Taxes Flashcards
When is a determination letter provided to an employer regarding a qualified retirement plan?
- *Wh**en it is requested by the employer.
- *Th**is is not an automatic process.
When can a legally married individual file as head-of-household?
Only if legally separated.
Depreciation recapture on 1250 property is taxed at what rate?
25%.
Non-capital assets can be remembered by which acronym?
ADIC.
- *Acco**unts receivable
- *Crea**tive works
- *Inven**tory
- *Deprec**iable assets
Student loan interest is a/an ________ deduction.
- *A**n above the line deduction or a deduction FOR adjusted gross income.
- *Ma**x deduction of $2,500.
The Earned Income Tax Credit is considered to be a ________ tax credit?
Refundable.
The bargain element on non-qualified stock options is taxed at which rate?
Ordinary income tax rate.
What’s important to remember when asked to calculate the dollar amount of a client’s itemized deductions?
If the client is eligible for an itemized deduction or if it makes more sense to opt for the standard deduction.
You will see both answers (the itemized deduction and standard deduction amount), make sure you’re not lured in to choosing the itemized amount when the standard deduction would provide greater deduction amount for the client.
When must a corporation provide K-1s to shareholders?
By March 15th.
Is the lifetime learning credit available on a per individual basis or on a per family basis?
Per family basis.
What percent of non-employer provided moving expenses can be deducted?
- *0%**.
- *Th**e 2017 Tax Cuts and Jobs Act eliminated this deduction. Furthermore, any employer provided assistance must be included in gross income.
A calendar year must be used when an individual does not ________?
Keep books or records.
Business deductions are taken ________ adjusted gross income?
- *FO**R.
- *Busi**ness deductions are an above the line deduction.
If someone rents a condo/home for more than 14 days out of the year and also lives in the condo home for more than 14 days, what is the classification?
Mixed use property.
What happens to basis in an entity purchase agreement when an owner dies?
No step in basis. Only available in cross-purchase plans.
Premiums in an entity purchase agreement are ________?
Not deductible.
________ and ________ are eligible for the Child Tax Credit.
- *Stepch**ildren
- *Fos**ter children
What is the max deductible loss for rental property?
$25,000.
A 303 stock redemption is only available for what type of business?
C-Corp.
HSA contributions are a/an ________ deduction.
Above the line.
De minimis benefits are not subject to ________?
Anti-discrimination requirements.
AGI phaseout for rental losses?
- *Parti**ally phased out after AGI exceeds $100,000 and fully phased out once AGI exceeds $150,000.
- *Exam**ple: an individual with rental losses in excess of $25,000 and an AGI of $125,000, would be eligible for a $12,500 deduction FOR AGI.
When calculating the deduction of state and local taxes (including property taxes), what should you remember?
- *Th**e deduction is capped at $10,000.
- *It**’s important to remember these caps as you may be asked to calculate the itemized deduction for a client. State/local taxes, as well as student loan interest (capped at $2,500) are likely to be tested.
When does the holding period begin on a gift that is given at a loss.
The gate of the gift.
Fringe benefits are not deductible in what type of business structure?
S-Corp.
________ are the highest secondary administrative source of tax law.
Regulations.
What are common AMT preference items?
- *Deple**tion
- *Exc**ess intangible drilling costs
- *Inte**rest on private activity bonds
A net operation loss can only be carried ________ and can only offset ________% of current year income.
- *Forw**ard
- *80**%
All personal use assets are considered to be ________ in nature.
Capital.
The IRS imposes an accuracy related penalty of ________% for underpayment of tax obligations.
20%.
In a section 125 cafeteria plan, what % can be allocated to key employees?
Up to 25%.
Financial assets are also known as ________?
Intangible assets.
What is a situation where state laws supersede deferral laws?
Bankruptcy.
The Internal Revenue Code is a ________ source of tax law.
Statutory.
If a married client with children is abandoned by their spouse, what is an eligible filing method?
Head-of-household.
Regarding Section 1231 assets, gains are ________, and losses are _______.
- *Capi**tal
- *Ordi**nary
Itemized deductions are included on schedule ________?
Schedule A.
Section 1250 pertains to depreciable business ________?
Real estate.
Charitable contributions may be carried forward for ________ years.
5 years.
Deductibles on key person life insurance are ________.
- *No**t deductible.
- *Howe**ver, benefits are tax-exempt.
What can reduce the failure to file penalty?
- *Th**e failure to pay penalty.
- *Th**is basically means that an individual will not be double penalized if they fail to file AND fail to pay. The failure to file penalty is offset dollar-for-dollar by the failure to pay penalty.
Who can represent a client in an IRS audit? (3)
- *Enro**lled agents
- *CP**As
- *Attor**neys
- *Th**ey are testing you to see if you know that a CFP® cannot represent a client in an audit.
What figure is used to determine a tax liability for a client?
Taxable income.
What is more beneficial for a client, a $1,500 tax deduction or a $1,500 tax credit.
A $1,500 tax credit.
- *Th**is is dollar-for-dollar reduction in tax owed whereas a deduction pertains to the amount of income subject to income tax.
- *It**’s possible that you will be asked to calculate the “deductible equivalent of a credit” or the “credit equivalent of a deductible” in the exam.
Do both spouses need to be working or going to school to qualify for the Dependent Care Credit?
Yes.
What’s the penalty for excess contributions to an IRA?
6%
