CFP Exam- Taxes and Retirement
what tax form is used for entity reporting in partnership
1065
how much is self employment tax?
15.3%, represents owner and employee share of FICA taxes
what is the pass thru deduction amount?
20% of taxpayers qualified biz income from noncorporate entity
what is age range to qualify for EIC
25 to 60
what are 2 types of corporations
C S
what schedule is income from sole prop reported?
C, as self-employed income
A ____________________is generally used as an estate planning technique to move wealth from one generation to another.
FLP (family limited partnership)
Each year, the partner's ___________ is increased by any income received or decreased by any losses or distributions taken from the partnership.
adjusted basis
what is a general partnership
all general partners
what is a flow through entity
all income/expenses reported directly to owner's personal tax return
how are FLPs taxed
as flow thru entities
how are assets passed to younger relatives in an FLP
assets and property is owned by partnership and is slowly gifted to them
how is a C corporation taxed?
at entity and personal level (double taxed)
with net profit received as sole proprietor, are u subject to income/self employment/both taxes?
both
what kind of corporations enjoy limited liability of owners
both C and S
what is the only type of biz entity that is double taxed
c corporation
how are partnership distributions taxed once adj basis dips below zero?
cap gain
Often, valuation (premiums/discounts) are generated on the transfer of the limited interest.
discounts
for pass thru deduction, qualified income (includes/excludes) capital gains/losses, dividends, payments to employees, payments to partners, and nonbusiness interest income
excludes
how are s corporations taxed?
flow through
is health insurance from self-employment for agi or from agi?
for
is student loan interest for or from agi deduction
for
why are FLPs established
for senior family member to control assets as general partner and to gift away portions of it to qualify for valuation discounts and annual gift exclusion TO REDUCE OVERALL ESTATE
what tax forms are needed for partnership
form 1065-entity schedule k-1 personal
what tax forms are needed for a c corporation
form 1120-entity form w-2 and 1099 DIV-personal
what tax forms are needed for s corporation
form 1120s-entity form w2 and schedule k1-personal
2 types of partners in partnership
general limited
In a ________ partnership, all partners are involved in the day-to-day operations of the business.
general (limited partners not involved in day to day)
how are the owners' incomes taxed in a partnership?
general=self-employed limited=ordinary income
general vs limited partner
general=unlimited liability exposure, personal assets not protected limited=liability limited to amount partner invested in partnership, no obligation to contribute additional capital
what is the basis for a partner in a partnership
income based off expertise or labor contributed to entity
When a partner contributes cash or property to the partnership, there (is/isnt) taxable event
isnt, considered the basis
what is a partnership agreement
it is used in partnership to set rules and conditions for how biz is conducted and who does what to avoid confusion
what tax form does FLP partners receive, regardless of type of member
k1
In a __________ partnership, limited partners are not allowed to participate in the day-to-day operations of the business.
limited
what does llp stand for
limited liability partnership
what kind of partnership requires formal partnership agreement and why
limited partnership, to protect limitations of limited partners
how is a corporations owners liabilities limited
limited to the basis they put in
what happens if a imited partner participates in day to day operations of biz
lose status as limited partner, becoming general partner and losing limited liability status
what is a limited partnership
mix of general and limited partners
An LLP provides (more/less) liability protection for each partner than a partnership.
more
are distributions to shareholders deductible for C corportions
no
are medical expense reimbursements taxable income?
no
are there any formation reqs for sole proprietorship
no
are workers comp benefits considered taxable income?
no
can a property settlement be treated as alimony
no
can anyone else besides owner make biz decisions in sole prop?
no
can more than 1 person own sole proprietorship
no
can u claim eic if you are a qualified child of another person
no
can u get EIC (earned income credit) if filing separate?
no
do members of a partnership have to be individuals?
no
in a flow thru entity, does the corp itself pay taxes
no
is a sole proprietorship a separate legal entity
no
is child support income considered gross income
no
Mabel is single and age 67. Prior to her retirement this year, she received a $3,000 bonus and $1,500 in wages. After her retirement, she received $9,000 in Social Security benefits. does she have to file? if so, how much?
no, but can if she withheld taxes (income below std deduction and ss benefits dont count as income)
are distributions from a partnership considered taxable?
no, but it lowers basis
are meals and facilities provided by employer for employee benefit a taxable fringe benefit?
no, tax free
are roth contributions for agi deductable
no, traditional are
does a sole proprietorship need separate tax id number
no, unless it involves payroll expenses
how are c corporations double taxed
once at the corporation level and once at the shareholder level
A limited partner's share of any partnership income is generally considered _______________income
ordinary
In a _______(entity), each person makes a contribution of capital, expertise, or labor and receives a share of both profits and losses of the business
partnership
what biz entity is a relationship between two (or more) taxpayers who come together to carry on a trade or business.
partnership
Limited liability partnerships are similar in structure and organizational requirements to ___________
partnerships
3 types of entities that qualify for pass thru deduction
partnerships sole props s corporations
Typically, LLPs are __________________ businesses
professional service (like cpa or law firm)
what protections do LLPs offer partners
protection against negligent acts of other partners protects personal assets from creditors
what tax form is used in partnership when partners report gains and losses
schedule k1
A general partner's share of any partnership income is generally considered _______________income
self employment, pay self emp taxes in addition to income ones
what type of businesses are eligable for pass thru deduction
service related
how is corporation formed
shareholders provide money or property in exchange for stock
In an FLP, a senior family member generally owns a (small/large) general partnership interest and a (small/large) limited partnership interest
small large
what type of biz entity is the riskiest
sole prop
what is simplest biz entity
sole proprietorship
alimony payments must be for the benefit of spouse (t/f)
t
a pass-thru deduction is taken from (agi/taxable income)
taxable income
how are owners' incomes taxed
w-2 income (salary) and dividend income (distributions)
how is owners income taxed in an s corporation
w-2 income (salary) and ordinary income (flow thru)
how are partnerships formed
when income from biz is earned
when is a sole prop considered to be formed
when self-employment income is earned
Do payments made to a third party on behalf of the former spouse qualify as alimony?
yes
are gifts/awards provided by employer considered taxable income?
yes
are partnerships flow thru
yes
are profits or losses passed through to the partners in partnership
yes
can a gift of partnership interest in an FLP be counted towards annual gift exclusion?
yes
can partnership have more than 2 partners
yes
can partnerships be formed with a handshake
yes
can partnerships operate on fiscal/tax years that are different from the calendar year
yes
does pass thru deduction have phase outs
yes
in an llp, is the partner's interest in the LLP's assets at risk due to other partners actions?
yes
in sole prop, can biz assets be used to satisfy personal liabilities
yes
is a corporation separate from its owners
yes
is a sole proprietorship a flow thru entity
yes
is rental income considered part of gross income
yes
is the entity of a c corporation taxable
yes
does a partnership have to file separate tax return for entity? is any tax paid at partnership level?
yes no
are parterships required to have general partner(s)
yes, at least 1
does a partnership have to conform its tax year to the same tax year as that of its partners
yes, but can obtain permission to use diffrenent year
are moving expenses reimbursed by employer a taxable fringe benefit?
yes, only if possible for employee to deduct it themselves
are punitive damages from a lawsuit taxable income?
yes, unless reimbursement for property damage or personal injury