Tax 2 Ch 23 And Ch 2

Front 1

What sucks about the estate income tax?

Back 1

1) No standard deduction 2) Only gets personal exemption of $600. 3) Top marginal tax bracket kicks in at $10,000. SO you want to get estate closed out as soon as possible.

Front 2

How do you Figure out which income in year of death goes on final income tax return

Back 2

and which goes on estate’s income tax return. Use date of death as cut off. Any income paid before death goes on final 1040. After death goes on estate’s 1041.

Front 3

Itemized deductions

Back 3

State gets pretty much all the itemized deductions the dead guy got except medical and job related expenses. Does get charitable deductions.

Front 4

Medical expenses

Back 4

There are final medical bills that won’t be paid until after death. Logically it would go on the 1041, but no, code says the final medical expenses goes on decedents tax return not the estate’s tax return even though it was paid by the estate.

Front 5

What are the two types of trusts?

Back 5

1) simple trust - all income distributed to beneficiary annually , no more than 25% of corpus can be distributed in any given year, none of the beneficiaries can be charitable orgs 2) complex trust - anything not a simple

Front 6

Why do we care what kind of trust?

Back 6

Simple trust has no income taxes, treated like a flow through and has simplified reporting. Anything that is taxed is taxed just like estate is taxed.

Front 7

Role of the auditor

Back 7

Protect investor from management, be a watch dog

Front 8

Role of tax practitioner

Back 8

Be an advocate for the client, help client fulfill obligations and avoid paying taxes that they don’t have to pay.

Front 9

Standards are broken out into three areas

Back 9

1) Filing positions 2) Client provided information 3) Use of estimates 4) Errors on prior year returns

Front 10

Filing Positions

Back 10

Every time you take a deduction and you’re not positive that it’s correct. You are allowed to recommend a filing position as long as you have substantial authority for it. If you don’t have substantial authority you can’t recommend the position and you can’t sign a return that contains it unless you include a disclosure. Example of trip to visit Vanderbilt mansion for architects continuing education. If you recommend the position, you have to describe downside risks as well as benefits of taking the position.

Front 11

Client Provided Information

Back 11

I am allowed to believe what my client tells me unless i have reason to believe otherwise. You don’t need verification. Often you will double check 3rd party reported stuff like 1099s, W2’s, etc.

Front 12

Use of estimates

Back 12

Not allowed to use estimates unless getting real numbers is impracticable.

Front 13

SALY

Back 13

Same As Last Year, only use for small amounts

Front 14

Errors on prior year returns

Back 14

You are not under obligation to report prior year errors to the IRS. Just have to let the client know and give them their options.