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A comprehensive overview of various tax deductions and exclusions that individuals and businesses can claim on their tax returns. It covers a wide range of topics, including depreciation, recapture, involuntary conversions, installment sales, interest income, prizes and awards, scholarships, life insurance proceeds, gifts and inheritances, debt forgiveness, employee benefits, and itemized deductions. The document aims to help taxpayers understand the complex tax rules and regulations surrounding these areas, enabling them to maximize their tax savings and comply with the law. The level of detail and technical nature of the content suggest that this document would be most useful for university-level tax and accounting courses, as well as for tax professionals and individuals with a strong interest in tax planning and optimization.
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Ordinary Assets - Answer>>Depreciable business property held for one year or less than one year (created assets) Examples: inventory, AR, creative works, etc. 1231 Assets - Answer>>Depreciable business property held for more than one year Capital Assets - Answer>>anything not ordinary/1231 assets (personal and investment assets, goodwill) Calculation of Realized Gain/Loss - Answer>>Amount Realized
Holding Period of gift - Answer>>if gain basis used - tacks onto donor's holding period if loss basis used - starts once donee gets gift Inheritances - Answer>>valued at FMV at time of gift (if elected, 6 months later) Holding Period_ Inheritances - Answer>>Always deemed long term Netting Process - Answer>>Net ST and Net LT, then Net ST and LT together Individual Capital Losses - Answer>>$3,000 is deductible (FOR AGI) and remainder is carried forward indefinitely and NOT carried back at all Long term capital losses are offset against capital gains in order of 28%, 25%, and 20% Individual Capital Gains - Answer>>Added back to ordinary income and take at preferential rates Preferential Rates - Answer>>If regular tax rate is 15% or less = 0% If regular tax rate is 39.6% = 20% If regular is above 15% and lower than 39.6% = 15% Corporation Capital Losses - Answer>>NOT deductible but can offset capital gains (carry forward 5 years, carry back 3 years) Corporation Capital Gains - Answer>>just added back to income, no preferential rates
Net Gain on Section 1231 Assets - Answer>>Treated as LT Capital Gains Net Loss on Section 1231 Assets - Answer>>Treated as Ordinary Loss Recapture - Section 1245 Recapture - Answer>>gain on PERSONALTY are ordinary income to extent of Accumulated Depreciation, the rest of the gain is Section 1231 Gain Recapture - Section 1250 Recapture - Answer>>gain on REALTY are ordinary income to the extent MACRS (AD) exceeds SL, the SL amount is a 25% gain, and the remainder is a Section 1231 Gain Gain on Sale of LT Land - Answer>>Always a 1231 Gain Look-back Rule - Answer>>After Recapture-- Look back 5 years, to the extent losses offset the gain those are ordinary losses and the remaining gain is taxed as LT Capital Gain Recapture for Corporations - Answer>>Section 1245 same, 1250 same Additional 291 Recapture 290 Recapture Calculation - Answer>>Section 1245 (if property has 1245 property)
MACRS deprecation - Answer>>Assumes no RV it is 200% of Double Declining
= Recognized Gain, limited to Realized Gain Basis of New Property - Answer>>FMV of new property received
Claim of Right doctrine - Answer>>Must deduct from income the amount for that year even if you would receive repayment in prior year -- repayment in prior year is included in income Assignment of Income doctrine - Answer>>Income is taxed to the individual who earns the income, even if taxpayer directs that the funds pay someone else Interest Income - Answer>>Always taxable UNLESS municipal interest (however, the gain or loss from sale of municipal bond is taxable) Bond Premiums - Answer>>- Use constant yield to maturity method
Municipal Interest - Answer>>Interest on STATE and LOCAL government obligations and obligations of a possession of the US is NOT TAXABLE ** if State and Local bond is sold at a gain, gain is taxable Dividends on Stock - Answer>>Taxed as Dividend Income if distribution is made from retained earnings (aka: earnings and profits) Determining Tax-ability of Cash/Property Dividends - Answer>>1) Dividend Income to the extent of Earnings and Profits
Medical Insurance paid by Employer - Answer>>NOT TAXABLE Long Term Care Insurance - Answer>>NOT TAXABLE Annuities - Answer>>Each payment is part income and part return of capital
** must look at intent of the donor to determine if it is a gift.. means there must be no consideration in return for gift Forgiveness of Debt - Answer>>TAXABLE unless it is a gift or related to bankruptcy proceedings Forgiveness of Debt -- If taxpayer is bankrupt or insolvent... - Answer>>debt forgiveness is NOT TAXABLE Forgiveness of Debt -- If taxpayer is insolvent but not bankrupt - Answer>>NOT TAXABLE up to the extent of insolvency **Insolvent means = Liabilities is GREATER than assets Social Security Benefits - Answer>>NOT TAXABLE unless provisional income exceeds specified amount, up to 85% of benefits, can be TAXED Provisional Income - Answer>>PI = AGI + Tax-Exempt Interest
Leasehold Improvements - Answer>>Fair Value of improvements is income to the landlord if the improvements were in lieu of rent Short Year Tax Return Steps to Find Tax Liability - Answer>>** used if corporation not in service the entire year Step 1) Income for period x 12/months in service Step 2) Step 1 Answer x tax rate Step 3) Step 2 Answer x months in service/ Rental Income -- 1) Prepaid Rent, 2) Lease Deposits - Answer>>Prepaid Rent - TAXABLE when RECEIVED Lease Deposits - TAXABLE ONLY when you receive unrestricted right to them Disability Insurance Premiums/Benefits Summary - Answer>>Paid by Employee (Taxpayer)
Safety and Length of Service Achievement Awards - Answer>>NOT TAXABLE up to $400 if not qualified plan and $1,600 if part of qualified plan Taxed if:
not used before year end (may be extended to 2.5 months into next year) it is forfeited to employee Discrimination Rules for Fringe Benefits - Answer>>Benefits cannot only extend to highly compensated employees -- if so, highly compensated is taxed on FMV of benefit and non-highly compensated not taxed on value if otherwise excludible Accountable Plan - Answer>>if employee business expenses under an accountable plan is reimbursed -- NOT TAXABLE as long as all expense are proven by receipt or some other form of evidence and excess reimbursements are returned to employer from employee Grant Date - Answer>>Date option is granted to employee Exercise Date - Answer>>Date option is exercised and stock is purchased Sale Date - Answer>>Date that the stock is sold Non-Qualified Stock Options - Answer>>- Income recognized on EXERCISE date as ORDINARY INCOME equal to: (FMV of stock - exercise price) x # of shares exercised ** employer receives salary deduction for same amount ** employee's basis in stock is FMV at exercise date and used to compute gain or loss when sold, gain when sold is Capital Gain Incentive Stock Options - Answer>>Income recognized at SOLD DATE as LT Capital Gain as long as: -- held more than one year (Exercise to Sale Date >1 yr) -- not sold until after 2 years from grant date (Grant to Sale Date > 2 years)