Individual Taxation

Under what accounting basis are individual tax returns prepared?

Cash Basis. Note: This basis is NOT allowed for Corporations, Partnerships with a C-Corp partner, or for inventories. *MSA/HSA contributions *Investment penalties for early withdrawal *Selfemployed medical insurance premiums *Self-Employment Tax (approx. 50%) *IRA Contributions *Student loan interest (can't be another taxpayer's dependent) *Moving expenses *Alimony *Tuition - can't take AOC/Lifetime Learning Credit for same expense *Teacher expenses *Attorney fees in discrimination lawsuit

Individual Taxation

What are the deductions to arrive at Adjusted Gross Income (AGI) for individuals?

Individual Taxation Individual Taxation

Investment interest expense in excess of investment income Charitable Which items can be carried over to future years on an individual contributions Excess Section 179 Capital tax return? losses AMT Paid Passive Activity Losses No carryback Can carry forward indefinitely Characterize the following carryover: Passive Activity Loss Carry forward to next year. Use in any year is limited to taxable income. Indefinitely. Can be carried forward 5 years. It can be carried forward indefinitely. It may be applied against future *regular* income tax, but not against future AMT tax liability.

Individual Taxation Individual Taxation Individual Taxation

How is excess 179 expense carried forward? How long can investment interest expense in excess of investment income be carried forward? How long is the carry forward for charitable contributions?

Individual Taxation

How long is AMT paid carried forward, and how is it applied?

Individual Taxation

How are capital losses applied in individual taxes?

$3,000 net capital loss can be taken in each year, the rest is carried forward indefinitely. The loss retains its character (STCL or LTCL). Corporate capital loss carryovers may be carried back 3 years and forward 5 years. Individual capital losses are carried forward indefinitely. Individual capital loss carryovers retain their character (STCL or LTCL). Corporate loss carryovers are carried forward as STCL only. Gross Profit / Contract Price Contract Price = Sales Price - Liability assumed by buyer $1,000,000 $100,000 $25 per person for gifts Service awards up to $400 They may only offset active business income. Note: W2 wages are considered active business income. Only passive income such as rental income or limited partnership income. Note: Wages are ACTIVE (cannot be offset by passive) and Interest/Dividends are PORTFOLIO (cannot be offset by passive) Neither. They are portfolio income. Mid-year/Mid-quarter

Individual Taxation Individual Taxation Individual Taxation Individual Taxation Individual Taxation Individual Taxation

How does an individual capital loss carryover differ from a corporate capital loss carryover? What ratio is applied to principle payments in an installment sale to determine the gain in a given year? What is the contract price in an installment sale for income tax purposes? On an individual return, regular mortgage interest on what loan amount is deductible? Interest on home equity loans up to what amount are deductible on an individual tax return? What business gift amounts are deductible on Schedule C of form 1040? What amount for service awards?

Individual Taxation

What income can business losses offset on a 1040?

Individual Taxation Individual Taxation Individual Taxation

What income can passive losses offset on a 1040? Are interest and dividends active or passive income? What is (are) the depreciation convention(s) for personal property?

Individual Taxation Individual Taxation Individual Taxation

When is the mid-quarter convention used? What depreciation convention is used for real property? What depreciation life and convention are used for leasehold improvements? What amount of business start-up costs can be deducted? How is it expensed? How are medical expenses deducted on a 1040? Which personal insurance premiums are not deductible as medical expenses on Schedule A?

For depreciation when 40% or more of all purchases occur in 4th quarter. Mid-month 15 year straight line (S/L) Up to $5,000 Amortized over 180 months Reduced dollar-for-dollar by amount over $50,000 On Schedule A: Amounts in excess of 10% of AGI may be deducted Accident or disability insurance premiums are not deductible.

Individual Taxation Individual Taxation Individual Taxation

Individual Taxation

Individual Taxation

Must be a citizen of North America Must live with you, or if they do not, must be mother/father or a relative closer than a Under what circumstances can medical expenses paid on behalf cousin. Benefactor must provide more of another be deducted on someone's Schedule A? than 50% support to the beneficiary. Foreign INCOME and REAL ESTATE taxes are deductible. Foreign personal property taxes are NOT deductible. Foreign tax assessments are not deductible- they are added to the basis. Which foreign taxes are deductible? Gross investment income - investment expense in excess of 2% of AGI = net investment income Investment interest expense in excess of net investment income is deductible. Investment interest expense on taxfree securities is not deductible.

Individual Taxation Individual Taxation

How is net investment income calculated, for the purpose of deducting excess investment interest expense? What investment interest is never deductible?

Individual Taxation Individual Taxation

They are deductible if they represent prepaid interest on purchase of a new home or improving a home. Refinance points are amortized over the life of When are mortgage points deductible and how are they deducted? the mortgage. How are charitable contributions of LTCG property and property Deducted at fair market value (FMV), related to a charity's function deducted? up to 30% of AGI How are charitable donations for STCG property and property not related to the charity's function deducted on Schedule A? Does a casualty loss affect the basis of property? Deduction is taken for adjusted basis in the property, up to 50% of AGI. No. It decreases the fair market value (FMV) of the property.

Individual Taxation Individual Taxation

Individual Taxation

Individual Taxation

Take the lower of either A) Decrease in FMV or B) Basis in property (call this number GROSS LOSS) GROSS LOSS insurance proceeds received - $100 How is the deductible portion of a casualty loss calculated? 10% of AGI = Deductible casualty loss Deductible in excess of 2% of AGI Continuing Education - if required to keep your job Business travel 50% Meals and entertainment Union Dues Tax prep fees Legal fees to collect alimony Appraisal fees to value What are the miscellaneous deductions on Schedule A, and how casualty loss of charitable contributions are they deducted? Which itemized deductions are not subject to phaseout based on income or other factors? Medical Casualty Gambling Investment Interest Expense Must be resident of North America Under age 19, or under age 24 if a student

Individual Taxation

Individual Taxation

Define qualifying child for most individual tax factors.

Individual Taxation

Define qualifying relative for most individual tax factors?

Individual Taxation

How is minor income taxed at a parent's rate calculated (AKA kiddie tax)? Can spouses married filing jointly use different accounting methods?

Must be citizen of North America Must live with you, unless mother/father or relative closer than a cousin You must provide more than 50% support to the individual Child's unearned income - early withdrawal penalties - $1,000 - Greater than $1,000 or child's itemized deduction related to unearned income = Amount taxed at parents' rate

Individual Taxation

Individual Taxation

Individual Taxation

Individual Taxation

Individual Taxation

Yes, if they each own a small business. All non-business income is cash basis. 15.3% of net earnings from selfemployment (Note: executor of an estate is NOT self-employment At what rate is self-employment tax assessed? income) A tax credit which takes the taxpayer's tax owed on the return below zero, resulting in a refund to the taxpayer. Earned Income Credit (EIC), American Opportunity Credit and the Additional Child Tax credit. Note: the What is a refundable tax credit? Which individual tax credits are REGULAR child tax credit is NOT refundable. most commonly refunded? American Opportunity Credit - per student Lifetime Learning Credit - per taxpayer Note: The American Opportunity Credit is refundable. How many education credits may be taken on a tax return? The lesser of: 90% of current year's total tax 100% of prior year's total What estimated tax payments must be paid in by an individual tax 110% of prior year's total tax (if AGI is $150,000 or more) taxpayer either via withholding or by quarterly tax payments?

Individual Taxation Individual Taxation Individual Taxation Individual Taxation

Individual Taxation Individual Taxation

Individual Taxation

Individual Taxation

Individual Taxation

Individual Taxation Individual Taxation

Which farming costs related to land are deductible? Which aren't? Which depreciation table is used for personal tangible property related to farming? MACRS 150 How long does the taxpayer have to petition the court for appeal after an audit? 90 days If no petition to appeal is filed, how long does a taxpayer have to pay tax due after an audit? 10 days 3 years, generally 6 years if 25% or more of gross income was omitted The clock starts on the LATER of the due date or the filing date of the return. There is NO STATUTE OF LIMITATIONS for either fraud or failure What is the statute of limitations for a tax audit? to file a required return. How is non-business bad debt deducted on a 1040? It is treated as a STCL Refunds must be claimed within 3 years of the return due date or within 2 years of being paid, whichever is How long does an individual taxpayer have to file a claim for refund? later. Premiums paid by an employer for When are life insurance premiums of an employee includable in coverage in excess of $50,000 per employee are includable in income. income? When they are not in return for services rendered, AND The money is used *only* for tuition and books Note: Scholarships for room and board are includable in income. When are scholarships not taxable? State & municipal bond interest US EE Savings Bond interest (note: HH bond What interest income is tax free? interest is taxable) S-corporation (actually distributions) Life insurance Which dividend income is tax free?

Deductible: Costs incurred to PRESERVE soil/water Non-deductible: Costs incurred to drain wetlands or prep for irrigation (i.e. improve land)

Individual Taxation Individual Taxation

Individual Taxation Individual Taxation

Individual Taxation

Individual Taxation

Individual Taxation

How much social security income can be taxed for individuals in higher income brackets? Up to 85% Is unemployment compensation taxable? Yes. Payments made to make you whole are NOT taxable (i.e. to pay for losses of property, body parts or earning ability) Any payments for punitive Which damages awarded in lawsuits are taxable? Which are not? damages ARE taxable. No - similar to an award for damage to Are workman's compensation insurance benefits taxable? make a person whole. Alimony IS taxable. Child support and divorce property settlements are NOT Which of the following are taxable: Child Support, Divorce taxable. Property Settlements, Alimony NO, they are not deductible. However tax benefits are available through the Adoption expenses - Are they deductible? adoption CREDIT. 2nd Year: (3rd year - 2nd year $15,000) 1st Year: 1st Year Alimony Paid - Avg alimony paid in 2nd & 3rd years - $15,000 - Recapture from 2nd year =1st Year Alimony Recapture Total Recapture = 1st Year Recapture + 2nd Describe alimony recapture. Year Recapture Can be carried back 2 years If any left, can be carried forward 20 years. Traditional IRA = deductible Roth IRA = not deductible They must be married at the end of the year. If one spouse dies, they must be married at the end of the year. Must have a dependent child Must provide more than 50% of the child's support Must live with them more than 50% of the year

Individual Taxation Individual Taxation

How are Net Operating Losses (NOLs) utilized? Which IRA contributions are deductible?

Individual Taxation

When can a couple file married filing jointly?

Individual Taxation

What are the requirements for filing as Head of Household?

Individual Taxation if you are an eligible educator, you can deduct ____________________ as an adjustment to income. who is considered an eligible educator for the adjustment?

What are the requirements for filing as qualifying widower?

Must have a dependent child. Essentially gets MFJ status for the year of death + 2 tax years

$250 qualified expenses you paid. ($500 for married teachers) k-12 teacher, instructor, counselor, principal, or aide in a school for at least 900 hours during a school year

ordinary and necessary expenses paid in connection with books, supplies, equipment (including comp equip, software, and services) and other materials used in the classroom. 1. excludable U.S. series EE and I savings bond interest from Form 8815 2. nontaxable qualified state tuition program earnings 3. nontaxable earnings from Coverdell Education Savings accounts what are qualified educator expenses 4. any reimbursements you received for these expenses that reduced by? were not reported to you in box 1 of your form W-2 1. deductible IRA 2. nondeductible IRA what are the four types of individual 3. Roth IRA retirement accounts? 4. coverdell education savings accounts (IRA) when must the contribution be made for the adjustment for a deductible IRA to be allowed? by the due date of the tax return for individuals: april 15 what are qualified expenses for educator expenses? when will a taxpayer not be permitted 1. excessive AGI ($56+, 89+) and active participation in another to deduct a contribution to an IRA? qualified plan what is the phase-out for the deductible IRA contribution for an individual who is not an active participant, but whose spouse is? MAGI between $167,000 and $177,000

a taxpayer generally may deduct from income the amount of a regular IRA contribution. the max deduction is limited to: the lesser of $5,000 or the individual's compensation what is included in compensation? salary, wages, commissions, bonuses, and alimony what is not included in compensation? what is the additional catch-up contribution? which phaseout limits are higher, deductible IRAs or roth iRas? interest, dividends, annuity income, and pensions if over 50 yrs old by december 31st, allowed an additional contribution (adjustment") of $1000" roth iras 1. after the taxpayer reaches age 59.5 2. to a beneficiary after the taxpayer's death 3. because the taxpayer is disabled 4. for use by a first time" homebuyer to acquire a principal residence. there is a lifetime $10,000 limit on qualified distributions for this purpose."

qualified nontaxable distributions of roth iras are those made at least five years after the taxpayer's first contribution to a roth ira and made:

what are the tax effects of a coverdell non-deductible contributions, but tax-free accumulation of education savings account? earnings and tax-free distributions what are the tie limits associated with coverdell education savings accounts? ay amounts remaining when the beneficiary reaches 30 years of age must be distributed (except in the case of a special needs beneficiary). distribution may take one of two forms: what is the maximum contribution per year for a coverdell education savings account? what is the adjustment for education loan interest? contribute up to 18 years, and the beneficiary must use it by age 30

1. distributed to beneficiary, taxable and assessed a 10% penalty 2. rollover to another family member of the taxpayer

$2,000 limited to $2500. any excess or disallowed is personal interest and not deductible. phaseout at $60k-$75k

what are the tuition and fees above the line deduction?

applies regardless of whether the education was work-related. expenses above the maximum of $4,000 are only deducible as education expenses (itemized deductions subject to 2% of AGI limitation). [$4,000 if <$65k, $2.000 if 65k-80k, nothing if >80k] HSAs enable workers with high-deductible health insurance to make pre-tax contributions of up to $3,050 to cover health care costs. these amounts are increased by $1,000 for those who reach age 55 within the year. excludable withdrawals if used for qualified medical expense of any account beneficiary.

no contributions allowed once a taxpayer becomes covered by medicare parts A or B. similar to IRAs, but they are used for health care. typically used only if HSA is unavailable. work related. new workplace is 50 miles further. 39 weeks (75%) of the next year. only direct moving costs are allowable. when are moving expenses deductible employer reimbursements are excludable from income to the to arrive at agi? extent the amounts qualify as deductions. what is a health savings account and how does it work? what is an archer medical savings account? travel and lodging of the taxpayer and his family. transportation expenses are deductible at actual out-of-pocket amounts of 16.5% per mile. tolls and parking fees, but not other amounts, can be added to the milage rate if it is used. transporting household goods and personal effect to the new location. meals, pre-move house hunting, expense of breaking a lease, temporary living expenses. self employed taxpayer subject to the self-employment tax is generally allowed to set up. 49,000, or 25% net (keogh/self-employed) earnings 50% of social security/medicare tax all of it, provided the plan is set up in the name of the selfemployed individual or the individual's business

which moving costs are deductible to arrive at agi? which moving expenses are nondeductibe? what is a keogh (profit sharing) plan? what is the max annual deductible amount of a keogh plan? how much of self-employment tax can be an adjustment? how much of self-employed health insurance can be an adjustment?

how is the penalty on early withdrawal of savings (interest income) treated? adjustment to income. do not net against interest ncome in certain cases, an adjustment is allowed for attorney fees paid in connection w/ age, sex, or racial discrimination and whistleblower fees cases. limited to the amount claimed as what tax break is there for attorney fees paid in discrimination cases? income from the judgment. taxpayers will receive an adjustment for a percentage (9%) of qualified production activities income or the taxpayer's taxable income without considering the deduction (whichever is less). what tax break is given for domestic production activities? form 8903 will be filed. when can married filing separately use the standard deduction? available only if both taxpayer and spouse do not itemize. amount is the greater of 950 or his earned income plus 300. may claim the same additional standard deduction as other taxpayers what is the standard deduction for for blindness and/or age 65 or over status. dependent of another? what is the limitation on itemized none. there used to be one with agi exceeding certain deductions? thresholds, not anymore though. 1. yourself 2. spouse 3. dependent who received over half his or her support from payments on behalf of these you (under $ taxable income and precludes joint return do not individuals qualify for the itemized deduction for medical expenses: matter) what is the formula to calculate how much medical expenses are qualified med expenses - insurance reimbursement = qualified deductible? medical expense paid". subtract 7.5% agi = deductible medical expenses" medicine and drugs, doctors, medical and accident insurance, required surgery, transportation to medical facility, physically handicapped costs elective surgery, the part of social security tax paid for basic medicare, funerals, life insurance, capital expenditures up to the increase in fmv of the property because of the expenditure, health club memberships, personal hygiene

types of deductible medical expenses

types of non-deductible medical expenses

what happens to reimbursement of expenses by an employer that exceed the total of medical or dental expenses paid by a taxpayer? what happens to reimbursement of medical expenses received in the current year that was deducted in a year prior? are federal income taxes taken as an itemized deduction? when are foreign real estate taxes paid deductible? how are real estate taxes on land held for appreciation treated?

included in gross income

included as part of gross income in year received no only for real estate held as an investment

may be capitalized or deducted at the option of the taxpayer 1. real estate tax 2. state and local foreign income tax what are the types of taxes that can be 3. personal property tax used in itemized deductions? 4. sales tax taxpayer may elect to deduct either state and local income taxes or state and local general sales taxes when can you deduct sales tax? the amount is either 1. the total of actual general sales tax paid 2. irs table, plus any amount of sales tax paid for a motor how is sales tax deducted? vehicle, boat, or other IRS approved items what are taxes that are not federal taxes (including social security), inheritance taxes for deductible? states, business and rental property what are the two categories of qualified residence interest for home mortgages? acquisition indebtedness and home equity indebtedness 1. incurred in buying, constructing, or substantially improving the taxpayer's principal and second home, and 2. secured by home 3. points related to acquisition indebtedness are deductible immediately acquisition indebtedness is debt that 4. refinancing points must be amortized over the period of the is: loan

what is the limit on acquisition indebtedness?

what is home equity indebtedness? the maximum that can be treated as home equity indebtedness is the lesser of: is personal (consumer) interest deductible? how is education loan interest treated? are gifts given to organizations tax deductible? are gifts given to needy families tax deductible? are political contributions tax deductible? what is the maximum allowable deduction for charitable contributions?

interest on up to 1,000,000 of principal of acquisition indebtedness is deductible as qualified residence interest. excess is treated as personal interest, and not deductible. debt that is secured by the taxpayer's principal or second residence, but is not acquisition indebtedness" (i.e. not used to acquire, build, or improve the home) used for anything" 1) $100,000 2) FMV of the property reduced by the amount of outstanding acquisition indebtedness (aka the equity in home) no adjustment, not an itemized deduction. up to $2500 yes no no

overall limit = 50% of agi overall limit = 50% agi 1. cash may be all 50 %. 2. general property - lesser of basis of FMV 3. long-term appreciated property is limited to the lesser of - 30% of agi - the remaining amount to reach 50% after cash contributions

what are the limitation rules for charitable contributions? how much of agi can be deducted for gifts to a non-operating private foundation?

20%

what is the deduction for contribution of services? what is the deduction for hosting a foreign exchange student? for contributions of more than $___ of noncash property, the taxpayer must file form _____

none for value and time, but can deduct out-of-pocket expenses incurred. 14 cents per mile, or cost of gas and oil. parking and tolls. $50 for each full month

$500. form 8283

when is a written appraisal needed for if more than $5,000 for any one item or group of similar items, charitable contributions? except that no appraisal is needed for publicly traded securities loss (smaller of basis and decreased fmv) - insurance recovery = taxpayers loss - $100 = eligible loss what is the calculation for casualty and - 10% of agi theft losses? = deductible loss only to the extent that the miscellaneous deductions combined when are miscellaneous itemized exceed 2% of agi and were not taken as part of an allowable deductions allowed? adjustment 1. unreimbursed business expenses 2. educational expenses 3. uniforms 4. business gifts 5. business use of home 6. employment agency fees 7. expenses of investors - safe deposit box and investment advice 8. subscriptions of professional journals 9. tax preparation fee what are the types of miscellaneous itemized deductions? 10. debit card convenience fees incurred to pay income tax what are the types of unreimbursed business expenses that can be used as travel, meals and lodging (overnight), transportation expenses, itemized deductions? meals and entertainment expenses (50%)

what are examples of refundable credits? what is the child and dependent care credit? who is eligible for the child and dependent care credit? for the child and dependent care credit, how is the amount that is multiplied by the applicable percentage computed? what are eligible expenditures for the child and dependent care credit? how do you determine the credit computation for the child and dependent care credit? what is the credit for the elderly and/or permanently disabled? what are the base amounts for each filling status for the credit for elderly/permanently disabled? what are the agi limits for each filling status for the credit for elderly/permanently disabled what is the calculation for the credit for the elderly/disabled?

1. child tax credit (refund is limited) 2. earned income credit 3. withholding taxes 4. excess social security paid 5. long-term unused minimum tax credit 6. american opportunity credit (40% refundable) 7. making work pay credit 8. adoption credit a tax credit of 20% to 35% of eligible expenditures. one dependent = 3,000 max expenditures, 2 or more dependents = $6000 max expenditures qualifying child, under age 13, who can be claimed as a dependent; disabled dependent who meets support test; spouse who is disabled and not able to take care of himself using the lowest of: 1. the earned income of the spouse with the lesser amount 2. the actual childcare expenditure 3. the maximum amount (3000 or 6000)

babysitter, nursery school, day care. NOT grammar school. under $15k agi = 35% phaseout = 35-20% over 43k = 20% credit of 15% of eligible income to individuals who are 65 years of age or older or under 65 and retired due to permanent disability $5000 for a single person $7500 if MFJ and BOTH are qualifying individuals $3750 for married filing separately single 7,500 mfj 10,000 mfs 5,000 base amount - all social security - 1/2 excess agi = balance. balance x .15 = credit

what is the american opportunity credit for? how is the american opportunity credit calculated what are the qualifications of the student to receive the american opportunity credit? is there a phaseout for the american opportunity credit? what part of the american opportunity credit can be refunded?

education expenses for a student's first four years of college education. can have multiple students. 100% of the first $2000 expenses, 25% of the next $2000 expenses. (max = $2500) - half time in one academic period during the year - not convicted of federal or state felony drug offense in calendar year for which expenses are incurred yes 40% of it is refundable, and the nonrefundable portion may offset both regular and amt 20% of qualified expenses up to $10k. available for unlimited number of years for qualified tuition and related expenses (EXCEPT BOOKS). only one kid per year yes distribution canot be used for the same educational expenses for which either the american opportunity credit or lifetime learning credit was claimed $13,170 per child credit is claimed for years after the payment is made until the adoption is final, at which point expenses paid in the year it becomes final are claimed in that year. for foreign children adopted, no credit can be claimed until the year it becomes final. in either case, expenses paid in later years can be claimed in the year paid

what is the lifetime learning credit? is there a phaseout for the lifetime learning credit? how can you use coverdell education savings account distributions in conjunction with education credits? what is the limit for the adoption credit?

what is the timing for the adoption credit?

what is the purpose of the retirement be nice to people with low income who contribute to a savings contributions credit? traditional IRA or Roth IRA. limited to the excess of the regular income tax liability and AMT what is the limitation of the retirement liability over the taxpayer's nonrefundable personal credits. no savings contributions credit? carryover allowed. who is eligible for the retirement savings contributions credit? over 18, not a dependent, not a full-time student

is a foreign tax credit an itemized deduction or a credit?

what is the allowable amount of foreign tax credit? what is the carryover of disallowed foreign tax credit? what is the limit for the general business credit? 1. 25% of regular tax liability above 25,000, or

it could be either. there is a limit on the credit, so an individual might find it better to deduct the taxes as an itemized deduction instead. limited to the lesser of 1. foreign taxes paid or 2. foreign taxable income/(taxable income + exceptions) x u.s. tax = foreign tax credit limit cary back one year, carry forward ten years can't exceed net income tax" (regular income tax + amt nonrefundable tax credits), less the greater of:

2. tentative minimum tax for the year" what is the carryover for unused general business credits? generally carried back one year and forward 20 years available to employers who hire employees from a targeted group. part of the gen business credit. a. 40% of first $6,000 of first year's wages what is the work opportunity credit b. 40% of firs $3,000 to certain summer youth what is the child tax credit? what is the age limit for the child tax credit? is there a phase-out for the child tax credit? what is the refundable limit for the child tax credit? taxpayers ma claim a $1,000 tax credit for each qualifying child"" must be under the age of 17 yes lesser of: a. excess child tax credit (over tax liability) b. earned income less 3,000 times 15%

1. live in the u.s. for more than half the taxable year, 2. meet low-income thresholds 3. not have more than a specified amount of disqualified income 4. between the ages of 25 and 65 if there are no qualifying children what is the eligibility of the earned income credit? 5. file a joint return with spouse with certain exceptions wages, salaries, tips, other employee compensation, and earnings from self employment. does not include pension and annuity income. AMT liability will not affect the credit what is defined as earned income an individual cannot claim the credit if $3,100. disqualified income includes taxable and nontaxable the individual has disqualified income" interest, dividends, net rental and royalty income, net cap gains exceeding $____. disqualified income income, and net passive income other than self-employment includes:" income if there is excess FICA with two or more employers: taxpayer may claim the excess as a credit against income tax if there is excess FICA with one employer: employer must refund the excess to the employee small businesses (those with 100 or less employees who earned at least $5,000 in the preceding tax year), a credit is allowed for 50% of the first $1,000 (up to $500 per year) of qualified startup costs for establishing a new qualified pension plan for three what is the small employer pension plan start-up costs credit? years a credit of up to 35% of the employer's costs of the plan premiums, provided the employer contributes at least 50% of what is the small business healthcare the costs of health coverage. allowed as an offset to AMT. not refundable. tax credit? how long can the small business healthcare tax credit be carried forward? 20 years the costs for family members, sole-proprietors, partners, S corp which costs are excluded from the owners with greater than 2% ownership, and shareholders small business healthcare tax credit? owning more than 5% of corps are excluded

for eligible individual taxpayers, a credit of 80% of healthcare premiums for qualified health insurance paid by certain what is the health coverage tax credit? taxpayers for the taxpayer and qualifying fam is allowed max credit of 30% of qualifying nonbusiness energy property or improvements, up to a max credit of $1500 (solar electric property, water heaters, small wind energy prop and what is the residential energy credit? geothermal pumps have no limit) single - $33,750 - .25 ( amti - $112,500) MFJ - $45,000 - .25 (amti - $150,000) what are the exemption amounts for MFS - $22,500 - .25 (amti - $75,000) AMT? P - passive activity losses A - accelerated dep (post 1986) N - net operating loss I - Installment income of a dealer C - Contracts - % completion vs. completed contract what are the adjustments to amt? T - tax deductions" I - interest deductions on some home equity loans M - medical deductions (limited to excess over 10% agi) M - miscellaneous deductions not allowed E - exemptions (personal) and standard deduction" 1 - Private activity bond interest income (on certain bonds) 2 - percentage depletion the excess over adjusted basis of property 3 - pre-1987 acc dep what are the tax preference items? certain allowable AMT paid in a taxable year may be carried what is the credit for prior year over as a credit to subsequent taxable years. it may only reduce minimum tax? regular tax, not future amt.

what is the carry-forward for the credit for prior year minimum tax? what is the limitation on the credit for prior year minimum tax? what is the general statute of limitations for when the gov't can assess an additional tax? what is the statute of limitations if there is a 25% understatement of gross income? what is the statute of limitations for fraudulent and false returns? what is the form for a refund?

forever AMT created from certain permanent differences cannot be carried forward as part of the credit. three years from the later of the due date of the return or the date the return is filed (including amended returns) 6 years from the later of the due date of return or date return is filed no statue. forever! form 1040x three years after you filed it, or two years after the time the tax was paid if you didn't pay when filling.

when can you file a refund claim? when can you file for a refund for bad debts and worthless securities? seven years later of: due date of return or when it is filed what is form 1139 for? to claim a refund of corporate income taxes. to request a quick refund of individual income taxes due to the carry back of a net operating loss what is form 1045 for? what is form 843 for? to request a refund of taxes other than income tax a taxpayer is required to make estimated quarterly tax payments if 1. $1000 or more tax liability both of the following conditions are 2. Inadequate Tax estimates (less than 90% of current year's tax met: or 100% of last years tax) what is a contract? a promise that the law will enforce what is an express contract? a contract formed by language, oral or written what is an implied-in-fact contract? a contract formed by conduct not a contact at all. remedy that allows a plaintiff to recover a benefit unjustly conferred upon the defendant. what is an implied-in-law contract or quasi-contract remedy to prevent unjust enrichment there is one promise, which is given in exchange for performance. not a contract until performance is completed what is a unilateral contract? two promises--a promise is exchanged for a promise. contract is formed as soon as the promises are exchanged what is bilateral contract?

what is an executory contract? what is an executed contract?

duties remain to be performed under the contract all of the duties under the contract have been performed derived from courts. contracts involving real estate, insurance, services and employment. what is common law? what is uniform commercial code statutory law which governs contracts for sale of goods (UCC)? (moveable things) 1. an agreement made up of an offer and an acceptance what are the three requirements of a 2. an exchange of consideration legally enforceable contract? 3. a lack of defenses express - oral or written in what manner can an offer be made? implied - based on conduct to be an offer, the communication create a reasonable expectation in the offeree that the offeror must: intends to make a contract 1. was there an intent to make a contract? what are the three questions to be 2. were the terms definite and certain? considered about an offer? 3. was there communication to the offeree? generally no. they are usually considered only to be invitations seeking offers. are advertisements offers? how can an advertisement be an if it specifies the offeree. an advertisement that limits the scope offer? of the persons who can accept (like first five customers to call) terms are definite and certain in a UCC contract offer if they include: quantity 1. identity of the offeree and the subject matter 2. the price to be paid 3. the time of performance terms are definite and certain in a 4. the quantity involved common law contract offer if they include: 5. the nature of the work to be performed 1. revocation by offeror what are the three ways to terminate 2. rejection by employee an offer? 3. termination by operation of law - automatic generally any time before acceptance by communicating the revocation to the offeree (three exceptions: option, unilateral, when can an offeror revoke his offer? firm offer)

what is a direct and indirect way for an offeror to communicate the end of an offer? how are offers made by publication revoked? when is a revocation of an offer by offeror effective? what are the three exceptions to the general rule on an offeror's power to revoke an offer? what is an option contract? what are the ways an oferee can terminate the offer? how to distinguish between a counteroffer or an inquiry? when is a rejection of an offer by an oferee effective? what time period must an offeree accept an offer? what are the ways an offer an be terminated by operation of law

1. call them 2. sell to someone else same manner they were offered. when received by the offeree. when published. 1. option contract 2. unilateral contracts 3. firm offer distinct contract in which the offeree gives consideration to keep the offer open 1. rejecting it 2. counter offer 3. silence counteroffer is both a rejection and an offer. an inquiry is just feeling the other party out by questioning when received within the time specified, or if no time period is specified, whithin a reasonable time 1. death or insanity of parties 2. destruction of subject matter 3. illegality only the person to whom the offer was made. only option contracts are assignable

who is allowed to accept an offer? if the offeror specifies a method of communication, that method must be used. a purported acceptance utilizing another method is a ______ counteroffer offers, rejections, revocations, and counteroffers effective when ___ received acceptances of an offer are effective when they are dispatched (mailed, telegraphed,etc) if properly addressed what is the mailbox rule?

what is the mirror image rule? how can an offeror opt out of the mailbox rule? what are the elements of consideration:

when is something of legal value? does consideration need to have monetary value? does consideration need to flow to one of the parties? does consideration have to be fair? is promising to performance existing duty sufficient consideration? is forbearance to sue a valid consideration? what does a bargained for exchange" mean?" what is detrimental reliance/promissory estoppel

common law contracts require an acceptance to mirror the offer to be effective. (change anything and it's a counteroffer) by stating in the offer that the acceptances must be received to be effective there must be something of legal value given by each party and there must be a bargain for exchange if it constitutes either a detriment to the promisee or benefit to the promisor. [promisee agrees to do something he is not already obligated to do] no. as long as promisee is promising to do something that he is not already obligated to do or promising to refrain from doing something that he legally could do no, it could go to a third party no no yes something is not consideration unless it was given in exchange for other consideration a promise made by one party and detrimentally relied upon by another can be enforced without consideration. fraud, innocent misrepresentation, duress, undue influence, mutual mistake, illegality, minors, intoxication, mental incompetency, statue of limitations, statute of frauds, impossibility, substituted contract, novation, contions, prevention of performance, prol evidence, unconscionability

what are some types of defenses?

what are the elements of fraud? regarding elements of fraud, what does it mean to have a misrepresentation of material fact? regarding elements of fraud, what does it mean to have actual and reasonable reliance regarding elements of fraud, what does it mean to have an intent to induce reliance? regarding elements of fraud, what does it mean to have damages? regarding elements of fraud, what does it mean to have a scienter? when does fraud in the execution occur? when does fraud in the inducement occur? what is an innocent misrepresentation?

1. misrepresentation of material fact 2. actual and reasonable reliance by the plaintiff on the misrepresentation 3. intent to induce plaintiff's reliance on the misrepresentation 4. damages 5. scienter (knowing that the statement was false or made with a reckless disregard for the truth must be a material fact - opinions or statements of value do not constitute facts unless made by experts

the plaintiff relied on the misrepresentation the purpose in making the misrepresentation was to induce reliance the defendant is liable to anyone who suffers a loss. the defrauded party may rescind the contract or sue for money damages, but not both. intent to deceive. must make it knowingly or intentionally. could be reckless disregard for the truth (constructive fraud or gross negligence) when a party is deceived into signing something that he does not know is a contract. void - no meeting of the minds. the defrauded party is aware she is making a contract, but terms are materially misrepresented. voidable has all the elements of fraud except scienter. misrepresentation is made innocently, not intentionally arises when a party's free will to contract is overcome by an unlawful use of a threat of harm.

what is duress? in duress, if the harm threatened is physical force, the contract is ___ void in duress, if the harm threatened is economic or social force, the contract is ___ voidable

a party's free will to contract is overcome by the defendant's abuse of a position of trust or confidence if both parties to a contract are mistaken as to a material fat regarding the contract, the adversely affected party can avoid the contract. [does not apply to mistakes of value bc that is an in defenses, what is a mutual mistake? opinon] in a mutual mistake, if the subject matter of the contract is not in existence when the contract is made and neither party knows this, the contract is ___ void is a unilateral mistake generally a defense to a contract? no a unilateral mistake as to a material fact is a defense if ________ if the other party knew or should have known of the mistake what is undue influence? failure to have a license required to protect to public makes a contract ___ void failure to have a license required to raise revenue makes a contract _____ still enforceable most promises not to compete are _______ illegal because they violate antirust law promises not to compete in employment contracts and in the sale 1. reasonably needed to protect a legit bus interest of a business are enforceable if they 2. reasonable in duration meet 3 tests of reasonableness: 3. reasonable as to distance (geographically) anytime while a minor or even within a reasonable time after becoming an adult. the minor must generally return whatever when can a minor disaffirm a contract? she possesses when she disaffirms when will a minor be bound on his or if they are for necessities of life, including food, clothing, and her contracts? shelter

a person can become bound on the contracts he enters into as a minor upon reaching the age of majority by ____

ratifying the contract 1. failing to disaffirm within a reasonable time after reaching age 2. expressly ratifying the entire contract orally or in writing 3. retaining or accepting the benefits

for minors who are now of age, a contract may be ratified by:

intoxication is a defense to a contract the promisor from knowing the nature and significance of his only if it prevents __________ promise AND the other party knew of the impairment a contract made by a party whose mental capacity is so deficient that he is not capable of understanding the nature and significance of the contract is voidable a contract made by a party after she is adjudicated mentally incompetent is void statute of limitations provide that a legal action must be commenced within what period of time for common law agreement? four to six years from date of breach six contracts requiring a writing (only needs to be signed by the party trying to avoid the contract) what does statue of frauds" mean" contracts where: M Marriage is consideration Y cannot be performed in a year L interests in Land (including leases of real property) E by executors (to pay estate debts out of personal funds) what are the six contracts that require G - sale of goods $500+ S surety (assuming debt of another) writing? in determining if a writing is required, the one-year period runs from the ____ date of the contract, not from when performance begins

what are the exceptions to the year requirement for writing a contract?

what are the exceptions for the land requirement for writing a contract?

what writing is necessary for the statue of frauds? what happens if you fail to satisfy the statue of frauds? what happens if the subject matter of the contract has been destroyed? what happens if there is death or incapacity of a person to perform a personal service? what does accord and satisfaction and substituted contract" mean?" until the accord is satisfied a party may sue under ____ a substituted contract is very similar to an accord and satisfaction case, but ____

if it is possible to perform in a year, or if one party has fully performed the contract. 1. leases of land for less than a year 2. full or partial performance [two of the following: a. payment in whole or in part b. making valuable improvements on the land c. possession of the land the whole contract doesn't need to be in writing. just need a writing that provides evidence of material terms of contract and a signature of the person being sued. doesn't need to be in one single document could still have a contract--it's just not enforceable contract may be avoided due to impossibility

contract will be discharged due to objective impossiblity accord - agreement to substitute one contract for another satisfaction - execution of the accord may sue under the original contract or the accord. but the duties under the original contract are discharged immediately when a new contract substitutes a new party for an old party in an existing contract. all parties must agree to the release a condition that must occur before the other party must perform conditions that must occur simultaneously (example: payment of money and exchange of goods)

what is novation? what is a condition precedent? what is a condition concurrent?

what is the parol evidence rule?

prohibits a party in a lawsuit involving a final agreement from introducing evidence at trial of statements made prior to or contemporaneously with the written contract that seek to vary the terms of the contract based on notions of fairness. used when a clause or a contract is extremely unfair and the party having the benefit of the unfair term had substantially superior bargaining power

what is unconscionability? at common low, if there has been a material or substantial breach, the non breaching party can _______. if the breach is only minor, the nonbreaching party is not discharged, discharged from the contract. but is ________. but is entitled to damages 1. immediately sue for damages what are the options when there is an 2. await the time for performance anticipatory repudiation? 3. cancel the contract what is the intention of damages to put the nonbreaching party in as good of a position he would payments? have been if there were no breach what can specific performance damages be used for? land or unique items - not services! can a party receive specific performance and compensatory damages? no, one or the other. clause that specifies what damages will be if there is a breach. what is a liquidated damage clause? HAS TO BE REASONABLE - not a penalty! when are punitive damages available? for fraud under common law, can't rescind a contract if it has been what is the doctrine of substantial substantially performed. only remedy would be monetary performance? damages for the minor breach. what are quasi-contract (restitutional) if parties are discharged from a contract and one party has damages? already bestowed a benefit on the other, they can get it back. what are the limitations on monetary damages? forseeability and mitigation

what is the general rule for third-party beneficiaries? what does it mean to be in privity of contract? who can enforce, intended or incidental beneficiaries? what is the minimum requirement for a third party? what is a donee beneficiary in regards to third-party what is a creditor beneficiary in regards to third-party who can a third party beneficiary sue? what is an assignment of rights? what is a delegation of duties? the general rule is that any contract right may be assigned and any contract duty may be delegated. what are the exceptions? what is the effect of delegation? when a mortgage is assumed, who is liable? who is liable if you assume a mortgage? what if you take subject to the mortgage? when does a creditor have the right to assign their receivable money to someone else? is the UCC limited to merchants?

only the parties to the contract have rights under the contract. an exception exists for INTENDED third-party beneficiaries. only the parties to the contract have rights under the contract only indended must be named or specifically described in the contract receive their interest as a gift receive their interest because a party owes them something can sue the promisor if the promisor fails to perform if a party wants to give contract rights to a third party if a party wants to have a third perform contractual duties

if it will change the obligor's risk or the duty involves specialized personal services both parties are liable unless there is a novation both the assignor/mortgagor and the assignee are personally liable assumed mortgage - both assignor and assignee are liable subject to the mortgage - only assignor is liable always, even if the contract prohibits assignment. just have to give notice no. it applies to all contracts for the sale of goods 1. seller must be merchant 2. offer must be in writing and signed by merchant 3. must give assurances it will be kept open for a certain time time stated, but no longer than 3 months

how to qualify as a firm offer? how long are firm offers good for?

does the mirror image apply under the UCC? under the sales article, new or different terms are ignored unless _____ under the UCC, a shipment of nonconforming goods is _______ the accommodated shipment rule applies only when _______

no

the contract is between merchants both an acceptance and a breach of contract shipment is used as the means of acceptance. (not promise to ship) 1. the bid is the offer and the fall of the hammer is the acceptance 2. unless otherwise stated, all auctions are with reserve"

what are the ucc's rules for auctions? 3. in "without reserve" the goods must be sold to the highest bidder" in a UCC contract, you have to specify the quantity, unless how do you modify a contract under the ucc? what is the statute of limitations under the ucc?

it's an output and requirements contract don't have to give extra consideration....everyone just has to agree on the new change 4 years s - specifically manufactured goods w - written confirmation between merchants. if you don't object in 10 DAYS, doesn't matter if you didn't sign! a - admitted in court p - performed

what are the four exceptions for the written contract requirement for sale of goods over $500? for a defense for the UCC, the contract need not be impossible to perform. it only needs to be ____ under the ucc, what is the sellers duty to the customer? title and risk of loss cannot pass until the goods are first ____

impracticable. get the goods and give them notice that it's ready. don't have to deliver!! identified. meaning they are marked, segregated or in some manner identified as goods for the specific buyer

when there is no contract term specifying when the risk of loss passes, you have to determine if it is ______ a carrier case or a non-carrier case

what is a carrier case? what is a non-carrier case? if unknown, do you assume a seller is a carrier or non carrier? if there is no common carrier involved, then you need to know what about the seller? when does the risk pass for a noncarrier nonmerchant seller? when does the risk pass for a noncarrier merchant seller? if there is a common carrier involved, what do you need to know about the contract? when does the risk pass for a carrier shipment contract? when does the risk pass for a carrier destination contract?

parties contemplate a common carrier will be used to ship the goods (like UPS) buyer will pick up the goods at the sellers place of business non-carrier. general rule is seller has no duty to deliver.

if it is a merchant or not risk passes on tender of delivery of goods to the buyer. risk passes on actual delivery (when the buyer takes physical possession)

if it is a shipment contract or destination contract when the goods are delivered to the carrier. on a truck bed. when the goods reach the destination and seller tenders delivery

requires seller to deliver goods along side of a specific vessel. what does FAS Free along side mean? risk of loss passes to the buyer when the seller gets the goods what does CIF Cost Insurance Freight the contract price includes the cost of goods, insurance, and mean? freight. risk of loss is on buyer during shipment what does f.o.b. free on board mean? specifies what city in which the risk of loss passes whenever the parties agree. if there is no agreement, title passes on delivery. (shipment vs. delivery) when does title pass under UCC? if the buyer rejects the goods, who owns the goods? title reverts back to seller 1. express warranties to fulfill the requirement of perfect 2. the implied warranty of title tender under the UCC, the goods must 3. implied warranty of merchantability conform to all the four warranties: 4. implied warranty of fitness for a particular purpose

what is the implied warranty of title? the warranty of title and the warranty against encumbrances are made automatically by every seller unless disclaimed. only ______ automatically make the warranty against infringements. can a general disclaimer disclaim title? merchandise is sold as is" "with all faults"" what is the implied warranty of merchantability can a general disclaimer disclaim merchantability? merchandise is sold as is" "with all faults"" we hereby disclaim any and all warranties"" what is the implied warranty of fitness for particular purpose? can disclaimer disclaim the implied warranty of fitness for particular purpose? as is" "with all faults?" under the UCC, is warranty liability limited by privity? does a disclaimer of merchantability have to be written? does a disclaimer of fitness have to be written? what is a tort?

the seller implicitly warrants that they had the right to sell the goods. good title, no stated encumbrances, and no infringements

merchant sellers

no. can only be disclaimed by specific language the goods are fit for ordinary purpose. made only by merchants.

yes claim means nothing! can't do that buyer relies on any seller to select goods for the buyer's particular purpose.

yes no no yes wrongful act, could be intentional or negligent 1. seller owed them a duty of care 2. seller breached the duty by failing to use due care 3. damages 4. causation

those injured by goods can sue negligent sellers. they must prove:

what is strict products liability when youre suing for tort, does privity matter? under the UCC Sales Article, if one party has reasonable grounds to believe the other party will not perform when required, what can she do? who has the duty to mitigate in the UCC? if an insolvent buyer has already received the goods, the seller may reclaim them within ___ days after the receipt liquidated damages - if the buyer has made a down payment and breaches, the seller may keep the lesser of _____

those injured by goods can sue. focus is on the product and not on the seller's conduct. has to be a merchant no

make a written demand for an assurance of performance from the other. failure to give this assurance is an anticipatory repudiation both buyer and seller

10.00

what is replevin? can a true owner recover stolen goods from a 3rd party? yes what are the exceptions to the general rule that a true owner can recover stolen goods from a 3rd party? for corporations tax consequences, there is no gain or loss to the corporation issuing stock in exchange for property in the following transactions:

lesser of $500 or 20% of the price the right to recover goods wrongfully in the hands of the seller. may be used if the goods are identified and the buyer cannot reasonably cover

1. entrusting. if the owner of goods entrusts them to a merchant 2. voidable title. tricked - bad check

1. formation -- issuance of common stock 2. reacquisition - purchase of treasury stock 3. resale - sale of treasury stock

in a corporation formation, the general rule is that the basis of the property received from the transferor/shareholder is the greater of: if the aggregate adjusted basis of property contributed to a corp by each transferor/shareholder in a tax-free incorporation exceeds the aggregate fmv of the property transferred: the shareholder contributing property (not services) in exchange for corporation common stock has no gain or loss if the following conditions are met: what are three gross income items that represent temporary differences between tax and book items?

greater of: - adjusted basis (nbv) of the transferor/shareholder (plus any gain recognized by the transferor/shareholder), or - debt assumed by corporation (transferor may recognize gain to prevent a negative basis)

the corp's basis in the property is limited to the aggregate fmv of the property to prevent the transfer of property with built in losses" to the corporation"

1. 80% control of the voting stock and 80% of the non-voting stock 2. boot not received

interest, rental, and royalty income received in advance interest income from municipal or state obligations/bonds, proceeds from life insurance on the life of an officer where the what are GAAP income items that are corp is the beneficiary, and federal income taxes are not not includible as taxable income? deductible what is the limit on the domestic can't exceed 50% of the W2 wages paid by the corporation for production deduction? the year 9% of the lesser of: how much is the domestic production 1. qualified productions activities income (QPAI) deduction? 2. taxable income (disregarding the QPAI deduction) domestic production gross receipts How is QPAI calculated? - cogs, other expenses, and other deductions a publicly held corporation may not deduct compensation expenses in excess of _____ paid to the CEO or $1,000,000; the four other most highly compensated officers; ________ unless based upon qualifying commissions or a performance based plan of the __________ company

entertainment expenses for officers, directors, and 10% or greater owners may be deducted only to the extent that ___ bonuses paid by a(n) ____ basis taxpayer are deductible in the tax year when all events have occurred that establish a liability with reasonable accuracy, and provided they are paid within ____ accrual method taxpayers must use the _____ method to write off bad debts all interest paid or accrued during the taxable year on indebtedness incurred for _______ is deductible interest expense on loans for investment has a limitation on deductibility of _____ prepaid interest expense must be allocated to _____ corporations making contributions to recognized charitable orgs are allowed a max deduction of ___

they are included in the individual's gross income

accrual; within 2.5 months after year end

specific charge off (direct write-off method)

business purposes

net investment income (taxable) the proper period to which it is related. (incurred & paid)

10% of their taxable income 1. any charitable contribution deduction 2. the dividends received deduction for charitable deductions, total taxable 3. any NOL carryback 4. any cap loss carryback income is calculated before the 5. u.s. production activities deduction deduction of: the lesser of: a. the decline in value of the property b. the adjusted basis of the property immediately before the is business property is partially destroyed, the loss is: casualty if business property is fully destroyed, the amount of the loss is: the adjusted basis of the property

what is the deduction for may elect to deduct up to 5,000 or each, and the excess is organizational expenditures and start- amortized over 180 months from when the business started. up costs? (5,000 reduced if costs are over 50,000) what are the included costs for the organizational expenditures and start up costs deduction? what costs are excluded from the organizational expenditures and start up costs deduction? what is the GAAP rule for organizational expenditures and startup costs? how are goodwill, covenants not-tocompete, franchises, trademarks, and trade names amortized? what is the difference in the treatment of purchased goodwill (yrs 2002 and forward)? GAAP rule - not amortized; test for impairment fees paid for legal services in drafting the corporate charter, bylaws, minutes of organization meetings, fees paid for accounting services and fees paid to the state of incorporation costs of issuing and selling the stock, commissions, underwriter's fees, and costs incurred in the transfer of assets to a corporation (cost of raising $)

expense on a straight-line basis over a 15 year period beginning with the month that the intangible was acquired tax rule - amortized on a straight line basis over 15 years

what is the deductibility for life if the corporation is names as the beneficiary, it is not tax insurance premiums for corporations? deductible. if an insured employee is named as beneficiary what is the deductibility of business gifts? $25 per person per year all state and local taxes and federal payroll taxes are deductible when incurred on property or income relating to business. federal income taxes are not deductible. foreign income taxes which taxes are deductible for may be used as a credit corporations? are lobbying and political expenditures tax deductible? no what is the capital loss carryover for corporations? 3 years back, 5 years forward what rates are capital gains taxed at same rate as ordinary corporate income (no special cap gains for corporations? rates apply, as with individual taxpayers)

what is the carryforward for net operating losses for corporations? when must form 1120X be filed?

2 back, 20 forward 3 years from the filling date

is the charitable deduction allowed in calculating the NOL for a corporation? no is the dividends received deduction allowed to be deducted before calculating the NOL? yes inventories are valued at cost (including DL, DM and attributable indirect costs), less discounts, plus freight-in. the cost methods of prime cost" (no overhead) and "direct cost" (which includes what is the cost method of valuation? variable overhead only) are not allowable for tax purposes" inventories are valued at the lower of cost or market, which for normal goods is generally the current bid price at the date of inventory per each item in inventory (i.e. the lower amount is determined based on each item, not based on the aggregate what is the lower of cost or market method of valuation? value of the inventory) this method will generally not be allowed when inventories are held for long periods of time in some circumstances or when costs tend to fluctuate significantly (unless the taxpayer what is the rolling-average method of regularly re-computes costs and makes certain adjustments), as valuation? the method may not clearly reflect income in certain cases in general, the retail method will approximate the cost or the market of items in inventory by subtracting the mark-up percentage to retail from the retail price, typically from what is the retail method of valuation? inventory that has a large volume of items what are common inventory identification methods (cost-flow assumptions) fifo, lifo, specific identification method if you use lifo for taxes, which methods can you use for financial statement purposes? only lifo

how are unsalable or unusable goods valued? what is the formula for the general business credit? 25% of regular tax liability above $25,000 or tentative minimum tax for the year" how are unused business credits carried over? what is the purpose of the dividends received deduction? what is the percentage ownership needed to have a dividends received deduction of 70%? what is the percentage ownership needed to have a dividends received deduction of 80%? what is the percentage ownership needed to have a dividends received deduction of 100%?

they must be valued at the expected selling price (bona fide selling price") within 30 days minus the costs to dispose of them" the credit may not exceed net income tax" (regular tax plus alt min tax less nonrefundable tax credits, other than the alt min tax credit) less the greater of:

although some limits must be applied separately, unused credits may generally be carried back 1 year and forward 20 years to prevent triple taxation of earnings

0% to <20%

20% to <80%

the dividends received deduction equals: what is the exception to the taxable income limitation for the dividends received deduction?

80% or more the lesser of: 70 or 80% dividends received or 70 or 80% of taxable income without regard to the drd, any NOL deduction, or capital loss carryback

the limit does not apply if, after taking into account the full drd, the result is a net operating loss. 1. personal service corporations the dividends received deduction does 2. personal holding companies not apply to: 3. personally taxed S corporations

who can have a 100% dividends received deduction?

what does the half year convention apply to? when does the mid-quarter convention applied?

affiliated corporations - (80-100% ownerships) small business investment corps - (makes equity and long-term credit available to small business concerns) in general, a half year convention applies to personal property, under which such property placed in service or disposed of during a taxable year is treated as having been placed in service or disposed of at the midpoint of the year if more than 40% of depreciable property is placed in service in the last quarter of the year, the mid-quarter convention must be used

what are the macrs depreciation rules for property other than real estate? 200% and 150% declining balance method what are the macrs depreciation rules for residential rental property? (apartments and duplex rental homes) 27.5 year straight line depreciation what are the MACRS depreciation rules for non-residential real property (real property that is not residential rental property and that does not have an ADR midpoint of more than 27.5 yrs) 39 year straightline what convention does macrs real estate use? mid-month convention limit is $250,000 of new or used property maximum amount is reduced dollar for dollar by the amount that exceeds $800,000 deduction is not permitted when a net loss exists or if the deduction would create a net loss what is the limit for the deduction of section 179 property? SUVs can only be expensed to $25,000

a taxpayer may chose to depreciate property on a straight-line basis. if a taxpayer chooses straight-line, he may the regular recovery period or a longer alternative depreciation choose which recovery periods? system (ADS) recovery period allowed on exhaustible natural resources, such as timber, minerals, oil and gas what is depletion allowed for? what are the two methods of 1. cost depletion depletion? 2. percentage depletion the unit depletion rate multiplied by the number of nits sold for what is the cost depletion method? the year the deduction is limited to 50% of taxable income (excluding depletion) from the well or mine. the allowable percentages range from 5% to 22% depending upon the mineral or substance being extracted. percentage depletion may be taken even after the costs have been completely recovered and there is no basis --business start up expenses or org costs ($5,000, 180 month) -- research expenses (existing trades or businesses may amortize research expenses over a 60 month period) --pollution-control facilities capital gain, ordinary loss personal business property. recapture all accumulated depreciation as ordinary income, the remaining is cap gain under 1231 real business property. accelerated depreciation in excess of straight line dep is recaptured as ord income, and the remaining dep is taxed at a 25% max rate. the remaining gain is treated under sec 1231 15-Mar the 6 month extension for a c corp

what is the percentage depletion method? what items can be expensed and/or amortized on a straight-line basis over a period of years, regardless of their useful life? how are section 1231 assets treated?

how is section 1245 treated?

how is section 1250 treated? when is the tax return due for a c corp? what is form 7004?

1. accounting for purchases and sales of inventory 2. tax shelters 3. certain farming corps 4. some c corps, trusts, and partnerships, provided that the the accrual basis method for accounting for tax purposes is required business has greater than $5 mil of average annual gross for the following: receipts for the three year period ending with the tax year what is the statue of limitations for a corporation? 3 ears. 6 years for 25% misstatement. when are corporations required to pay on the fifteenth day of the fourth, sixth, ninth, and twelfth estimated taxes? months of their tax year when can you get the underpayment penalty for estimated payments of if you don't make the estimated payments and the amount corp tax? owed on the return is $500 or more. lesser of: - 100% tax for the current year - 100% tax for the preceding year [cannot be used if the corp owed no tax for the preceding year, how much estimated tax is a small corp supposed to pay? or the preceding year was less than 12 months] how much estimated tax is a large corp supposed to pay? must pay 100% of the tax as shown on the current year return who is defined as a large corporation for estimated tax purposes? a corp whose taxable income was $1 mil or more in any of its three preceding tax years all the corporations in the group: 1. must have been members of an affiliated group at some time during the tax year 2. each member of the group must file a consent a common parent directly owns: 1. 80% or more of the voting power of all common stock, and 2. 80% or more of the value of all outstanding stock of each corporation s corps, foreign corps, most real estate investment trusts (REITs), some insurance companies, and most exempt orgs

what are the requirements to be entitled to file a consolidated return?

what is an affiliated group? who is denied the privilege of consolidating returns, even if they meet the ownership test?

are brother sister corps allowed to file consolidated returns? no capital and operating losses may offset the gains of another corp, NOL carryover may be applied against the income of the consolidated group, and dividends received are 100% eliminated what are the advantages of filing a consolidated return? in consolidation because they are intercompany dividends 1. mandatory compliance with complex regulations 2. in the initial consolidated tax return year, a double counting of inventory can occur if group members had intercompany transactions 3. tax credits may be limited by operating losses of other members 4. the election to file consolidated returns is binding for future what are the disadvantages of filling a years and may only be terminated by disbanding the group or consolidated return? seeking permission of the IRS long term contracts, for corporate AMT, what are the installment sale dealer, adjustment items to income? excess depreciation post-1986 percentage depletion for corporate AMT, what are the private activity - issued post '86 tax exempt interest income preference addbacks? pre '87 acrs excess depreciation muni interest income tax exempt interest income increase CSV life insurance Non S/L depreciation (after '89; excess over alt depr. sys. life) for corporate AMT, what are the Adjusted current earnings differences? Dividends received deduction (under 20% ownership) the difference between revenue calculated under the completed for corporate AMT, what is the contract method and revenue calculated under the percentageadjustment for long-term contracts? of-completion method for corporate AMT, what is the adjustment for installment sales difference between full accrual revenue and installment sales dealer? revenue

for corporate AMT, what is the adjustment for excess of depreciation of tangible property placed in service after 1986?

excess depreciation over: 1. straight line for real property using a 40 yr life, or 2. 150% declining balance (with a switch to straight-line for personal property using the applicable class life

for corporate AMT, what is the a preference exists for the excess of percentage depletion over preference for percentage depletion? the adjusted basis of the property for corporate AMT, what is the preference for private activity bonds? for corporate AMT, what is the preference for pre-1987 acrs depreciation? what is the exemption amount for corporate AMT? what is the tax rate on the amti? a preference exists for tax exempt interest for certain private activity bonds issued after 1986 a preference exists for the excess of ACRS accelerated dep over straight line on pre-1987 property $40,000 less 25% of AMTI in excess of $150,000 flat 20%

what credits are allowed for corp amt? the foreign tax credit what is the carryforward of the corporate amt? carried forward indefinitely, but not carried back. regular C corps whos accumulated earnings are in excess of $250,000 if improperly retained instead of being distributed as who is the accumulated earnings tax dividends to (high bracket) shareholders [personal service corps are entitled to only $150,000] imposed on? personal holding companies who is not subject to the accumulated tax exempt corps earnings tax? passive foreign investment corporations what is the additional tax rate for accumulated earnings? flat 15% coporations set up by high tax bracket taxpayers to channel their investment income into a corporation and shelter that income by the low normal tax or the corp, instead of paying their higher what is the purpose of a personal holding company? individual tax rates on that income

corps more than 50% owned by 5 or fewer individuals (either directly or indirectly at any time during the last half of the tax year) and having 60% of adjusted ordinary gross income consisting of: Net rent Interest that is taxable royalties what is the definition of a personal holding company? dividends from an unrelated domestic corp what is the additional tax assessed for additional 15% on personal holding company net income not personal holding companies? distributed are personal holding company's subject to the accumulated earnings tax? no taxable income must be reduced by ______ to determine the undistributed personal holding company income prior to the dividend paid deduction are the accumulated earnings tax and personal holding company tax selfassessed? what is the tax rate for personal service corporations? how is E&P calculated on the tax return? a corp's E&P is a major factor in determining the ability of the corp to _____

federal income taxes and net long-term capital gain

AET is assessed by IRS. PHC tax is self-assessed. denied graduated rates. taxed at a flat 35% adjusting the taxable income of the corp

what are the negative adjustments that reduce current e&p?

pay a dividend to the shareholders 1. federal income tax expense 2. non-deductible penalties, fines, political contributions, meals and entertainment, etc 3. officer life insurance premiums 4. expenses for production of tax exempt income 5. non-deductible charitable contributions 6. non-deductible capital losses

1. refunds of fed income tax paid 2. tax exempt income 3. refunds of items that were not subject to regular tax under the tax benefit rule 4. NOL deductions 5. life insurance proceeds where corp is beneficiary 6. dividends received deduction 7. carryovers of cap losses 8. carryovers of charitable contribution what are the positive adjustments that 9. non-taxable cancellation of debt not used to reduce basis of increase current e&p? property 1. losses and gains that have diff effects on taxable income vs. E&P 2. changes in the csv of certain life insurance policies 3. excess dep for e&p over that for regular income tax 4. diff in allowable deductions for org and start-up expenses 5. installment income method adjustments 6. completed contract income vs. percentage of completion income adjustments 7. amortization of intangible drilling costs adjustments what are examples positive or negative adjustments that increase or 8. section 179 expense per reg tax vs. ratable dep of the same decrease e&p? property using a five year life beginning acc e&p + current e&p - distributions from current e&p what is the general calculation for the - distributions from acc e&p ending accumulated e&p? = accumulated e&p at end corp distributions are first applied to _____, then to _______, and then to _____. current E&P, accumulated E&P, and return of capital. if any excess remains, it is classified as ___________ excess distributions" and reported as capital gains distributions" can current and accumulated e&p be not generally. only if current e&p is negative and acc e&p is netted? positive

how are current earnings and profits allocated to distributions? how are accumulated earnings and profits allocated to distributions?

what are constructive dividends?

what are examples of constructive dividends? what is a stock dividend?

on a pro rata basis to each distribution applied in chronological order, beginning with the earliest distribution transactions, while not in the form of dividends, are treated as such when the payments are not in proportion to stock ownership 1. excessive salaries paid to shareholder employees 2. excessive rents and royalties 3. loans to shareholders where there is no intent to repay 4. sales of assets below fmv distribution by a corporation of its own stock to its shareholders

when are stock dividends taxable? if the shareholder as a choice of receiving cash or other property what is the general rule for the taxable amount of a corporation paying a payment of a dividend does not create a taxable event. a dividend dividend is the reduction of e&p 1. corp has no e&p (div would not be taxable income 2. corp distributes appreciated prop as a dividend 3. corp has a recognized gain (on property div) 4. corp gain increase/creates corp e&p what is the chain of events for a corporation distributing appreciated 5. div to shareholder is not taxable income (to the extent of e&p) property? it is taxable dividend income to shareholder-ordinary income. what happens if a stock redemption is generally, the corp either redeems or cancels the stock pro-rata proportional? for all shareholders sale by shareholder subject to taxable capital gain/loss to shareholder. the percentage ownership after the redemption what happens if a stock redemption is must be less than 50% and must be less than 80% of the disproportional? percentage ownership before the redemption if the corporation is liquidated, the double taxation (the corp and shareholder must generally transaction is subject to ____ recognize gain or loss) what are the two general forms of how a corporation can be liquidated? corp sells assets and distributes cash to shareholders, or corp distributes assets to shareholders

what are the types of tax-free reorganizations? what is the gain or loss recognized when a parent liquidates its subsidiary? what constitutes non taxable event for a corporation? the reorg is a nontax transaction and all tax attributes remain the reorg is a nontaxable transaction, the shareholder continues what constitutes non taxable event for to retain his orig basis, and the shareholder recognizes gain to a shareholder? the extent he receives boot in the reorg a reorg is treated as a nontaxable transaction because _______ it results in the continuation of a business in a modified form when a corporation's stock is sold or becomes worthless, an original stockholder can be treated as having an ordinary loss instead of a capital loss, up to $50,000 __________ (100,000 for mfj). any loss in excess would be capital loss who is eligible for the 50% exclusion of a noncorp shareholder who holds qualified small bus stock for gain from small business stock? more than 5 years. what is the maximum exclusion and 50% of the greater of: limitation of the 50% exclusion of gain -10 times the taxpayer's basis in the stock from small business stock? - 10 million dollars 1. stock issued after 1993 2. acquired at the original issuance 3. c corp only 4. less than $50 mil of capital as of date of stock issuance a qualified corp eligible for the 50% 5. 80% of the value of assets must be used in the active conduct exclusion of gain of small bus stock must have the following: of qualified trades or businesses what is the gain for small business stock taxed at? 28%

type a - mergers and consolidations type b - acquisition by one corp of another corp's stock, stock for stock type c - the acq by one corp of another corp's assets, stock for assets type d - dividing of the corp into separate operating operations type e - recaptializations type f - mere change in identity, form, or place of org no gain or loss recognized by either. parent assumes basis of sub's assets as well as any unused nol or cap loss or charitable contribution carryovers

to qualify as a small business corp, who would meet the qualified corporation requirement?

-domestic -may not file with a C corp - must be individual, estate, or certain types of trusts - may not be a nonresident alien - qualified retirement plans and 501c3s may be shareholders - neither corps nor partnerships are eligible shareholders - grantor and voting trusts are permissibl

to qualify as a small business corp, who would meet the eligible shareholders requirement? to qualify as a small business corp, who would meet the shareholder requirement? to qualify as a small business corp, who would meet the class of stock requirement? when do you have to elect s corp status for the year? generally all the tax on an s-corp is passed on. however, what are the three taxes that are imposed on S corps?

there may not be more than 100 shareholders. there may not be more than one class of stock outstanding. however, differences in common stock voting rights are allowed. preferred stock is not permitted before march 15 1. lifo recapture tax 2. built in gains tax 3. tax on passive investment income C corps that elect S status must include in taxable income for the last c corp year the excess of inventory computed under fifo over lifo. resulting tax paid in four equal installments - first is paid with the final c corp return, remaining paid by the s corp an unrealized built in gain results when the following two conditions occur: 1. a c corp elects s corp status 2. the fmv of the corp assets exceeds the adj basis of corp assets on the election date

what is the lifo recapture tax for s corps?

what is the built-in gains tax for s corps?

1. the s corp was never a c corp 2. the sale or transfer does not occur within 10 yrs (7 years for 2009-2010) on the first day of the first year the s election was made 3. the s corp can demonstrate that the appreciation occurred after the s election 4. the s corp can demonstrate that the asset was acquired after the s election an s corp is exempt from a tax on built 5. the net unrealized built-in gain has been completely in gains if: recognized in prior tax years multiply 35% by the lesser of: what is the built in gains tax rate for s 1. recognized built in gain for the current year or corps? 2. the taxable income of the s corp if it were a c corp an s corp is subject to an income tax of 35% on the lesser of net income or excess passive investment income if: 1. the s corp has acc c corp e&p and 2. passive investment inc (royalties, divs, interest, rents, and what is the tax on passive investment annuities but not gains on sales of securities) exceeds 25% of income for an s corp? gross receipts how are allocations to shareholders of an s corporation made? on a per share, per day basis do s corps report separately not nonseparately stated items of income or loss? they report both, just like partnerships what is the limitation of losses for a shareholder of an s corp? what is the carryforward for shareholder's disallowed losses on an s corp? how are the partnership rules for loss limitations for a shareholder different than in an s corp? in an s corp, whose fringe benefits are tax deductible? limited to adjusted basis in s corp stock plus direct shareholder loans to the corp. shareholder guarantees do not increase basis. may be carried forward indefinitely and will be deductible as the shareholder's basis is increased

in a partnership, liabilities increase partners' basis non-shareholder employees and those employee shareholders owning 2% or less of the s corp

in an s corp, whose fringe benefits are shareholders owning over 2%, unless the corp includes the nondeductible? benefits in the employee/shareholder's w2 income the tax effects of distributions paid to shareholders of an s corp what is the purpose of the that has accumulated e&P since the inception are computed accumulated adjustments account? using the AAA. increased by separately and nonseparately stated income and what are examples of increases to the gains (except tax exempt income and certain life insurance AAA? proceeds) corp distributions, separately and non separately stated expense items and losses (except for certain nondeductible items that don't affect the capital account) and non deductible expenses what are examples of decreased to the (except insurance prems w corp as beneficiary) that relate to AAA? income other than tax exempt income an s corp shareholder is permitted to deduct on their personal income tax return their pro rata share of the s corp loss subject to the following limitation: loss limitation = basis + direct shareholder loans - distributions distributions may not reduce AAA below zero; however, AAA may be negative from s corp losses how can AAA become negative? 1st dist - to the extent of AAA [not subject to tax, reduces basis in stock. s corp (already taxed) profits] 2nd dist - to the extent of c corp e&p [taxed as a dividend, does not reduce basis in stock. old c corp taxable dividend] 3rd dist - to extent of basis in stock [ not subject to tax, reduces basis in stock. return of capital] what is the order of a distribution for an s corp with c corp e&p? 4th dist - in excess of basis in stock [taxes as ltcg. cap gain dist]

1. holders of a majority of the corps stock (any combo of voting and nonvoting) consent to a voluntary revocation 2. the corp fails to meet any of the eligibility reqs for s corp status 3. more than 25% of the corps gross receipts come from passive investment income for 3 consecutive years and the corp had c corp earnings and profs at the end of each year. 3 strikes you're out!!

what will make the s corp status terminate? once an s corp election is terminated or revoked, a new election cannot be made for ______

5 years, unless irs consents to an earlier election the corp will have two short yeas, a short S year and a short C if the termination occurs in mid year, year. earnings are prorated on a daily basis to each of the short ______ years. type of corp organized under an act of congress as a u.s. instrumentality what is a 501(c)(1) corp organized for the exclusive purpose of holding title to property, collecting income from that property, and turning over what is a 501(c)(2) the net income to an exempt org make written application for exempt status be approved by IRS almost all exempt orgs (besides 501c1) become incorporated must: issue capital stock 1. no part of the net earnings may inure to the benefit of any private shareholder or individual 2. no substantial part of the activities may be non-exempt activities 3. the org may not directly participate or intervene in any political campaign what are the reqs of a 501(c)(3)?

what is a 509 private foundation? what are the required returns for section 509 private foundations? how will section 509 private foundations go through involuntary termination?

how will section 509 private foundations go through voluntary termination? unrelated business income is defined as income that is: what is the ownership limitation on unrelated business income for an exempt or? what is the specific deduction for exempt corps?

all section 501(c)(3)s, except: 1. max (50% type) charitable deduction donees 2. broadly publicly supported orgs receiving more than 1/3 of their annual support from members and the public and less than 1/3 from investment income and unrelated business income 3. supporting orgs 4. public safety testing orgs annual information return (form 990-PF) that discloses substantial contributors and amounts of contributions received is required willl terminate when they become public charities. or if they commit repeated violations r a willful and flagrant violation of any of the private foundation provisions achieved by notifying the IRS of the plan to terminate, subject to a termination tax payback of the value of its aggregate tax benefits or its net assets, whichever is lower. otherwise, may elect to distribute its assets to an org qualifying for the max 50% deduction or it may operate as a public charity itself for at least 5 years 1. derived from a trade or business 2. regularly carried on, and 3. not substantially related to the orgs tax exempt purposes 20%. if 3rd parties have effective control of the business enterprise, then 35% $1,000 deduction

what types of income are excluded from tax of an exempt org? can an organization operated for the purpose of carrying on a trade or business for profit be exempt if all its profits are payable to exempt orgs? when is form 990 due?

1. loyalties, divs, int, and annuities 2. rents from real property, rents from personal property leased with real property, and income from debt financed property 3. G/L on the sale of property 4. income from research of a college or hospital 5. income of labor unions used to establish a retirement home, hospital, etc 6. activities limited to exempt orgs by state law (bingo games) 7. the value of securities loaned to a broker and the income received by a lender, provided the identical securities are returned to the lender 8. income from the exchange or rental of membership lists of tax exempt charitable orgs

feeder organization - no! it must rely on its own activities and exempt nature to gain tax exemption

15th day of the fifth month following the close of the tax year if the exempt org has gross receipts less than $200,000 and total when can a form 990-EZ be filled out? year end assets of less than $500,000 what are the three types of exempt 1. religious or internally-supporting orgs orgs that do not have an annual filing 2. certain orgs that have less than $5000 gross receipts req of form 990? 3. orgs that normally have less than $50,000 in gross receipts electronic postcard" filing if the exempt org does not regularly what is a form 990N for? have gross receipts less than $50,000" what happens if an exempt org does penalties. if three consecutive years, tax exempt status of org is not file a required tax form? revoked -A promise to answer for the debts of another -A contract to transfer an interest in real estate -A contract which cannot, by its terms, be performed within one Contracts that must be in writing to be year from the date the agreement was made enforceable -The UCC sale of goods of $500 or more

Elements necessary for contract

3 Elements for Offer

Firm offer requirements Option contract Accountant's liability for fraud?

Negotiable Instrument Requirements

Types of endorsements

Requirements to be a Holder in Due Course Novation Quitclaim deed

-Offer -Acceptance -Mutual/Real Assent -Consideration -Legal capacity -Legality -Intent -Communication -Definiteness 1. Must be in writing 2. Must be signed by a merchant 3. The merchant must promise to keep the offer open 4. A firm offer must relate to the sale of goods An offer that is irrevocable for an agreed time and is supported by consideration Accountant is not liable for the failure to detect fraud unless it would have been detected by a normal audit. 1. Be written 2. Be signed by the maker or drawer 3. Contain an unconditional promise or order to pay 4. State a fixed amount in money 5. Be payable on demand or at a definite time 6. Be payable to order or bearer -Blank endorsement -Special endorsement -Restrictive endorsement -Qualified endorsement -Be a holder of a properly negotiated instrument -Give value for the instrument -Take in good faith -Take without notice that it is overdue, has been dishonored, or that any person has a defense or claim to it When one of the original parties to contract is released and a new party is substituted in his/her place Provides no warranty as to title

Warranties are limited to defects which occurred during the time that the grantor owned the property 1.The grantor is the true owner 2. There are no liens or claims to the property other than those disclosed in the deed 3. The grantee will have quiet enjoyment General warranty deed 4. The grantor will defend the title 1. The debtor must have rights in the collateral. Requirements to attach a security 2. The secured party must have given value. interest 3. A security agreement must exist. Either: -Filing a financing statement in the public records or appropriate office -Taking physical possession -(Neither is necessary for a purchase money security interest in Requirements to perfect a security interest consumer goods) Arises when a borrower uses loan proceed to purchase the items that are the collateral for the loan. It doesn't matter whether the lender is the seller of the items or is a third party, Purchase money security interest such as a bank Taxability of life insurance dividends Not taxable to the extent they do no exceed premiums. Is used if more than 40% of all personal property is placed in When to use mid-quarter convention? service in the last quarter of the taxpayer's tax year. Special warranty deed When to use mid-month convention? 271/2 Year depreciation life used? Is used to depreciate real property. Residential rental real property 1. Payments must be made in cash 2. Payments must be to or for the benefit of the spouse 3. Lump-sum property settlements are not taxable $25 per recipient each year Any activity that involves the conduct of a trade or business in which the taxpayer does not materially participate," any rental activity, and any limited partnership interest."

Alimony Requirements Deductions for business gifts are limited to?

Passive activity

Dependent's Standard Deduction

Limited to the lesser of (1) the basis standard deduction for single taxpayers of $5,700 or (2) the greater of (a) $950 or (b) the dependent's earned income plus $300 The distributing corporation recognizes gain on the distribution of appreciated property as if such property were sold for its FMV. However, no loss can be recognized on the nonliquidating distribution of property to shareholders. (1) Add: Tax-exempt income, dividend received deduction, excess of MACRS depreciation over depreciation computed under ADS, etc. (2) Deduct: Federal income taxes, net capital losses, excess charitable contributions, expenses related to tax-exempt income, penalties, etc. -Is increased by gains on distribution of appreciated property -Reduced by the adjusted basis or FMV of property, whichever is greater -Increased by liabilities distributed 1. During anytime in the last half of the tax year five or fewer individuals own more than 50% of the value of the outstanding stock directly or indirectly 2. The corporation receives at least 60% of its adjusted gross income as personal holding company income" (ex. dividends, interest, rents, royalties, and other passive income)"

Corporate Gain/Loss Property Distributed in a non liquidating distribution

Current E&P

E&P

Personal Holding Company

Termination of S-Corp

(A) Shareholders owning more than 50% of the shares of stock of the corporation consent to revocation of the election (B) The corporation's failing to satisfy any of the eligibility requirements. If this occurs termination is effective on the date an eligibility requirement is failed (C) Passive investment income exceeding 25% of gross receipts for three consecutive taxable years if the corporation had subchapter C earnings and profits at the end of those years

Above the Line" Deductions"

Itemized Deductions

1. One-half of self-employment tax 2. Moving expenses 3. Self-employed health insurance deduction 4. IRA deduction 5. Payment to a Keogh retirement plan 6. Penalty on early withdrawal of savings 7. Student loan interest deduction 8. Alimony paid 9. Tuition and fees deduction 10. Health savings account deduction 1. Medical and dental expenses 2. Taxes 3. Interest expense 4. Charitable contributions 5. Casualty and theft losses 6. Miscellaneous: (a) Subject to 2% of AGI limitation (b) Not subject to 2% of AGI limitation (1) Occurs when stock or securities (or options to acquire stock or securities) are sold at a loss and within 30 days before or after the sale, substantially identical stock or securities (or options to acquire them) in the same corporation are purchased (2) Wash sale loss is not deductible, but is added to the basis of the new stock (3) Wash sale rules do not apply to gains (4) Does not apply to dealers in stock and securities where loss is sustained in ordinary course of business

Wash sale for corporations tax consequences, there is no gain or loss to the corporation issuing stock in exchange for property in the following transactions:

1. formation -- issuance of common stock 2. reacquisition - purchase of treasury stock 3. resale - sale of treasury stock

in a corporation formation, the general rule is that the basis of the property received from the transferor/shareholder is the greater of: if the aggregate adjusted basis of property contributed to a corp by each transferor/shareholder in a tax-free incorporation exceeds the aggregate fmv of the property transferred: the shareholder contributing property (not services) in exchange for corporation common stock has no gain or loss if the following conditions are met: what are three gross income items that represent temporary differences between tax and book items?

greater of: - adjusted basis (nbv) of the transferor/shareholder (plus any gain recognized by the transferor/shareholder), or - debt assumed by corporation (transferor may recognize gain to prevent a negative basis)

the corp's basis in the property is limited to the aggregate fmv of the property to prevent the transfer of property with built in losses" to the corporation"

1. 80% control of the voting stock and 80% of the non-voting stock 2. boot not received

interest, rental, and royalty income received in advance interest income from municipal or state obligations/bonds, proceeds from life insurance on the life of an officer where the what are GAAP income items that are corp is the beneficiary, and federal income taxes are not not includible as taxable income? deductible what is the limit on the domestic can't exceed 50% of the W2 wages paid by the corporation for production deduction? the year 9% of the lesser of: how much is the domestic production 1. qualified productions activities income (QPAI) deduction? 2. taxable income (disregarding the QPAI deduction) domestic production gross receipts How is QPAI calculated? - cogs, other expenses, and other deductions a publicly held corporation may not deduct compensation expenses in excess of _____ paid to the CEO or $1,000,000; the four other most highly compensated officers; ________ unless based upon qualifying commissions or a performance based plan of the __________ company

entertainment expenses for officers, directors, and 10% or greater owners may be deducted only to the extent that ___ bonuses paid by a(n) ____ basis taxpayer are deductible in the tax year when all events have occurred that establish a liability with reasonable accuracy, and provided they are paid within ____ accrual method taxpayers must use the _____ method to write off bad debts all interest paid or accrued during the taxable year on indebtedness incurred for _______ is deductible interest expense on loans for investment has a limitation on deductibility of _____ prepaid interest expense must be allocated to _____ corporations making contributions to recognized charitable orgs are allowed a max deduction of ___

they are included in the individual's gross income

accrual; within 2.5 months after year end

specific charge off (direct write-off method)

business purposes

net investment income (taxable) the proper period to which it is related. (incurred & paid)

10% of their taxable income 1. any charitable contribution deduction 2. the dividends received deduction for charitable deductions, total taxable 3. any NOL carryback 4. any cap loss carryback income is calculated before the 5. u.s. production activities deduction deduction of: the lesser of: a. the decline in value of the property b. the adjusted basis of the property immediately before the is business property is partially destroyed, the loss is: casualty if business property is fully destroyed, the amount of the loss is: the adjusted basis of the property

what is the deduction for may elect to deduct up to 5,000 or each, and the excess is organizational expenditures and start- amortized over 180 months from when the business started. up costs? (5,000 reduced if costs are over 50,000) what are the included costs for the organizational expenditures and start up costs deduction? what costs are excluded from the organizational expenditures and start up costs deduction? what is the GAAP rule for organizational expenditures and startup costs? how are goodwill, covenants not-tocompete, franchises, trademarks, and trade names amortized? what is the difference in the treatment of purchased goodwill (yrs 2002 and forward)? GAAP rule - not amortized; test for impairment fees paid for legal services in drafting the corporate charter, bylaws, minutes of organization meetings, fees paid for accounting services and fees paid to the state of incorporation costs of issuing and selling the stock, commissions, underwriter's fees, and costs incurred in the transfer of assets to a corporation (cost of raising $)

expense on a straight-line basis over a 15 year period beginning with the month that the intangible was acquired tax rule - amortized on a straight line basis over 15 years

what is the deductibility for life if the corporation is names as the beneficiary, it is not tax insurance premiums for corporations? deductible. if an insured employee is named as beneficiary what is the deductibility of business gifts? $25 per person per year all state and local taxes and federal payroll taxes are deductible when incurred on property or income relating to business. federal income taxes are not deductible. foreign income taxes which taxes are deductible for may be used as a credit corporations? are lobbying and political expenditures tax deductible? no what is the capital loss carryover for corporations? 3 years back, 5 years forward what rates are capital gains taxed at same rate as ordinary corporate income (no special cap gains for corporations? rates apply, as with individual taxpayers)

what is the carryforward for net operating losses for corporations? when must form 1120X be filed?

2 back, 20 forward 3 years from the filling date

is the charitable deduction allowed in calculating the NOL for a corporation? no is the dividends received deduction allowed to be deducted before calculating the NOL? yes inventories are valued at cost (including DL, DM and attributable indirect costs), less discounts, plus freight-in. the cost methods of prime cost" (no overhead) and "direct cost" (which includes what is the cost method of valuation? variable overhead only) are not allowable for tax purposes" inventories are valued at the lower of cost or market, which for normal goods is generally the current bid price at the date of inventory per each item in inventory (i.e. the lower amount is determined based on each item, not based on the aggregate what is the lower of cost or market method of valuation? value of the inventory) this method will generally not be allowed when inventories are held for long periods of time in some circumstances or when costs tend to fluctuate significantly (unless the taxpayer what is the rolling-average method of regularly re-computes costs and makes certain adjustments), as valuation? the method may not clearly reflect income in certain cases in general, the retail method will approximate the cost or the market of items in inventory by subtracting the mark-up percentage to retail from the retail price, typically from what is the retail method of valuation? inventory that has a large volume of items what are common inventory identification methods (cost-flow assumptions) fifo, lifo, specific identification method if you use lifo for taxes, which methods can you use for financial statement purposes? only lifo

how are unsalable or unusable goods valued? what is the formula for the general business credit? 25% of regular tax liability above $25,000 or tentative minimum tax for the year" how are unused business credits carried over? what is the purpose of the dividends received deduction? what is the percentage ownership needed to have a dividends received deduction of 70%? what is the percentage ownership needed to have a dividends received deduction of 80%? what is the percentage ownership needed to have a dividends received deduction of 100%?

they must be valued at the expected selling price (bona fide selling price") within 30 days minus the costs to dispose of them" the credit may not exceed net income tax" (regular tax plus alt min tax less nonrefundable tax credits, other than the alt min tax credit) less the greater of:

although some limits must be applied separately, unused credits may generally be carried back 1 year and forward 20 years to prevent triple taxation of earnings

0% to <20%

20% to <80%

the dividends received deduction equals: what is the exception to the taxable income limitation for the dividends received deduction?

80% or more the lesser of: 70 or 80% dividends received or 70 or 80% of taxable income without regard to the drd, any NOL deduction, or capital loss carryback

the limit does not apply if, after taking into account the full drd, the result is a net operating loss. 1. personal service corporations the dividends received deduction does 2. personal holding companies not apply to: 3. personally taxed S corporations

who can have a 100% dividends received deduction?

what does the half year convention apply to? when does the mid-quarter convention applied?

affiliated corporations - (80-100% ownerships) small business investment corps - (makes equity and long-term credit available to small business concerns) in general, a half year convention applies to personal property, under which such property placed in service or disposed of during a taxable year is treated as having been placed in service or disposed of at the midpoint of the year if more than 40% of depreciable property is placed in service in the last quarter of the year, the mid-quarter convention must be used

what are the macrs depreciation rules for property other than real estate? 200% and 150% declining balance method what are the macrs depreciation rules for residential rental property? (apartments and duplex rental homes) 27.5 year straight line depreciation what are the MACRS depreciation rules for non-residential real property (real property that is not residential rental property and that does not have an ADR midpoint of more than 27.5 yrs) 39 year straightline what convention does macrs real estate use? mid-month convention limit is $250,000 of new or used property maximum amount is reduced dollar for dollar by the amount that exceeds $800,000 deduction is not permitted when a net loss exists or if the deduction would create a net loss what is the limit for the deduction of section 179 property? SUVs can only be expensed to $25,000

a taxpayer may chose to depreciate property on a straight-line basis. if a taxpayer chooses straight-line, he may the regular recovery period or a longer alternative depreciation choose which recovery periods? system (ADS) recovery period allowed on exhaustible natural resources, such as timber, minerals, oil and gas what is depletion allowed for? what are the two methods of 1. cost depletion depletion? 2. percentage depletion the unit depletion rate multiplied by the number of nits sold for what is the cost depletion method? the year the deduction is limited to 50% of taxable income (excluding depletion) from the well or mine. the allowable percentages range from 5% to 22% depending upon the mineral or substance being extracted. percentage depletion may be taken even after the costs have been completely recovered and there is no basis --business start up expenses or org costs ($5,000, 180 month) -- research expenses (existing trades or businesses may amortize research expenses over a 60 month period) --pollution-control facilities capital gain, ordinary loss personal business property. recapture all accumulated depreciation as ordinary income, the remaining is cap gain under 1231 real business property. accelerated depreciation in excess of straight line dep is recaptured as ord income, and the remaining dep is taxed at a 25% max rate. the remaining gain is treated under sec 1231 15-Mar the 6 month extension for a c corp

what is the percentage depletion method? what items can be expensed and/or amortized on a straight-line basis over a period of years, regardless of their useful life? how are section 1231 assets treated?

how is section 1245 treated?

how is section 1250 treated? when is the tax return due for a c corp? what is form 7004?

1. accounting for purchases and sales of inventory 2. tax shelters 3. certain farming corps 4. some c corps, trusts, and partnerships, provided that the the accrual basis method for accounting for tax purposes is required business has greater than $5 mil of average annual gross for the following: receipts for the three year period ending with the tax year what is the statue of limitations for a corporation? 3 ears. 6 years for 25% misstatement. when are corporations required to pay on the fifteenth day of the fourth, sixth, ninth, and twelfth estimated taxes? months of their tax year when can you get the underpayment penalty for estimated payments of if you don't make the estimated payments and the amount corp tax? owed on the return is $500 or more. lesser of: - 100% tax for the current year - 100% tax for the preceding year [cannot be used if the corp owed no tax for the preceding year, how much estimated tax is a small corp supposed to pay? or the preceding year was less than 12 months] how much estimated tax is a large corp supposed to pay? must pay 100% of the tax as shown on the current year return who is defined as a large corporation for estimated tax purposes? a corp whose taxable income was $1 mil or more in any of its three preceding tax years all the corporations in the group: 1. must have been members of an affiliated group at some time during the tax year 2. each member of the group must file a consent a common parent directly owns: 1. 80% or more of the voting power of all common stock, and 2. 80% or more of the value of all outstanding stock of each corporation s corps, foreign corps, most real estate investment trusts (REITs), some insurance companies, and most exempt orgs

what are the requirements to be entitled to file a consolidated return?

what is an affiliated group? who is denied the privilege of consolidating returns, even if they meet the ownership test?

are brother sister corps allowed to file consolidated returns? no capital and operating losses may offset the gains of another corp, NOL carryover may be applied against the income of the consolidated group, and dividends received are 100% eliminated what are the advantages of filing a consolidated return? in consolidation because they are intercompany dividends 1. mandatory compliance with complex regulations 2. in the initial consolidated tax return year, a double counting of inventory can occur if group members had intercompany transactions 3. tax credits may be limited by operating losses of other members 4. the election to file consolidated returns is binding for future what are the disadvantages of filling a years and may only be terminated by disbanding the group or consolidated return? seeking permission of the IRS long term contracts, for corporate AMT, what are the installment sale dealer, adjustment items to income? excess depreciation post-1986 percentage depletion for corporate AMT, what are the private activity - issued post '86 tax exempt interest income preference addbacks? pre '87 acrs excess depreciation muni interest income tax exempt interest income increase CSV life insurance Non S/L depreciation (after '89; excess over alt depr. sys. life) for corporate AMT, what are the Adjusted current earnings differences? Dividends received deduction (under 20% ownership) the difference between revenue calculated under the completed for corporate AMT, what is the contract method and revenue calculated under the percentageadjustment for long-term contracts? of-completion method for corporate AMT, what is the adjustment for installment sales difference between full accrual revenue and installment sales dealer? revenue

for corporate AMT, what is the adjustment for excess of depreciation of tangible property placed in service after 1986?

excess depreciation over: 1. straight line for real property using a 40 yr life, or 2. 150% declining balance (with a switch to straight-line for personal property using the applicable class life

for corporate AMT, what is the a preference exists for the excess of percentage depletion over preference for percentage depletion? the adjusted basis of the property for corporate AMT, what is the preference for private activity bonds? for corporate AMT, what is the preference for pre-1987 acrs depreciation? what is the exemption amount for corporate AMT? what is the tax rate on the amti? a preference exists for tax exempt interest for certain private activity bonds issued after 1986 a preference exists for the excess of ACRS accelerated dep over straight line on pre-1987 property $40,000 less 25% of AMTI in excess of $150,000 flat 20%

what credits are allowed for corp amt? the foreign tax credit what is the carryforward of the corporate amt? carried forward indefinitely, but not carried back. regular C corps whos accumulated earnings are in excess of $250,000 if improperly retained instead of being distributed as who is the accumulated earnings tax dividends to (high bracket) shareholders [personal service corps are entitled to only $150,000] imposed on? personal holding companies who is not subject to the accumulated tax exempt corps earnings tax? passive foreign investment corporations what is the additional tax rate for accumulated earnings? flat 15% coporations set up by high tax bracket taxpayers to channel their investment income into a corporation and shelter that income by the low normal tax or the corp, instead of paying their higher what is the purpose of a personal holding company? individual tax rates on that income

corps more than 50% owned by 5 or fewer individuals (either directly or indirectly at any time during the last half of the tax year) and having 60% of adjusted ordinary gross income consisting of: Net rent Interest that is taxable royalties what is the definition of a personal holding company? dividends from an unrelated domestic corp what is the additional tax assessed for additional 15% on personal holding company net income not personal holding companies? distributed are personal holding company's subject to the accumulated earnings tax? no taxable income must be reduced by ______ to determine the undistributed personal holding company income prior to the dividend paid deduction are the accumulated earnings tax and personal holding company tax selfassessed? what is the tax rate for personal service corporations? how is E&P calculated on the tax return? a corp's E&P is a major factor in determining the ability of the corp to _____

federal income taxes and net long-term capital gain

AET is assessed by IRS. PHC tax is self-assessed. denied graduated rates. taxed at a flat 35% adjusting the taxable income of the corp

what are the negative adjustments that reduce current e&p?

pay a dividend to the shareholders 1. federal income tax expense 2. non-deductible penalties, fines, political contributions, meals and entertainment, etc 3. officer life insurance premiums 4. expenses for production of tax exempt income 5. non-deductible charitable contributions 6. non-deductible capital losses

1. refunds of fed income tax paid 2. tax exempt income 3. refunds of items that were not subject to regular tax under the tax benefit rule 4. NOL deductions 5. life insurance proceeds where corp is beneficiary 6. dividends received deduction 7. carryovers of cap losses 8. carryovers of charitable contribution what are the positive adjustments that 9. non-taxable cancellation of debt not used to reduce basis of increase current e&p? property 1. losses and gains that have diff effects on taxable income vs. E&P 2. changes in the csv of certain life insurance policies 3. excess dep for e&p over that for regular income tax 4. diff in allowable deductions for org and start-up expenses 5. installment income method adjustments 6. completed contract income vs. percentage of completion income adjustments 7. amortization of intangible drilling costs adjustments what are examples positive or negative adjustments that increase or 8. section 179 expense per reg tax vs. ratable dep of the same decrease e&p? property using a five year life beginning acc e&p + current e&p - distributions from current e&p what is the general calculation for the - distributions from acc e&p ending accumulated e&p? = accumulated e&p at end corp distributions are first applied to _____, then to _______, and then to _____. current E&P, accumulated E&P, and return of capital. if any excess remains, it is classified as ___________ excess distributions" and reported as capital gains distributions" can current and accumulated e&p be not generally. only if current e&p is negative and acc e&p is netted? positive

how are current earnings and profits allocated to distributions? how are accumulated earnings and profits allocated to distributions?

what are constructive dividends?

what are examples of constructive dividends? what is a stock dividend?

on a pro rata basis to each distribution applied in chronological order, beginning with the earliest distribution transactions, while not in the form of dividends, are treated as such when the payments are not in proportion to stock ownership 1. excessive salaries paid to shareholder employees 2. excessive rents and royalties 3. loans to shareholders where there is no intent to repay 4. sales of assets below fmv distribution by a corporation of its own stock to its shareholders

when are stock dividends taxable? if the shareholder as a choice of receiving cash or other property what is the general rule for the taxable amount of a corporation paying a payment of a dividend does not create a taxable event. a dividend dividend is the reduction of e&p 1. corp has no e&p (div would not be taxable income 2. corp distributes appreciated prop as a dividend 3. corp has a recognized gain (on property div) 4. corp gain increase/creates corp e&p what is the chain of events for a corporation distributing appreciated 5. div to shareholder is not taxable income (to the extent of e&p) property? it is taxable dividend income to shareholder-ordinary income. what happens if a stock redemption is generally, the corp either redeems or cancels the stock pro-rata proportional? for all shareholders sale by shareholder subject to taxable capital gain/loss to shareholder. the percentage ownership after the redemption what happens if a stock redemption is must be less than 50% and must be less than 80% of the disproportional? percentage ownership before the redemption if the corporation is liquidated, the double taxation (the corp and shareholder must generally transaction is subject to ____ recognize gain or loss) what are the two general forms of how a corporation can be liquidated? corp sells assets and distributes cash to shareholders, or corp distributes assets to shareholders

what are the types of tax-free reorganizations? what is the gain or loss recognized when a parent liquidates its subsidiary? what constitutes non taxable event for a corporation? the reorg is a nontax transaction and all tax attributes remain the reorg is a nontaxable transaction, the shareholder continues what constitutes non taxable event for to retain his orig basis, and the shareholder recognizes gain to a shareholder? the extent he receives boot in the reorg a reorg is treated as a nontaxable transaction because _______ it results in the continuation of a business in a modified form when a corporation's stock is sold or becomes worthless, an original stockholder can be treated as having an ordinary loss instead of a capital loss, up to $50,000 __________ (100,000 for mfj). any loss in excess would be capital loss who is eligible for the 50% exclusion of a noncorp shareholder who holds qualified small bus stock for gain from small business stock? more than 5 years. what is the maximum exclusion and 50% of the greater of: limitation of the 50% exclusion of gain -10 times the taxpayer's basis in the stock from small business stock? - 10 million dollars 1. stock issued after 1993 2. acquired at the original issuance 3. c corp only 4. less than $50 mil of capital as of date of stock issuance a qualified corp eligible for the 50% 5. 80% of the value of assets must be used in the active conduct exclusion of gain of small bus stock must have the following: of qualified trades or businesses what is the gain for small business stock taxed at? 28%

type a - mergers and consolidations type b - acquisition by one corp of another corp's stock, stock for stock type c - the acq by one corp of another corp's assets, stock for assets type d - dividing of the corp into separate operating operations type e - recaptializations type f - mere change in identity, form, or place of org no gain or loss recognized by either. parent assumes basis of sub's assets as well as any unused nol or cap loss or charitable contribution carryovers

to qualify as a small business corp, who would meet the qualified corporation requirement?

-domestic -may not file with a C corp - must be individual, estate, or certain types of trusts - may not be a nonresident alien - qualified retirement plans and 501c3s may be shareholders - neither corps nor partnerships are eligible shareholders - grantor and voting trusts are permissibl

to qualify as a small business corp, who would meet the eligible shareholders requirement? to qualify as a small business corp, who would meet the shareholder requirement? to qualify as a small business corp, who would meet the class of stock requirement? when do you have to elect s corp status for the year? generally all the tax on an s-corp is passed on. however, what are the three taxes that are imposed on S corps?

there may not be more than 100 shareholders. there may not be more than one class of stock outstanding. however, differences in common stock voting rights are allowed. preferred stock is not permitted before march 15 1. lifo recapture tax 2. built in gains tax 3. tax on passive investment income C corps that elect S status must include in taxable income for the last c corp year the excess of inventory computed under fifo over lifo. resulting tax paid in four equal installments - first is paid with the final c corp return, remaining paid by the s corp an unrealized built in gain results when the following two conditions occur: 1. a c corp elects s corp status 2. the fmv of the corp assets exceeds the adj basis of corp assets on the election date

what is the lifo recapture tax for s corps?

what is the built-in gains tax for s corps?

1. the s corp was never a c corp 2. the sale or transfer does not occur within 10 yrs (7 years for 2009-2010) on the first day of the first year the s election was made 3. the s corp can demonstrate that the appreciation occurred after the s election 4. the s corp can demonstrate that the asset was acquired after the s election an s corp is exempt from a tax on built 5. the net unrealized built-in gain has been completely in gains if: recognized in prior tax years multiply 35% by the lesser of: what is the built in gains tax rate for s 1. recognized built in gain for the current year or corps? 2. the taxable income of the s corp if it were a c corp an s corp is subject to an income tax of 35% on the lesser of net income or excess passive investment income if: 1. the s corp has acc c corp e&p and 2. passive investment inc (royalties, divs, interest, rents, and what is the tax on passive investment annuities but not gains on sales of securities) exceeds 25% of income for an s corp? gross receipts how are allocations to shareholders of an s corporation made? on a per share, per day basis do s corps report separately not nonseparately stated items of income or loss? they report both, just like partnerships what is the limitation of losses for a shareholder of an s corp? what is the carryforward for shareholder's disallowed losses on an s corp? how are the partnership rules for loss limitations for a shareholder different than in an s corp? in an s corp, whose fringe benefits are tax deductible? limited to adjusted basis in s corp stock plus direct shareholder loans to the corp. shareholder guarantees do not increase basis. may be carried forward indefinitely and will be deductible as the shareholder's basis is increased

in a partnership, liabilities increase partners' basis non-shareholder employees and those employee shareholders owning 2% or less of the s corp

in an s corp, whose fringe benefits are shareholders owning over 2%, unless the corp includes the nondeductible? benefits in the employee/shareholder's w2 income the tax effects of distributions paid to shareholders of an s corp what is the purpose of the that has accumulated e&P since the inception are computed accumulated adjustments account? using the AAA. increased by separately and nonseparately stated income and what are examples of increases to the gains (except tax exempt income and certain life insurance AAA? proceeds) corp distributions, separately and non separately stated expense items and losses (except for certain nondeductible items that don't affect the capital account) and non deductible expenses what are examples of decreased to the (except insurance prems w corp as beneficiary) that relate to AAA? income other than tax exempt income an s corp shareholder is permitted to deduct on their personal income tax return their pro rata share of the s corp loss subject to the following limitation: loss limitation = basis + direct shareholder loans - distributions distributions may not reduce AAA below zero; however, AAA may be negative from s corp losses how can AAA become negative? 1st dist - to the extent of AAA [not subject to tax, reduces basis in stock. s corp (already taxed) profits] 2nd dist - to the extent of c corp e&p [taxed as a dividend, does not reduce basis in stock. old c corp taxable dividend] 3rd dist - to extent of basis in stock [ not subject to tax, reduces basis in stock. return of capital] what is the order of a distribution for an s corp with c corp e&p? 4th dist - in excess of basis in stock [taxes as ltcg. cap gain dist]

1. holders of a majority of the corps stock (any combo of voting and nonvoting) consent to a voluntary revocation 2. the corp fails to meet any of the eligibility reqs for s corp status 3. more than 25% of the corps gross receipts come from passive investment income for 3 consecutive years and the corp had c corp earnings and profs at the end of each year. 3 strikes you're out!!

what will make the s corp status terminate? once an s corp election is terminated or revoked, a new election cannot be made for ______

5 years, unless irs consents to an earlier election the corp will have two short yeas, a short S year and a short C if the termination occurs in mid year, year. earnings are prorated on a daily basis to each of the short ______ years. type of corp organized under an act of congress as a u.s. instrumentality what is a 501(c)(1) corp organized for the exclusive purpose of holding title to property, collecting income from that property, and turning over what is a 501(c)(2) the net income to an exempt org make written application for exempt status be approved by IRS almost all exempt orgs (besides 501c1) become incorporated must: issue capital stock 1. no part of the net earnings may inure to the benefit of any private shareholder or individual 2. no substantial part of the activities may be non-exempt activities 3. the org may not directly participate or intervene in any political campaign what are the reqs of a 501(c)(3)?

what is a 509 private foundation? what are the required returns for section 509 private foundations? how will section 509 private foundations go through involuntary termination?

how will section 509 private foundations go through voluntary termination? unrelated business income is defined as income that is: what is the ownership limitation on unrelated business income for an exempt or? what is the specific deduction for exempt corps?

all section 501(c)(3)s, except: 1. max (50% type) charitable deduction donees 2. broadly publicly supported orgs receiving more than 1/3 of their annual support from members and the public and less than 1/3 from investment income and unrelated business income 3. supporting orgs 4. public safety testing orgs annual information return (form 990-PF) that discloses substantial contributors and amounts of contributions received is required willl terminate when they become public charities. or if they commit repeated violations r a willful and flagrant violation of any of the private foundation provisions achieved by notifying the IRS of the plan to terminate, subject to a termination tax payback of the value of its aggregate tax benefits or its net assets, whichever is lower. otherwise, may elect to distribute its assets to an org qualifying for the max 50% deduction or it may operate as a public charity itself for at least 5 years 1. derived from a trade or business 2. regularly carried on, and 3. not substantially related to the orgs tax exempt purposes 20%. if 3rd parties have effective control of the business enterprise, then 35% $1,000 deduction

what types of income are excluded from tax of an exempt org? can an organization operated for the purpose of carrying on a trade or business for profit be exempt if all its profits are payable to exempt orgs? when is form 990 due?

1. loyalties, divs, int, and annuities 2. rents from real property, rents from personal property leased with real property, and income from debt financed property 3. G/L on the sale of property 4. income from research of a college or hospital 5. income of labor unions used to establish a retirement home, hospital, etc 6. activities limited to exempt orgs by state law (bingo games) 7. the value of securities loaned to a broker and the income received by a lender, provided the identical securities are returned to the lender 8. income from the exchange or rental of membership lists of tax exempt charitable orgs

feeder organization - no! it must rely on its own activities and exempt nature to gain tax exemption

15th day of the fifth month following the close of the tax year if the exempt org has gross receipts less than $200,000 and total when can a form 990-EZ be filled out? year end assets of less than $500,000 what are the three types of exempt 1. religious or internally-supporting orgs orgs that do not have an annual filing 2. certain orgs that have less than $5000 gross receipts req of form 990? 3. orgs that normally have less than $50,000 in gross receipts electronic postcard" filing if the exempt org does not regularly what is a form 990N for? have gross receipts less than $50,000" what happens if an exempt org does penalties. if three consecutive years, tax exempt status of org is not file a required tax form? revoked Generally, a taxpayer must file a the personal exemption + the regular standard deduction + return if his or her income is equal to additional standard deduction (for taxpayers age 65+ or blind) or greater than: [except for married persons filling separately]

1. net earnings from self-employment are $400 or more 2. can be claimed as dependents on another taxpayer's return, which individuals must file income tax have unearned income, and gross income of $950 (2010) or returns even if their income is lower more than the general rule" requirement?" 3. receive advanced payments of earned income credit How can an individual receive an automatic six month extension to file? File Form 4868 Automatic two-month extension just by including When do taxpayers who are out of the documentation, and can request the other extensions under the country file? same rules as for other taxpayers. in a _____ state, a husband and wife who elect to file using the married filing separately status must report their own income, exemptions, credits and deductions on their own individual income tax returns. separate property state in a ____ state, most of the income, deductions, credits, etc., are split 50/50. community property state what are the two requirements to have qualifying widower (surviving 1. two years after spouse's death spouse)" status?" 2. principal residence for dependent child the surviving spouse must maintain a household that, for the what are the requirements for the whole taxable year, was the principal place of abode of a son, principal residence for dependent stepson, daughter, or stepdaughter (whether by blood or child" requirement for surviving adoption). The surviving spouse must also be entitled to a spouse status" dependency exemption for such individual. what are the four conditions that must 1. is not married, is legally separated, or is married and has lived be met to be considered head of apart from spouse for last six months of the year household? 2. not a qualifying widower" 3. not a nonresident alien

4. maintains a household that, for more than half the taxable year, is the principal residence of dependent son/father or mother/dependent relatives" 1. legally adopted children, step children, and descendents qualify 2. working families act: the child must either be a qualifying child or qualify as the taxpayer's qualifying relative 3. divorced: noncustodial parent is head of househld if the custodial parent has waived the right to the dependency exemption by completing a Form 8332 not required to live with the taxpayer, provided the taxpayer maintains a home that was the principal residence of the parent for the entire year. maintaining a home means contributing over half the cost of upkeep. This means rent, mortgage interest, property taxes, insurance, utility charges, repairs, and food consumed in the home. parents, grandparents, brothers, sisters, aunts, uncles, nephews, and nieces (step and inlaws included) qualify as relatives. must live with taxpayer. cousins, foster parents, and unrelated dependents do not qualify.

what are conditions to be considered a dependent son or daughter under the head of household requirement?

what are conditions to be considered a father or mother" under the head of household requirement?"

what are conditions to be considered a dependent relative" under the head of household requirement?" how can a married taxpayer filing separately claim his spouse's personal if the spouse has no gross income, and was not claimed as a exemption? dependent of another taxpayer Close Relative Age Limit Residency and Filing Reqs what is the acronym for the qualifying Eliminate Gross Income Test Support Test Changes child dependency exemption? Support (over 50%) test Under a specific amount of (taxable) gross income test Precludes dependent filling a joint tax return test Only citizens (us canada or mex) test what is the acronym for the qualifying relative test OR relative exemption? taxpayer lives with individual for whole year test

if the parents of a child are able to claim the child but do not no one else may claim the child unless __________________ what type of relationships qualify under close relative" requirement of qualifying child status for dependency exemptions?" what is the age limit to be considered a qualifying child for dependency exemptions? what are the residency and filing requirements to be considered a qualifying child for dependency exemptions? How much money can a child earn to be considered a qualifying child for dependency exemptions? what is the support test to be considered a qualifying child for dependency exemptions? what is the support test to be considered a qualifying relative for dependency exemptions?

that taxpayer's AGI is higher than the AGI of the highest parent taxpayer's son, daughter, stepson, stepdaughter, brother, sister, stepbrother, stepsister, or a descendent. adopted children and foster children too. younger than the taxpayer, under age 19 (or 24 in college), no limit to permanently disabled (school attendance at night does not qualify) child must have the same principal place of abode as the taxpayer for more than one half of the tax year. cannot file joint tax return for the year (unless filed only for a refund claim)

any amount child must not contribute more than one-half of his support (doesn't need to be by parents though) the taxpayer must have supplied more than one half of the support. scholarships are not included. social security and state welfare payments are included to the extent that such amounts are actually expended for support purposes when two or more taxpayers contribute more than half support, the contributing taxpayers (who must be qualifying relatives or lived the entire year with), one gets it. contributor must have given more than 10% of support and meet other dependency tests.

how do multiple support agreements work for dependency exemptions? what is the multiple support declaration that joint contributors are required to file? form 2120 a person may not be claimed as a dependent unless the dependent's less than the exemption amount ($3,650 in 2010/ $3750 in gross income is _______ 2011)

a taxpayer will lose the exemption for a married dependent who files a joint return unless __________ what are the citizen/residency requirements of qualifying relatives for dependency exemptions? how can kissing cousins or foster beer be counted as an exemption? how are children of divorced parents treated for exemption purposes?

the joint return is filed solely for a refund of all taxes paid or withheld for the taxable year only citizens of the u.s. or residents of the u.s., mexico, or canada. if they live with the taxpayer the entire year. whoever has custody of the child for a greater period of time (financial support irrelevant). if same, parent with higher AGI. written declaration that waives the right of a custodial parent to take the exemption for a child. must be attached to noncustodial parents return. custodial can revoke by giving one years notice and copy form 8322 claiming the revocation on their return. additional standard deduction (not an additional exemption) fair market value

what is form 8322 what can you get for being 65+ or blind? if an event is taxable, what is the income and basis?

_____ requires the accrual or receipt of cash, property, or services, or change in the form or the nature of the investment (a sale or exchange) realization _____ means that the realized gain must be included on the tax return recognition what are the four characterizations of income ordinary, portfolio, passive, capital salaries and wages, state and local tax refunds, alimony, IRA and pension income, self employment (schedule C) income, unemployment compensation, social security, prizes, the taxable portion of scholarships and fellowships, gambling income, and what falls under ordinary income? anything else. income a taxpayer would earn on his portfolio of assets, such as interest and dividends. what falls under portfolio income?

what is passive income? only ______ may offset passive income.

activity in which taxpayer did not actively participate. passive losses not deductible on tax return--suspended and carried forward until passive income exists to offset it, unless an exception exists. additional standard deduction (not an additional exemption) fair market value

how are net passive losses treated? what can you get for being 65+ or blind? if an event is taxable, what is the income and basis?

_____ requires the accrual or receipt of cash, property, or services, or change in the form or the nature of the investment (a sale or exchange) realization _____ means that the realized gain must be included on the tax return recognition what are the four characterizations of income ordinary, portfolio, passive, capital salaries and wages, state and local tax refunds, alimony, IRA and pension income, self employment (schedule C) income, unemployment compensation, social security, prizes, the taxable portion of scholarships and fellowships, gambling income, and anything else. what falls under ordinary income? income a taxpayer would earn on his portfolio of assets, such as what falls under portfolio income? interest and dividends. what is passive income? activity in which taxpayer did not actively participate. only ______ may offset passive income. passive losses not deductible on tax return--suspended and carried forward until passive income exists to offset it, unless an exception how are net passive losses treated? exists. rental income and royalties/ beneficiaries of trusts and what are two types of passive income? investments in Partnerships, LLCs, and S Corporations

life insurance premiums: under ____ plans only, premiums above the first $______ of coverage are taxable income to the recipient and normally included in W-2 wages. the proceeds of a life insurance policy paid because of the death of the insured re general excluded from the gross income of the beneficiary....except: For policies issued after 8/17/06, if a life insurance policy is companyowned (COLI), the beneficiary may exclude from gross income benefits received only up to _____ accident, medical and health insurance -- premium payments are ______ the employee's income when the employer paid the insurance premiums accident, medical, and health insurance -- amounts paid to the employee under the policy are includable in income unless such amounts are: what are de minimis fringe benefits?

non-discriminatory plans only; $50,000

the interest income element on deferred payout arrangements if fully taxable.

the total amount of premiums and other amounts paid by the policy holder--any excess would be taxable. [many exceptions apply -- family]

excludable from 1. reimbursement for medical expenses actually incurred by the employee 2. compensation for the permanent loss or loss of use of a member or function of the body benefits that are so minimal that they are impractical to account for and may be excluded from income life insurance proceeds; accident, medical, and health insurance; de minimis fringe benefits; meals and lodging; employer payment of employee's educational expenses; qualified tuition reductions; qualified employee discounts; qualified pension, profit-sharing and stock bonus plans; flexible spending arrangements stems; economic recovery payments

what are examples of non-taxable fringe benefits?

up to _____ may be excluded from gross income of payments made by employer on behalf of an employee's educational expenses. the exclusion applies to ____ level education. grad students may exclude tuition reduction only if___ to be excludable, tuition reductions must be offered on a ____ basis. to what extent are merchandise discounts excludable? to what extent are service discounts excludable? the value of employer-provided parking up to ___ (in 2010) per month may be excluded the value of employer-provided transit passes up to ___ (for 2010) per month may be excluded generally, payments made by an employer to a qualified pension, profit sharing, or stock bonus plan are ____ to the employee at the time of contribution benefits received -- the amount that is exempt from tax (plus any income earned on such amount) is taxable to the employee when? what is a flexible spending arrangement stem (FSAS)

$5,250; both undergrad and grad level education they are engaged in teaching or research activities and only if the tuition reduction is in addition to the pay for the teaching or research. nondiscriminatory limited to the employer's gross profit percentage. any excess must be reported as income. limited to 20% of the FMV of the services. any excess discount must be reported as income. $230. available even if the parking benefit is taken by the employee in place of taxable cash compensation.

$230

not income

in the year in which the amount is distributed or made available to the employee plan that allows employees to receive a pre-tax reimbursement of certain (specified) incurred expenses

employees have the ability to elect to have part of their salary (generally up to $____ per year) deposited pre-tax into a flexible spending account. the employee has the option to use the deposited funds to pay for _____ and/or ____ costs and submits claims $5,000; qualified healthcare and/or qualified dependent care to the plan admin for reimbursement costs flex spending arrangement -- funds not used within ____ after the year-end or not claimed within a period of time (usually ____ months) are forfeited. are economic recovery payments ($250/ person) taxable? what is the general rule for interest? is interest income from federal bonds taxable? is interest income from industrial development bonds taxable? are premiums received for opening a savings account (prizes and awards) taxable? at what value? is interest income from part of the proceeds from an installment sale taxable? is interest on state and local bonds/obligations taxable? are mutual fund dividends for funds invested in tax-free bonds taxable? is interest on the obligation of a possession of the US taxable?

2.5 months; 6 months not taxable. all interest is taxable, unless specifically excluded yes yes

yes, at FMV

yes no no no

1. used to pay for higher education (reduced by tax-free scholarships, of the taxpayer, spouse or dependents) 2. there is taxpayer or joint ownership (spouse) when is interest of series EE bonds tax 3. the taxpayer is over age 24 when issued; and exempt? 4. the bonds are acquired after 1989 is there a phase-our for allowable tax exempt interest income from series EE is interest on veterans administration insurance taxable? what are the four examples of tax exempt interest income what is the purpose of kiddie tax?

yes no state and local gov bonds/obligations; bonds of a u.s. possession; serious EE; veterans Administration insurance prevent people from putting their unearned income to their kids to have a lower tax liability child's total unearned income (from dividends, interest, rents, royalties, etc.( and subtracting $1,900 (the childs allowable 2010 standard deduction of $950 (or investment expense, if greater) + $950 (which is taxed at the child's rate))

how is the kiddie tax calculated? when can parents elect to include on their own return the unearned income provided the income is between $950 and $9,500 and consists of the applicable child? only of interest and dividends. the bank credits the interest to the taxpayer's account and then, in a separate transaction, removes certain interest as a penalty. the interest received is taxable, but the amount forfeited is also what happens with forfeited interest? deductible as an adjustment in the year the penalty is incurred. (theoretically netted, but not technically) (early withdrawal of savings) 1. e&p/current = distribute by CYE 2. E&P/accumulated = distribution date what are the four sources of dividend 3. return of capital = no e&p 4. capital gain distributions = no e&p/no basis income? 1. taxable dividends what are the three categories of 2. tax-free distributions dividends? 3. capital gain distributions

what is the special (lower) tax rate for those dividends that qualify? (2010 only) 15% most taxpayers, 0% low income taxpayers 1. return of capital 2. stock split 3. stock dividend (unless cash or other property option/taxable what are the four examples of FMV) distributions that are exempt from gross income? 4. life insurance dividend how to account for a stock dividend of the same stock. original basis is divided by total shares how to account for a stock dividend of original basis is allocated based on the relative FMV of the a different stock? different stock. distributions by a corp that has no e&p, and for which the how are capital gain distributions shareholder has recovered his entire basis, are treated as treated? taxable gross income the receipt of a state or local income tax refund in a subsequent year is not the taxes paid did not result in a tax benefit in the prior year taxable if _______. (itemize or standard deduction) payments for the support of a spouse are ____ to the spouse receiving the payments are are ______________ by the contributing spouse income; deductible to arrive at agi 1. payments st be legally required pursuant to a written divorce (or separation) agreement 2. payments must be in cash (or its equivalent....paying credit cards or college) 3. payments cannot extend beyond the death of the payeespouse 4. payments cannot be made to members of the same household 5. payments must not be designated as anything other than alimony what are the requirements to be deemed alimony? 6. spouses may not file a joint tax return is child support taxable? no

if the divorce settlement provides for a lump-sum payment or property settlement by a spouse, that spouses gets ____ for payments made, and the payments are _____ of the spouse receiving the payment no deduction; not includible in the gross income for business income, must use ____ method for inventory accrual 1. COGS 2. salaries and commissions (paid to others) 3. state and local bus tax paid 4. office expenses 5. actual auto expenses, or standard mileage rate 6. business meal & entertainment at 50% 7. depreciation of business assets 8. interest expense on business loans (when incurred and paid) 9. employee benefits 10. legal and professional services 11. bad debts (accrual tax payer only) ones paid to others, not to yourself

types of business expenses which salaries and commissions are considered business expenses? when can business meal and entertainment expenses be 100% deductible? interest expense paid in advance by a cash basis taxpayer cannot be deducted until ________ what bad debt write off method is used for tax purposes?

when all proceeds go to benefit a charity

the tax year/period to which the interest relates direct write off method, rather than allowance method

what are nondeductible expenses for schedule c? where are charitable contributions reported? what are the two taxes on net business income? an adjustment to income is allowed for _______ of S/E tax (medicare plus social security) paid all self employment is subject to the ______ tax, but only up to $106,800 in 2010 is subject to the ______ tax

1. salaries paid to the sole proprietor 2. federal income tax 3. personal portions of stuff 4. bad debt expense of a cash basis taxpayer (who never reported the income) 5. charitable contributions itemized deduction on schedule A income tax and fed self-empoyment (S/E) ax one-half (which is 7.65% of up to 106,800 of self-eplyment income in 2010 plus 1.45% of self employment income thereafter)

2.9% medicare tax, 12.4% social security tax a business with a loss may deduct the loss against other sources of income. when the loss exceeds these amounts, the excess net operation loss is permitted as a carryover 2 year carryback, 20 year carryforward 1. real or tangible personal property produced by the taxpayer for use in his trade of business (machine tools for use in the production line of a machine tool manufacturer) 2. real or tangible personal property produced by the taxpayer for sale t his or her customers (manufacturer's inventory) 3. real or tangible personal property acquired by the taxpayer for resale (retailer's inventory)

how is a net taxable business loss treated?

uniform capitalization rules apply to the following:

the uniform capitalization rules do not apply to (inventory) property acquired the taxpayer's average gross receipts for the preceding three tax for resale if _____________________ years do not exceed $10,000,000 annually. costs required to be capitalized include: direct materials, direct labor, and applicable indirect costs

costs not required to be capitalized include:

selling, advertisin, and marketing expenses, certain general and administrative expenses, research, and officer compensation not attributed to production services.

unless an exemption exists for a taxpayer or a contract, long-term contracts must be accounted for using the ____ method to determine taxable income for a particular contract percentage-of-completion 1. small contractors (no more than 2 yrs) 2. home construction contractors 3. contract that includes land and where less than 10% of the total contract costs relates to the actual construction of property on the land 4. services performed by architects, engineers, etc (contracted to perform services but are not generally responsible for the which contracts are exempt from the final product under contract) long-term requirement that they use 5. services performed under warranty and maintenance percentage-of-completion? agreements related to the long-term contract unless an exemption exists for a taxpayer or a contract, those involved in long-term contracts must use _______ to account for their long-term cost allocation rules (essentially the Uniform Capitalization projects in construction. Rules) which contracts are exempt from the cost allocation rules required for tax for long-term construction contracts? small contractor and home construction. Small contractor and home construction contractors are required to allocate _______ related to the contract to the costs of the project production period interest

incurs costs (other than the start-up engineering, design, etc. costs that are excluded from cost allocation) under the contract. the later of the date for cash basis taxpayers or the date the for accrual basis taxpayers the starting taxpayer has incurred at least 5% of the total costs initially date is _________ estimated under the contract the work under the contract is complete (per contract the end date of the production period provisions) or on the date the taxpayer has incurred at least 95% is generally the date on which _____ of the total costs expected under the contract what is the cost-to-cost method of ratio of the total cumulative costs incurred to date at the end of calculating the percentage-ofthe tax year divided by the total expected costs to be incurred completion? under the contract. the ______ method is required to be used for Alternative Minimum Taxation, regardless of the method used for regular tax (except for home construction contracts) percentage-of-completion even if the percentage-of-completion method is used for regular tax purposes, there are still likely to be differences in the calculation of taxable income because ___________ _________ must be calculated using the percentage of completion method, even if the corporation uses the completed-contract method for regular tax purposes.

home construction projects that are not also small constructions projects must use ______ in cost allocation rules for long-term construction contracts, interest for the production period need not be capitalized if_______________ for cash basis taxpayers, the starting date of production is generally the date on which the contractor ____

uniform capitalization rules

the total cost of the project is $1 mil or less and the project is estimated to take less than 12 months to complete

the calculation of alternative minimum taxable income must take into account not only the method of income recognition, but also other alternative minimum tax rules (e.g. depreciation methods)

corporate earnings and profits.

in order for the manufacture of personal property to qualify as longterm contract, not only must the contract not be completed within the year it was started, but it also must be ____________ if a taxpayer performs services for a contractor that is required to account for a long-term contract entered into with a related party using the percentage-of-completion method, the taxpayer (even those providing engineering or design services) must also use the percentage of completion method because of _____, unless the exception exists where ______ most farmers use the ___ basis of accounting.

for the manufacture of a unique" item (i.e., an item that is made specifically for a customer and could not be sold to others, is not generally part of a taxpayer's normal inventory, and requires significant pre-production costs)"

because of the related party impact. the exception is where over 50% of the 3-year average annual gross receipts of the same items stem from unrelated parties.

cash inventories of produce, livestock, etc., are not considered. gross income includes the cash and the value of all other items received from the sale of produce, livestock that has been raised by the farmer, and for livestock or other items a farmer may have bought, profit is computed by subtracting the purchase how does the cash basis work for calculating farming income? price from the sales price. which farmers are required to use the certain corporate and partnership farmers as well as all farming accrual method? tax shelters. gross profit = value of inventories at year end + proceeds how does the accrual basis work for received from sales - value of inventories at the beginning of the calculating farming income? year - cost of inventory purchased during the year whether on a cash or accrual method of accounting, taxpayers who sell stock or sell securities on an established securities market must recognized gains and losses as of the ___ date, not the ____ date. as of the trade date, not the settlement date.

generally, retirement money cannot be withdrawn until the individual reaches the age of ____ or the individual elects _______________ what is RMD? when a person retires the funds will be taxed as ______ when received are qualified benefits received from a roth IRA taxable? what is taxable in a traditional nondeductible IRA? what is the penalty for withdrawing on an IRA early?

59.5; elects to receive equal periodic distributions over his life expectancy. required minimum distribution (for IRAs) by age 70.5 ordinary income (regardless of what type of income, such as capital gain, was earned while the funds were invested)

no principal - not taxable. accumulated earnings - taxable when withdrawn 10% penalty tax (on top of any increase in regular income tax) if the individual has not met an exception H - home buyer (1st time) $10,000 max exclusion (w/in 120 days) I - insurance (medical) if you're unemployed longer than 12 weeks / self employed M - medical expenses in excess of 7.5% of AGI D - disability (permanent/indefinite) there is no penalty if the premature distribution on an IRA was used to pay E - Education for: D - Death excess contribution to an IRA plan are subject to ______________ until the excess is corrected cumulative 6% excise tax each year if an annuitant lives longer than expected, then further payments are _____. fully taxable if an annuitant dies before all the payments are collected, the unrecovered portion is a _______ on miscellaneous itemized deduction not subject to the 2% AGI the annuitant's final income tax return floor.

Schedule _ is used to compute supplemental income and/or loss from rental real estate, royalties, partnerships and lLLCs, S corps, estates, trusts what is the basic formula for the determination of net rental income or loss? rental of vacation home - rented less than 15 days - what are the tax implications?

Schedule E gross rental income + prepaid rental income + rental cancellation payment + improvement in-lieu-of-rent --- rental expenses rental income excluded from income. treated as personal residence. mortgage interest and real estate taxes are allowed as itemized deductions. depreciation, utilities, and repairs are not deductible.

treated as personal/rental residences. expenses are pro-rated rental of vacation home - rented 15 or between personal and rental use. (taxes prorated by annual period, utilities and depreciation by annual usage). rental use more days - what are the tax implications? expenses are deductible only to the extent of rental income. passive activity losses can only be offset by passive income! carryforward forever--if still unused, suspended losses become how are nondeductible PALs treated? fully tax deductible in the year the property is disposed of (sold) if the taxpayer becomes a material participant in the passive activity, how are unused passive losses treated? who are the taxpayers subject to passive activity loss rules? an individual may deduct rental activity losses if: what is the mom and pop exception of the passive activity loss disallowed net loss exception?

the can be used to offset the taxpayer's active income in the same activity. individuals, estates, trusts, personal service corps, and closely held C corps mom and pop exception, real estate professional taxpayers ay deduct up to $25,000 per year of net passive losses attributable to rental real estate annually if the individuals are actively participating/managing

for the carryforward after the mom and pop exception, an estate can qualify for the ___ years following the decedent's death if the decedent actively participated in the operation two years reduced by 50% of the excess of the taxpayer's agi (without what is the phaseout for the mom and consideration of this loss deduction) over 100,000. (so up to pop exception? $150,000) what are the conditions to be considered a real estate professional (so that the rental activities are not considered passive and the taxpayer can fully deduct losses from the rental activities against other income)? the taxpayer must include in gross income the ___ amount received for unemployment compensation are social security benefits included in income? what is provisional income? if you are low income, how much of your social security benefits are taxable? if you are upper income, how much of your social security benefits are taxable?

1. more than 50% of the taxpayer's personal services during the year are performed in real property businesses 2. the taxpayer performs more than 750 hours of services in real property businesses during the year

full amount mayyyybe, depends on how much you make! (5 levels of provisional income) AGI + tax-exept interest + 50% of social security benefits (MODIFIED ADJUSTED GROSS INCOME) zero. provisional income: less than $25,000 single, $32,000 married 85%. provisional income: more than $34,000 single, $44,000 married

what do you need to add to your AGI to end up at MAGI? an exclusion from income for certain prizes and awards applies where the winner is _________

when can gambling losses be deducted? to decide whether a business recovery is excludible, one must determine what the damages were paid in lieu of. (if for lost profit, then it's _______ income) fully taxable as ordinary income if received in a business context or for loss of personal reputation. also if personal injury case, when are punitive damages taxable? except in wrongful death cases scholarships and fellowship grants are 1. the grant is made to a degree-seeking student excludable only up to amounts actually 2. no services are performed as a condition to receiving the grant spent on tuition, fees, books and 3. the grant is not made in consideration for past, present, or supplies (not room and board) future services of the grantee provided: how are graduate teaching assistants and research assistants who receive tuition reductions taxed? does gross income include property received from a gift or inheritance? what is the taxable portion of a gift? are medicare benefits included in gross income? they are taxed on the reduction if it is their only compensation, but not if the reduction is in addition to other taxable compensation. no any income received from such property (interest income, rental income, etc) no

1. income excluded for foreign earned income exclusion 2. exclusion or deduction claimed for foreign housing 3. interest income from series EE bonds that you were able to exclude bc you paid qualified higher education expenses 4. deduction claimed for student loan interest or qualified tuition and related expenses 5. any employer-paid adoption expense you excluded 6. any deduction you claimed for an annual (non-rollover) contribution to a regular IRA where the winner is selected for the award without entering into a contest and assigns the award directly to a gov'tal unit or charity only to the extent of gambling winnings. allowable amount is deductible on schedule A as an itemized deduction, but the amount is not subject to the 2% floor.

when can you exclude from gross income payments received (even with multiple recoveries) from accident insurance? if the individual paid all premiums for the insurance taxpayers working abroad may exclude from gross income up to $____ of their foreign-earned income. in order to qualify for the exclusion, the taxpayer must satisfy one of the two tests: is treasury stock a capital asset? are copyrights, literary music or artistic compositions that have been purchased capital assets? is section 1231 assets capital? how is the gain/loss calculated when you sell property that was gifted to you? how do you calculate gifted property depreciation? what is the holding period when you receive property as a gift? what is the alternative valuation date for inherited property?

$91,500. bona-fide residence test (for an entire taxable year), physical presence test (present for 330 full days our of any 12consecutive -month period. no

what is the general rule for inherited property basis? how is the holding period determined for property acquired from a automatically considered to be long-term property regardless of decedent? how long it has actually been held.

yes no if the fmv is higher, then selling price - basis. if fmv value is lower, then gain = selling price - basis and loss = fmv - selling price. anything inbetween is no gain or loss. lesser of the donor's adjusted basis at the date of the gift or the FMV at the date of gift. normally assume the donor's holding period. unless the FMV is used (as a loss basis) as the basis of the fit, the holding period starts as of the date of the gift. the earlier of 6 months after death or the date of distribution/sale for years after 2010, property acquired by the bequest or inheritance generally takes as its basis the step-up (or down) to FMV at the date of the decedent's death

a gain is not taxed for the following: What is the dollar amount of the homeowner's exclusion from gross income for gain?

H - Homeowner's exclusion I - Involuntary Conversions D - Divorced Property Settlement E - exchange of Like-Kind Business/Investment assets I - Installment Sale T - Treasury and capital Stock Transactions $500,000 for married couples filing a joint return and certain surviving spouses; $250,000 for single, married filling separately, and head of household

taxpayer owns and used the property as a principal residence for two years or more during the 5 year ending period ending on the date of the sale or exchange. either spouse for a joint return must meet the ownership requirement, but both spouses must meet the use requirement with respect for the property. may not use exclusion more than once every 2 yrs (could get partial if who qualifies for the homeowner's exclusion from gross income for gain? other reasons though) nonrecognition treatment is given because the reinvestment of proceeds restores him to the position he held prior to the conversion. if the taxpayer does not reinvest all the proceeds, his gain on the transaction will be recognized to the extent of how are involuntary conversions treated for gains? the unreinvested amount. in an involuntary conversion, when personal property = 2 years from year end, business property = must property be reinvested by? 3 years in an involuntary conversion, when the property acquired from related parties and certain close gain exceeds $100,000, __________ relatives don't qualify as replacement property how are losses dealt with in an involuntary conversion? losses are recognized! nonrecognition treatment is accorded to like kind" exchange of property used in the trade or business or held inventory, stock, securities, partnership interests, and real for investment, EXCEPT:" property in different countries

how do you determine the amount of income to report in an installment sale for the year? earned revenue = cash collections x gross profit percentage sales of stock by corporation, repurchase of stock by corp, and reissue of stock are exempt from gain and losses are disallowed. essentially corporations are precluded from tax benefits or income taxes resulting from dealing in their own stock. W - wash sale loss R - related party transactions P - Personal loss when a security is sold for a loss and is repurchased within 30 days before or after the sale date brothers and sisters, husband and wife, lineal descendants, entities that are more than 50% owned by individuals, corps, trusts, and/or partnerships 1. husband and wife (basis is merely transferred) 2. individual and a 50% controlled corp or partnership (where the gain is taxed as ordinary income

how are treasury and capital stock transactions by a corporation treated for tax purposes? which losses on sales of property are nondeductible? what is a wash sale?

who falls under a related party? capital gains taxes are imposed on all sales of nondepreciable property between all related parties except: what are the basis rules for selling property under related party transactions? no deduction is allowed for the loss on a non-business disposal or loss. an itemized deduction may be available in the category of ______ what is the holding period and tax rate for long term capital gains? what is the holding period and tax rate for short term capital gains? any unrecaptured section 1250 gain from depreciation that is not treated as ordinary income is taxed at ___% for taxpayers not in the 10 or 15% income tax bracket

same as gift-basis rules

casualty and theft more than one year, 15% max, 0% if in the 10% or 15% income tax bracket (increase by 5% in 2013) one year or less, tax rate is treated as ordinary income.

25%

long term gains on ________ are taxed at 28% (for taxpayers not in the 10%, 15% or 25% tax brackets) individual taxpayers realizing a net long- or short-term capital loss may only recognize (deduct) a max of ___ of the amount realized from other types of gross income (ordinary income, passive income, or portfolio income) for individuals, what is the carryback of a net capital loss? how is a personal (non-business) bad debt treated?

collectibles, antiques, and small company (section 1202) stock

$3,000 no carryback. but you can carry forward an unlimited time until exhausted. a short-term capital loss in the year debt becomes totally worthless the cost (or other basis) of worthless stock or securities is how are worthless stock and securities treated as a capital loss, as if they were sold on the last day of treated under net capital losses? the taxable year in which they became totally worthless gains and losses are netted within each tax rate group, creating net short-term and long-term gains or losses by rate group. resulting short-term and long-term loses are then offset against short term and long-term gains (respectively) beginning with the what are the netting procedures for capital gains and losses for individuals? highest tax rate group and continuing to the lower rates added to ordinary income and taxed at the regular rate (do not how are net capital gains for c corps get the benefit of lower capital gains rates). section 1231 gains treated? are entitled to capital gain treatment corporations may not deduct any capital loss from ordinary income. only use capital losses against capital gains. net capital how are net capital losses for c corps losses are carried back 3 years and forward 5 years as a short treated? term capital loss. how are section 1231 assets treated in a business in terms of gains and gains treated as capital" assets used in the business while losses losses? are treated as ordinary losses."