TCP

Nonstatutory stock options:

Key Date

Grant Date

Vesting Date

Exercise Date

Basis in stock

Date Stock is Sold

Options Lapse/Expire

Additional Notes

Nonstatutory Stock Option (Readily Determinable Value)	Nonstatutory Stock Option (No Readily Determinable Value)
Ord. Inc:  FMV option - cost
NA	Ordinary income recognized = Bargain element (FMV of stock – exercise price).
Basis in stock = exercise price + income recognized at grant date. Holding period begins.	Basis in stock = FMV of stock when exercised. Holding period begins.
Capital gain (loss); S-T or L-T depending on holding period.	Capital gain (loss); S-T or L-T depending on holding period.
Capital loss = FMV of options previously taxed at grant date.	Capital loss = price paid for options (if any).
Readily determinable has 4 conditions -          Transferable -          Exercise immediately @ grant date -          No conditions or restrictions that would have a significant effect on value FC of option can be readily determined

ISO and ESSP

Key Date

Grant Date

Vesting Date

Exercise Date

Basis in stock

Date Stock is Sold

Options Lapse/Expire

Additional Notes

Incentive Stock Options (ISO):	Employee Stock Purchase Plans (ESPP):
NA AMT preference item (FMV- purchase price). Holding period requirements begin.
Basis in stock = exercise price
Gain/loss capital if: Must be held at least two years after grant date AND at least one year after exercise date. -                      If this isn’t met the portion between the exercise price and FMV @ exercise date is ordinary income, the rest is cap gain.
Generally, no deduction (unless amount was paid for the option itself).

Key Date

Grant Date

Vesting Date

Exercise Date

Basis in stock

Date Stock is Sold

Options Lapse/Expire

Additional Notes

Restricted Stock (Default - No 83(b) Election)

Restricted Stock (With 83(b) Election)

Restricted Stock Units (RSUs)

Restricted Stock (Default - No 83(b) Election)	Restricted Stock (With 83(b) Election)	Restricted Stock Units (RSUs)
No income recognized.	Employee recognizes Ordinary income (FMV of stock).	NA
Ordinary inc=  FMV of stock.	NA	Ordinary compensation income recognized (FMV of stock).
On vest: Basis begins. Holding period begins.	On grant: Basis begins. Holding period begins.
Capital gain (loss); S-T or L-T depending on holding period (begins at vesting).	Capital gain (loss); S-T or L-T depending on holding period (begins at grant).	Capital gain (loss) (holding period begins at vesting).
	Must be made within 30 days of grant date

Stock Appreciation Rights (SARs)

Key Date

Grant Date

Vesting Date

Exercise Date

Basis in stock

Date Stock is Sold

Options Lapse/Expire

Additional Notes

Stock Appreciation Rights (SARs)

NA

No tax consequences.

Employee receives cash payment. Ordinary compensation income recognized = FMV difference between exercise and grant date.

N/A (typically cash received at exercise).

Other requiremnets
Ownership Limit (%)
Exercise Limit ()
Exercise Time limit
How much?
Who?

Incentive Stock Options (ISO):,

Employee Stock Purchase Plans (ESPP):

	Incentive Stock Options (ISO):,	Employee Stock Purchase Plans (ESPP):
Must Have Written Approval plan from SH
Must be an employee for up to 3 months when it is exercised
Ownership Limit (%)	Employee may not own more than 10% of voting power at grant date.	Cannot grant options to employees who have 5% or more combined voting power.
Exercise Limit ()	May exercise up to $100,000 per year (excess treated as nonstatutory).	No employee can acquire the right to purchase more than $25,000 of stock per year.
Exercise Time limit	must be exercised within 10 years,	must be exercised within 27 months,
How much?	cannot be less than FMV @ grant date	May not be less than the lesser of 85% of FMV when granted or exercised.
Who?		plan, must be available to all employees other than the top paid and people there less than 2 years

Imputed Interest on Below-Market-Rate Loans

-          This is when you give someone a below market loan

-          If a taxpayer gives a loan to someone below market they must recognize interest income for the interest they should have gotten, and the recipient of the loan may be able to deduct the foregone interest unless it is personal

o   Foregone = IRS % - your %

Exceptions to: Imputed Interest on Below-Market-Rate Loans

Loan Type	Exceptions	Notes
Gift, Compensation, Corp-Shareholder Loans	De Minimis: Total outstanding amount of $10,000 or less (rules do not apply).	Gift loan cannot be used to purchase income production assets Compensation/corporate share holder – cannot be tax avoidance,
Exemptions	-          Government subside loans -          If it is consistent with the lender’s business practices -          Assist employee with work relocation
Gift Loans (Individuals)	If 100,000 or less then the interest income/deduction is limited to the net investment income for the year(if this is less than 1,000 treat it as 0)

Compensation Earned While Employed Outside the U.S.

Concept	Key Limit/Requirement
Foreign-Earned Income Exclusion ()	Up to $130,000 (2025) may be excluded from U.S. gross income.
Physical Presence Test	Taxpayer must be physically present in a foreign country for 330 full days during any 12-consecutive-month period.
Bona Fide Residence rest	Must be a resident of a foreign country for an unreputable taxable year

AMT

Pay greater of the regular and AMT tax

Preference/Adjustment	Effect
Tax Preference Items	Always add-backs (increase AMTI). -           Includes private activity bond tax-exempt interest income. -          Percentage depletion deduction -          Pre 1987 accelerated deprecation on real property and leased property
Common adjustments(+/-)	Timing Differences: -          Passive activity losses are added back or recalculated -          Accelerated Depreciation o   Real property: tax depr – SL, 40 year life since 1986 o   Personal property: tax depr – 150 declining o   no adjustment required for 179 -          Net operating must be recomputed -          Installment method may not be used by a dealer for property sales -          Contracts(long-term): percentage of completion method – completed contract method or any other method Deductions not allowed for AMT -          Taxes net of taxable tax refund are added back -          Standard deduction Other AMT adjustment -          Incentive stock options -          Gain or loss on sale of depreciable assets recalculated using AMT rules -          Pollution control facilites amortization deductions -          Minig exploration and devolpement costs -          Circulation expenses -          Research and experimental expenditures -          Passive tax shelter farm activities

Kiddie Tax

-          Applies to children under 18 years of age

-          A child between 18-24 years old who does not provide over half of his/her own support and is a full-time student

-          Take the child’s unearned income

o   No tax 1350 unless the child has more earned income than that then it is the lesser of:  

§  The standard deduction( 15,000)

§  Earned income + 450

o   Childs tax rate up to 2,700(the next additional 1,350)

o   Parent’s tax rate for the remainder

Parents' Election ()

Can include child's income on parent's return if income is between $1,350 and $13,500 and is only passive income

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Flexible Spending Accounts (FSAs)

Flexible Spending Accounts (FSAs) (2025 figures): this is all pretax income

Type of FSA	Maximum Annual Contribution ()	Usually this must be used by EOY but this is the grace period:  Rollover/Grace Period
Dependent Care FSA	$5,000.	2½ month grace period allowed.
Health Care FSA	$3,300.	Employer may offer 2½ month grace period or carry over up to $660.

 

-          Any employment contributions are excluded from gross income

Health Savings Accounts (HSAs) limits and withdrawls

Health Savings Accounts (HSAs) (2025 figures): these are not use it or loose it

Coverage Type	Maximum Annual Contribution ()	HDHP Minimum Deductible ()	Out-of-pocket limit
Self-only	$4,300.	$1,650.	$8,300.
Family	$8,550.	$3,300.	$16,600.
Catch-up (Age 55+)	Additional $1,000.	N/A	N/A
Non-Qualified Withdrawal	Before age 65: Includable in gross income and subject to an additional 20 percent tax.	N/A	N/A

Withdrawal

-          If for medical expense it is not included in gross income

-          If not for qualified medical expenses:

o   If before age 65:

§  Include in gross income and has an extra 20% tax

o   If after 65:

§  Included in gross income but no extra tax

Medicare premiums are consider qualified medical expenses and you can even reimburse yourself for money taken straight out of your check

Standard Deduction

Standard Deduction (2025 figures)

Filing Status	Standard Deduction Amount ()
Single/MFS	$15,000.
Head of household	$22,500.
MFJ/Surviving spouse	$30,000.
Additional Deduction (Age 65 or Blind)	Unmarried: 2,000 per qualification. Married: 1,600 per qualification. -          If 1 is 65 or blind: 1,600 -          If 1 is 65 & blind: 3,200 -          If both are 65 or blind: 3,200 -          If both are 65 & blind: 6,400

Itemized Deductions

 

Itemized Deductions

Deduction Type	Key Limit/Threshold (%% or )
Medical expenses	In excess of 7.5 percent of AGI.
Taxes (State/local)	Limited to $10,000.
Casualty/Theft loss	In excess of $100 per casualty and aggregate losses exceed 10 percent of AGI (must be attributable to a federal disaster).
Interest Expense on home mortgage and investment	Home mortgage: up to 750,000 mortgage
Charitable contributions

Estimated Tax Payments and Underpayment Penalties and due dates

Estimated Tax Payments and Underpayment Penalties

Requirement/Avoidance Threshold	Limit (%% or )
Expected Tax Owed ()	Must pay estimated tax if expected to owe $1,000 or more.
Avoid Penalty (Lesser of)	90 percent of current year tax OR 100 percent of prior year tax (110 percent if prior year AGI > $150,000).
Failure-to-Pay Penalty (%%)	½  of 1% per month late (up to 25 percent).
Avoiding the penalty	At least 90 percent of tax due is paid by the unextended due date and the balance is paid by the due date of the tax return

 

Due Dates:

-          1/1 – 3/31: April 15^th

-          4/1 – 5/31: June 15^th

-          6/1 – 8/31: September 15^th

-          9/1 – 12/31: January 15^th

four main loss limatations(individual)

The Four Main Limitations (Hurdles)

Individual taxpayers must clear four hurdles sequentially to deduct losses from business activities, especially flow-through entities (S corporations or partnerships):

1. Tax Basis Limitation.

2. At-Risk Limitation.

3. Passive Activity Loss (PAL) Limitation.

4. Excess Business Loss Limitation.

The tax basis and at-risk limitations apply at the entity level, restricting the loss that can flow through to the owner. The PAL and excess business loss limitations apply at the individual income tax return level.

Tax basis Limitation

Hurdle 1: Tax Basis Limitation

-          Limit: A loss can only be flowed through and deducted up to the owner's tax basis in their S corporation or partnership interest.

o   Any loss also decreases your basis

o   Whether or not your share of debt is included in your tax basis depends on:

§  Type of partner(GP or LP)

§  Type of debt(nonrecourse)

-          Suspended Loss: Loss in excess of tax basis is suspended and carried forward indefinitely until basis is reinstated.

-          Loss on Disposal: Any suspended losses remaining when the owner disposes of the interest are lost (cannot be deducted).

-          Applicability: Applies to all activities, regardless of material participation.

At risk limitation

Hurdle 2: At-Risk Limitation

-          Limit: A loss can only be deducted to the extent that the owner is "at risk". The at-risk amount represents the taxpayer's economic risk.

o   The at-risk amount is typically the same as the tax basis, but it excludes a partner's share of nonrecourse debt, other than qualified nonrecourse financing(QNF).

§  Nonrecourse debt is debt for which partners bear no personal liability.

o   At risk basis also gets reduce with usable losses

-          Suspended Loss: Loss in excess of the at-risk amount is suspended and carried forward indefinitely until the at-risk basis is reinstated.

-          Loss on Disposal: Suspended losses remaining upon disposal of the interest can be offset against any gain from selling the interest.

-          Applicability: Applies to all activities, regardless of material participation.

PAL limiation

Hurdle 3: Passive Activity Loss (PAL) Limitation

-          Rule: A passive activity loss (PAL) can only be offset against passive activity income. It cannot offset active or portfolio income.

-          Suspended Loss: A net PAL is suspended and carried forward indefinitely to offset future passive activity income.

-           Loss on Disposal: Any suspended PALs remaining when the owner disposes of the activity can be offset against active, passive, or portfolio income (i.e., just about anything).

Categories of Income

All income and loss items are sorted into three categories:

1. Active: Wages, guaranteed payments for services, and business income/loss where the taxpayer materially participates.

2. Passive: Business income/loss where the taxpayer does not materially participate. Rental real estate is automatically passive unless an exception applies. Income/loss from a limited partnership interest is automatically passive.

3. Portfolio: Interest, dividends, royalties, annuities, and capital gains/losses.

 

Material Participation

-          An activity is passive if the taxpayer does not materially participate.

-          The most common test for material participation is participation in the activity more than 500 hours during the tax year. – regular, continuous, substantial

 

Exceptions to PAL Limitation (Rental Real Estate)

• Mom-and-Pop Exception:

-          Allows deduction of up to $25,000 of net passive rental real estate loss against regular income 😊

o   This is reduced by 50% of the excess of the taxpayer’s AGI(excluding the rental activity) over 100,000(this is eliminated completely at 150,000)

-          Requires the taxpayer to own at least 10 percent of the activity and actively participate.

• Real Estate Professional:

-           If qualified, rental activities are treated as active (not subject to PAL limits).

o   Requires performing:

§  more than 750 hours of services in real estate businesses AND

performing more than 50 percent of personal services during the year in real estate businesses.

excess business loss limitation

Hurdle 4: Excess Business Loss Limitation

-          Timing: This limitation is applied after the passive activity loss limitations.

-          Thresholds (2025): Taxpayers are not allowed to deduct an overall "excess business loss" above the threshold amount:

o   $626,000 (married filing jointly).

o   $313,000 (all other taxpayers).

-          Carryforward: The combined business loss in excess of the threshold is carried forward as a Net Operating Loss (NOL)

-          NOL Limit: The NOL carryforward is subject to the 80 percent of future taxable income limitation.

-          This applies to all types of business income both active and passive

what are the unlimited exclusions for gift and estate taxes

• Payments made directly to an educational institution for tuition,

• Payments made directly to a health care provider for medical care,

• Charitable Gifts,

• Marital Deduction (transfers between spouses),

  • In order to qualify for marital deduction, there may not be a terminable interest in the property unless the property qualified as a qualified terminable interest property

  • Unless it is QTIP Requirement: Donee spouse must be entitled to all income for life, no one other than the donnee spouse can get income, it must be productive, has to have a pro rate share of estate taxes

Complete vs incomplete gifts

Complete vs incomplete gifts

-         Complete gifts: only complete gifts are subject to gift and qualify for the annual gift tax exclusion

-         Incomplete gifts: no subject to gift tax if it is conditional or revocable

o   Becomes a complete gift when you get it

o   Revocable: the gift is complete when the rights to revocable terminate

Recipient's Basis in Gifted Property

Recipient’s basis in gifted or inherited property
Inherited property	FMV at the date of death
Gifted property	If: -         FMV at date of gift > donor’s rollover basis o   Use donor’s rollover basis + gift tax paid due to appreciation in value -         FMV at date of gift < donor’s rollover basis o   Determine at sale date: §  If donee’s selling price > donor’s rollover basis – use donor’s rollover basis §  If donee’s selling price < donor’s rollover basis – use the FMV at date of gift

Charitable Contributions: Deduction Rules

Type	Description	Limitation
Step 1: Cash/mileage/lodging	$$ $0.14/mile Lodging expenses	Private charities and public charities	Private nonoperating foundations
		Limited to 60% of AGI	30% of AGI
Step 2: Ordinary income Anything depreciated Inventory ST assets Investments or personal uses that have depreciated in value Depreciation recapture on LT business use assets	Lesser of FMV or basis	Limited to 50% of AGI- contributions allowed from part 1	30% of AGI
Step 3: Capital Gain	Assets held long term   Valued at FMV as long as the charity uses it in charitable endeavors otherwise use basis	Lesser of:  30% of AGI Or 50% of AGI- step 1 and 2	20% of AGI

what does it mean to be a qualified charitable

-         Must be a qualified charitable (Section 501(c)(3)

o   Private charities or public foundations

§  Private foundations can be further split up into:

·        private operating foundations: actively conducts charitable activities, and distributes funds to its own charitable programs

·        private nonoperating foundations

personal-use vehicle

• would be ordinary income, however for a qualified vhicle the deduction is further limited

  • If FMV > 500, the deduction is limited to the lesser of:

    • The gross proceeds from the sale of the vehicle

  • FMV on the date of the contribution(assuming the FMV is less than adjusted basis of vehicle)

  • If FMV<500 the deduction is limited to the lesser of:

    • $500 or;

    • The FMV on the date of contribution(assuming the FMV is less than the adjusted basis of vehicle)

Charitable contribution carryforward

-         FIFO

-         Carryforward: 5 years

Substantiation Requirements

• Noncash property > $500: File Form 8283.

• Noncash property > $5,000 (per item/group): Requires a written appraisal (exception for publicly traded securities).