income. - Losses can never exceed income. - Passive losses cannot be netted against PTP income. - PTPs losses cannot be netted against private interest income. - PTPs losses cannot be netted against other PTPs income. - PTPs income can only be netted against PTP losses from the SAME PTP. The only way this can happen is with current year PTP income being netted against a prior suspended loss from the same PTP.

Answer 7

U.S. persons are required to file an FBAR if: -U.S. person had a financial interest in or signature authority over at least one financial account located outside of the US, and - The aggregate value of all foreign financial accounts (FFA) exceeded $10,000 at any time during the calendar year reported. - Must file FinCEN (Financial Crimes Enforcement Network) Form 114 by tax deadline.

Answer 8

Report of Foreign Bank and Financial Accounts

Answer 9

Foreign Account Tax Compliance Act Requires certain individual U.S. taxpayers holding financial assets outside the U.S. that meet certain threshold reporting obligations to report those assets to the IRS on Form 8938 (due of 1040, including extensions)

Answer 10

Joint Income Tax Return (U.S. Residents) - more than $100,000 on the last day of the tax year or more than $150,000 at any time during the tax year Unmarried or Separate Tax Return (U.S. Residents) - more than $50,000 on the last day of the tax year or more than $75,000 at any time during the tax year Unmarried or Separate Tax Return (Non-U.S. Residents) - more than $200,000 on the last day of the tax year or more than $300,000 at any time during the tax year. Joint Income Tax Return (Non-U.S. Residents) - more than $400,000 on the last day of the tax year or more than $600,000 at any time during the tax year.

Answer 11

Greater of $1,150 OR amount of earned income + $350

Answer 12

1. $25k loss is allowed if the taxpayer's MAGI is equal to or less than $100k 2. $25k limit is phased out $100k - $150k Every $2k MAGI = $1k reduction (FORMULA: [$150k - MAGI] / 2 = Allowable Deduction) 3. $25k loss limit as well as phase-out ranges are the SAME regardless of filing status

Answer 13

Investment in Contract / Annual payment x Life Expectancy* *From IRS Table V (probably given in question) Annuitization prior to December 31, 1986 applies the exclusion allowance for life: even after basis is recovered

Answer 14

Prior to 8/14/1982: FIFO After 8/14/1982: LIFO

Answer 15

1. Loans between individuals totaling $10,000 or less; except when the borrowed funds are used to purchase income-producing property. 2. Corporate loans and compensation-related loans totaling $10,000 or less. 3. Debt subject to original issue discount (OID) provisions. 4. Sales of property for $3,000 or less. 5. When all payments are due within six months.

Answer 16

The Applicable Federal Rate (AFR)

Answer 17

The LESSER of: 1. the AFR, or 2. the borrower’s net investment income. NOTE: If the borrower’s net investment income is $1,000 or less, imputed income will NOT apply.

Answer 18

Children under age 19 or full-time students under age 24. Net unearned income more than the $2,300 (2022) 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 the Kiddie Tax

Tax Planning Flashcards

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