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Federal Tax for Law School
Basic Federal Taxation
Terms in this set (52)
Business Assets and Improvements
Raise revenue for govt functions
Stimulate the economy
Affect income and wealth distribution
Achieve social and economic goals
y = C + Change in W
Services as payment
Consider FMV of the services unless there was a stipulated price
Convenience of Employer Test
Consider the intent of the employer and if its in the furtherance of the business
Primary Purpose Test
Consider for personal or business for tax purposes
Condition of Employment
not taxable. Lodging would be an example
Stock Dividends vs. Cash Dividends
Stock must be realized in order to be taxable
Donor's basis transfers to the donee thus ensuring tax upon realization event.
Gain - Investment = Taxable Income
punitive are taxable as is any recovery for actual damages
compensation for lost wages are taxable as well
Compare basis to what was received
Damages Taxation Test
In lieu of what were the damages awarded?
deductible if provided for the convenience of the employer.
Must be on site with no other options and if more than 1/2 of any employer's premises satisfies this then all meals on the premises satisfy the test.
Employee Benefits excluded from income to further social policy goals
health and accident insurance
life insurance- costs to 50k
educational assistance- costs to 5,250/yr
dependent care assistance- costs up to 5k (disabled/dependent)adoption assistance- costs up to 10k
no additional cost service- no substantial cost to employer
qualified employee discount
working condition fringe
de minimus fringe
qualified moving expense
military base realignment
proceeds from a detached and disinterested generosity.
Employer gifts don't exist
excludable only if:
the recipient was selected without action on his part
transferred directly to a charity
recipient isnt required to render future services
excluded from gross income if can show was used for tuition and school expenses. Cant exceed tuition
included in gross income if its a substitute for income you would've had unless the fed/state program primary purpose is conservation and doesn't substantially increase the taxpayers income
Social Welfare Programs
excluded from gross income as long as are HEAP, HUDD, Food Stamps, Disaster Relief.
Pmt must come from govt, predicated on need, and amt based on welfare law
taxed at a graduated rate
with terms of payment do not constitute income
Claim of Right
Has money without restriction and has the unfettered and free use of funds from the time of receipt is taxable in the year in which the receipt occurs even if someone else is claiming it also.
if a loan is discharged for anything less than the full amount, the remainder is taxable as income.
unless insolvent, filed bankruptcy, renegotiated mortgage, etc
Life Insurance Death Benefits
Generally excludible from the beneficiary's income
must be an ordinary and necessary business expense to be deductible. easily satisfied if client is guest
Ordinary and Necessary Test
industry custom and helpful to further the business
must be reasonable and necessary
incurred while away from home
incurred in pursuit of business: direct correlation between advancing business interests and the travel being necessary to do so
50% if adequate documentation and a strong business relation with business benefit
deductible if its of a type specifically required as a condition of employment
not adaptable to general usage outside of work
and is not so worn
Child Care and Child Support
generally not deductible but a child care credit of 20-35% depending upon your AGI (starts at 15k for full award and increases 1% for additional 2K) ****if kid is disabled or under 13
new place of work must be at least 50 miles farther and person is employed full time for at least 39 weeks for 12 month period after
must have an honest and actual profit objective
Totality of Circumstances test for profit objective
1. Manner in which it is conducted- is it business like?
2. Research done or experience in field?
3. Time or effort put forth?
4.Expectation of Profit?
5. Prior Successes?
6. Activity's history of income or losses
7. Amounts of such profit/loss
8. Tax payers financial status
9. Personal pleasure present?
must be exclusively used on a regular basis and if an employee must be for the convenience of the employer. If multiple business, all must qualify or none do. Prorate expenses per size of office compared to the rest of the premises.
allocation must be based on the number of days the property is rented to the number of days the property is used.
ie) 60 rental days/ 365 days = 16% deduction
Can prorate expenses as long as do not exceed income generated
Dwelling unit has to be used as a residence the greater of either 14 days or 10%. If more than 14 days, deductions are limited.
Deduct it all
Partial debt in anticipation of worthlessness is 5%
Can be Business or personal as long as it is not a gift.
to match cost of asset with the income it generates
no deduction if you created an asset or took money and converted it into an asset. capitalize and depreciate by spreading cost over years of productive use.
expenditure for the purpose of keeping the property in an ordinarily efficient operating condition and doesn't add value or prolong its life and this would be deductible.
Consider common given industry standards and their typical response
substitution, alteration, permanent improvement, or additions which make it adaptable to a different use, prolongs life, must capitalize it.
to allocate expense of using an asset to the various periods which are benefited by that asset aka periodic cost recovery. Asset has to be depreciable- land and stocks are not.
Biz or Personal Test
Consider the origin and nature of the claim with respect to which an expense was incurred
must be a written K
pmt must be in cash
cant live in same household
ends upon death
can't say "alimony" in the K
can waive income to payee, deduction to payer
Divorce Transfer of Property
treated as made by and acquired by gift.
must be incident to a divorce up to 6 years depending upon circumstances. no gain if jointly owned.
settlement pmts to release future claims = gift
basis is stil transferred to the payee so once realized it is taxable.
no additional cost services
must be of the type of services provided to the public
shirt biz- free shirts to employees
airline- free flights to attendants
employer can not incur any substantial cost
de minimus fringe
so small accounting for it is unreasonable ie) coffee and donuts
excludes employer provided parking, transit passes, commuted highway vehicle use
excluded unless receiving interest payments
commuting is not deductible. multiple business places are deductible as long as you aren't regularly travelling to multiple places.
not deductible, consider exclusive access
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