Taxes CFP NEW
What percentage of stockholder is considered a partner in an S corp
2%
What is the gain rate on QSBS
28%
How long must QSBS be held for tax free
5 years
How many hours is a material participant
500 or more than any other participant if under 500 hours
Cash Charitable Contribution
60% AGI Deduction to Qual Charity 30% to Private Charity
Rental Minimal Use Taxes
Allocate between personal and rental up to $25,000 loss Income and expenses Report on Schedule E
1231 Loss and Gains
Any loss is treated, as per Section 1231, as an ordinary loss (deductible for adjusted gross income). b. Gains and losses on the sale of qualified Section 1231 property are given long-term capital gain treatment, and all such gains and losses in a tax year are netted (see exception under look-back rules in this section)
How are S Corp treated by the IRS?
As partners
Benefit of an S Corp
Avoidance of double taxation
Buy Sell Agreement Taxation
Buy-sell agreements allow partners to purchase a deceased partner's interest in the partnership, usually funded by purchasing life insurance on the partners. The premiums for the life insurance are not tax deductible and the proceeds received from the life insurance are not taxable as income to the partnership or to the remaining partners.
What is a VEBA
A VEBA is a type of organization (trust or corporation) established by an employer or through a collective bargaining agreement to hold funds used to pay benefits under an employee benefit plan.
Personal Holding Company C Corp Ownership Test 1
A corporation will be considered a personal holding company if it meets both of the following tests: Ownership test—During the last half of the taxable year, more than 50% of the value of the outstanding stock of the corporation is owned by five or fewer individuals.
When does a partners basis increase?
A partner's basis is increased by his or her capital contributions, his or her distributive share of partnership income, and his or her share of liabilities assumed.
1231 Property Included
Depreciable personal or real property used in business or for the production of income (e.g., machinery, equipment, and buildings) Timber, coal, or domestic ore Livestock held for breeding, dairy, or sport Unharvested crops on land used in a business Certain non-personal-use assets
Tangible Property Related Use Charitable Deduction
FMV 30% or Basis and 30% to Qual Charity or 20% to Private
Intangible Asset Charitable Deduction
FMV 30% to Qual Char or 20% to Private or Basis 50% to Qual Char or 30% to Private
Real Property Charitable Donation
FMV 30% to Qual Charity Basis 50% to Qual Charity or 20% to Private
Section 1033 Basis of New Property
FMV of property at acquisition - deferred gain
1031 Basis in like Kind Property
FMV of property received in exchange - deferred gain
Section 1031 Realized Gain
FMV or Property received - Property Given Up
Variable Annuity Exclusion Amount
For variable annuities the exclusion amount is calculated as follows: investment basis/life expectancy factor = exclusion amount
What is the phase out for passive losses against real estate
If AGI is greater than $100,000 ($50,000 for MFS), however, there is a reduction of 50 cents for each dollar over $100,000 ($50,000 for MFS), which then terminates at $150,000 ($75,000 for MFS) of AGI.
1231 Lookback Period
If a taxpayer has a net Section 1231 gain for the current year, he must report the gain as ordinary income, to the extent of any Section 1231 losses reported within the past five taxable years.
Capital Expenditure 2 item test
If the cost enhances the value of the property If it will extend its useful life Examples of specific items that are capital expenditures include the cost of new buildings and equipment, perfecting or defending a title, investigating a new business, obtaining business licenses, organizing a corporation, and paying an attorney when acquiring property.
Dividend Deductions 20-80% Ownership
If the dividend-receiving corporation owns at least 20% of the dividend-paying corporation, but less than 80%, the dividends-received deduction will be 65% of the dividend received.
Dividend Deductions 80-100% ownership
If the dividend-receiving corporation owns at least 20% of the dividend-paying corporation, but less than 80%, the dividends-received deduction will be 65% of the dividend received.
Dividend Deductions less than 20% ownership
If the dividend-receiving corporation owns less than 20% of the dividend-paying corporation, the dividends-received deduction will be 50% of the dividend received.
Viatical Settlement Taxation
If the insured is terminally ill (expected to die within 24 months), proceeds received from a viatical settlement by the insured are not taxable.
What is the flat rate for a personal service corporation?
Income earned by a personal service corporation is taxed to the corporation at a flat 21% rate.
How is a VEBA Taxed
Income is exempt from regular income tax if the VEBA meets the requirements of Section 501(c)(9).
Ordinary Income Property Charitable Deduction
Lesser of adjusted Basis or FMV 50% to Qual Charity 30% to Private Charity
Tangible Property Unrelated Use Charitable Deduction
Lesser of adjusted basis or FMV 50% Qual Charity or 20% Private
What type of liability does an S corp produce
Limited
What qualifies as an S corp shareholder
Must be a person, trust, will, estate, no more than 100 shareholders 2% ownership in company stock US Citizen
Are losses on a sale of a personal asset deductble?
NO they can be recognized but cannot be deducted.
Recognized gain 1031
Occurs if Boot received (or appreciated boot given up) *Boot is anything that is not like kind property given in exchange and becomes taxable
Personal Holding Company C Corp
Passive income test—At least 60% of the corporation's adjusted ordinary gross income consists of personal holding company income.
1231 Property Excluded
Property not held for the long-term holding period (12 months or less) Property where casualty losses exceed casualty gains Inventory or property held for sale to customers Intangible assets Capital assets
Rental Minimal Use
Rented at least 15 days and personal use 14 days or 10% of rental use
Vacation Home Tax Treatment Personal Use
Rented less than 15 days per year. No Rental or Gross Income. Can deduct mortgage interest, taxes, or casualty losses
What corporations are not held responsible for personal holding company tax?
S corporations, Life Insurance Companies, Banks, other financial institutions.
Amortization Sec 197
Section 197 assets include goodwill, trademarks, covenants not to compete, copyrights, and patents if they are used in a trade or business or for the production of income
No records of cost basis
The IRS will default to the first-in, first-out (FIFO) method
S Corp Summary
The S corporation business form avoids double taxation in a number of ways; one of which is when a shareholder is not an employee. In a traditional corporation, the shareholders are paid dividends, which are taxed twice (once to the corporation and once to the shareholder). In the S corporation, the earnings are not taxable to the corporation and the shareholder's receipt of the earnings is only taxed once. S corporations are also commonly used for retirement purposes, allowing the retiree to draw a salary and avoid double taxation. The S corporation is also a useful tool when transferring income to a lower-income family member, because making the family member a stockholder allows items of income and expense to be transferred to the family member stockholder on the K-1.
Lifetime Learning Credit Annual Amount
The allowable credit is a maximum of $2,000 credit per year per tax return. Family Based Unlimited Usage Cannot be combines with Lifetime Learning Credit
American Opportunity Tax Credit Amount
The credit is 100% of the first $2,000 of qualified expenses paid in the tax year plus 25% of the next $2,000; maximum of $2,500 for the tax year.
Fixed Annuity Exclusion Amount
The exclusion amount for a fixed annuity is calculated as follows investment basis/expected return x annuity payment
Kiddie Tax 2023
The first $1,250 of unearned income is tax-free. The next $1,250 of unearned income is taxed at 10%, the lowest tax bracket for income tax filers. Any unearned income above $2,500 will be taxed at their parent's marginal rate
Income Test for dependent
The gross income for the year must be less than $4,700 (2023). Social Security and municipal bond interest are generally excluded from the gross income test. Students 19-24 excluded
Age Test Qualified Dependent
The individual must pass an age test (meet one of the following): under age 19 at the close of the tax year; is a full-time student and under age 24 at the close of the tax year; or is totally and permanently disabled at any time during the tax year.
Kiddie Tax Exclusions
The kiddie tax will not apply to individuals age 18 (or students ages 19-23) if their earned income for the taxable year exceeds one-half of their support.
Personal Holding Company Tax Purpose
The objective of the personal holding company tax is to discourage individual taxpayers from using the corporate entity solely for tax avoidance
What is the standard deduction of someone claimed as a dependant
The standard deduction for a dependent is limited to the greater of (1) $1,250, or (2) earned income + $400 (limited to the regular standard deduction).
Annuity Taxable Amount
To determine the taxable amount, subtract the exclusion amount from the total annuity payment received. Payments past life expectancy payments are fully taxable
What is an accumulated earnings tax?
When a corporation accumulates earnings beyond its reasonable needs. 20% tax rate
Dependent Standard Deduction
With no earned income, the standard deduction would be $1,250 (2023) plus any additional amounts. Greater of $1,250 (2023) or earned income plus $400 plus any additional amounts.
Are health and life insurance deductible if paid by an S Corp
Yes and the benefit is included in the shareholders gross income.
Are passive losses against Real Estate allowed
Yes, A phased-out deduction of $25,000 ($12,500 for MFS) of rental real estate losses is allowed against a taxpayer's other non-passive income.
Lifetime Learning Credit
a. Credit is available for tuition and fees (undergraduate, graduate, or professional degree programs). b. Taxpayer may claim 20% of qualified expenses up to $10,000
American Opportunity Tax Credit (modified Hope Scholarship Credit)
a. The credit is available for qualified tuition expenses (tuition and fees) incurred and paid in the first four years of postsecondary education in a degree or certificate program for taxpayer, spouse, or dependent. 1.) Room and board are not qualifying expenses.
Section 1033 Realized Gain
amount realized - adjusted basis of old property
Section 1033 Recognized Gain
amount realized but not reinvested in new property (limited to realized gain)
The kiddie tax
applies to unearned income of a dependent child who has not attained age 19 before the close of the tax year, or a full-time student who has not attained age 24 before the close of the tax year.
Loss on the sale of a personal asset
cannot deduct the loss on a sale of a personal-use asset.
Calculate tax deduction from rental property
equals the number of days during the year that the house is rented to others, divided by the total number of days that the house is used by either tenants or owner take the percentage and deduct from expenses for your deduction
Schedule A
is used to claim itemized deductions that reduce your taxable income and the total amount of taxes you pay. The categories that can be itemized include taxes, interest paid, gifts to charity, medical and dental expenses, casualty and theft losses, and other miscellaneous expenses.
1031 and 1033 deferred gain
realized gain - recognized gain
A cash basis taxpayer
reports income when it is actually received, and reports expenses when they are paid. The majority of people who file individual income tax returns are cash basis taxpayers.
Supplemental. Income and Loss. Use Schedule E (Form 1040)
to report income or loss from rental real estate, royalties, partnerships, S corporations, estates, trusts, and residual interests in REMICs. You can attach your own schedule(s) to report income or loss from any of these sources.
Constructive receipt doctrine or rule
—If there is no substantial limitation or restriction on a taxpayer's right to bring the funds under personal control, the income is taxed to a taxpayer as though it had actually been received.
