Tax Planning Flashcards
(96 cards)
1
Q
The AOTC credit (max credit, based on what, etc)
A
- credit amount 100% on first $2k of qual expenses, 25% for next $2k ($2,500 max credit, off of $4,000 qual expenses)
- Partially refundable up to $1,400
- per student basis, must be at least half time basis for first 4 years of Post secondary
- qual expenses are tuition/enrollment fees + “the kitchen sink” (materials, internet access, etc)
- ROOM AND BOARD NOT QUAL EXPENSE
- felony drug rule
2
Q
The Lifetime Learning Credit (what, for whom, etc)
A
- 20% on $10k qual expenses
- per student per taxpayer basis
- unltd amount of years for anyone trying to learn/improve a skill for work
- tuition and enrollment fees only
3
Q
Child & Dependent Care Credit
A
- TP must be employed/seeking employment and maintain a home for QC/QR
- credit is $3k max for 1 child, $6k max for 2+
- expenses are based on a chart
0-$15k expenses -> * 35%
$15k-$43k exp. in $2k increments -> N-1%
$43k+ expenses -> 20%
Dependent
- child under 13
- child/relative physically/mentally incapable of self care & lived with TP for 50%+ of the year
- certain kids of divorced parents
4
Q
Child tax credit
A
- $2k max per child under 17
- reduced $50 per every $1000 above threshold
Threshold -> $400k MFJ, $200k others - for child, stepchild, grandchild, or eligible foster child
5
Q
Adoption credit
A
- nonrefundable
- taken in year adoption is finalized, any unused amount can be carried forward 5 years
- $14,440 max credit per eligible child
- phaseout -> $216,660-$256,660
6
Q
How are futures taxed?
A
Gains/losses are capital gains and capital losses
Net gains are treated 60/40 long/short regardless of holding period
Capital losses may be used to offset capital gains from other securities
Open positions at the end of the tax year are treated as if they were closed on the last day of the year
Gains/losses are reported annually
7
Q
What are the major forms and schedules on Form 1040?
A
A - Itemized Deductions
- “An Item”
- mortgages $ stuff
B - Interest & Ordinary Dividends
- “B is for Banks”
C - Sole Proprietorship, profits/loss from biz
- “C-SP”
D - Capital Gains/Losses
- “D is Me”
E - S-Corps, Partnerships, Rental RE
- “E-Corps, E = (real) Estate”
SE - Self Employment Tax
8
Q
What’s the “Head of Household” filing status?
A
You are single/divorced taking care of qualifying dependents
9
Q
What classifies someone as a dependent?
A
You’re either providing them a place to live or provide at least 50% financial support for the child/relative in question
- for a qualifying child, they must have lived with you for more than half the year
- for a qualifying relative, they don’t have to reside in the same house as taxpayer
10
Q
What are the required for a child to be a qualifying child under dependency laws?
A
Must be related to the TP
- child, step/foster child
- bro/sis, step-bro/sis
- any descendent of previously listed
There is NO income test
Must half lived with TP for more than 50% of year
Must pass the age test
- under 19 y/o @ end of tax year
- under 24 y/o @ EoTY and is a full time student
- is totally/permanently disable at any time during tax year
Dependent must NOT have provided more than 50% of own support (scholarship doesn’t count)
They cannot claim another person as a dependent
They must not have filed a joint return for tax year
Generally must also be a US Citizen/National OR a resident of US/Canada/Mexico
11
Q
How does a relative (not a child) qualify as a qualifying relative under dependency laws?
A
Has a specified relationship w/ TP
- parents, in-laws, aunts/uncles
- nieces, nephews
- unrelated to TP but they resided in TP’s principal home during Tax Year
Must pass the income test
- GROSS income for the year must less than $4,300 (2021), excluding social security and muni bond interest
Does NOT have to reside in TP’s home & has NO age test
Dependent must NOT have provided for more than 50% of their own support during tax year (scholarships, Soc. Sec., muni int. doesn’t count)
They cannot claim any dependents, must not file a joint return, and must generally be a US citizen/National/resident of US/Can/Mex
12
Q
What is the difference between taxable income and a tax liability?
A
Taxable Income
- the amount on which income tax is computed
Tax liability
- the amount of taxes owed after subtracting all credits
13
Q
What are tax credits, exclusions, and misc deductions?
A
Tax credits
- a dollar for dollar offset against tax liability
Exclusions
- items received by a TP that represents an economic benefit that aren’t taxed (muni interest, gifts received, fringe benefits, etc)
Misc deductions
- reduce taxable income
14
Q
What’s the correct sequence of steps in the income tax calculation?
A
Total income - adjustments (above the line) = AGI (the line) - the greater of standard or itemized (below the line) deductions = taxable income
15
Q
What are adjustments/deductions (above the line) FOR agi?
A
- ordinary/necessary expenses incurred in a trade/business
- deductible portion of self employment tax paid (1/2)
- alimony paid to ex-spouse (pre-2019)
- payments to Keogh (self-EE), qualified/SEP/SIMPLE plans
- traditional deductible IRA contributions
- forfeited interest penalty for premature withdrawal of time deposits (CD’s)
- capital losses
- Self-EE’d health insurance premium
- contributions to Archer MSA’s/HSA’s
- interest on educational loans
16
Q
What are the cases for ordinary/necessary expenses incurred in a T/B to be deductible?
A
1) when expenses are incurred in carrying on a trade/biz (Sched. C)
2) when expenses are incurred in connection w/ property held for production of rents/royalties (Sched. A or E)
- Farm income/expenses are reported in Sched. F
* unreimbursed biz expenses of an EE are not deductible *
17
Q
What’s the deductible portion of self employment tax?
A
- 65%
- 6.2% of OASDI (soc sec) up to the taxable wage base ($142,800)
- 1.45% of Medicare (no earnings limit)
18
Q
How do you calculate the amount of self employment tax of income at/below the taxable wage base?
A
1) calculate self employment income
2) multiply net earnings by 0.9235
3) calc that result by 0.153
OR
1) calculate amount of self employment tax by 0.1413
- 0.9235 * 0.153 = 0.1413
19
Q
How do you calculate the self employment tax when net income is above the taxable wage base?
A
1) calc self employment income
2) multiply 0.9235
3) take result from step 2 and subtract from the wage base ($142,800) and multiply the excess by 2.9% (Medicare)
4) multiply the taxable wage base by 0.153
5) add the results from steps 3 & 4 together
* ) if TP makes above 200/250 threshold for additional Medicare tax (0.9%), take result of step 2 - threshold amount * 0.9% & add to result of step 5
- to determine DEDUCTIBLE share of SE tax when income > wage base;
- multiply wage base by 7.65%
- multiply excess over TWB by 1.45%
- add the 2 results together
Additional Medicare Tax of 0.9% also applies to SE ppl with combined incomes above $200k (s) or $250k (mfj)
20
Q
How is Alimony treated for tax purposes?
A
Before 2019
- a deduction for AGI by payOR
- taxable income to payEE
• “2018 deducts my taxable payments”
After 2019
- NOT deductible by payOR
- NOT taxable to payEE
• “NOT after 2019”
21
Q
When must Keogh and SEP plans be established for tax purposes?
A
Keogh
- established AND FUNDED by the extension due date
SEP
- established and funded by the extended due date of the ER tax return
22
Q
How are capital loses used to deduct for AGI?
A
$3000 in a year against ordinary income
- $1,500 for MFS filers
Unlimited carry forward
23
Q
How are self employed health insurance premiums deducted?
A
Self employed TP’s and wage earners who ARE MORE THAN 2% SHAREHOLDERS of an S-Corp can take a 100% deduction for amounts paid to heal ty insurance for TP’s, spouses, and dependents
- deduction cannot create a loss (must not exceed net earnings)
24
Q
How is the interest on educational loans deductible FOR AGI?
A
Loan proceeds must have been used for
- higher education tuition & fees
- room and board
- other necessary expenses (transportation)
TP claiming deduction CANNOT be claimed as a dependent of another
Maximum allowable annual deduction is $2500
Deduction is phased out at
• $70,000-$85,000 (s)
• $140,000-$170,000 (mfj)
25
How are contributions to Archer MSA’s and HSA’s deductible for AGI?
If the ER makes the contributions for either, they are excluded from an EE’s income
If the EE makes the contribution, it’s deductible for AGI (above the line)
26
How is child support treated?
Money received for child support is;
- not includable as taxable income by payee
- not deductible by payor
27
How is kiddie tax determined for unearned income only?
Total unearned income - $1,100 - the greater of $1,100 or amount of allowable itemized deductions directly w/ production of unearned income
Generally just $2,200
Applies to the unearned income of a dependent child
- not 19 before end of taxable year
- or full time student not yet 24 at end of tax year
—— will be considered FT if they are FT students for at least 5 months of tax year
28
How is the kiddie tax determined if dependent child has unearned AND earned income?
1) Determine net Unearned Income
—- Gross UI - $2,200 = Net UI
2) Determine net Earned income
—- Gross Income (EI + UI) - (EI + $350*) = Net Taxable income
3a) Taxable income - Net UI = Amount taxed @ child’s rate
3b) Net UI is taxed at parents rate
* standard deduction is EI + $350 to limit of $12,550
29
How would a person qualify for an additional standard deduction?
To qualify a person must
- be age 65 or older, OR
- be blind
People who are 65+ AND blind get 2 additional standard deductions
The additional deductions are;
- $1,700 (s/HoH)
- $1,350 (mfj/mfs/QW)
30
What are the different itemized deductions?
“MMITCC”
• Mortgage interest
— old debt; $1m acquisition debt & $100k home equity debt
— new debt; only $750k acquisition debt
— home equity is deductible for acq/renovation only
• Medical Expenses
— in excess of 7.5% of AGI
• Misc itemized deductions
— gambling losses to extent of winnings
— impairment related work expenses
— unrecovered basis in commercial annuity
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• Interest
— investment interest expense
— qualified residence interest
— business interest
— passive activity interest
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• Taxes
— state income tax, RE tax
• Charitable Contributions
• Casualty losses
— must be personal & in federally declared disaster area
31
What are/aren’t Capital Assets?
What are Capital Assets
- personal use assets and most investment assets
- losses from personal use assets are NOT deductible, but losses from investment assets are
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What aren’t capital assets
- ACID
— Accounts & Notes Receivable
— Copyrights/creative works (ordinary asset)
— Inventory
— Depreciable property or real estate
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32
What is boot?
Anything received OTHER than property
- cash / liabilities assumed
- you receive boot when they assume your liability
- “causes tax to kick in”
If either party pays taxes on boot received their basis in property increases
Recognizable gain (taxable)
- only if less than realized gain
- NO BOOT RECEIVED -> NO RECOGNIZED GAIN
33
What is your realized gain in 1031 like kind exchanges?
FMV of prop received (new prop) - boot received (if any) - Adj Basis of prop given up (old)
*losses cannot be recognized in 1031 like kind exchanges
34
What is the recognized gain in 1031 like kind exchanges?
Recognized gain is the lesser of the realized gain or boot received
Recognized gain is immediately taxable
35
What is the basis of like kind property RECEIVED in a 1031 exchange?
FMV of prop received (new) - (realized gain - recognized gain)
36
What is/isn’t property not eligible for 1031 like kind treatment
IS
- domestic real property
ISNT
- personal use property
- inventory (ordinary income property)
- any/all securities (stock/bond/etc)
- any tangible depreciable property
- livestock of different sexes
37
What are at risk and passive loss rules?
At risk rules
- the total amount of money/property at risk
- also the amount of debt for which the investor is liable
- can’t lose any more than what you have invested
- amount not deductible can be carried forward until there’s income to net it against
Passive loss rules
- losses from passive activities (non participating activities or rental activities) can be used offset passive income
- PTP/MLP can only offset $ from the same activity
- nonpublic/RELP can offset other NP/RELPs
38
How would an oil/gas partnership be considered a non passive activity?
If the investor owned the O/G activity
- in a way that involved a WORKING INTEREST; or
- owned through an entity that doesn’t limit the investors liability (partnership)
Considered not passive, can offset active and portfolio income
39
What’s the equation to determine how losses from multiple passive activities are treated?
(At risk $ / gross loss $) * net loss amount = $ loss allocated to activity
ex) PA1 - $15k loss, PA2 - $30k loss, PA3 - $10k income
PA1 -> (15k/45k)*35k = $11,666.67 loss
PA2 -> (30k/45k)*35k = $23,333.33 loss
40
What is S. 1244 stock and how is it treated?
It incentivizes people to invest in startups, issues in exchange for investor money
Total capital contributions don’t exceed $1mm
Losses on sale/dispositions
- ORDINARY LOSS up to $100k (mfj) are deductible ($50k - single)
- losses in excess of that are capital losses
- not subject to $3,000 limit on capital loss
41
How are the at risk and passive loss rules applied (example; Sam invests $30k in XYZ, they report losses of $300k of which sams share is $45k)
At risk rules are applied before passive loss rules
$15,000 loss is suspended under the at-risk rules (45-30=15)
$30,000 is suspended under the passive loss rules (no income to offset the loss)
42
What are the 3 special taxes for C Corps and what do they do?
Personal Holding Co. Tax
- discourages TP from using Corp for tax avoidance (21% flat rate)
- applies if it meets ownership AND passive income test
— OR test -> 50% of Corp owned by 5 or fewer ppl
— Passive Income test -> 60%+ of income is PHC income
• tax is undistributed PHC income * PHC rate (20%) + regular tax
Personal Service Corp Tax
- “CAAAr HELP”; consultants, arch, accountants, engineering, health, etc
- @ least 95% Stock held by active/retired EEs
• PSC income taxed to Corp @ 21% flat rate
Accumulated Earnings Tax
- discourages ppl from using Corp for tax avoidance
- whenever Corp accumulates earnings far past whatever it reasonably needs unless proven otherwise
• tax rate is 20%
43
What affects a partners basis in a partnership?
- capital contributions
- distributive share of income
- share of liabilities assumed/relieved
- share of losses
44
How is a beneficiary taxed when they receive a life insurance death benefit payout from a qualified plan?
The taxable portion paid to a beneficiary is the cash value minus any costs included in the participants gross income during their life
Ex) beneficiary receives a $100k payout from LI in a QP, decedent included $25k in their GI and the insurance had cash value of $60k
— Benny includes $35k in their GI (60k-25k)
45
What is the S. 121 exclusion? What must be met to qualify and how often can it be used?
Homeowners can exclude a certain amount of gain from the sale of their primary residence
- $250,000 (s)
- $500,000 (mfj)
2 tests must be met
- must be owned by EITHER SPOUSE
- must be used as primary residence by BOTH SPOUSES
• both must be met within 2 of last 5 years, doesn’t have to be consecutively
• exclusion available if forced to move for work or health issues
Can be used every 2 years
46
What’s the equation for the S.121 exclusion if the homeowner fails to meet the use & ownership tests? (ex, single filer owned home for 18 months)
(Months owned / 24 months (2yrs)) * $250,000 (if single, 500k if mfj) = partial exclusion $
ex) S filer owned home for 18 months
- (18/24)*250,000 = $187,500
47
What’s the equation for when only one spouse fails the use test, but the other doesn’t, for the S.121 exclusion?
One spouse gets a partial deduction and it’s added to the other spouses full deduction IF FORCED TO MOVE DUE TO CHANGE OF EMPLOYMENT OR HEALTH STATUS
ex) mfj, one spouse moves in but they sell after 9 months (other sp owned for 6 years)
- (9/24)*250,000 = $93,570
- other spouse meets both tests, $250,000
- combined excludable amount is $343,750
*if they moved for the sake of moving, the spouse meeting both tests would get a full single exclusion whereas the other spouse gets nothing
48
How are repairs and improvements treated relative to a taxpayers basis in an asset?
Repairs, to keep something in working order, do not add to basis
- replacing a broken knob or handle
Improvements to something that increases its useful life adds to basis
- adding a new wing onto a house
- replacing the engine of a tractor
49
If the IRS adjusts the salary of a C-Corp exec down, how is that income treated?
The amount adjusted down for the executive is an increase in taxable income for the C-Corp
- when the IRS adjusts that type of income it’s reclassified as a dividend, which are NOT deductible
The execs salary decreases by adjusted amount but their dividend income increases by that amount also
50
How do you determine the amount of a tax credit that provides the same benefit as an itemized deduction (ex, TP in the 35% bracket seeking a credit that rivals a $3k itemized deduction)
Deduction * marginal tax rate = equivalent tax credit
Ex) $3,000 * 0.35 = $1,050 tax credit
51
What is 1245 property recapture
1245 prop is all depreciable personality, copyrights, and leaseholds
Must recognize as ordinary income the amount of depreciation taken to extent of gain
- any remaining gain is 1231 capital gain
1245 recapture does NOT apply to losses
52
What is 1250 property recapture
1250 property applies to depreciable real estate used in a trade or business
- buildings and structural components
Prevents taxpayer from getting both LTCG treatment and depreciation
Taxed at 25% rate, or lower if the taxpayers marginal tax rate is < 25%
53
What is straight line depreciation and what is the equation?
The simplest form of recovering the cost in an asset (personality, realty, intangibles)
SLD = (cost - residual value) / useful life
*must use half year convention
54
What’s the section 179 write off and how is it calculated and used?
It’s a write off for tangible personalty
- computers, office equipment, etc
Max write off in 2021 -> $1,050,000
- reduced $ for $ if total amount of property put into use in one year is above $2,620,000
- write off cannot exceed total income for year
- amount taken reduces basis
Ex) prop put into service is $3.62mm, max write off is now $50,000 ($1m excess reduces write off)
55
What’s section 197 and what does it apply to?
S. 197 allows the taxpayer to amortize the cost of intangible assets
- done over 15 years (180 months)
- intangible assets are goodwill, copyrights, patents, trademarks, etc
56
How can passive activity losses from nonpublic partnerships be deducted from other taxable income?
Passive losses can offset passive gains, and a phased out deduction for rental real estate of $25,000 ($12,500 mfs)
57
What’s considered a rental activity?
Property rental where average customer use is more than 30 days and no significant services are required
If a rental is 30 days or less AND SIGNIFICANT SERVICES ARE PROVIDED the service is considered a service than a rental activity
58
Do legal fees and broker commissions increase basis?
Yes
59
If you had a net 1231 loss (8k) in year 1 and a net 1231 gain (15k) in year 2, how would this be treated in year 2?
$7k LTCG and $8k ordinary gain
The look-back rule may recapture some or all of the net gain as OI, with the net amount being given LTCG treatment
- look back period is 5 taxable years not including current year
15-8 = 7
60
What are/aren’t considered 1231 assets?
ARE 1231 assets
- depreciable pers./real prop used in a T/B ***or*** for the production of income
- CATAN (timber, ore, livestock, unharvested crops)
ARENT 1231 assets
- property NOT HELD LONG TERM (inside 12m)
- property where casualty losses > cas. gains
- inventory/property held for sale to customers
- intangible assets
- capital assets (ACID)
61
What are the special taxes associated with C-Corps and how much are they?
1) Personal Holding Corp Taxes
- tax -> 20% + regular taxes
2) Personal Service Corp Taxes
- tax -> 21% flat rate
3) Accumulated Earnings Tax
- tax rate -> 20%
62
What are the special taxes associated with S-Corps?
1) built in gains tax
2) LIFO recapture tax
3) excess net passive income tax
*all of these taxes apply only to S-Corps that used to be C-Corps
63
How are bad debts treated re: taxes?
Deductions allowed in the year debt becomes worthless
Business Bad Debts -> ordinary loss
Personal bad debts -> ALWAYS ST Cap Loss
64
How are dividends from life insurance policies taxed?
Dividends are tax free to the extent they don’t exceed the policy owners basis
65
What are the failure to file and failure to pay penalties and how is the liability determined if both apply?
Failure to file -> 5%/m, max 25% or 5 months of penalties
Failure to pay -> .5%/m, max 25% or 50m
If both apply, failure to pay reduces failure to file penalty
Ex) A pays $6,000 tax liability 39 days late
• FtF -> 6000 * 10% (2m) = $600
• FtP -> 6000 * .1% (2m) = $60
• (600-60) + 60 = $600 penalty
* failure to file reduces failure to pay, that net result is added back to failure to pay to determine liability
66
What are the payment options for someone trying to avoid an underpayment penalty?
TP must make payments to the lesser of
• 90% of the current yr liability; or
• 100% prior yr liability if AGI < $150k (mfj)
— if AGI > $150k -> 110% prior yr liability
67
What is the deductible amount for losses regarding active real estate participants and what are the phaseout rules?
Active real estate participants can deduct up to $25,000 in losses against ACTIVE and PORTFOLIO INCOME
Deduction is reduced 50% between AGI limits of $100,000-$150,000
Deduction is fully phased out above AGI of $150,000
68
How are dividends taxed to C Corp shareholders?
Taxable as dividend income to extent of current and accumulated earnings and profit; above that is return of basis and then cap gains
Ex) XYZ Corp has $50k in earnings, and distributes $80K to an investor w/ $20k basis
- $50k taxable dividend
- $20k return of basis
- $10k capital gain
69
What is section 1244 treatment and how does it work?
S 1244 applies to losses from stock sales, on stocks acquired directly from corporations
ONLY APPLIES TO LOSSES
Ordinary loss treatment on sales, up to;
- $50k (s)
- $100k (mfj)
• excess losses are capital losses and can be carried forward
Corp cannot have received more than $1mm for stock at purchase
70
How can you get 100% gain exclusion on sale of S 1202 stock?
- stock must be purchased after 9/27/2010
| - stock must be held for at least 5 years before sale
71
How are related party losses treated?
Sales to lineal & certain non-lineal descendants (aunt/uncles, cousins, etc)
No gains or losses are recognized
* the recipient of the asset (usually stock in CFP examples) cannot recognize losses or gains to the extent of the sellers loss
- gains exceeding their loss are capital gains
72
Are penalty taxes deductible?
No. Penalty taxes are NEVER deductible
73
Are payments for compensatory and punitive damages includable in gross income?
Payments for COMPENSATORY damages are NOT included in GI
Payment for PUNITIVE damages ARE included in GI
74
are payments from Death Benefit Only arrangement taxable and if so, why?
Payments from DBO’s are fully taxable to the recipient as ordinary income
DBO plans are a form of deferred compensation for services rendered and are therefore fully taxable
75
What is the time limit for the IRS to audit a tax return and demand a taxpayer pay additional taxes?
3 years AFTER the taxpayer has filed the return in question
76
What is the capital gains rate on S. 1202 stock?
28%
77
Can an employee who pays for disability insurance deduct the premiums as a medical expense?
No
78
How do you value life insurance for gift tax purposes?
Newly issued policies (one year after issue)
- FMV (premiums paid)
Paid up policies
- replacement cost
Policies that require further premium payments
- the interpolated terminal reserves
- if gifted to someone else and premiums are being paid on their behalf -> premiums are a taxable gift eligible for annual exclusion
*outstanding loans are subtracted from the value
79
What the CD for corporations?
Limited to 10% of the corporations adjusted taxable income, excess can be carried forward 5 years ago
80
What conditions must be met to obtain “innocent spouse relief”
The spouse must have had no reason to know the extent of the understatement
81
What type of convention must be used if more than 40% of property purchased is placed into service in the last quarter of the last year?
Mid year quarter convention applies
82
Are investment interest expenses to purchase mutual funds deductible?
Yes, if the investor itemizes
Never deductible if used for personal things (credit card debt)
83
What is considered investment income?
```
Non-qualified Dividends
Bond interest
Royalties
Short term cap gains
* long term cap gains and qualified dividends are given investment income treatment IF the investor elects to have them taxed at ordinary rates
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84
If an affluent business owner with a taxable estate wants to gift substantial assets and income to their children WHILE minimizing taxes, maintaining control over the investment strategies employed, and distribution of income?
Most likely a FLP
85
What shares of a mutual fund (if the investor has multiple costs basis’s) should an investor sell to minimize tax liability?
Shares that hold the smallest gain possible, UNLESS they hold shares with a loss (then sell those)
86
Are attorneys fees deductible on estate tax returns?
No, they were eliminated by the TCJA
87
What’s the new basis if a wash sale is committed?
Basis of REMAINING shares + disallowed loss
88
What are the deductibility rules for USE UNRELATED TANGIBLE PERSONAL PROPERTY?
Deduction is to the LESSER of
- basis; or
- FMV @ time of donation
89
What is the rule for tax liability payments to avoid underpayment penalties?
The LESSER of
- 90% of THIS YEARS liability
- 100% of LAST YEARS liability if AGI is =< $150,000
- 110% of LAST YEARS liability if AGI > $150k
90
What type of damages are tax free and taxable?
Compensatory damages are tax free
Punitive damages are taxable as ordinary income in the year received
91
How do you find the equivalent tax credit for itemized deductions or short term capital losses?
Itemized deduction (or ST cap loss) * investors marginal tax bracket = equivalent tax bracket
Ex) $1,000 itemized deduction * 32% marginal tax bracket = $320 equivalent tax credit
92
What happens when you dispose of a residential rental property with current property losses and disallowed passive losses?
Current year AND passive loss carry forwards are deductible
AGI limits don’t apply
93
What is the best form of business entity that limits liability and can have as shareholders/partners a GRUT, a partnership, and a foreign investor?
An LLC taxed as a partnership
- limited liability for all
- doesn’t restrict investors
S-Corps cannot have partnerships and foreign investors as shareholders
A LP would have unlimited liability for one of the partners
94
Does age or Prov. income determine if SSB’s are taxable?
Provisional income (MAGI + 1/2 SSB)
Age has NOTHING to do with SSB benefits
Provisional income is 50% taxable if between
• $25,000-$34,000 (s/other)
• $32,000-$44,000 (mfj)
Prov. Income is 85% taxable if above
• $34,000 (s/other)
• $44,000 (mfj)
• $0 (mfs, live apart for entire year)
95
What must a taxpayer do if a property was forcibly converted (s. 1033) and it was converted into cash?
They MAY elect to postpone recognition of gain if replacement property was purchased within the specified time period
Non recognition treatment is NOT MANDATORY
96
What are the recognition rules with s 1033 re: amounts reinvested?
If amount reinvested >= amounts realized
- realized gain is not recognized
If amount reinvested < amounts realized
- realized amount is recognized TO EXTENT NOT REINVESTED
