Tax Planning Flashcards
(19 cards)
Net Operating Losses (NOL) Deduction
Can be used to offset up to 80% of income, carried forward for 20 years.
Section 179 Expense
Can immediately expense up to $1,020,000 of personalty (not real estate) unless phaseout limit has been met. The deduction is reduced dollar-for-dollar for all assets placed in service in the year that exceeds $2,550,000.
True/False: If you meet all the requirements of a 1031 tax-free exchange, like-kind exchange treatment is mandatory.
True
Section 1250 Property (Real 1231 assets)
Section 1250 states that if a real property sells for a purchase price that produces a taxable gain, and the owner depreciates the property using the accelerated depreciation method, the IRS taxes the difference between the actual depreciation and the straight-line depreciation as ordinary income.
If gain exceeds depreciation taken, the lesser of the remaining gain or the straight line depreciation will be taxed at 25%. Any gain in excess of the above will be taxed at capital gains rates.
It is only applicable to the sale of depreciable real estate.
Double Basis Rule
Occurs when Basis > FMV.
If sale price is less than FMV, use FMV at date of gift as basis.
If sale price is between original basis and FMV, no gain or loss.
If sale price is more than original basis, use original basis as basis.
Child and Dependent Care Credit
Max $3,000 per qualifying individual up to $6,000. Minimum credit is 20% (AGI over $43,000).
What qualifies as a medical expense deduction?
Long-term care insurance premiums.
Earned Income Tax Credit
REFUNDABLE credit for low income taxpayers.
Excess SS Tax (OASDI) Credit
Only required to withhold 6.2% on first $132,900 of wages. Anything withheld over that amount is excess.
Adoption Expenses Credit
Includes adoption fees, court costs, attorney fees, and travel expenses (including meals and lodging). 100% of expenses up to $14,080. If special needs, credit is $14,080 regardless of expenses. Can be carried forward 5 years. Phaseout range is $211,160 - $251,160 ($40,000).
What is a deductible miscellaneous itemized deduction in 2019?
Gambling losses to the extent of winnings.
American Opportunity Tax Credit
Undergrad only: 100% of first $2,000 in expenses plus 25% of the next $2,000 for max credit of $2,500 PER STUDENT. NO FELONY
Section 1245 Property (Personalty 1231 assets)
Equipment, patents, copyrights, other intangibles (NOT land or buildings).
- If property is sold for less than the adjusted basis, taxpayer has an ORDINARY loss (basically not enough depreciation taken).
- If property is sold for more than the adjusted basis, but gain does not exceed depreciation taken, taxpayer will have an ORDINARY gain (basically too much depreciation taken).
- If property is sold for more than the adjusted basis, and the gain exceeds the amount of depreciation taken, taxpayer will have an ordinary gain to the extent of depreciation taken and a capital gain (1231 gain) on excess (basically the asset appreciated instead of depreciating).
Ordinary Income Assets
- Accounts Receivable
- Copyrights and creative works
- Inventory
Section 1231 Assets
Depreciable property and real property (e.g. buildings and equipment) used in a trade or business and held for more than one year.
Treated as capital gains or ordinary losses.
Lifetime Learning Credit
20% of the first $10,000 in expenses. Max credit is $2,000. PER TAX RETURN
Family Tax Credit
$500 NONREFUNDABLE credit for each dependent that is NOT a child.
Child Tax Credit
PARTIALLY REFUNDABLE credit of $2,000 for EACH qualifying child UNDER 17. In 2019, up to $1,400 per child is refundable.
Section 1244 Stock Deduction
$100,000 for MFJ, $50,000 for Single is treated as ordinary loss. Excess is treated as a capital loss.
