Lasser v. Amistco Separation Products, Inc., No. 01-13-00690-CV
Class 2 Pacing Your Course Lasser text – 20 hours class time must do 2.5 chapters per hour.
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Transcript of Class 2 Pacing Your Course Lasser text – 20 hours class time must do 2.5 chapters per hour.
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Class 2
Pacing Your CourseLasser text – 20 hours class time
must do 2.5 chapters per hour
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Filing Status
• Most Important Decision = what tax rate tax use when filing and
• What form to use, 1040 or 1040NR
• See tax rate chart p 757 / Drake Publication• Go to irs.gov to get forms 1040 / 1040NR / filing
instructions
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Single
• Unmarried persons, whether never married or divorced.
• In certain cases – married persons who live apart (marriage breakdown)
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Married
• Legally married, not common law
• Both spouses must have SSN or ITIN
• Whether in USA or outside USA.
• Special rules for NR spouses
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Head of Household
• Unmarried persons supporting a child as dependent.
• Married US citizens living outside USA who contribute significantly to family income, e.g. ½
• Significance is the lower tax rate that applies.
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Limiting Liability of a Spouse
• Innocent spouse rules.
• Applied to situations where MFJ as both sign the returns
• Pre- 2000 both spouse jointly liable for tax
• New rules are evolving every day to provide relief to the innocent party.
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Children
• A child under the Age of 18
• Special rules for children who are in school between 18 –24 = may be dependents
• Use $850 income child must file and use f 8615 to figure tax , see form ***
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Aliens
• Green card, TN, H1B, etc. on a visa
• Not US citizens
• Treated as residents if substantial presence test applies.
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•H1B
•H2B
•TN
•F1
•EB1 to EB5
•Green Card
Types of Visas
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•“Ordinary Rule”
•Resident
•Non Resident
•Exceptions
•Definition of :
sojourn
temporary stay
Rules
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Substantial PresenceCloser Connection (form)
Fewer than 183 days in current yearTax home in foreign country for entire year
Closer ties with Canada rather than USImportance of dates spent in U.S.A.
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Income
• Adventure in the nature of trade
• Return on capital – investment income
• Capital Gains
• Passive vs. active
• Wages, salaries and benefits
• Specified items, scholarships and bursaries
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Active - Wages, Salaries etc.
• Sweat involved
• Includes benefits
• Specific rules are important for various types
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Fringe Benefits
• Lasser Chapter 3 – slides
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Passive Income
• Does not involve sweat
• Rentals – 750 hours per year determines whether passive or active
• Investment income generally is passive
• Why important: - stop loss rules for passive sources of income
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Dividends and Interest
• Qualified Dividends 2007 – are taxed at 5% (where tax rate is <15%) or 15% where tax rate exceeds 15% - taxed on form with long terms capital gains. 2008 - 5% rate is nil.
• Life insurance – not income until aggregate premium cost is recovered (generally viewed as return of capital)
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S Corps and Partnerships
• Flow through entities
• Owners are taxed on profits
• Dividends from S Corps are not income
• Same for Estates and trusts, REITs
• Tax slips are important and show treatment
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Stock Dividends
• Generally – not taxable as not a distribution from retained earnings – merely an increase in the issued shares in number
• Some exceptions exist, must know how company accounted for issuance of stock.
• Dividends in kind are taxable, i.e., property
• Constructive stock dividends
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Tax exempt interest
• Municipal bonds, etc. – must be reported, tip p. 79 >>>> AMT - Tax preference item
• Bad news: Canada does not recognize exempt status and will tax to Canadian residents
• Joint accounts – nominee form req’d 1096
• “convience accounts” – are taxed to contributor not joint.
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Interest misc. items
• Discounts and premiums on bonds must be recognized as income or a reduction of income on page 1 of 1040.
• Does it matter which spouse reports income? – discuss
• Gift loans <$100K - imputed interest is limited to borrower’s net investment income P95
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State and Local Tax Refunds
• Only taxable if you itemized deductions and claimed the cash basis for the deduction in the prior year.
• If you used accrued method – not taxable
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Sale of Property – day 4 – Bisk Text
• October – will discuss this
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Short Term Gains
• Taxed at normal marginal rates
• Gain is calculated as:
• Proceeds $
• Less “Basis” – similar concept to ACB
• Losses are limited to $3K (MFJ) in a year - balance is carried forward - $1.5K (MFS)
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Death of Spouse
• Deduct on final tax return of deceased all loss carry forwards.
• Spouse is prohibited from deduction going forward
• p 103
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Sale of Small Business Stock
• Exclude 50% profit; Must be held > 5 years
• Exclude 60% profit from empowerment zone – p105
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Long Term Gains
• Holding period > 1 year NB
• 5% and 15% tax rate apply
• 5% (2007) where tax rate is >15%
• Otherwise 15% rate applies
• Schedule D – is important
• P108-109 calculations
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Gifts and Inheritance
• Inherited property – deemed 1 year + holding period
• Estate tax may apply – day 5
• If estate tax is paid – basis is increased
• You generally inherit the donor’s basis
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Retirement Income
• Private pensions - periodic and lump sum payments
• Social Security
• 401Ks / 403Bs
• IRAs – Regular
• IRAs – Roth
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Form 1099
• P 150 – Lump Sum
• Gross and taxable amount can be different
• Employer must withhold 20% on lump sum distributions, Treaty ART XVIII technically only applies to periodic payments.
• Averaging – will not apply if previous rollover made. – form 4972
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Roth IRAs
• Not deductible when contributed
• Not income – ever!
• Rollovers from qualified plans – 403b and 457
• AGI (MFJ) , $100 K
• Rollovers are irrevocable
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Penalties
• 10% tax applies in addition for early withdrawal of pensions p157
• < 55 years except is special circumstances, disabled, exceptional medical expenses etc.
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Chapter 7
• Detailed rules for many items – read and make notes
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401K
• Pensions – under the Treaty, Harrah!
• CRA treatment – tax contributions and tax benefits no longer applies
• Transition rules not yet on the table for those who were penalized in the past.
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401K
• Similar treatment to RRSPs.
• Contributions are exempt from gross income (both employee and employer)
• Grows tax free
• Benefits are taxable in year received
• Elective deferral limits, note p 166
• Subject to age limitations for withdrawal
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Annuities
• Return of capital is exempt
• Non-deductible contributions
• Detailed rules on calculation of taxable amounts
• Life expectancy tables p 174
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Qualified Hurricane Distributions
• P 219
• Preference item
• Will change with the weatherents and Royalties
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Rents and Royalties
• Cash basis taxpayer
• Advances are taxable
• Offsets for tenants improvements; in and out on rental statement at FMV
• Insurance recoveries are rental income
• Rental losses are limited to active participation
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Rents and Royalties
• Renting to family – use FMV
• Personal use – take out that % from expenses
• M/b rented > 15 days in a year
• Profit motive required, chapter - -10
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The end- income!