Taxation Exam 2

Ordinary

taxpayers in similar businesses or income producing activities customarily incur the same expenses

Business Interest Expense: Businesses that are Also Exempt are: 1. regulated public utilities and electric cooperatives 2. real property trades and that use ADS depreciation 3. __ businesses that use ADS depreciation

farming

Loss on business property resulting from casualty or theft is deductible (from/for) AGI.

for

Legal Expenses Deductible __ __ is related to: 1. trade business 2. Unlawful discrimination 3. Claims against the U.S. Government 4. Actions under Medicare Secondary Payer Law

for AGI

__ __ deductions are always better worth more than deductions __ __.

for AGI, from AGI

Business Interest

interest incurred by a business for business reasons

bargain element

difference between the FMV of stock and the exercise price on the exercise date (FMV - Strike price)

taxpayers must use the the tax rate schedules when: 1. or 2. all other taxpayers must use tax tables

- taxable income equals or exceeds $100,000 - tax period is less than 12 months

Medical deduction is allowed to the extent medical expenses exceed __% of AGI for 2019

10

t/f Personal casualty losses are no deductible in the tax year of occurrence they are only deductible in the preceding tax year

false, both are allowed

Incentive Stock Options

Incentive stock options, are a type of employee stock option that can be granted only to employees and confer a U.S. tax benefit

hobby

an activity pursued without the intent to make a profit

t/f Only cash and checks are allowed to be contributed to charities

false, cash-check-property

Business Expense Example: Michelle operates a food truck. Indicate the amount (if any) that she can deduct as ordinary and necessary business deductions in the following Situation: Michelle moves her food truck between various locations on a daily rotation. Last week, Michelle was stopped for speeding. She paid a fine of $125 for speeding, including $80 for legal advice in connection with the ticket.

$0; Fines and penalties are not deductible. Similarly, legal advice unrelated to business is not deductible.

Business Expense Example: Michelle operates a food truck. Indicate the amount (if any) that she can deduct as ordinary and necessary business deductions in the following Situation: Michelle provided a candidate with free advertising painted on her truck during the candidate's campaign for city council. Michelle paid $500 to have the ad prepared and an additional $200 to have the ad removed from the truck after the candidate lost the election.

$0; No deduction is allowed for political contributions or political advertising

Business Expense Example: Indicate the amount (if any) that Josh can deduct as ordinary and necessary business deductions in each of the following expenditures and explain your solution: Josh purchased a piece of land for $40,000 in order to get location to expand his business. He also paid $3200 to construct a new driveway for access to the property.

$0; The cost of the land and driveway should be capitalized because they will provide "long term benefits"

Business Expense Example: Indicate the amount (if any) that Josh can deduct as ordinary and necessary business deductions in each of the following expenditures and explain your solution: Josh paid his brother, a mechanic, $3000 to install a robotic machine for Josh's business. The amount he paid to his brother is comparable to what he would have paid to an unrelated party to do the same work. Once the installation was complete by his brother, Josh began calibrating the machine for operation. However, by the year end, he had not started using the machine in his business.

$0; The cost to install the machine should be capitalized as part of the cost of the machine. It is a cost necessary to operate the machine.

Business Expense Example: Indicate the amount (if any) that Josh can deduct as ordinary and necessary business deductions in each of the following expenditures and explain your solution: Josh borrowed $50,000 from the First State Bank using his business assets as collateral. He used the money to buy City of Blanksville Bonds. Over the course of a year, Josh paid interest of $4200 on the borrowed funds, but he received $3500 of interest on the bonds.

$0; The interest expense is not deductible because it is associated with tax exempt income.

R, a self employed taxpayer, invites D, a business contact to a basketball game. R pays 500 for tickets for both to attend the game in a suite, where they have access to food and drink. The cost of the basketball game tickets, as stated on the invoice, includes food and beverages. How much may R deduct?

$0; the basketball game is entertainment and its cost is not deductible. The cost of the food and beverages, which are not purchased separately from the game tickets, also is an entertainment expense. Thus, R may not deduct any of the expenses associated with the basketball game.

Business Expense Example: Indicate the amount (if any) that Josh can deduct as ordinary and necessary business deductions in each of the following expenditures and explain your solution: This year Josh paid $15,000 to employ the mayor's son in the business. Josh would typically pay an employee with these responsibilities about $10,000 but the mayor assured Josh that after his son was hired, some city business would be coming his way.

$10,000; Only amounts considered reasonable in amount are deductible. The excess salary payment of $5,000 to the mayor's son is not deductible either because it is unreasonable in amount or a bribe.

Group Term insurance Premiums: T, age 40 ($0.10 per $1000 in table) receives 900,000 in group term life insurance coverage from his employer. What is their annual taxable benefit?

$1020 1. (900,000 - 50,000) = 850,000 2. 850,000/1000 = 850 3. 850*($0.10*12 months) = 1020

T, a self employed taxpayer, invites B, a business contact, to a baseball game. T pays 180 for tickets for both to attend the game. While at the game, T pay 30 for hot dogs and drinks for T and B. How much may T deduct.

$15; Baseball game is entertainment (nondeductible), The cost of the hot dogs and drinks, which were purchases separately from the game tickets is not entertainment expense. Thus t, may deduct 50% of the 30 cost of the food and drinks.

Kiddie Tax: The standard deduction is limited to the greater of: 1. $__ 2. Earned income plus $__ (not to exceed the regular standard deduction)

$2200, $350

Business Gifts: Deductions for business gifts are limited to $__/year

$25

What is the maximum deduction for qualified education loans ?

$2500

Heather paid $15,000 to join a country club in order to meet potential clients. This year she paid 4300 in greens fees when golfing with clients and an additional 5700 for meals when meeting with clients in the clubhouse conference rooms. Under what circumstances, if any, can Heather deduct the $25,000 paid to the country club this year?

$2850; 50% of the cost of business meals is deductible. No deductions are allowed for green fees (considered entertainment)

Promotional materials or items costing $__ or less with the taxpayer's name imprinted are not considered gifts.

$4

Educational Assistance: amounts above the threshold of $__ are only excludable if they qualify as working condition fringe benefits.

$5250

Educational assistance exclusions are limited to $__ per employee for undergraduate education.

$5250

Business Expense Example: Michelle operates a food truck. Indicate the amount (if any) that she can deduct as ordinary and necessary business deductions in the following Situation: Michelle Paid $750 to reserve a parking place for her food truck for the fall football season outside the local football arena. Michelle also paid $95 for tickets to a game for her children.

$750; Parking for her food truck is deductible as an ordinary and necessary business expense related to her business. Tickets to a football game for her children is a nondeductible personal expense.

__ Payroll Tax 1. same as employee FICA taxes except not subject to 0.9% Medicare surtax 2. Unemployment compensation

Employer

Adoption assistance exclusions cover up to $__ paid or incurred by an employer on behalf of an employee for the adoption of a child. 1. alternatively, a credit of up to the same amount is available for adoption expenses 2. This amount of exclusion/credit is increased by __ for the adoption of a child with special needs 3. Exclusions/credit phase out for taxpayers with a modified AGI above $__ and isn't available once modified AGI equals are exceeds $__

- 14,080 - 10,000 - 211,160 & 251,160

QBID: Under the wage and property limitation, the QBI deduction cannot exceed: The Greater of A. __% of wages paid by the business or B. __% of wages paid by the business + __% of unadjusted basis of tangible depreciable property for which the depreciable period has not ended

- 50% - 25% + 2.5%

What are the four major equity based compensations?

- Non-qualified stock options (NQO) - Incentive Stock Options (ISO) - Restricted stock units (RSU) - Restricted stock awards (RSA)

For a structure to be considered a home, it must have.

- Sleeping space - toilet - cooking facilities

Why are deductions "for AGI" worth more the "from AGI" deductions (itemized) ? (2 reasons)

- deductions for AGI are always deductible - itemized deductions are deductible only if they exceed standard deductions

Expenses must be(4):

- directly connected to business activity - ordinary and necessary - reasonable in amount - paid or incurred in the tax year

What are the 3 categories that make up "for AGI" deductions

- directly related to business activities - indirectly related to business activities - subsidies for specific activities

Taxes are only deductible if: 1. and 2.

- imposed on taxpayer's income or property - paid or incurred by the taxpayer in the tax year

What are the two legal expenses NOT deductible for AGI?

- investments - tax advice or preparation

What are the two requirments to deduct qualified education loans?

- must be in school on at least half time basis - no felony convictions for possession/distribution of a controlled substance

Name the four tax rate exceptions:

- net long term capital gains - dividends - kiddie tax - alternative minimum tax

What are the 3 indirect business expenses ?

- rent expenses - royalty expenses - unreimbursed partnership expenses (when required in the partner agreement

Name the 5 forms of cash compensation that's includable in gross income.

- salary - wages - commissions - bonuses - tips

t/f self employed taxpayers deduct business expenses from AGI.

false, for AGI

refundable credits

-can reduce tax liability to zero and any excess can be refunded -include earned income credit, additional child tax credit

In jan. of year 2001, Justin paid 4800 for an insurance policy that covers his business property for accidents and casualties. Justin is a calendar year taxpayer who uses the cash method. What amount must Justin deduct if the policy begins on Feb. 1, 2002 and extend through Jan. 31, 2003.

0, (even though the contract period is 12 months or less, Justing must capitalize the cost of the prepayment because the contract period extends beyond the next year end.

XYZ estimates that about 1000 of the receivables from its plumbing services will be uncollectible this year. Included in that estimate is a 300 amount owned by client P whose account is uncollectible. What amount of bad debt expense may XYZ deduct for the year if it's on the cash method?

0; did not rec. payment from client

American opportunity credit is allowed for qualified tuition, fees and course materials incurred during the first 4 years of an eligible student's post secondary education in a degree or certificate program: 1. __% on the first $____ of qualified tuition and fees AND 2. __% on the next $____ of qualified tuition and fees

1. 100%, $2000 2. 25%, $2000

What are the two methods used to calculate the deduction for the business use of a car?

1. Actual Expenses 2. Standard Rate

Lifetime Learning Credit Criteria: 1. up to $_____ of qualified tuition and fees are eligible each year per tax return (max credit of ____ per tax return irrespective of the number of eligible students) 2. The lifetime learning credit differs from the American opportunity credit in that: a. it does not vary based on the number of eligible students in the taxpayer's family. Instead, its limit applies to the total qualified education expenses of taxpaying family. b. it may be claimed for an unlimited number of years for undergraduate, graduate, and continuing education courses offered by an eligible educational institution c. it is phased out at lower income levels d. it is nonrefundable

10,000; 2,000

The deduction on taxes cannot exceed $__ or $__ for MFS

10,000;5000

For acquisition indebtedness incurred before _/_/_, the limitation on acquisition indebtedness is $1,000,000.

12/15/17

Child Tax Credit: To the extent the child tax credit for a qualifying child (not relative) exceeds the taxpayer's tax liability, the taxpayer is eligible for the refundable credit. The refundable credit is the lesser of: 1) $____ per qualifying child 2) __% of earned income in excess of $____

1400, 15, 2500

NOL deduction exceptions: 1. Farming NOLs are permitted a __ year carry-back 2. NOLs of property and casualty insurance companies my be carried back __ years and carried forward __ years to offset 100% of taxable income in such years

2 years, 2 years, 20 years

QBID for ALL of taxpayer's qualified businesses cannot exceed __% of taxable income excluding net long term capital gains and cooperative dividends.

20

Child Tax Credit: Generally a refundable credit of $____ allowed to taxpayers for each qualifying child under __ 1. Qualifying child must meet the relationship, residence, and support tests as defined under the dependency rules (ch 4) 2. a nonrefundable credit of $500 is allowed for qualifying relatives other than children (ch 4) 3. social security number (SSN) is required for each child in order to claim the credit, but is not required for qualifying relatives other than children.

2000, 17

On 12-1-2001, ABC enters into a 100,000 snow removal contract with Snow Movers Co. The contract provides that the snow removal service will begin January 1, 2002 and end March 15, 2002. Both ABC and Snow Movers are accrual method taxpayers. When can ABC claim a deduction for the snow removal if it pays on December 15, 2001?

2001 Why? reasonably expect to provide full service in 3.5 months, thus it is okay for them to take the deduction when paid.

M, a cash basis taxpayer and president of Beagle Co., owns 60% of the corps. shares. On Dec 15, 2001, Beagle Co declares a bonus of 50,000 payable to M. On Jan 15, 2002, Beagle pays the bonus to M. Beagle is a calendar year-end taxpayer using the accrual method. In what year may Beagle Co. deduct the 50,000 bonus payment?

2002 (same year that M, cash basis taxpayer, reports income from bonus)

Assume Justin paid 6000 for a 24 month policy that covers from April 1 2001 through March 31, 2003 that covers his business property for accidents and casualties. Justin is a calendar year taxpayer who uses the cash method. What amount must Justin deduct?

2250; the length of the insurance coverage is longer than 12 month, Justin may only deduct the portion of the premium pertaining to this year (2001)

Business interest is deductible in full unless average gross receipts exceed __ million

25

Businesses with average annual gross receipts of $__ million or less for the prior three years are exempt from the limitation on the deduction of business interest expense.

25

To be considered as a "business" how many years must a company be profitable ?

3 out of 5

High income taxpayers are subject to a __% tax on net investment income and/or an additional __% Medicare tax on wages or self employment income

3.8, 0.9

Business Interest Expense is limited to the sum of: 1. business interest income 2. __% of Adjustable taxable income 3. Floor plan financing interest expense

30%

XYZ estimates that about 1000 of the receivables from its plumbing services will be uncollectible this year. Included in that estimate is a 300 amount owned by client P whose account is uncollectible. What amount of bad debt expense may XYZ deduct for the year if it's on the accrual method?

300

In jan. of year 2001, Justin paid 4800 for an insurance policy that covers his business property for accidents and casualties. Justin is a calendar year taxpayer who uses the cash method. What amount must Justin deduct if the policy covers property from April, 1 2001 through march 2002?

4800 (entire premium is deductible under the 12 month rule; the insurance-coverage does not exceed 12 months and does not extend beyond the end of next tax year.)

Justin paid 4800 to rent his business property from April 1, 2001 through March 31, 2002. What his deduction for this year?

4800; the 12 month rule for capitalizing expenditures applies to rent (but not interest)

Generally, only __% of the cost of meals is deductible. The limitation applies to: 1. meals of customers/clients and the taxpayer/employee and principally characterized by business 2. meals provided to employees at an employer-operated eating facility 3. meals provided to employees on the business premises for the convenience of the employer 4. Reimbursements of employees' business meals

50%

employer paid life insurance premiums are excludable from gross income for the first $__ of group life insurance protection.

50,000

Qualified dependent care of a dependent who is under 13 or disabled cannot exceed $__ or __

5000, the earned income of the lower paid spouse

What is the standard mileage rate for 2019?

58 cents per mile

Qualified Residence interest is fully deductible on debt up to $__, or $__ MFS

750,000; 357,000

The NOL deduction limit is __% of taxable income, with __ carry-forward time period.

80%; indefinite

__ Formula: Regular taxable income +/- AMT adjustments = AMT adjusted taxable income + Tax preference items = AMTI (alternative minimum taxable income) - Exemption amount (adjust for phase out) = AMT Base x AMT Rate =Tentative minimum tax - Regular tax liability = AMT

Alternative Minimum Tax

capital gain property

Any property that would have resulted in the recognition of long-term capital gain if the property had been sold by the donor

BBL, an accrual method taxpayer, signs a binding contract for PDP to provide repair services. BBL Pays 1500 and agrees to pay an additional 6000 on the contract when the repairs are complete. The repairs will start in the fall of next year. When can BBL Claim the deduction for the repair services?

BBL can deduct 7500 next year (they're rec. services from someone else. They must wait until the services are received.)

__ Gross Income is all income from whatever sourced derived: 1. gross profit from sale of inventory 2. income for provision of services 3. income from rental of property where significant services are provided

Business

t/f If a taxpayer owns more than two homes, he/she does not have to designate which is the primary and secondary home when filing a return.

false, must designate

t/f American opportunity is per tax return

false, per student

qualified dividends

Dividends received on shares of common stock held by the taxpayer for more than 60 days of the 120-day period beginning 60 days before the ex-dividend date.

__ FICA taxes 1. social security tax of 6.2% on wage base up to $132,000 2. Medicare tax of 1.45% on all wages + 0.9% on wages over $200,000 if single or $250,000 if MFJ ($125,000 if MF Separately)

Employee

t/f deductions "for AGI" are always deductible

true

t/f Political Contributions are business expenses that qualify for deductions.

False

t/f Excessive payments may represent a deductible dividend

False, may represent a nondeductible dividend distribution rather than deductible compensation or expense

t/f Married taxpayer must file separately to claim the qualified education loan deduction.

False, must file jointly (can only deduct 2500 together)

__ Travel 1. Transportation costs are fully deductible if the trip is primarily business and ONE of the following conditions is satisfied: a. __ travel does not exceed one week (7days), excluding the day of departure and day of return b. business days are more than 75% of the total number of days on the trip c. taxpayer has no substantial control over arranging the trip OR d. personal vacation is not a consideration in making the trip 2. Business days include a. days of departure and return b. weekends and holidays which fall between business days c. days requiring taxpayer's presence for a business purpose 3. Transportation costs are partially deductible if the trip is primarily business but does NOT meet one of the above conditions a. allocate transportation costs between business and personal days b. deduct transportation costs allocated to business days 4. Costs of meals, lodging, and incidentals are deductible if incurred for business

Foreign

t/f lodging employees is not taxable unless the employee is required to occupy employer-provided lodging in order to perform duties.

true

Exercise: M is offered 1000 option on Jan. 1, 2019. The options vest in 3 years and have an exercise price of $10 per share. On jan. 1, 2023, M exercise all 1000 options when the price is $17/share. She then hold the stock two years and sells all 1000 shares for $20/share. M is in the 35% tax bracket. What is her tax liability on the grant date, exercise date, and sale date this is an ISO?

Grant Date - $0 Exercise Date - $0 Stock Sale Date (LTCG) = 10,000 @ 15% Total Tax - $1500

Exercise: M is offered 1000 option on Jan. 1, 2019. The options vest in 3 years and have an exercise price of $10 per share. On jan. 1, 2023, M exercise all 1000 options when the price is $17/share. She then hold the stock two years and sells all 1000 shares for $20/share. M is in the 35% tax bracket. What is her tax liability on the grant date, exercise date, and sale date this is an NQO?

Grant Date - $0 Exercise Date - $7000 ordinary income @ 35% Stock Sale Date (LTCG) = 3,000 @ 15% Total Tax - $2900

t/f unreimbursed costs incurred by employees is not deductible

true

Stock options - Which of the 4 stock options has these characteristics: 1. no tax consequences on grant date 2. no tax consequences on vesting date 3. no tax consequences on exercise date, but bargain element is a preference item for the AMT (ch 8) 4. If shares are held at least 2 years after the grant date and 1 year after the exercise date, tax consequences are deferred until the shares are sold. At the time the taxpayer recognized long term capital gain or loss on the difference between the selling price and the exercise price. 5.

ISOs (incentive stock options)

NOL Example: In 2018 D sustains an NOL of $90,000. In 2019, D has a taxable income of $100,000. What is D's NOL limitation and how much can be carried forward.

Limited to 80,000 (100,000*80%) Remaining 10,000 can be carried forward to 2021

Luxury Water Travel: Deduction is limited to __ the highest per day amount allowed to federal employees.

twice

__ are only deductible if: 1. incurred in carrying on trade or business 2. ordinary and necessary 3. reasonable in amount 4. paid or incurred in the tax year 5. not lavish or extravagant 6. the taxpayer or an employee is present at the meal 7. the food and beverages are provided to a potential or current customer, client, consultant or similar business contact 8. The cost of food and beverages are stated separately from the cost of entertainment (if any)

Meals

Stock options - Which of the 4 stock options has these characteristics: 1. no tax consequences on grant date 2. no tax consequences on vesting date 3. recognizes ordinary income on exercise date in an amount equal to the bargain element 4. sets it's tax basis of shares equal to FMV on exercise date 5. taxes the later sale of shares as a capital gain/loss with the holding period determined from the exercise date

NQO (non-qualified stock options)

Tax home

where you make you money

__ is computed as: 1. unearned income (interest, dividends, capital gains, etc.) 2. less: allowed amount (2200)

Net unearned income (NUI)

Adoption of the (permissible/non-permissible) method by using and reporting the tax results of the method for two consecutive year.

Nonpermissible

Not included in __ are: 1. investment income, such as interest and dividends 2. capital gain or loss 3. compensation or guaranteed payments received from pass through entities 4. commodity transactions and foreign currency gain or loss 5. annuity income not connected with a trade or business

QBI (qualified business income)

In general, __ deduction is 20% of QBI, but with 3 limitations 1. wage and property limitation 2. service business limitation 3. taxable income limitation

QBID

Stock options - Which of the 4 stock options has these characteristics: 1. issuance of shares to an employee that are restricted in that they cannot be sold until the vesting date; however, these provide employees with voting rights because they own shares upon issuance 2. on the vesting date all restrictions lapse and employees may either sell or retain shares 3. FMV of the shares on the vesting date is included in gross income as ordinary income 4. later sale of shares is taxed as capital gain/loss with the holding period determined from the vesting date

RSAs (restricted stock awards)

Stock options - Which of the 4 stock options has these characteristics: 1. grants the right to receive share at a future date once the vesting requirements have been satisfied 2. does not give employees the right to vote while holding the options; must wait until shares are actually received 3. all restrictions lapse on the vesting date; at this point employee may elect to exercise the options and receive shares 4. FMV of the shares on the vesting date is included in gross income as ordinary income 5. later sale of shares is taxed as capital gain/loss with the holding period determined from the exercise date

RSUs (restricted stock units)

__ Base 1. 92.35% of net income from self employment as generally reported on schedule c; 7.65% represents employer's deductible portion 2. no SE tax if SE earnings are less than $400

SE

__ Taxes 1. social security tax of 12.4% on SE base up to $132,900 2. Medicare tax of 2.9% on SE base +0.9% on SE base over $200,000 (or $250,000 if MFJ, $125,000 if MF separately)

Self-Employment

Business Expenses: Why does tax exempt income not qualify for business deductions

you cannot deduct income that was never included in taxable income

During November and December of the current year, XYZ provides installation services to ABC for an agreed price of 50,000. At the end of the year, XYZ has not yet billed for the services. Both ABC and XYZ are accrual method taxpayers. When can XYX claim a deduction for the cost of the installation services provided?

The current year (when the services are performed)

The 4 Requirements for deductions allowed for __ are: 1. Directly connected to the business activity 2. Ordinary and necessary for the activity 3. Reasonable in amount 4. Paid or incurred in the tax year

Trade or Business (TOB)

t/f Qualified dividends from real estate investment trusts (REITs) and publicly traded partnerships are eligible for the QBI deduction.

True

t/f NOL: if a loss is driven by personal expenses, it can be deducted through NOL

false, NOL is inactive if this is the case

t/f Goodwill and most intangible assets are depreciated.

false, amortized

t/f paying for employee meals are always included in taxable income

false, are not taxable unless employee meals provided on the business premises are via in house cafe plan.

credits

a dollar for dollar reduction in the tax liability

Lifetime Learning Credit

a nonrefundable credit of 20% allowed for qualified tuition fees incurred for the post secondary education or job related instruction of an eligible student or students enrolled in a degree or certificate program or a course of study allowing for the acquisition or improvement of job skills.

Kiddie tax

a special calculation designed to prevent parents from exploiting the progressively of the tax rate schedule by shifting unearned income to their children

Trade or Business

activity pursued with the intent to make a profit (TOB)

Business Casualty and Theft Losses: Completely destroyed or stolen - loss is the different between the insurance proceeds (if any) and property's __ basis.

adjusted

refundable credits are accounted for (before/after) nonrefundable credits and may be applied any income tax

after

Exercise price (strike price)

amount paid to acquire shares with stock options

What is QBID?

an "artificial" deductions available for non-corporate taxpayers with income from one or more pass through entities (partnerships, s corps, or sole proprietors)[Qualified Business Income Deduction]

Section 83(b)

an exception to section 83(a) which allows the person who received the restricted property (in return for the performance services provided) to choose to include the property's FMV in gross income in the year of the receipt (rather than when the risk of forfeiture is removed) *this only applies to RSAs, other options are not eligible

necessary

appropriate, helpful or capable of contributing to profit seeking activities

Necessary

appropriate, helpful or capable of contributing to profit-seeking activities

Business Expenses: Expenses related to an illegal business (are/are not) deductible unless the payment is illegal or related to trafficking in controlled substances.

are

Dividends (are/are not) taxable if they represent distributions out of a corporation's current or accumulated earnings and profit (E&P)

are

Business Expenses: Fines, penalties, and illegal bribes or kickbacks (are/are not) deductible

are not

non refundable credits

can only be used to reduce the regular tax liability and cannot be used to reduce the AMT, accumulated earnings tax, personal holding company tax, penalty taxes, and certain other taxes

The qualifying organizations for __ contributions are: 1. governmental units 2. community chest, corporation, trust, fund or foundation situated in the US and operated exclusively for religious, charitable, scientific, literacy, or educational purpose, the prevention of cruelty to children or animals, or for the fostering of national or international amateur sports competition 3. war veterans' organization 4. nonprofit volunteer fire company or civil defense organization 5. fraternal society operating under the lodge system 6. nonprofit cemetery company

charitable

Factors determining whether a person is an independent __ or __ 1. freedom to set working hours 2. work part time 3. work for multiple firms 4. realize profit or loss from work 5. perform work off the employer's premises 6. work without frequent oversight

contractor, employee

Travel Expenses

costs of transportation, meals, lodging, and incidentals while away from home overnight (or long enough to need to stop for sleep)

Business interest expense: The carry-forward period is a. 5 years b. 10 years c. 15 years d. indefinite

d.

Exercise date

date that employees purchase stock using their options

Travel costs are (deductible/not deductible) when incurred in pursuit of business or income producing activities.

deductible

Pass through entities (do/do not) have all types of tax years available to them.

do not (they will only have jan.-dec. tax year)

__ Travel 1. transportation costs are fully deductible if the trip is primarily business and transportation does not include any personal side trip 2. Costs of meals, lodging, and incidentals are deductible if incurred for business

domestic

__ is computed as: 1. taxable income 2. less: net unearned income

earned taxable income (eti)

dividends

earnings distributed to stockholders

NOL is generally (great than/equal to/less than) taxable loss since their income and expenses are related to business activities

equal to

Reasonable in amount

expense must bear a reasonable relation to the benefit expected to be received

Define Mixed motive expenses (examples include): 1. Meals 2. Entertainment 3. Travel and Transportation 4. Use of certain property such as cars, electronics, home office

expenses are motivated by both business and personal concerns

Transportation Expenses

expenses of getting from one place to another while not away from home overnight

t/f A deduction is allowed for an activity which is generally considered to constitute entertainment, amusement, or recreation

false

t/f Business assets are treated as investment income and, therefore, taxed.

false

t/f Taxpayers would rather nonrefundable credits over refundable credits.

false

t/f Transportation benefits: deduction by employer for provision of free parking or its cash equivalent, transit passes, and van pooling reimbursements to employees is allowed.

false

t/f a deduction for premiums paid for key person life insurance (where the payer is the owner and beneficiary for the policy) is allowed

false

t/f cost of commuting between home and business is deductible

false

t/f Generally, taxpayer report their income and deductions over a tax period consisting of 18 months.

false, 12

Deductions __ AGI are allowed when they exceed the standard deduction, these deductions are 1. medical expenses 2. taxes 3. interest expense 4. charitable contributions 5. disaster area casualty losses 6. misc. not subject 2% of AGI *these are expenses for Nonbusiness activity (related to general life)

from AGI

Despite the general limitation on deductibility, the following are (fully deductible/nondeductible): 1. office parties 2. company picnics/outings 3. meetings of stockholders, directors, and employees 4. meals and entertainment treated as compensation 5. promotions to general public (i.e. grand opening etc) 6. meals and entertainment sold at an event

fully deductible

Why do we have AMT?

if you're aggressive with deductions you'll have to make this calculation

For (business/individuals), estates, and trusts and NOL is: 1. taxable income plus 2. a. excess nonbusiness expenses over nonbusiness income, including any excess noncapital gains b. excess nonbusiness capital losses over nonbusiness capital gains c. excess business capital losses over business capital gains, including any excess nonbusiness capital gains d. NOL deductions from earlier years

individuals

Qualified Residence Interest

interest on debt used to buy, build or improve a primary or secondary residence

When a capital expenditure has a determinable useful life, a deduction (is/is not) allowed for yearly amounts of: 1. Depreciation 2. Depletion 3. Amortization

is

A deduction (is/is not) allowed for expenses related to earning tax exempt interest income

is not

A deduction (is/is not) allowed for interest paid or accrued on borrowed funds used to purchase tax-free securities.

is not

QBI Definition

is the net amount of income, gain, deduction and loss relating to a qualified, domestic pass through entity (qualified business income)

Criteria for __ __: 1. child is under 18 years old at the end of the year 2. has at least one parent alive at the end of the year 3. does not file a joint return for the year and 4. Child's unearned income is more than the allowed amount ($2200 for 2019)

kiddie tax

Business Casualty and Theft Losses: Partially destroyed or stolen lass is the (greater/lesser) of the following, after reduction for any insurance proceeds received. 1) decline of fair market 2) adjusted basis

lesser

Net Investment Income: A tax of 3.8% is imposed on the (lesser/greater) of 1. net investment income or 2. modified AGI in excess of a. 200,000 if single or HOH b. 250,000 if MFJ (125,000 if separate)

lesser

How long does capital have to be held to be considered long term?

longer than a year

Deductible __ expenses are payments for: 1. diagnosis, cure, relief, treatment, or prevention of disease or defect of the body 2. treatment affecting any part or function of the body (except certain cosmetic surgery which improves the patient's appearance and does not meaningfully promote the proper function of the body.) 3. prescriptions and insulin 4. transportation for and essential to med. services at actual cost or $0.20 /mile (2019) plus parking tolls 5. medical insurance 6. meal and lodging provided by a medical institution or special care facility if the availability of med care is the principal reason for being there. 7. long term care and insurance premiums (w/ certain limitations) for chronically-ill individuals 8. cap. expenditures incurred primarily for med care are deductible one to the extent the amount of the expenditure exceeds the increase in the value of the property improves (exception - full amount is deductible if improvements are made to property rented by the taxpayer or to the taxpayer's home to accommodate a physical handicap.

medical

__ __ __ is the sum of income from the following sources after allowable deductions: 1. interest, dividends, annuities, royalties, rents (unless derived in a trade or business) 2. passive activity income or financial trading business 3. gain from disposition of property other than that held in a trade or business

net investment income

NOL

net operating loss

Business Expenses: Certain expenses are (always/never) deductible; these are listed below: - Fines and legal bribes and kickbacks - political contributions - lobbying expenses - capital expenditures - expenses related to tax exempt income - key person(al) insurances premiums (deductible only if a fringe benefit to employees) - payments of another's obligations - personal expenses - entertainment expenses - parking and transportation fringe benefits

never

Travel costs are (deductible/not deductible) when the cost are of any personal side trips or family members traveling with the taxpayer.

not deductible

Adoption of the (permissible/non-permissible) method occurs by using by using and reporting the tax results of the method for at least one year.

permissible

No deduction is allowed for __ interest. This interest includes all interest arising from personal expenditures except: 1. interest from trade business 2. interest on qualified residence 3. interest to product income (investments, hobbies) 4. interest on edu. loans 5. interest on passive income 6. interest on deferred estate tax liability

personal

Ordinary Income Property

property that if sold would generate income taxed at ordinary rates.

How does a company fix accounting mistakes?

prospectively

Section 83(a)

provides that FMV of any property transferred in return for the performance of services is included in gross income of the person performing the service. *RSAs are usually taxed under this section

Education Credits

qualified tuition fees are those out of pocket expenses that are required for enrollment or attendance at the educational institution

What's the difference between salaries and wages?

salaries are based annually and wages are hourly compensation

Alternative Minimum Tax

second tax calculation intended to ensure that no taxpayer with substantial economic income can avoid significant tax liability by using exclusions, deductions, and credits.

QBID: QBI deduction for taxpayers in __ businesses is phased out when taxable income exceeds the lower threshold amounts.

service

The following businesses are examples of company's in the __ industry. 1. healthcare 2. tax 3. accounting 4. actuarial science 5. performing arts 6. consulting 7. athletics 8. financial and brokerage services 9. any business where the principal asset is the reputation or skill of one or more of its employees

service

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Non qualified stock options

stock options which do not qualify for the special treatment accorded to incentive stock options

REITs (Real Estate Investment Trusts)

the company holding the real estate leases the real estate to other retail companies to run their businesses out of (central mall --> tj maxx)

casualty

the damage to property resulting from some sudden, unexpected, or unusual event caused by external forces

Grant Date

the date you receive the options

deductions

those particular expenses, losses and other items for which a reduction of gross income is allowed by statute

Vesting Date

time (date) when stock options granted can be exercised

t/f Capitalization of an asset is required if the cost will provide a "long term benefit"

true

t/f Lifetime Learning Credit is per tax return.

true

t/f Personal casualty losses are deductible as an itemized deduction only if incurred in a federally declared disaster area

true

t/f Accrual method taxpayer must use the direct write off method in accounting for bad debts

true

t/f Any business interest not allowed as a deduction in the current tax year is carried forward and treated as business interest paid or accrued in the succeeding tax year

true

t/f Cash donations are deductible in the amount contributed

true

t/f Deductions for medical expenses is allowed only in the tax year the expenses are paid.

true

t/f Expenses must be incurred for the business purpose and bear a reasonable relationship to the activity in order to use the business deduction.

true

t/f Hobbies are generally not deductible

true

t/f If the AMT calculation is lower than original amount; take the AMT amount.

true

t/f Kiddie tax only applies to unearned income

true

t/f Land is deemed to lack a determinable useful life, therefore no deduction is allowed to recover its cost.

true

t/f Medical Expenses: no deduction is allowed unless payment is for medical expenses of person qualifying as dependent under the relationship, support, and citizenship tests

true

t/f NOL for businesses is just the Taxable income

true

t/f Net long term capital gain is generally taxed at preferential rate

true

t/f No deduction is allowed for attending a convention or seminar unless: 1. convention/seminar is directly related to trade or business of the taxpayer 2. If held outside North America, it is a reasonable for the convention or seminar to be held in foreign location as within the North American area.

true

t/f No deduction is allowed for lobbying expenses. These include expenses of appearing before fed., state, or local governmental units, or for expenses incurred to influence the general public.

true

t/f Reimbursements received in a year later than the one in which the deduction was claimed are includable in gross income to the extent a tax benefit was receive from the deduction.

true

t/f Room and board is not included for the American opportunity credit

true

t/f Taxpayers generally report income and deductions for a full 12 month period (tax year)

true

t/f Taxpayers may report for a short tax year in the initial or final year, or when a change in year end occurs

true

t/f Taxpayers who claim the American opportunity credit are not allowed to claim lifetime learning credit in the same year for the same student

true

t/f The employers can only exclude 50% of meals provided to employees

true

t/f The way financial accounting treats expenses is similar to that of how people of tax view expenses.

true

t/f Transportation expenses are deductible only when incurred in carrying on a trade or business

true

t/f a deduction for premiums paid for personal life insurance is not allowed

true

t/f a deduction is allowed for premiums paid for group term life insurance of employees treated as a fringe benefit

true

t/f deduction is allowed for all the ordinary and necessary expenses paid or incurred in carrying on any trade or business (TOB)

true