ACC 307 Federal Taxation

Accounting
Tutor: None Selected Time limit: 1 Day

Compare and contrast the at-risk rules and passive activity limits. Discuss the purpose for each, and suggest as least two (2) tax-planning strategies for ensuring that the IRS allows passive losses in order to reduce your tax liability. Provide support for your suggestion.

Aug 14th, 2015

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AT RISK RULES vs PASSIVE

The at-risk rules deal with your investment in an activity while the passive activity rules deal with your participation in an activity.                                                                                                                                                                At-risk rules limit the amount of a business loss you may deduct in any given tax year. You may only deduct up to the amount of your investment in an activity that you stand to lose . If a loss exceeds your at-risk investment, the excess is a suspended loss and may be carried to future years indefinitely and deducted when there is sufficient at-risk basis to absorb the loss.                                                                                                          Passive activity rules restrict the deduction of passive activity losses. You may only deduct passive losses from passive income.                                                                                                                                                        The passive activity and at-risk rules are intended to have the effect of directing capital investment into viable, economic activities, where profit is the motivating factor and getting a return on investment, and not merely generating tax savings via sham businesses and financial finagling.

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Aug 14th, 2015

CONTINUATION ON STRATEGIES

1.DEFER-taxes with tax-advantaged accounts or investing strategies, such as health savings accounts (HSAs), and products such as deferred annuities.

2.MANAGE-your tax burden by employing strategic asset location, investing in lower turnover funds, understanding mutual fund distributions, and taking advantage of charitable gifts and capital loss deductions.

3.REDUCE-taxes now with federal-income-tax-free municipal bond income, or reduce taxes in the future with a  529 college savings account.


Aug 14th, 2015

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