REG_4_02

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The flashcards below were created by user BethG on FreezingBlue Flashcards.


  1. When are revenues taxed and expenses deducted for a company?
    • Revenues are taxed when received, even if prepaid
    • Expenses are deducted when due, even if prepaid
  2. How are proceeds from a key person policy taxed? Are premiums deductible?
    • The premium is not deductible as a business expense. It is used to reduce the proceeds.
    • The premium amount is deducted from the proceeds as a basis and the remainder is taxable income
  3. For which entities is the accrual method of accounting required
    • Purchases and sales of inventories
    • Tax shelters
    • Farming corporations (in general)
    • C-Corps and partnerships having a C-Corp as a partner IF the corp has >$5M of avg annual gross receipts for the 3-year period ending with the tax year
  4. What is the domestic production deduction? How is it calculated?
    • For companies who manufacture products in the US, a special tax-free bonus is awarded
    • It is 9% of the lesser of…
    • ++ qualified production activities income (sales of domestically produced items - COGS) OR
    • ++ taxable income (not including the deduction)
    • But cannot exceed either
    • ++ 50% of the W-2 wages paid for the year OR
    • ++ the AGI (for partnerships, S-Corps or sole proprietors AGI is the only criteria).
  5. What is the maximum executive compensation that may be deducted?
    • $1,000,000 each for the top four wage earners of the company UNLESS
    • More can be deducted if
    • ++ The wages are based on commissions OR
    • ++ The wages are based on a performance-based plan of the company
  6. When should bonuses to employees be deducted by the company for tax purposes?
    • When all conditions are met to create the liability, not when the bonus is actually paid
    • But, the bonus must be paid by the tax filing date of April 15
    • (Ex: declare bonus in Dec 2016, deduct on 2016 taxes, paid on Feb 1, 2017)
  7. What method is used for the bad debt deduction for tax purposes by a company using the (a) accrual method, (b) cash method?
    • Accrual Basis: The direct write-off (specific charge-off) method must be used for taxes
    • Cash Basis: There is no deduction b/c the cash was never received. If a check was received, entered as income, and then bounced – this can be deducted.
  8. Which of the following interest types can be deducted by an entity for tax purposes and if so, how much? (a) incurred for generating business [such as borrowing funds to purchase a new machine], (b) for buying an investment, (c) prepaid interest
    • Interest for generating business (such as borrowing to purchase a new machine): deducted when due & paid
    • Interest for buying an investment: deduct only up to investment income
    • Prepaid interest: deduct when due, not when paid
  9. What is the limitation on charitable contributions for an entity? Is there carryover?
    • 10% of the adjusted taxable income
    • The adjusted taxable income is income –deduction for standard expenses and it doesn’t include
    • ++ the charitable deduction,
    • ++ the dividends-received deduction,
    • ++ the domestic production activities deduction
    • ++ NOL carryback
    • ++ capital loss carryback
    • Chartable contributions carryforward for 5 years
    • Deduct when accrued as long as it’s paid by when tax return is due on April 15
  10. What are the differences between the deduction for a personal casualty loss and a business casualty loss?
    • Personal loss: each event is -$100, and then the amt is reduced by 10% AGI
    • Business loss: ANY loss is fully deducted. No $100 per event or reduction based on income
  11. How is a business casualty loss calculated?
    • Partially Destroyed: The lesser of the decline in FMV of the property OR the adjusted basis just before the event
    • Fully Destroyed: The adjusted basis just before the event
  12. How are organizational expenditures and start-up costs deducted?
    • The first $5,000 of each category are deducted in the year occurred
    • The remainder is amortized over 180 months beginning with the month in which business begins
    • The $5,000 is reduced dollar-for-dollar for expenditures >$50,000
  13. What costs are NOT included in start-up or organizational expenditures?
    • Costs of raising capital….
    • Issuing and selling stock
    • Commissions
    • Underwriter’s fees
    • Costs incurred in the transfer of assets to a corporation
  14. True / False: In the first year of operation, a new corp can deduct $5,000 of start-up costs PLUS the amortization amount of remaining start-up costs
    True
  15. True / False: Intangible assets are amortized over 15 years for tax purposes, regardless of whether purchased or created in-house.
    True
  16. Are business gifts deductible? If so, how much?
    Yes, up to a maximum deduction of $25 per recipient per year.
  17. The company incurred a fine for double-parking a truck. Is the fine tax deductible?
    • No
    • Amounts for illegal activities, such as bribes, kickbacks, fines, penalties are not deductible
  18. Which taxes are deductible by a corporation?
    • State and local taxes
    • Federal payroll taxes
  19. Are lobbying expenses or political contributions tax deductible by a corporation?
    • Only for local government lobbying
    • Political contributions are not deductible
  20. The corporation incurs a capital loss for the year. How does this affect taxes? Is there a carryback or carryforward?
    • It doesn’t
    • Capital losses can only be used to offset capital gains
    • Excess capital losses can be carried back 3 years or forward 5 years
  21. What are the 3 rate levels for the dividends-received deduction?
    • If 0 to <20% owned: 70% of the dividend received is deducted
    • If 20% to <80%: 80%
    • If 80%+: 100%
  22. How is the dividends-received deduction (DRD) applied?
    • Gross income – regular expenses – charity = Base Amount
    • IF Base Amount – the entire DRD = net operating loss, then use entire DRD
    • IF Base Amount – the entire DRD does not create a loss, then use the lesser of
    • ++ the DRD OR
    • ++ 70% (80%) of Base Amount before DRD
  23. What does the term “unrelated entity” mean?
    • You own <20% of the stock of that company
    • If affects the dividend-received reduction
  24. True / False: For a corporation, the LT capital losses can be used to offset ST capital gains
    True
  25. What items are included in organizational start-up expenditures?
    • Fees paid for legal services in drafting the by-laws or operating agreement
    • Fees paid for accounting services
    • Filing fees
  26. What items are included in start-up costs?
    • Fees incurred prior to opening the business
    • Training
    • Advertising
    • Testing

Card Set Information

Author:
BethG
ID:
334698
Filename:
REG_4_02
Updated:
2017-10-29 16:25:35
Tags:
TAX REG
Folders:

Description:
Becker Review 2017
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