Term
| FOREIGN EARNED INCOME (separately calculated for each spouse). TAX RATE? Is there a limitation? |
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Definition
| Use marginal tax rate as if excluded foreign income is added to gross income. Also, the amount of deduction is (DaysAbroad/365)*X, X being limited to 97,600 or earned income, whichever is lower. |
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Term
| How do you qualify for the exclusion of foreign earned income from Income (2 ways) |
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Definition
1. Genuine resident of country
2. Present 330/365 days in foreign country |
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Term
| DIVIDENDS: Are liquidating dividends taxable (excess of Earnings and Profits)? |
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Definition
| Liquidating dividends are return of capital and therefore not taxable |
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Term
| Are stock dividends taxable? If they are, under what circumstance? |
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Definition
| Stock Dividends are taxable only if the shareholder has the option to receive cash instead |
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Term
| When do you allocate basis to stock options & how? |
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Definition
| Allocate basis to stock options when their FMV exceed 15% of the FMV of the stock. Basis is allocated based on FMVOption/(FMVOption+FMVStock) |
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Term
| Are qualified tuition programs taxable? Under what circumstances? (ยง 529) |
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Definition
| Not taxable if used for higher ed expenses (to include room & board and computers). If used for anything else, taxable amount is the Total Value - Contributed Initial Capital |
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Term
| What is the tax benefit rule? |
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Definition
| If taxpayer claims a deduction for an item in one year and in a later year recovers all or a portion of the prior deduction, the recovery is included in Gross Income. (Amount included in income is limited to the amount for which a tax benefit was received) |
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Term
| If your debt holder reduces your debt by $ 500,000, how do you treat it (considering you paid no cash) |
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Definition
| Since you don't have basis, this is considered an increase in income |
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Term
| If your debt holder reduces your debt by $ 500,000, how do you treat it (considering you paid some cash at beginning of issuance) |
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Definition
| Reduction in basis, no taxable income |
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Term
| Is income from forgiveness of debt taxable? |
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Definition
| Income from forgiveness of debt taxable is TAXABLE (unless a certain circumstance is met) |
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Term
| If an employer offers a year's worth of salary for early retirement and you take it, is it taxable? |
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Definition
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Term
| Can employers be considered donors (provide gifts) to employees? |
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Definition
| No employers can not provide gifts to employees due to the nature of their relationship |
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Term
Coral Corporation collected $1 million on a key person life insurance policy when its
chief executive died. The corporation had paid the premiums on the policy of
$77,000, which were not deductible by the corporation. |
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Definition
| The corporation was a beneficiary of a deceased employee, so the income is not taxable |
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Term
| Are accrued salaries of a deceased spouse taxable to the beneficiary spouse? |
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Definition
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Term
| Are stock splits taxable? |
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Definition
| Stock splits just spread the basis |
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Term
| Can you claim a deduction for a prepaid expense (assume benefit less than 1 year, more than one year)? |
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Definition
| Less than one year prepaid expense - can deduct now. More than one year prepaid expense - can't fully deduct now |
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Term
| Can you deduct expenses related to parking tickets? bribes? illegal business? illegal drug business? |
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Definition
Parking Tickets (illegal) - can't deduct
Bribes (illegal) - can't deduct
Illegal Business - costs of operations
Illegal drug Biz - COGS |
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Term
| Are deductions by legislative grace (itemized) narrowly or broadly defined (think size of tax code)? Who has the "burden of proof"? |
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Definition
| Itemized deductions are narrowly defined, taxpayer has burden of proof. |
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Term
| List some deductions FOR AGI |
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Definition
Trade/biz expenses
Reimbursed biz expenses
deductions from losses on sale or exchange of property
deduction from rental and royalty property
alimony
one-half of self-employment tax
100% Health Ins Prem paid by self employed individual
Contributions to pensions, IRA,etc.
Penalty on premature withdrawals from time savings accounts or deposits
Moving expenses
Interest on student loans
Up to $250 for teacher supplies |
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Term
| List some deductions FROM AGI |
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Definition
Itemized deductions:
Med. Exp (excess of 7.5% of AGI)
Certain Local & State taxes
Charity
Personal Casualty losses (in excess of 10% of AGI and a $100 floor per casualty)
Certain personal interest expense (mortgage and interest on personal residence)
Misc. (in excess of 2% of AGI) |
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Term
Are trade/business expenses deductible? Self Employment tax? From AGi or FOR AGI?
Is investment expense deductible? |
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Definition
| All business expenses necessary and ordinary are deductible, given they are reasonable FOR AGI. Only 1/2 of self-employment tax is deductible. Investment related expenses are deductible because they support investment income |
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Term
| Are legal fees deductible? to what extent |
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Definition
| Legal fees are deductible to the extent that they are incurred to defend a business. |
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Term
| Are political contributions deductible? Lobbying? |
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Definition
| Political contributions and lobbying expenses are not deductible |
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Term
| What is excessive executive compensation? When does it kick in? |
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Definition
| Excessive executive compensation occurs when a publicly traded company receiving TARP funds: top 5 officers (CEO included) that are paid more than $1m. The excess is not deductible to the corporation (does not include performance based comp, payments to qualified retirement plans, and payments excludible of Gross Income) |
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Term
| Business exploration: Same business & open, same business & not open, Different business & Open, different business & not Open |
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Definition
Same business (open/not open) - deductible (rules apply)
Different business (open) - fully deductible
Different business (not open) - not deductible |
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Term
| Investigate & open a new business (start up costs). How can you deduct? First Year? Afterwards? |
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Definition
| You can deduct $ 5,000 expenses currently. Deduct the other expenses over 180months (15 years). If expenses exceed $50K, every dollar over this amount reduces the 5K initial allowable first year deduction |
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Term
| How are hobby losses treated? |
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Definition
| Hobby losses not deductible, unless entered into a profit. Hobby expenses can reduce, but not exceed hobby income |
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Term
| What presumptive rule of Section 183 for determining if an activity is a hobby? |
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Definition
| If activity generates a profit 3/5 years, it is a business (2/7 years for horses) |
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Term
| Is rental property income taxable? Is there a time period? |
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Definition
If rental property rented < 14 days, not taxable or deductible.
If rental > 14 days & personal < 14days or 10% of rental days, You can deduct all expenses, even if it results in a loss
If rental & personal days > 14 days (or 10% of rental days for personal) - Offset income by expenses but no loss allowed |
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Term
| How do you allocate tax deductions to rental property (personal and rental) |
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Definition
Court Method: Property Taxes (Rental Days/365)
Repairs (don't reduce basis) - IRS method (Rental Days/(Total Rental & Personal))
Depr (reduce basis) - IRS method |
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Term
| Are you allowed to deduct expenses paid to other individuals? Exceptions? |
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Definition
| No, you must have obligation to pay, and actually pay the expense to get deduction. Only exception is paying med bills of dependent. |
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Term
| Are CapEx deductible in full in year of expense? |
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Definition
| CapEx is depr, depleted or amortized. |
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Term
| Are losses from direct or indirect sales or exchanges of property between related parties disallowed? |
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Definition
| Yes, losses are disallowed between related party exchanges. Family, Entity, Constructive Ownership and other rules apply. Loss may however offset gain on subsequent disposition to unrelated third party. |
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Term
| Can a corporation (accrual) deduct unpaid accrued salary to employee/shareholder (cash) in the current year? |
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Definition
| No, matching principle must be applied. |
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Term
| Are expenses relating to production of tax exempt income (munies) deductible? |
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Definition
| No, expenses relating to production of tax exempt income deductible are not deductible. I.e. loan interest on loan acquired to purchase munies is taxable. |
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Term
| Which Section 212 Expenses are deductions for AGI and which are FROM AGI? |
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Definition
FOR AGI: rent, royalty related expenses, farmings ops, refund, collection, determination.
FROM AGI: investment related expenses (safe deposit box rentals) |
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Term
| What are the 3 types of losses allowed as deductions for individuals. |
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Definition
1. Trade or business losses
2. Transactions Entered into for a profit
3. Casualty losses |
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Term
| Is a deduction allowed for payment of another taxpayer's expenses? |
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Definition
| No, unless the payment is for medical expenses of a dependent |
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Term
| Are capital asset purchases deductible? |
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Definition
| No, Capital assets are capitalized, no current deduction allows |
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Term
| Are business bad debts deductible? |
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Definition
| Yes, deductible as ORDINARY loss in the year when debt is partially or wholly worthless |
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Term
| If a taxpayer purchases debt that is worthless in 1 year from someone, do they get a deduction for the total amount of debt, or the price they paid? |
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Definition
| If a taxpayer buys debt and then debt becomes worthless, then he can deduct the price paid. Otherwise if bad debt was previously included in income than the amount is deductible. |
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Term
| If bad debt written off is collected in a future year, what must you do? |
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Definition
| You must recognize income in the year it is collected, but ONLY if that the deduction resulted in a benefit in the year it was taken |
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Term
| What is the treatment of non-business bad debt loss? |
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Definition
| Treatment is ST Capital loss (NOT ORDINARY LOSS). Partial worthlessness not allowed. |
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Term
| What is the gray area with related party bad debts? |
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Definition
| Bad debts arising from related parties can be disguised as gifts. Individual circumstances must be analyzed |
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Term
| Is partial worthlessness allowed for completely worthless securities? What is the treatment and is there a limit |
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Definition
| Loss on worthless securities is deductible in the year they become completely worthless on the last day - treatment is capital losses, limit of $ 3,000 |
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Term
| What is a section 1244 stock? What is the treatment of worthlessness and what amount can you deduct? Does it apply to gains? |
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Definition
| Ordinary loss treatment. Limit of $ 50,000 (100,000 MFJ) per year. Loss in excess of per year limits treated as capital loss. Section 1244 does not apply to gains (they are treated instead as LTC Gains) |
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Term
| Are damages from disease and insect damage considered C&T losses? What about hurricanes? |
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Definition
| Hurricanes-yes, Insects & disease are not considered C&T losses. |
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Term
| Which of the following are considered Theft for tax purposes: Robbery, Misplaced items, burglary, embezzlement |
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Definition
| Other than misplaced items, everything else is considered theft for tax purposes |
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Term
| When can you deduct casualty losses? Theft losses? (during which year?) |
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Definition
Casualty losses: year in which loss is sustained (unless a disaster area by president, then you can deduct loss in year prior to year of occurrence).
Theft losses: year in which loss is discovered |
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Term
| For complete loss/casualty of non-personal C&T losses, what is the amount you can deduct? Insurance proceeds? |
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Definition
| Basis - Insurance Proceeds |
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Term
| For partial casualty loss, what amount can you deduct? Is there limitations? |
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Definition
| Lesser of decline in value or Adjusted basis in property, less insurance proceeds. Subject to $100 per event and the 10% of AGI limitation |
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Term
| Losses not connected with business, rental, and royalty properties: for AGI or FROM AGI? |
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Definition
| Deduction from AGI. i.e. Theft of a security - theft losses of investment property are not subject to the 2% of AGI floor on certain misc itemized deductions. |
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Term
| If gain on C&T losses arises from Insurance Proceed>CasualtyCost, then the gain is capital or ordinary (nonpersonal C&T gains) |
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Definition
| Could be both. The amount of the gain is Insurance proceeds less adjusted basis in property. |
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Term
| Personal C&T Gains & Losses: Are they itemized deduction? Are they subject to the 2% of AGI floor? What is the amount allowable to be deducted? |
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Definition
Itemized deductions
Not subject to 2% of AGI floor
Amount deductible=lesser of decline in value or adjusted basis in property, less insurance proceeds. |
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Term
| What if you have both Personal C&T Gains and losses? What if GAINS exceed losses? |
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Definition
Offset gains and losses on personal property (if gains>losses) treat as Sale of capital assets (ST or LT cap gains/losses).
Gains and losses on personal property C&T are NOT netted against business C&T gains and losses. |
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Term
| What if you have both Personal C&T Gains and losses? What if losses exceed gains? |
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Definition
| If losses exceed gains, treat all items as ordinary. Losses in excess of gains are deducted as itemized deductions to the extent the losses exceed 10% of AGI |
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Term
| What is the Domestic Production Activities Deduction (DPAD)? |
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Definition
| 9%*(lesser of Qualified production activities income or taxable income or Alt Min Tax). Deduction can not exceed 50% of W-2 wages paid to engaged employees in production activities |
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Term
| For Net Operating Losses, what is the rule for tax deduction purposes? What about presidentialy declared disaster areas or individuals with NOL from C&T? |
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Definition
| Carryback 2 years, Carryforward 20 years. Presidentially declared disaster areas and personal C&T losses get 3 years Carryback |
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Term
| What is the process of having a Carryback Net Operating Loss? |
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Definition
| Taxpayer must recompute taxable income and the income tax. All limitations and deductions based on AGI must be recomputed. (exception is charitable contributions). All credits based on or limited by the tax liability must be recomputed. |
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Term
| What is Realty? Personalty? Is there a difference between Personalty (personal assets) and Personal Use assets? |
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Definition
| Realty is real estate, land buildings, etc. Personalty is everything else. Personal use property is not deductible, but personalty (business personal property) is. |
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Term
| Is basis in an asset reduced by the amount of cost recovery that is allowed or the amount allowable? |
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Definition
| Reduce the the basis by the recovery that should have been deducted according to the rates published by the law |
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Term
| What is the basis of converting personal use assets for business? Can you deduct losses that occurred prior to conversion? |
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Definition
| Lower of adjusted basis or FMV at time property was converted. You may not deduct losses that occurred prior to conversion |
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Term
| What assets do MACRS tax rates apply to? |
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Definition
-Assets used in a trade or business or for production of income
-Assets subject to wear and tear, obsolescence, etc.
-Assets that have a determinable useful life or decline in value on a predictable basis
-Assets that are tangible personalty or realty |
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Term
| What is the half year convention for MACRS personalty? |
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Definition
| Assets are treated as if acquired in the middle of the year, regardless of when they are actually placed in service/disposed of |
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Term
| What is additional first year depreciation? What types of items does it apply to? |
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Definition
| You can deduct an additional 50% of the depreciation in the first year. Qualified property includes most types of NEW property other than buildings (not new items) |
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Term
| What is the mid quarter convention for MACRS? |
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Definition
| Applies when 40% of personalty is placed in service during last quarter of year. Assets treated as if placed into service in the middle of the quarter in which they were actually placed in service (or disposed of) |
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Term
| What are the statutory lives of Residential and Nonresidential Realty according to MACRS? What method is used and what is the convention? |
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Definition
Residential Rental - 27.5 years
Nonresidential Realty - 31.5 or 39 years
Method - Straight Line
Convention - Mid Month |
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Term
| What is 5yr and 7yr MACRS personalty property? |
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Definition
5yr - high tech or transportation (microchip)
7yr - Machinery and equipment, fixtures, furtniture |
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