Enrolled Agent - Part 2

Interest Expense from a business loan can be deducted when:

1. when paid on the loan or when accrued 2. amount is not capitalized (borrowed to build, manufacture or costs of inventory -Uniform Capitalization - under code 263A) 3. Must be for "general" business purposes

Cost Recovery of Assets -as an asset is used up/consumed, it is either by:

1. Depreciation -tangible assets & real property (over 5-7 yrs) 2. Amortization -intangible assets (over 15 yrs) 3. Depletion -natural resources

Depletion

1. Depreciation of natural resources (timber, gas wells, stone quarry, geothermal) 2. Two Methods = Cost or Percentage

S-Corp Eligibility

1. Domestic 2. No more than 100 shareholders (spouses and family count as one) 3. Only one class of stock 4. Unanimous consent from shareholders (>50% consent for revocation of S-Corp). 5. File form 2553

Types of Trust

1. Estate trust (on decedent's behalf; must distribute all income but has $600 exemption) 2. Grantor trust (typically holds real estate as a pass-through entity: non-taxpaying) 3. Simple trust (gives grantor control/limits how money is used; must distribute all income but has $300 exemption; expenses are allocated bewteen taxable income and tax-exempt income) 4. Complex trust (may accumulate income; may deduct lesser of DNI or actual distribution; charitable contributions allowed; Capital gains taxed to the trust; $100 exemption) 5. Bankruptcy trust

Computations for Disposition of Assets

1. FMV - Adjusted basis (=cost-depreciation+boot) -------------------------------------------- = Total realized gain/loss 2. -the recapture of any depreciation -------------------------------------------- =Recognized gain characterized as capital or ordinary or like exchange

S-Corp

1. File Form 1120S due 15th day of 3rd month 2. Late filing penalty of $195/mo for 12 months 3. Late filing penalty for K-1 is $260 per K-1 per month

Corporate Distributions (dividends)

1. First, come out of current E&P, then from accumulated E&P. 2. The corporation does not recognize any gain or loss on a distribution of cash to its shareholders. 3. Distributions out of E&P are taxable to the shareholder (as ordinary dividends/income). 4. Distributions in excess of E&P are a return of capital (non-taxable).

Exceptions to choosing the Accrual Accounting Method:

1. For Corporations or Partnerships with less than $5 million averaged over 3 years.

Section 1245 Asset

1. For both tangible and intangible property 2. A recapture of any depreciation taken 3. Recharacterized as an ordinary gain instead of a capital gain under 1231.

Section 1250 Asset

1. For real property 2. A recapture of any ACCELERATED depreciation taken in excess of straight-line depreciation. 3. Recharacterized as an ordinary gain instead of a capital gain under 1231.

Section 179 Deduction

1. For tangible personal property 2. Deduction of full purchase price in year purchased up to maximum amount of $500,000 3. Reduced $1 for $1 (the amount by which the cost exceeds $2,010,000) 4. Or taxable income limitation (excess carried forward)

Partnership Distributions, Non-liquidating

1. Generally non-taxable to both partner & partnership. 2. Cash distribution reduces basis (if below zero, causes capital gain). 3. Property distributions (always after cash) takes the substituted, remaining basis of the partner.

Partnership Distributions, Liquidating

1. Generally non-taxable to both partner & partnership. 2. Reduce basis by cash distributions first (if below zero, causes capital gain). 3. Reduce basis by any unrealized Accounts Receivables, Inventory, and Depreciation Recapture. 4. Reduce basis to zero by all other property's allocated basis, or allocate by its FMV if its FMV is < its basis. 5. Distributed inventory that is later sold is ordinary income unless held for > 5 years, then it's re-characterized as capital gain.

Simplified Employee Pension (SEP) employee requirements:

1. Has reached age 21 2. Worked for you at least 3 of the last 5 yrs 3. Received at least $600 in compensation from you

Fringe Benefits (not taxable to employee)

1. Health Insurance 2. $50,000 of group term life insurance 3. Dependent Care up to $5,000 4. Education expenses up to $5,250 5. Cafeteria plan 6. Qualified parking 7. Qualified transportation 8. Meals for employers convenience 9. Employee discounts

Corporate Redemptions

1. If a change of ownership = capital gains for the shareholder. 2. If no change of ownership then considered a dividend distribution to the shareholder. 3. Property is at FMV but E&P is irrelevant.

Bonus Depreciation

1. Immediate expense one half of cost 2. Generally applies to tangible personal property 3. Mandatory unless you elect out 4. Maximum $8,000 for listed property

S-Corp Eligible Shareholders

1. Individuals - No corporations, No partnerships 2. US residents - No non-residents 3. Tax-exempt organizations 4. Estates and Trusts 5. Qualified retirements

What is NOT a capital gain asset?

1. Inventory 2. Accounts receivables 3. Items not depreciable 4. Copyrights, literary, etc.

MACRS Depreciation

1. Is accelerated, so double the straight-line rate. 2. Half-year depreciation in both first and last years. 3. The rate of depreciation declines each year (more in beginning years).

Corporation Charitable Contribution

1. Limited to 10% of ATI. 2. May be carried forward 5 years (current year used 1st). 3. Accrual corp., if voted for by board prior to year-end, must pay by the due date for filing the corp's tax return (excluding extensions). 4. If inventory contribution, deduction = FMV minus Basis /2

Depreciation of Real Property

1. Method = MACRS (which is really straight-line) 2. Cost Recovery period for Residential = 27.5 years; for Commercial = 39 years 3. Convention = Mid-month (for realty)

Partnership - Contributions of Property

1. No gain or loss, No control test. Basis & Holding period tacks over. 2. Liabilities assumed increases each partners' basis by the allocable amount of liability assumed (except the contributing partner's). 3. Liabilities assumed decrease basis for the contributing partner, by the allocable amount of liability retained by the partner after the contribution. 4. If liabilities are in excess of the contributing partner's basis, then it causes a recognized gain and Increase in basis for the contributing partner. 5. Any pre-contribution gain of any property is NOT recognized by partnership but is suspended then later allocated back to original contributing partner (also, if distributed within 7 years to another partner).

C corporations - Capital Gains/Losses

1. No short-term or long-term; all capital gains taxed as ordinary income. 2. Capital losses only allowed to offset capital gains, not other kinds of income. 3. Excess capital losses are non-deductible and may be carried back 3 years and forward 5 years.

Included on Schedule C as Self-employed Income: (subject to Self-employment taxes)

1. Non-employee compensation 2. Partnership income for General Partners (GP) 3. Compensation for Director of a corporation 4. Minister salary or housing allowance 5. Rental Income (Dealer) 6. Gain from casualty loss paid by insurance co. for inventory

Business Tax Credits

1. Non-refundable 2. Limited to income tax 3. Excess may be carried back 1 year then forward 20 years.

Deduction of Business Start-up Costs

1. Normally must capitalize and amortize deduction over 180 months (15 years). 2. But businesses can elect to immediately expense up to $5,000, then amortize the rest. 3. For businesses with high startup costs over $50,000, the immediate expense amount reduces $1 for every dollar over $50,000 (zero at $55,000).

Travel Outside the US

1. Not more than 1 week and <25% personal = ALL travel expenses deductible 2. If more than 1 week or >25% personal then deductible expenses PRORATED.

Statutory employees

1. Pay FICA tax through their employer, and so do not pay self-employment tax (Employer pays Social Security and Medicare taxes in the form of FICA). 2. Less expensive to hire than regular employees because the employer does not have to pay unemployment taxes. 3. Use Schedule C or C-EZ to report their wages and expenses. 4. A statutory employee has a check mark in box 13 of his or her Form W-2, Wage and Tax Statement.

Inventory Valuation Methods

1. Cost (FIFO, LIFO - Form 970 to elect) 2. Lower of, either cost or market 3. Other Inventory Methods (Specific cost identification, Retail, Consigned, Discount) Must clearly reflect income! -IRS

Section 1031

1. Deals with Like-Kind Exchanges, allows you to postpone paying tax on the gain if you reinvest the proceeds in a similar business or investment property. 2. Cannot be inventory, receivables or goodwill.

Section 1231

1. Deals with real or depreciable property used in your trade/business, held for more than 1 year, 2. If sold for a gain = capital gain; but if sold at a loss = ordinary loss.

Domestic Production Activities Deductions (DPAD)

1. Deduction under code section 199 2. Lesser of 9% of: Qualified Production Income, or Taxable Income And, cannot exceed 50% of W-2 wages.

Luxury automobile depreciation limitations for 2016

$3,160

Section 351

1. Deals with shareholder transfer of property or cash into corporation: 2. If shareholder controls 80% or more, no gain or loss for the shareholder or corporation, unless shareholder transfers in service, receives boot, or has liabilities assumed, which decrease shareholder's basis. 3. Property's basis tacks over to the corporation but the corporation's AND shareholder's basis is increased by any shareholder gains (decreased by shareholder losses).

Depreciation of Tangible Personal Property

1. Deals with the depreciation any property, other than land or buildings, that can be seen or touched (desks, file cabinets, cars, etc.) 2. Depreciation Method = MACRS 3. Cost Recovery period = either 5 or 7 years 4. Convention = Half-year or, Mid-quarter, if >40% placed in service in last quarter

Section 197

1. Deals with the depreciation intangible property 2. Depreciation Method = Straight-line 3. Cost Recovery period = 15 years 4. Convention = Full month only (no mid-month or mid-year)

Adjustments that Decrease Basis

-Depreciation (even if not taken) -Section 179 (election to write off cost in year of acquisition, all at once, up to $500,000) -Return of capital (e.p., imminent domain, easment) -Losses (Casualty) -Rebates

Business Casualty & Theft Losses

-Lesser of adjusted basis or decrease in FMV -Less reimbursements -No $100 floor for business losses or no 10% AGI test

UNICAP rules do not apply to:

-annual gross receipts $10,000,000 or less -Timber -Research & experimental costs -Intangible & drilling costs -Mining & exploration costs -Qualified creative costs -Under long-term contract

Computation

1. Amount realized -Adj basis =Realized gain/loss 2. Recognized? 3. Character? Capital or Ordinary (depends on type of asset)

Luxury auto limitation

1. 1st year = $3,160 2. Depreciation method = MACRS but if <50% business use, method = ADS (which is straight-line method over a longer period of time)

Personal Holding Company Tax

1. 5 or fewer shareholders who own more than 50% 2. 60% or more of income from interest, dividends, rents & royalties, personal service income. 3. Self-assessed 20% tax on Schedule PH

Accumulated Adjustments Account (AAA)

1. A special account is used to track undistributed earnings of an S corporation. 2. Distributions from this account are tax-free since they have been taxed to shareholders previously.

Code Section 274 "Directly related" means...

1. Active conduct of business 2. Did engage in business DURING entertainment period 3. More than a general expectation of receiving income or business benefit

Section 1202

1. Allows 100% of gain from qualified small business stock, issued after 08/10/1993, to be excluded 2. Must have held more than 5 years 3. Gross assets must be <$50 million

Section 179 Deduction

1. Allows you to write-off the cost of an asset in the year of acquisition, up to a maximum of $500,000. 2. It also reduces basis. 3. Any loss in excess of taxable income has to be carried forward. 4. You may elect to deduct a partial amount under Section 179 and then depreciate the rest. 5. Amount reduces $1 for every dollar for purchases over $2,000,000 (zero at $2,500,000).

Form 1128

1. Application To Adopt, Change or Retain a Tax Year 2. Due by 15th day, second month of new tax year

The only states with community property laws are:

1. Arizona 2. California 3. Idaho 4. Louisiana 5. Nevada 6. New Mexico 7. Texas 8. Washington 9. Wisconsin. or keyword: C TAIL NN WW

Qualified Joint venture TAGS: SOCIAL SECURITY

1. Both spouses who materially participate as the only members of a jointly owned and operated business (and file MFJ) can make a joint election to be treated as a qualified joint venture instead of a partnership for the tax year. 2. Income gain, loss, deduction, and credit attributable to the business divided between spouses in accordance with respective interests and filed on separate Schedule C or C-EZ and separate Schedule SE. 3. Gives each spouse credit for social security earnings on which retirement benefits are based.

Section 195

1. Business Start-up costs - $5,000* immediately, or 2. Cost Recovery period = 15 years 3. Method = Straight-line 4. Convention = Full month only (no mid-month or mid-year) *Amount reduces $1 for every dollar start-up costs over $50,000 (zero at $55,000).

Tax Year Options

1. Calendar Year (Jan 1-Dec 31) 2. Fiscal Year (any other 12 month period) 3. 52-53 Week Year (does not have to end on the last day of a month)

Adjustments that Increase Basis

1. Capital improvements 2. Zoning costs 3. Permits 4. Legal fees 5. Assessments

Types of Accounting Methods

1. Cash 2. Accrual 3. Special -(e.g., construction job based on % of job completed) 4. Hybrid -must be used to account for the purchase and sales of the Cost of Goods Sold (COGS).

Corporate Redemption Changes in Ownership

1. Complete Termination 2. Substantially Disproportionate (own < 50% after redemption) 3. A Meaningful Reduction in stock ownership

Corporate Distributions of Property

1. Property is distributed at FMV 2. The corporation recognizes gain on appreciated property, and it increases corporate E&P. 3. Liabilities assumed by shareholder decrease corporate E&P. 4. If FMV < liability assumed, FMV increases to the amount of the debt. 5. Basis and holding period do NOT tack over for the shareholder.

Not to be included as self-employed earnings:

1. Salaries & wages 2. Partnership income for Limited Partners (LP) 3. S Corp earnings

Section 351 Exceptions - Gain is recognized if...

1. Shareholder transfers in service 2. Boot is received 3. Liabilities assumed in excess of basis

Disabled Access Credit

1. Small business (under 100 employees) 2. Eligible expenditures over $250 exclusion 3. Maximum expenditures $10,000 4. Credit = 50% (if not capitalized expenditure)

Why a trust?

1. To safeguard property 2. To convey ownership 3. Not to save taxes (higher than individuals)

Form 2290

1. Used to report Heavy Vehicle Tax for trucks with gross weights of 55,000 pounds or more. 2. Due November 30th or last day of next month placed in service.

Listed property is

1. a special classification for assets that lend themselves to both personal and business use (automobiles < 6,000 pounds, computers). 2. Business use must exceed 50%.to claim first-year expensing and accelerated MACRS.

Section 754 Election

1. allows a partnership to elect to adjust the basis of property distributed or interest transferred. 2. The purpose is to reconcile a new partner's outside and inside basis in the partnership.

Section 195 Deduction

1. allows an immediate write-off of up to $5,000 start-up costs. 2. Excess over $50,000 reduces the write-off $1 for $1 3. may elect to amortize (straight-line) over 15 years remainder of start-up expenses.

Section 1202 stock

1. allows capital gain from qualified small business (QSB) stock to be excluded from federal tax if held for more than five years. 2. Gross assets < $50,0000,000 3. Issued after 8/10/93

Listed Property

1. any property not only used for business 2. includes vehicles weighing 6000 lbs. or less 3. when depreciated, reduced by % of use

Increases to Basis

1. costs of any improvements having a useful life of more than 1 year. 2. any mortgages assumed by the buyer 3. any real estate taxes assumed by the buyer 3. any expenses associated with the sale

Employer-Provided Child-care Facility Credit

1. credit allows for 25% of qualified expenses paid for employee childcare (max credit of $150,000). 2. credit allows for 10% of qualified expenses paid for childcare resource and referral sources.

Section 1231 Asset

1. includes depreciable property and real property (e.g. buildings and equipment) USED in a trade or business 2. held for more than one year. 3. Gains are capital. 4. Losses are ordinary.

Filing requirements for Exempt Organizations

15th day of 5th month (May) Automatic 3 month extension Non-filing penalty: $20/day (small organization) $100/day (large organization) Revoked after 3 yrs of non-filing

Entertainment Expenses

50% deduction allowed if meets: code section 162, "ordinary and necessary" code section 274, "directly related or associated with"

Partnership - Termination

50% of more of ownership sold within 12 months

Dividend Received DEDUCTIONS (DRD) Percentages

< 20% ownership = 70% deduction 20% or <80% = 80% deduction 80% or more = 100% deduction Unless same % of ATI is less, use less amount. Or use full % amount if calculation causes or increases an NOL.

Other Adjustments Account

A special account used to track undistributed earnings of tax-exempt interest and expenses.

Sale of property to a charitable organization is partly a sale or exchange and partly a charitable contribution. If a charitable deduction for the contribution is allowable, find adj basis of part sold:

Adj basis of part sold = FMV (part sold) ÷ FMV (entire prop.) X Adj basis (entire property)

Section 1244

Allows deduction of capital loss for small business stock (if original owner) to be taken as ordinary loss up to $100,000 -Married / $50,000 -Single. Any excess loss will be a capital loss.

Capital assets are:

Almost everything you own or use for personal purposes, pleasure, or investment. Examples: -stocks and bonds -primary home -household furnishings -car used for pleasure/commuting -coin or stamp collection -gems and jewelry

Income distribution DEDUCTION

Designed to prevent double taxation, this deduction allows the estate to deduct income amounts that are distributed to beneficiaries. Equals the DNI or the actual distribution amount, whichever is lower.

Form 3115

Application for Change in Accounting Method

Accrual Method for Expenses

Are recognized when occurred (these events) and may be deducted as accrued even though expense is NOT PAID as of yet: 1. All events have occurred to fix the liability. 2. Liability can be determined with reasonable accuracy. 3. Economic performance has occurred.

Form 8594

Asset Acquisition Statement -agreement between buyer and seller to a specific allocation of the purchase price among the assets in the sales contract.

Vacation Pay to employees deducted:

Cash basis - when paid Accrual basis -when vested and paid by 15th day of 3rd month, except for any related party (spouse, siblings, ancestors & descendants).

Computation of Section 1031 Like-Kind Exchanges

Basis = Original Basis Plus Gain Recognized Less Boot Received

Publication 551

Basis of Assets

Computation of Basis (Shareholder)

Beginning Basis + Gain recognized -FMV of property received -Cash received -Liabilities assumed -Loss recognized ------------------------ =Ending Basis

Computation of Basis (Corporation)

Beginning Basis + Shareholder Gain recognized -Shareholder Loss recognized ------------------------ =Ending Basis

Code Section 274 "Associated with" means...

Bonafide business activity 1. Immediately preceding, or 2. Immediatly following

Pub 542

Corporations

Small Employer Pension Plan Startup Costs

Credit = 50% (up to maximum $1000)

Form 4562

Depreciation and Amortization

Form 8832

Entity Classification Election 1. Can choose an effective date up to 75 days (2-1/2 months) prior to the date on which the election is filed. 2. Can choose an effective date up to 12 months after the date on which the election is filed. 3. Changes generally cannot be made for 60 months (5 years) following the effective date of the election. However, the Commissioner may permit a change within that time if more than fifty percent of the ownership has changed since the filing date or effective date of the election. 4. An eligible entity required to file a federal tax or information return for the taxable year for which an election is made must attach a copy of the Form 8832.

Section 1245

For tangible personal property- the recapture of depreciation at the time of sale.

Computation of Realized Gain/Loss

FMV +Boot (cash received or liabilities assumed) --------------------------------------------------- =Amount realized -Adjusted basis (A/B) ------------------------ =Realized Gain/Loss Then decide if any of this is Recognized? (For Like-Kind Exchange, Gain/Loss is NOT recognized, but Gain IS Recognized IF Boot is received). (For 341 Transfer, Gain is Recognized from Liabilities ONLY if in excess of A/B) 2nd step is then to compute Basis.

Partnerships

File form 1065 due by the 15th day of the 3rd month. Late penalty of $195 per K-1 per month.

Income in Respect of a Decedent (IRD)

Filed on Form 1041 -for gross income of $600 or more.

Corporate Tax Rates

First $0 - $50,000 @ 15% Next $50,000 - $75,000 @ 25% Next $75,000 - $100,000 @ 34% All of $100,000 - $335,000 @ 39% All of $335,000 - $1,000,000 @ 34% All of $1,000,000+ @ maximum rate of 35%

990-T

For Unrelated Business Taxable Income (UBI or UBTI) of $1,000 or more taxed at corporate rates and rules.

990-F

For private foundations

Section 1250

For real property, it is the recapture, at the time of sale, of any depreciation taken in excess of straight-line method.

Section 351 Exceptions

Gain is recognized if: 1. Services are transferred 2. Boot is received 3. Liabilities -only in excess of basis 4. Control test is not met

Advance payment received for services under Accrual Method

Generally, you report an advance payment for services to be performed in a later tax year as income in the year you receive the payment. However, if you receive an advance payment for services you agree to perform by the end of the next tax year, you can elect to postpone including the advance payment in income until the next tax year. However, you cannot postpone including any payment beyond that tax year.

990-EZ

Gross receipts < $200,000 and total assets < $500,000

990-N (e-postcard)

Gross receipts < $50,000

Pub 946

How to Depreciate Property

Travel Expenses (Inside the US) Away from home (strange-bed)

If "PRIMARILY" related to business, then: 1. Travel-related destination costs 100% deductible 2. Lodging 100% deductible 3. Meals 50% deductible

Accumulated Earnings Tax

If assessed by IRS, 20% in addition to regular tax. Safe Harbor: Service business = $150,000 Non-service business = $350,000

S-Corp Fringe Benefits

If more than 2% owner, CANNOT deduct cost of: Health ins benefits Retirement benefits Excess group term life benefits

Choice of Gift or Entertainment

If you give a customer tickets to a theater performance or sporting event and you do not go with the customer to the performance or event, you have a choice. You can treat the tickets as either a gift or entertainment, whichever is to your advantage. You can change your treatment of the tickets at a later date by filing an amended return.

S-Corp Basis

Income increases basis Distributions decrease basis Deductions decrease basis *Since basis cannot be negative, multiple deductions may have to be limited and prorated.

Net Operating Losses (NOL's)

Individuals and C corporations: 2-year carryback, or election of 20-year carryforward *Partnerships and S corps pass thru to individuals

Pub 537

Installment Sales

Section 197 intangibles: (amortized over 15 years)

Intangible Property that has value but cannot be seen or touched. It includes things such as: 1. Goodwill. 2. Going concern value. 3. Workforce in place. 4. Business books and records, operating systems, or any other information base, including lists or other information concerning current or prospective customers. 5. A patent, copyright, formula, process, design, pattern, know-how, format, or similar item. 6. A customer-based intangible. 7. A supplier-based intangible. 8. Any item similar to items (3) through (7). 9. A license, permit, or other right granted by a governmental unit or agency (including issuances and renewals). 10. A covenant not to compete entered into in connection with the acquisition of an interest in a trade or business. 11. Any franchise, trademark, or trade name. 12. A contract for the use of, or a term interest in, any item in this list. Note: You cannot amortize any of the intangibles listed in items (1) through (8) that you created rather than acquired unless you created them in acquiring assets that make up a trade or business or a substantial part of a trade or business.

Deduction for Business Gifts

Maximum $25 per person (not including advertising products and items less than $4)

Prompt Assessment Requests

May waive the 3-year statute of limitations for an audit by requesting the audit be done, if the IRS desires, within 18 months after the request (good for liquidations).

Like-Kind Exchanges (Section 1031)

Must be business or investment Must be like-kind or like-class Cannot be inventory, receivables or goodwill. Cash received and/or debt released, causes the Gain to be Recognized. The replacement property must be identified within 45 days and received within 180 days.

Corporate Transfers

No gain or loss is recognized by the corporation when it transfers solely stock for solely property.

Shareholder Transfer (section 351)

No gain or loss is recognized on the transfer of property or cash solely in exchange for stock in a corporation. After the transfer, the shareholder must be solely in control of the corporation - at least 80%.

Capital Assets are NOT:

Not inventory Not accounts receivable Not depreciable Not copyrights, literary, etc.

Fraction used for finding basis of land & building in lump sum transaction:

Numerator = FMV (individual asset) Denominator = FMV (entire purchase) X total purchase COST

Fraction used for finding basis of subdivided plots:

Numerator = FMV of lot Denominator = FMV of entire tract X total purchase COST of tract

Section 162 Deductions

Ordinary and necessary expenses paid or incurred during the taxable year in CARRYING ON any trade or business.

Partnership - Contributions of Services

Ordinary income is recognized Basis increases by amount received

Computation of Basis

Original basis +Gain Recognized +Boot given or -Boot received --------------------------- =Basis

Form 1099-MISC, Miscellaneous Income

Payments of $600 or more to non-employees Rent payments of $600 or more, other than rents paid to real estate agents. Prizes and awards of $600 or more that are not for services. Royalty payments of $10 or more. Sales of $5,000 or more of consumer goods to a person for resale anywhere other than in a permanent retail establishment.

Corporate AMT (Alternative Minimum Tax)

Rate = 20% First $40,000 exempt, reduced by 25% of the amount by which AMTI exceeds $150,000.

Corporate Estimated Tax

Required if $500 or more. Due: April 15, June 15, Sept 15, Dec 15 (instead of Jan 15). Safe Harbor (for no penalty): 100% of current or prior year's tax! No safe harbor if prior year amount was $0!

Pub 544

Sales and Other Dispositions of Assets

Code sections dealing with Business Gains/Losses

Section 1231 Section 1245 Section 1250

In determining character of gain/loss

Section 1231 Section 1245 Section 1250

Publication 334

Tax Guide for Small Business (approx 40 pgs)

check-the-box regulations (IRC section 7701)

effective January 1, 1997, provide that any "business entity" that is not required to be treated as a corporation is an "eligible entity" that may choose its classification, be classified by default, or change its classification.

Tangible personal property is

everything other than real estate that is used in a business or rental property.

Social security and Medicare tax (2016)

The social security tax rate is 6.2% each for the employee and employer, unchanged from 2015. The social security wage base limit is $118,500, unchanged from 2015.The Medicare tax rate is 1.45% each for the employee and employer, unchanged from 2015. There is no wage base limit for Medicare tax.Social security and Medicare taxes apply to the wages of household workers you pay $2,000 or more in cash or an equivalent form of compensation. Social security and Medicare taxes apply to election workers who are paid $1,700 or more in cash or an equivalent form of compensation. 2016 withholding tables. This publication includes the 2016 Formula Tables for Percentage Method Withholding; Wage Bracket Percentage Method Tables; Combined Federal Income Tax, Employee Social Security Tax, and Employee Medicare Tax Withholding Tables; and Tables for Withholding on Distributions of Indian Gaming Profits to Tribal Members. Withholding allowance. The 2016 amount for one withholding allowance on an annual basis is $4,050.

Form 1065

U.S. Return of Partnership Income

12-Month Rule for expenses paid in advance under Cash Method

Under the Cash method, expenses paid in advance are deductible only in the year to which it applies unless the expense qualifies for the 12-Month Rule, which allows that if the benefit for which the expense is paid expires entirely at some point WITHIN the next tax year, it can be deducted in the original year it was paid.

Partnerships - Related Parties are

When 50% of the capital is owned directly or indirectly by the same person or married couple.

Allocating the basis of property among Land and Buildings

When total lump sum paid is more than FMV, allocate amount of total paid between Land & Building by: 1. FMV of asset / total FMV of Land & Building = fraction 2. Then total lump sum paid X fraction

Definition of Self-employed

You are self-employed if you carry on a trade or business as a sole proprietor or an independent contractor.

Dispositions of Assets

a loss from the sale of property held for personal use is not deductible, except in the case of a casualty or theft.

Section 1244 stock

allows losses from shares of small, domestic corporations to be deducted as ordinary losses instead of as capital losses up to a maximum of $100,000 (married), $50,000 (single). Excess taxed as capital gain.

What does it mean to Capitalize?

an accounting method used to delay the recognition of expenses by recording the expense as a long-term asset; spreading out the cost over the lifetime of the asset.

Corporate dividends are...

are taxed to the corporation (not tax-deductible like salaries and bonuses). Also taxed to shareholders who receive the distributions.

Section 1244 & 1202

give specialized treatment to transactions of qualified small business stock (capital gains/losses).

Section 197 amortization

intangible assets acquired with the acquisition of a business which must be amortized (straight-line) over 15 years.

Distributable Net Income (DNI)

is the maximum amount to be received by a beneficiary of a trust THAT IS TAXABLE; any amount above this figure will be tax-free.

Accrual Method for Income

test determines the earliest point of time income can be recognized: 1. When you receive payment 2. When the income is due you 3. When you earn the income 4. When title has passed Or reasonably estimated.

Earnings & Profits (E&P), represents...

the ability of a company to pay dividends. Determined by adding or subtracting adjustments that affect dividend paying ability.

Accumulated Earnings & Profits (AEP)

the amount of E&P that a C-Corp had before it became an S-Corp.

Maximum employer deduction for a SEP

the lesser of 25% of employee's compensation or $53,000!

Unincorporated businesses owned and operated by spouses...

who share in the profits and losses is a PARTNERSHIP (whether or not they have a formal partnership agreement) , with 2 EXCEPTIONS: 1. Community income -business can be treated either as a sole proprietorship or a partnership. 2. Qualified joint venture