Tax Planning Flashcards

Question

Form 5498

Answer 1

IRA Contributions/Individuals

Answer 2

Non-Deductible IRA's

Answer 3

Deduction x MTB = Equivalent Tax Credit

Answer 4

Credit/MTB = Equivalent Tax Deduction

Answer 5

Reduce the overall taxable income. Adjusts BEFORE application of the tax rates per tables. Reduces tax by marginal percentage Taxpayer Benefit: More valuable to high earners because marginal tax rate is higher.

Answer 6

Lowers Taxes Due under specific circumstances. Adjusts AFTER the tax due is calculated Reduces tax due on a dollar-to-dollar basis. Benefits all taxpayers in the same amount regardless of their marginal tax rate.

Answer 7

When credited, excess money goes to taxpayer... Earned income credit Additional Child Tax Credit American Opportunity Credit Premium Tax Credit

Answer 8

Child & Dependent Care Credit Child Tax Credit Retirement Savings Contribution Credit Lifetime Learning Credit These simply reduce taxes paid (reduce taxpayer liability) and do not get refunded to taxpayer.

Answer 9

Show the amount of taxes paid on the next dollar of earned income. Rate on tax tables

Answer 10

Shows the overall share of income paid in taxes. taxes paid / taxable income = Avg Tax Rate

Answer 11

5% of unpaid taxes for each month up to 25%

Answer 12

.5% per month the tax is unpaid up to 25%

Answer 13

The failure to file penalty is reduced by the failure to pay penalty. The max unpaid tax + unpaid file penalty is 5% per month.

Answer 14

Single or Unmarried Pay more than 1/2 housing costs MUST have qualifying child living with them for 1/2 the year. or Qualifying relative who is providing at least 50% of expenses.

Answer 15

Must file 2 separate returns Must separate itemized and deductions. However, if one itemizes, the other must. Cannot use these credits: Child & Dependent Care, Earned Income, Adoption, AOTC, LLC, Student Loan Interest. Credits Reduced: Child Tax Credit Savers Credit

Answer 16

If not remarried after death of one spouse, can use MFJ for year of spouses death. Can use Qualifying Widower for 1st and 2nd year after death with dependent. 3rd year and beyond must use Head of Household.

Answer 17

Accounts or notes receivable Copyrights; compositions, music, literary Inventory or property held primarily for sale to customers Depreciable property used in trade or business (section 1231 asset)

Answer 18

FIFO - (default IRS method) Avg Cost Method - averaging all of what was sold Specific Identification - Taxpayer selects which shares are to be reported as sold. Most powerful

Answer 19

Excess of net long-term gain over net short-term gain

Answer 20

Held under 12 months. Taxed at ordinary income

Answer 21

Anything over 12 months. Taxed 3 ways: Capital Assets: [0/15/20] Tax Tables Unrecap. Depreciation: 25% Collectibles: 28%

Answer 22

$3,000 a year for Single, HoH & MFJ $1,500 a year for MFS If losses are more than this, you can carry them forward indefinitely

Answer 23

Property used in a trade or business, and... Property held for the production of income

Answer 24

Gains are taxed as Capital Gains Losses are taxed as ordinary losses

Answer 25

Section 1245 & 1250 Property

Answer 26

Personalty used in a trade or business for the production of income. ## Footnote Examples: Furniture, computers, carpet, decorative light fixtures, etc.

Answer 27

Realty used in a trade or business for the production of income. ## Footnote Examples: commercial buildings, warehouses, barns, rental properties, etc.

Answer 28

Allows for the deferral of gain or loss recognition on realty for realty exchanges. Has 45 days from the date of the transfer of the relinquished property to find a replacement. Replacement must be received no later than 180 days after the the property was relinquished.

Answer 29

is non-qualifying property... examples are cash, debt assumption, inventory, and personalty in a realty for realty exchange.

Answer 30

The lesser of the realized gain or net boot received.

Answer 31

To avoid penalty on underpaid amt, estimated quarterly payments must be the lesser of... * 90% of current years' tax liability * 100% of tax liability on prior year return **IF AGI was less than 150k last year**

Answer 32

If AGI is greater than 150k (75k MFS) must pay either... * 110% of priors years tax, or... * 90% of the current year's tax No penalty is imposed if the estimated tax for the year is less than $1,000 or, the individual had NO tax liability in the prior year.

Answer 33

$13,850 (plus $1,850 for 65+ and/or blind)

Answer 34

$20,800 (plus additional $1,850 for 65+ and/or blind)

Answer 35

$13,850 (additional $1,500 for 65+ and/or blind)

Answer 36

$27,700 (plus $1,500 for 65+ and/or blind)

Answer 37

* Spouse * Child * Grandchild * Parent * Sibling * Related entity (owning more than 50% of a stock in a business)

Answer 38

Normally... same as an unrelated party.

Answer 39

Losses will not be recognized until the **related parted** sells to an **unrelated party** ## Footnote When you sell at a loss with a related party, that loss needs to be notaded as it will offset gains realzed when they sell to an unrelated party

Answer 40

States that a taxpayer can only deduct losses to the extent that there is enough basis (or the amount at-risk) ## Footnote **Example:** If a taxpayer has an amount at-risk of $20,000 prior to the current year’s pass-through loss of $17,000, there is no issue as far as the at-risk rules are concerned. The $17,000 loss will be allowed and the taxpayer’s amount at-risk is therefore reduced to $3,000.

Answer 41

**Private Interest:** LLC, Partnership or S-Corp * Can net losses against each other & offset gain **Public Interest:** Publicly Traded Partnership (PTP) * Can only net losses with the same, not against other PTP's * Must pay taxes on the total income * All losses are suspended ## Footnote PTP losses carry forward

Answer 42

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 43

* Private interest passive losses can be netted against other private interest passive income. * Losses cannot exceed income * They cannot be netted against PTP income * PTP losses cannot be netted against Private Interest Income or PTP income * PTP income can **ONLY** be netted against PTP losses from the **SAME** entity.

Answer 44

* Must have both 10% ownership of the property **AND** Substantial involvement in managing property ## Footnote If you're NOT an active participant, you cannot offset passive on ordinary income.

Answer 45

* The $25,000 loss is allowed if the tapayers MAGI (AGI without the Rental Loss) is equal or less than $100,000 * The 25k limit is phased out from $100,000 to $150,000 ## Footnote Phaseout limits are the same regardless of filing status.

Answer 46

Allowed to rent for 14 days or less (not required to report income)

Answer 47

Personal use cannot exceed the *greater* of 14 days or 10% of the number of days the property is rented.

Answer 48

Personal use is greater than 14 days or 10% of the number of days rented. - Expenses must be allocated between personal and rental use. - Deductions are limited to gross rental income

Answer 49

Great than 14 days rented, less than 14 days or 10% personal = PASS

Answer 50

allows for exclusion of gains on the sale of a personal residence for up to $250,000 (single) or $500,000 (MFJ)

Answer 51

Every two years (730 days)

Answer 52

Ownership Test: Must have owned the property for 2 out of the last 5 years. Usage Test: Must have used the property as your personal residence for 2 of the last 5 years. ## Footnote BOTH spouses must meet the usage test to get MFJ. Only ONE needs to meet the ownership test.

Answer 53

IRC lists the following as acceptable reasons for a reduced exclusion: * Job relocation * Employment change leaves you unable to pay your living expenses * Qualifying for unemployment benefits * Health issues * Divorce or legal separation * Birth of twins or other multiples * Damage to home from disaster * Condemnation or seizure of the property * Other unforeseen circumstances ## Footnote Reduced exclusion calculation... divide number of months jointly owned by 2 years and multiply that by the exclusion amount.

Answer 54

**Cash Gifts:** 60% of AGI **LTCGs w/FMV Election:** 30% AGI **LTCGs w/Basis Election:** 50% AGI **Ordinary Income Properties (STCGs, Art, Inventory)**: 50% of AGI ## Footnote FMV = 3 Letters = 30% of AGI Basis = 5 Letters = 50% of AGI Donor can elect wheter to use either FMV or Basis for Donation 5 Year Carryover for amoutns over max.

Answer 55

The charity makes use of the donated property in a manner consistent with its exempt purposes. ## Footnote Gift of art to an art institute. Books to a library.

Answer 56

Means use unrelated to the exempt purposes or function of the qualified organization. ## Footnote Painting to educational facility not used for education purposes.

Answer 57

FMV = 30% of AGI or... Basis = 50% of AGI ## Footnote Person sells painting to art institute with Basis of 10k and FMV of 30k. The amount of the contribution is 30k (because it was used) . If this person had an AGI of 50k the amount of deduction is 30% x 50k = 15k.

Answer 58

Cost basis or... FMV ## Footnote Painting sold to a college but not used for educational purposes and has a basis of 10k and a FMV of 30k. The amount of deduction is 10k.

Answer 59

When you loan money out in three situations.. - Gift Loans - Corporate Shareholder Loans - Compensation Related Loans

Answer 60

When Net Investment Income is less than $1,000, $0 Inputes. $0-$10,000 = Not imputed $10,000 - $100,000 = lesser of borrowers NII or AFR + $100,000 = Use AFR to calculate Imputed Interest

Answer 61

Tax system that runs parallel to normal tax flow. Usually used for ISOs

Answer 62

Regular Taxable Income + Tax Preference Items + Standard Deduction +/- AMT Adjustments =AMTI (alt minimum taxable income) -Exemption Amount =AMT Base x AMT Tax Rate =Gross AMT Tax -AMT foreign Tax Credit =Tentative Minimum Tax (TMT) -Regular Tax Liability =AMT

Answer 63

Applies to children under age 18 or Full-Time Students under age 24. ## Footnote Net unearned income more than $2,500 is subject to be taxed at the highest marinal tax rate of parents.

Answer 64

When ISO is Exercised AMT positive between Strike Price and Exericise Price AMT Negative between FMV at Exercise and FMV at Sale. Capital Gain or Loss

Answer 65

Income other than earned income like interest, capital gains, dividends, rents, royalties.

Answer 66

First $1,250 is tax free The next $1,250 is taxed at the childs tax rate (usually 10%) The remaining is taxed at parets tax rate.

Answer 67

Limited to the larger of... 1. $1,250; or... 2. The individuals earned income plus $400, but not more than the regular standard deduction $13,850 (which is the ceiling)

Answer 68

The amount by which the sum of gross investment income and capital gains exceed the allowable deductions.

Answer 69

Interest Dividends Capital Gains Rent, rotalties Non-Qualified Annuities Income From Business Passive Activity Businesses

Answer 70

Wages Unemployment Operating Income from NonPassive Biz Tax Exempt Interest Social Security Alimony Self Employment Income Distributions from Qualified Plans Tax Exempt Interest on Gov Obligations

Answer 71

3.8% Applies to the lesser of NII or MAGI over the filing status threshold.

Tax Planning Flashcards

(99 cards)