Ttfinal

Front 1

1. Your client informs you that a capital asset has been sold at a gain. What insight can
you provide regarding the taxation of that gain?

Back 1

An individual’s net capital gain is subject to a maximum tax rate of 35% if it is a ST (held less than 1 year) gain, and if the gain is LT (held more than one year) the individual is subject to a 0% tax rate if they are in the 10-15% tax bracket or a 15% tax rate if they are in a higher bracket. A corporation’s net capital gain does not receive any beneficial tax treatment. Net capital losses for individuals can offset up to $3,000 of ordinary income, and remaining can be carried forward forever. A net capital loss for a corporation can offset net capital gains, any excess can be carried back 3 years and forward 5 years.

Front 2

2. Is a sales tax proportional or progressive? Explain

Back 2

The sales tax typically employs a proportional tax rate. The reason it is proportional is because a proportional tax rate is constant regardless of the size of the tax base. Progressive tax rate – increase as the tax base increases (Federal Income Tax). Regressive tax rate – decrease as the tax base increases (employment taxes), deemed unfair because tax burden decreases as a percentage of the taxpayer’s ability to pay.

Front 3

3. Generally Accepted Accounting Principles (GAAP) offer a framework with which to
measure “income.” Why (NOT how) does/should the measurement of income for tax
purposes differ from that determined under GAAP (i.e., do not provide a list of GAAP-tax
differences but discuss generally why such differences might exist)?

Back 3

Financial income is designed to indicate the profitability of the business entity for the reporting period, but taxable income is a device used by Congress to raise revenue, stimulate or stabilize the economy, and accomplish other economic, social, and political goals in an equal manner. Different reporting entities (GAAP foreign and domestic, tax is domestic), different taxes (book = current and deferred taxes included, tax = current), different methods (cash, accrual = can lead to permanent and temporary differences), income and expenses appear in different periods.

Front 4

4. Despite all of the details in the tax law, most tax planning strategies (and anti-avoidance
provisions) are designed to exploit (or mitigate exploitation of) at least one of a small
handful of basic planning tools/techniques. What are those basic tools/techniques (as laid
out in class notes/discussion, not the textbook)? Give an example of each that we have
discussed, and an example of how Congress or the IRS has tried to mitigate abuse of it.

Back 4

a. Change the Nature of the Income
i. Invest in stock because any loss is treated as a capital loss
ii. Congress limits amount of 1244 loss to $50,000
b. Change the Jurisdiction
i. Moving income from a high tax jurisdiction to a low tax jurisdiction – changing states
ii. Throwback rule, if a sale takes place across states it’s sourced to the state that the seller is in
c. Change the Tax Payer
i. Put investments under your kids name so the interest is taxed at a lower rate
ii. Kiddie tax
d. Defer the Payment
i. Use the installment method
ii. Can only carryback a gain to offset a loss, and you can only carry forward a loss for a certain number of years

Set specific requirements to these changes without making it unfair.

Front 5

5. Contrast tax evasion and tax avoidance.

Back 5

The goal of tax avoidance is to pay the least amount of tax by using the tax law in a legal and favorable manner. The goal of tax evasion is also to reduce taxes, but the way this is done is through fraud and illegal actions.

Front 6

6. What is an “implicit tax?”

Back 6

A tax that is paid through higher prices or lower returns on tax-favored investments rather than being paid directly to the government, the value-added tax is an example. Explicit tax is paid directly to the government. Value-added tax.

Front 7

7. The ultimate goal of tax planning is to minimize a taxpayer’s cash payments to the
government. True or false. Explain.

Back 7

False. The ultimate goal is not to minimize cash payments to the government, but it is to maximize what you have left over after tax. It is important to not let the “tax” tail wag the “financial” dog. Everything you do can have tax consequences, but just because those consequences exist doesn’t mean you should avoid the activity.

Front 8

8. What is “income shifting?” Give three specific examples in which the tax law (statutory
or judicial) tries to prevent artificial income shifting.

Back 8

Income shifting – moving income to a different time/person/ or jurisdiction to achieve a lower tax rate. Imputed interest prevents interest free loans between parties. The Kiddie tax prevents parents from giving their children all their investment income. Restrictions on transactions between related parties prevent endless possibilities for engaging in financial transactions that produce tax savings with no real economic substance or change (example a corporation could sell investment property to its sole shareholder at a loss and deduct the loss on the corporate return, the shareholder could then hold the asset indefinitely  artificial loss). Throwback rule, if a sale takes place across states it is sourced to the selling state.
1. Kiddie Tax
2.

Front 9

9. How does the Internal Revenue Code define “gross income?” What are the implications
of such a definition? Compare and contrast this with how the law deals with deductions
and exclusions (i.e., don't define deductions and exclusions but contrast the IRC’s
treatment of them with its treatment of income).

Back 9

Gross Income – income subject to the Federal income tax. Gross income does not include all economic income. That is, certain exclusions are allowed. Gross income is all income except section 101. Since it is a broad definition more things can be taxed which provides more neutrality and equality. Income has a very broad definition, saying that everything is income except certain deductions and exclusions. So the deductions and exclusions are very precisely defined so it is easier for the taxpayer to know if they are allowed to deduct/ exclude something

Front 10

10. Tex owns some land which has an oil deposit underneath it. His annual royalties vary
from $50,000-$60,000. Because Tex is in the highest marginal tax bracket, he would like
to have some (or all) of the royalty income taxed to his son. Can Tex do this, and if so,
how? What concept or doctrine we've discussed applies?

Back 10

There is a limit on a gift from Tex to his son of $13,000. This $13,000 would be excluded from Tex’s AGI. When a parent “gifts” money or assets to their child, the first $850 is gifted tax-free. The next $150 is taxed at 15%, and any amount over $950 is taxed at the tax rate of the parents.

Front 11

11. N. Vestor still holds several shares of IBM stock purchased years ago for $1,000. The
shares are now worth nearly $200,000, but Vestor has never reported any income for tax
purposes. Is she guilty of tax evasion? Why or why not? What principle or doctrine is
relevant?

Back 11

N. Vestor is not guilty of tax evasion. The fluctuation in value does not represent a disposition or identifiable event for tax purposes, so no gain is recognized. Revenue recognition principle.

Front 12

12. In order to lure him to California where the cost of living is relatively higher,
Boudreaux's new employer gave him a $200,000 interest free loan. Since it is only a loan,
there are no tax consequences for Boudreaux. Discuss.

Back 12

Since it is an employer to employee compensation related loan, interest must be imputed on the loan. If the loan was less than $10,000 it would not have to have interest imputed, unless the principle reason for the loan was tax avoidance. To calculate the imputed interest T-Boy would use the government issued rates that are adjusted monthly.

Front 13

13. Joe, the president and owner of a small corporation, pays himself an annual salary of
$100,000. Those who perform similar services for other companies in the industry receive
amounts closer to $50,000. The corporation deducts the payments made to Joe as salary
and Joe includes them in his taxable income. Since the two are a "wash" when both Joe
and the corporation are considered (i.e., the loss in tax revenues due to the corporation's
expense is offset by the tax revenue from Joe's income) there is no problem with their
categorization. Discuss (Hint: what are the requirements for a business expense to be
deductible?).

Back 13

.Since the payer and payee are the same person there is an issue of reasonableness that needs to be addressed. Section 162 allows a deduction for all necessary and ordinary business expenses, but they must be reasonable and since Joe pays himself double what others in his position are paid, the expense is not considered reasonable. So Joe will be allowed to deduct only $50,000 because the excess over what is reasonable is not allowed to be deducted.

Front 14

14. Is the following statement True or False? Explain. "Receipt of a note payable by a
cash basis taxpayer in return for services provided to a client is not taxable since no cash
was received."

Back 14

False. A cash basis tax payer includes the note payable in taxable income in the year it is constructively received regardless of whether the income was earned in that year. The income does not need to be reduced to cash in the same year, the property or services received just needs to be measurable by a fair market value.

Front 15

15. In November 20X1, C. Peay, a cash basis public accountant, contracted to perform an
audit during the month of December 20X1. At the time the contract was being negotiated,
the client indicated they might be willing to pay for the services in December 20X1.
However, Peay wanted to defer the income until 20X2. Therefore, the final agreement
called for a $1,500 payment in January 20X2. Peay also prepared a corporate income tax
return in November 20X1. When he completed the return on December 1, the client
offered to pay the $150, but Peay refused to accept payment until 20X2. What amount
should Peay report on his 20X1 return and why (i.e., what concept(s) apply)?

Back 15

Peay does not have to recognize the $1,500 until next year because that is the year of constructive receipt, since he is cash basis it doesn’t matter that the money was earned this year. He must include the $150 in this year’s taxable income because he has constructively received it (aka the amount was made readily available to him, and there are no substantial limitations or restrictions).

Front 16

16. The accrual method is an acceptable method of accounting for tax purposes. What
basic differences exist between the application of the accrual method to financial reporting
and to tax accounting? Give three specific examples. (Note: don’t list specific expenditures
(revenues) that are not deductible (taxable), or “permanent” book-tax differences. Rather,
identify more basic or inherent differences in the interpretations of the underlying method or
its application.)

Back 16

(1) For tax purposes income is taxed in the year of receipt and for financial reporting it is not considered income until it is earned. (2) For tax purposes a taxpayer can defer recognition of income for advance payments for services to be performed after the end of the tax year of receipt. (3) Also an accrual basis taxpayer can elect to defer recognition of income from advance payments for goods if the method of accounting for the sale is the same for tax and financial purposes.

Front 17

17. (a) How are capital assets defined in the IRC? Give two examples of the most
common capital assets held by taxpayers. (b) What favorable tax treatment does income
related to appreciating capital assets receive relative to other types of income? Be
specific. How does the treatment of capital losses differ from that of other losses? Be
specific.

Back 17

A capital asset is property held by a taxpayer that is not any of the following: inventory, accounts receivable, depreciable property used in a business, certain copyrights, U.S. government publications, business supplies. Two most common: Investments (stocks, bonds, mutual funds) and personal-use assets (residences, automobiles, furniture). Capital gains must first be offset with recognizable capital losses: capital losses can only be recognized by offsetting capital gains (plus an additional $3,000 for individuals). Net capital gains recognized by individuals are subject to tax at lower rates than is ordinary income (i.e, 0-28%) if they result from gains of assets held over one year. Net short-term capital gains, and all net capital gains of corporations, are taxed at the taxpayer’s regular, marginal rate.

Front 18

18. What is "basis" (what is it, not how is it calculated or determined)? To what principle
or doctrine does it relate?

Back 18

Basis is the cost or other basis of the property on the date the property is acquired, if a bargain purchase, the basis is the property’s FMV. Capital additions increase the basis and the recoveries of capital doctrine decrease the original basis. Recovery of capital doctrine – a taxpayer is entitled to recover the cost or other original basis of property acquired without being taxed on that amount.

Front 19

19. Not all losses on property transactions may be recognized. In what situations are
losses realized on property transactions not recognizable?

Back 19

If the parties are related (1) members of a family (2) an individual and a corporation in which the individual owns, directly or indirectly, more than 50% in value of the corporation’s outstanding stock (3) a partner and a partnership where the person owns more than 50%. Wash sales cannot recognize a loss (sell the security and within 30 days before or after the sale buy back a similar stock). The loss on a sale of personal-use asset cannot be recognized for tax purposes, unless the loss is from a casualty or theft loss.

Front 20

20. Your client is considering selling an asset they use in their business. Assuming the
sale will result in a gain, how will the gain by treated for tax purposes? Be explicit.

Back 20

Nontaxable exchanges result in the change in form but not the substance of a taxpayer’s relative economic position, replacement property is just a continuation of the old investment. This type of transaction does not provide the taxpayer with the wherewithal to pay the tax on any realized gain. The recognition of gains or losses is postponed until the new property is disposed of in a taxable transaction; this is accomplished by assigning a carryover basis to the replacement property. Like-Kind Exchanges, Involuntary Conversions, Installment Sales.

Front 21

21. A taxpayer may not be required (allowed) to recognize gains (losses) from certain
property transactions. Instead, such gains and/or losses may be deferred or postponed.
(A) Why might recognition not be required (allowed)? (Provide the general underlying
rationale for deferral, not a specific situation in which deferral is required/allowed.) (B) How
is deferral accomplished (i.e., what helps ensure that the gain/loss eventually becomes
subject to tax)? (c) Give three examples in which gains (or losses) may be deferred for
these reasons.

Back 21

Assuming it is held for more than a year, and that it is a 1231 asset. Net all 1231 gains and losses, if it is a gain “lookback recapture” from the previous 5 years, assuming the gain is at the capital rate. If it is section 1245 (depreciable personal property – machinery & equipment) you have to recapture depreciation, treat as ordinary gain, if there is excess price over the original cost, it is a capital gain. The gain due to depreciation would be treated as ordinary income, and any excess (gain not due to depreciation) is a capital gain. Since it is a business use asset, we are not including section 1250 because it applies to depreciable real property.

Front 22

22. Give three situations in which the taxation of a property transaction between related
parties differs from the same transaction involving unrelated parties (describe the
transactions, don't give the definition of related parties)? How are they different?

Back 22

If you sell property directly to a related party you can’t recognize a loss, if you sell property to an unrelated party you can recognize a loss. Your gain from the sale or trade of property to a related party may be ordinary income, rather than capital gain, if the property can be depreciated by the party receiving it. If either party disposes of property from a like kind exchange within 2 years after the trade, you both must report any gain or loss not recognized on the original trade on your return filed for the year in which the later disposition occurs.

Front 23

23. How, and why, does the cost recovery system used for tax purposes differ from
GAAP-based depreciation.

Back 23

Cost recovery for tax purposes is accelerated and allows you to recover all of your costs up front through various depreciation rules. Cost recovery for GAAP allows you to use straight-line, declining balance, and sum-of-the-years digits. The reason for GAAP is to make the value of the machine in real life match the value on the books. For tax you use MACRS, Section 179 (tangible personal property use in T/B), and Bonus Depreciation.

Front 24

24. Your employer has given you the option of receiving certain benefits from the
company's cafeteria plan instead of cash as compensation. Why might you choose to
receive the benefits instead of cash? Give three (3) types of benefits which might be
available.

Back 24

If they employee chooses to accept the cash they have to include it in their gross income. If the employee chooses to receive benefits the cafeteria plan rules allow the benefits to be excluded from the employee’s gross income. Group term life insurance, health and accident insurance, and child care. Plan cannot include pension plans, educational assistance, LT care insurance.

Front 25

25. (a) As a general rule, the Internal Revenue Code prohibits the deduction of personal
expenditures. Why? (b) Yet, we've discussed several personal expenditures that are
deductible. Provide two reasons why Congress might allow the deduction of personal
expenses and an example that might fall under each reason?

Back 25

Generally they are not allowed because they are expenses from consumption. You spend the money and receive a benefit. Congress allows some personal expenses to be deducted because some expenses impact the ability to pay and you don’t get an ordinary consumption benefit. Congress wants to look at the extent you are affected by these expenses relative to other taxpayers. Example medical expenses, interest expenses, charitable contributions, taxes, casualties and thefts.

Front 26

26. What are the tax consequences of an activity being classified as a hobby rather than
a business? Be complete..

Back 26

If an activity is classified as a business any trade or business expenses can be deducted for AGI (above the line) in the calculation of AGI. If the activity is instead classified as a hobby the deductions must come from AGI. From AGI you can only deduct taxes, casualty losses, charitable contributions, deductible interest, and medical expenses. Everything that doesn’t fit in the above categories goes in to misc. itemized deductions of which you can only deduct the amount that exceeds 2% of your AGI. You are also limited to deducting up to the amount of revenue the hobby generated. Then you have to consider if your itemized deductions exceed the standard deduction.

Front 27

27. Mike is currently liable for a mortgage loan payable to a savings and loan institution
(on a house he purchased years ago which has increased in value) and a car loan payable
to General Motors. Could Mike have arranged his finances differently to take better
advantage of the tax laws?

Back 27

Mike can deduct interest on the home loan up to $1,000,000 for any of the debt that was incurred to acquire his home. Also if he used his home as collateral to purchase the car he would have home equity debt and would be allowed to deduct interest limited to the lesser or $100,000 or the equity he has in his home.

Front 28

28. Under the current tax law, it may be advantageous for a taxpayer to contribute capital
assets, rather than cash or other types of property, to charity. What is the advantage of
contributing capital assets. Is there any drawback to contributing such property rather than
cash?

Back 28

It could be advantageous because when a noncash item is donated to charity the value of the deduction for the taxpayer is based on the items FMV. This could potentially lead to a greater deduction than what the taxpayer paid for the item. There are exceptions to the rule though; the FMV is reduced by the gain you would have realized if you sold the asset. For instance, if the taxpayer is able to recognize the gain on the property (FMV) then is it only deductible up to 30% of AGI. But if they do not recognize the appreciation in property (FMV - gain) then it is deductible up to 50% of taxpayer’s AGI.

Front 29

29. Certain "benefits" (i.e., deductions, exclusions, etc) otherwise available to taxpayers
are currently phased out as income rises. Name three such benefits.

Back 29

Personal and Dependency exemptions, property taxes, mortgage interest.

Front 30

30. What rules exist to reduce an individual taxpayer’s ability to immediately recognize
period (versus transaction) losses from certain activities?

Back 30

.If there is an NOL, you have to add back personal and dependency exemptions, capital losses, and the excess of any personal deductions over and above personal income. Also you can only recognize a loss on the at-risk amount. A loss limitation exists to only allow taxpayers to deduct up to $3,000 annually for personal losses.

Front 31

31. What are the primary causes of the differences between the statutory marginal rates
and the effective tax rates that apply to individuals?

Back 31

The primary cause of the difference in marginal tax rates and effective tax rates is the progressive nature of tax rates and the fact that rates increase as the amount of income increases. The effective tax rate is a cumulative rate composed of all the rates used on an individuals tax liability up to the marginal rate. Obviously the combination of multiple tax rates will produce an effective average rate that is different than the rate that is taxed at the next dollar of income.

Front 32

32. In what ways does the tax law encourage savings for retirement? Be specific.

Back 32

Tax law encourages retirement’s savings through things like 401(k), Roth IRA, and Traditional IRA plans. For a traditional IRA individuals are allowed to contribute the smaller of $5,000 or 100% of compensation and an additional $1,000 if you are over 50 and they can deduct this from AGI. A Roth has the same limitations, but you pay tax on the deferred amounts when you put it in the savings account, and when they are withdrawn you don’t have to pay tax.

Front 33

33. Give three ways that we have discussed in which Congress uses the tax law to
encourage investment and/or capital formation. These should include approaches to the
taxation of income, not its measurement (i.e., the allowance of deductions for business
expenses would not be an appropriate answer).

Back 33

(1) Special rate for capital gains for individuals
(2) Deduct start-up costs
(3) Cost recovery allows businesses make investments and recover most/all of the costs almost immediately
(4) Tax law allows mortgage interest to be deductible, encouraging people to buy houses. In addition it allows a permanent exclusion for a gain on the sale of personal residence up to $250,000s or $500,000m/j. Tax law allows preferential treatment of capital gains by being taxed at a lower rate than ordinary income. This encourages people to invest in stocks and other capital assets. Tax law encourages investing in retirement plans and building capital, by allowing the exclusion of that part of someone’s salary from their income.

Front 34

34. Give four situations in which an asset’s initial basis may not be its cost, or its fair
market value, upon acquisition?

Back 34

Gifts – basis determined by the date of the gift, basis of the property to the donor, FMV of the property, amount of the gift tax paid, if any.
Inheritance – basis is the FMV at the date of death or the FMV 6 months after the date of death if the recipient elects the alternate valuation date.
Conversion of Property from personal use to business use – basis is the lower of the property’s adjusted basis or it’s FMV on the date of conversion
Wash sales – a realized loss that is not recognized is added to the basis of the substantially identical stock or securities whose acquisition resulted in the non-recognition of loss

Front 35

35. Your client is the sole shareholder of a corporation. She is contemplating making a cash
contribution to a qualifying charity and asks you whether the contribution should be made
from the corporation or personal funds. What insight might you provide?

Back 35

A corporation is limited to a deduction of 10% or taxable income. Any excess contributions may be carried forward to the 5 succeeding tax years. For an individual the gift must have donative intent, absence of consideration, go to a qualifying charitable organization, and acceptance by the donee. If the total donations are 20% or less of AGI, fully deductible / If the contributions are more than 20% the deductible amount may be limited to either 20%, 30%, or 50% of AGI depending on the type of property. In any case the maximum charitable contribution deduction may not exceed 50% of AGI, but if you elect the 50% option in a particular year you lose any carryover. Any excess can be carried forward 5 years.

Front 36

36. What is a passive activity? Might losses currently disallowed under the PAL rules be
lost permanently? Is there another deduction which is limited in a manner very similar to
passive losses with a similar purpose?

Back 36

An expenditure, like charitable contributions, would be most appropriately treated as a deduction versus a credit when you want to encourage higher tax bracket taxpayers to spend more. They receive a larger benefit from spending more because they are in a higher tax bracket. If a charitable contribution was a credit it would not encourage higher tax bracket taxpayers to contribute more because they would not receive any more benefit from donating more money.

An expenditure would be treated as a deduction when horizontal equity isn’t a consideration and people can be paid unequally for doing the same things. Such as business expenses and charitable contributions. However an expenditure when horizontal equity is an issue such as having a child, would be treated the same by reducing everybody’s tax liability by the same amount as a credit.

Front 37

37. Your friend is considering buying a condo in Destin, Fl. She says it is a "good deal"
because she can use it for vacations, rent it out the rest of the year, and still deduct all of
the expenses on her income tax return. Discuss.

Back 37

Capital gains rates which are due to be (re)examined, they are currently at 0 and 15%. Bonus depreciation is currently at 100% but that is not likely to stay at the same rate.

Front 38

38. It has been suggested that the tax savings related to certain itemized deductions be
capped at 25 percent. This would be similar to (though not equivalent, and much more
complicated than) changing the tax treatment of these items from deductions to credits.
Comment on when an expenditure would be most appropriately treated as a deduction
versus a credit.

Back 38

It just depends on the situation. Credit is usually the best option as it decrease dollar for dollar, but there is some situation where deduction is more viable such as reducing your gross income. It is also depending your what tax bracket you are in.

Front 39

39. (a) What is the main tax-related drawback of organizing a business as a regular
(“C”) corporation? (b) Assuming a business is operated as a regular corporation, how,
or under what circumstances, might this problem be mitigated? (c) What alternative
business form(s) might also be available to alleviate this problem and what other (dis)
advantages do they pose?

Back 39

a. Double taxation
b. making deductible distribution or not making any distribution at all.
c. Electing S corporation status eliminate double taxation. Benefits is that corporation is not subject to the accumulated earnings or personal holding company taxes.

Front 40

NEW STUFF

Back 40

NEW STUFF

Front 41

why might congress allow deduction of personal expenses?

Back 41

1. encourage us to consume something for best of society or to spend our money in a certain way.

2. some expense where it is not a benefit. Reduce our ability to pay.

Front 42

Home equity loan. Figure out the deduction.

Back 42

Lessor of
FMV of of residence, reduced by acquisition indebtedness or
100k.

Front 43

Deduction for qualified residence

Back 43

Acquisition indebtness. Mostly all the mortgage or debt acquired to get a home is deductible.

Front 44

Deductible for investment interest is limited to: How can you increase your deduction? The risk?

Back 44

net investment income - (any misc itemized deduction subjected to AGI 2% Floor) = deduction. Can also elect to LTCG as income to increase deduction, but loses its beneficial tax treatment.

Front 45

What if investment expense is greater than income?

Back 45

Carryover to subsequent years subjected to limitation.

Front 46

Medical Expenses - Why allow deduction? Deduction limit?

Back 46

Its not a benefit, its required. Limited to 7.5% of AGI. From AGI

Front 47

taxes deductible includes

Back 47

property taxes - real or personal
income - state income tax only. Can choose deduct state income or sales taxes. Choose higher.

Front 48

Deduction of state income tax. What if get refund during the year?

Back 48

Deduct all of state income tax. If get refund, then increase ur income also. ONLY IF ITEMIZED DURING THE YEAR. If you do not itemized, then you cannot use refund as income.

Front 49

Requirement for contribution to be deductible?

Back 49

Donative intent
the absence of consideration
acceptance by the donee.

Front 50

How is it value?

Back 50

FMV, exceptions are
FMV - gain

Front 51

Deduction limit for corporation?
Individual? Appreciated CG? For Private foundation?

Back 51

-Corporation 10%
-Individual 50% only to churches, school, hospital, and govt units.
-Apprec CG = 30%
-Private cash and ordinary income - 30% - museums, etc.
-Private apprec =20% - not 50% organization.

Front 52

reduced deduction election

Back 52

enables the taxpayer to move from 30% limitation to 50% limitation. Just deduct adjusted basis. Loses appreciation.

Front 53

should you donate a stock which fmv is less than basis?

Back 53

No, better to sell it and then deduct the loss this year or offset losses.

Front 54

Casualties and theft. Why deductible? How are losses of business property measured?

Back 54

No consumption benefit.

Lessor of Property basis or decline in FMV.

Front 55

Deduction limits on Casualties and theft? if gain?

Back 55

Lessor of Property basis or decline in FMV
- insurance recovery
-$100 floor
- 10% of AGI
= Casualty loss deduction

If gain, treated as capital gains and losses.

Front 56

limitation on total itemized deduction.

Back 56

phase out after 170,000 m/j.
AGI
-170k phaseout if higher
= new agi
- (3%x new agi)
=deductible
itemized deduction - deductible of 3% = total itemized ded.

Front 57

deduction is usually greater of standard deduction or itemized deduction, except 2 reason?

Back 57

1. married filed separately, then if spouse itemized, you have to itemized too.
2. if claimed as dependent by someone else return, than limited SD = MAX(950, or earned income +300)

Front 58

Requirement to qualified as dependency exemption.
1. Child

Back 58

1. relationship - obvious
2. support test - child not support half of his own support.
3. abode test - live with half of my tax year
4. age test - less than 19 yr, or 24 year full time student or disabled.

Front 59

2. qualified other relatives

Back 59

1. relationship test - extend to aunt or uncle
2. support test - I SUPPORT half of their support
3. gross income test = Gross income is less than dep allowance
4. not be qualifying child of someone else.

Front 60

3. citizen test

Back 60

resident of US or North America

Front 61

4. joint return test

Back 61

cant be filing joint return with someone else if qualified person

Front 62

Personal exemption phaseout after?, how much?

Back 62

M/J - 250k, HOH - 200k, S - 160k. 2% for each.
EX:
AGI 300,005
limit -250k
= 50,005/ 250k = 20.02 = 21 x .02 = .42 ( personal exemption x # of ppl) = whatever left over is exemption.

Front 63

figuring out tax liability for children with work

Back 63

with wages, calculate whatever income that is related to parents and tax that at parents rate, and then add that together with whatever left over taxed at .10. SD = earned income + 300.

If just interest by parents and don't work then tax liab just the kid after deduction.

Tax liab is higher when kid works cuz tax liab of interest earned is included, if not working, it is not included.

Front 64

Child credit. How to qualified?

Back 64

Receive $500 per child.
Qualified - qualified for dep exemption and under 17.

Front 65

Phase out of child credit

Back 65

MJ - 110k, MS - 55k, S - 75k , lose $50 for each 1k AGI exceed limit.