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6 Cards in this Set
- Front
- Back
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Kiddie tax: children under 18 are taxed at their parent's highest marginal rate of tax on any unearned income of the child (dividends, interest, royalties).
Prevents income shifting. |
* Kiddie tax doesn't apply to earned income.
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Accrural method taxpayer has income when the right to it is earned and the amount is ascertained.
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May deduct his expenses when the obligation is incurred and the amount is ascertained.
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Cash method taxpayers
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Income's recognized when cash is actually received. Deductions are taken when cash is paid.
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Constructive receipt doctrine
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Money available to P w/o substantial restriction is treated as if it had been received by P
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Prepaid expenses (like rent)
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Entitled to deduction for expenses: prorate deduction amount over occupancy years
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How to treat interest free loans
1) Borrower deemed to pay interest to Lender at applicable federal rate (via IRS). Interest income taxed (lender); interest expense (borrower; may be deductible depending on what they do w/proceeds) |
2) Since Lender received no cash from Borrower, interest income that Lender deemed to receive, is now deemed to be paid by Lender to Borrower. Treatment of deemed repayment of $10k depends on relationships of parties.
- Dividend to B, if L is corporation and B is shareholder. - Compensation to B, if L is B's employer. - Gift to B, if motive for transaction is donative (gifts not taxable!) |
