Accounting Methods and Periods, and Computation of Tax Liability and Tax Credits (5) Flashcards
ACCOUNTING METHODS
What are the 3 Accounting Methods?
- CASH
- ACCRUAL
- HYBRID (Use when INVENTORY is a material componant) - accrual in determining Inventory, Sales, COGS and Gross Profit
ACCOUNTING METHODS
When Must a corporation use the ACCRUAL Method?
when gross Income reaches $5 Million
ACCOUNTING METHODS
When you have more than one company can each business have its own method?
YES
ACCOUNTING METHODS
When is CONSENT NOT required by the IRS to Change Accounting methods?
- Adopting LIFO Method
- Swithching from Declining Balance to S/L
- Change in Useful Life of Asset
- CORRECTING AN ERROR (Correct in year identified)
ACCOUNTING METHODS
4 Types of Inveontory Methods?
- FIFO
- LIFO
- Lower of Cost or Market (if market less, then write down)
- UNICAP (Uniform Capitalization Method)
INSTALLMENT SALE
When is an Installment Sale used?
How is the Recognized Gain of an installment sale calculated?
- When at least One Payment is received in the year AFTER the sale (NOT ELECTIVE it is AUTOMATIC)
- (Total Gain/Total Contract Price(less any liab given up)) x Payment amount received during the Year
[NOT Available for the ORDINARY GAIN on Sale of INV or Depn Recapture from sale of Depriciable Prop - THAT GAIN is Recognized Immediately)
TAX PERIODS
When must a Form 1128 be filed in order to Change the Tax Period?
DUE the 15th Day of 2nd Month of the NEW YEAR
For a DEPENDENT CHILD:
When Preparing a Return What is allowed as a Personal Exemption?
…What is Allowed as a Standard Deduction?
- NO PERSONAL EXEMPTION IS ALLOWED (already claimed as a dependent on another return)
- STANDARD DEDUCTION is Limited to EARNED INCOME +$300 NOT to exceed the Standard Deduction ($6,100) or $1,000 whichever is GREATER.
KIDDIE TAX
For a child claimed as a dependent, at What amount of Unearned income will it be taxed at the parents rate?
The EXCESS over $2,000
(effectively, the 1st $1,000 is not subject to tax due to standard deduction, and 2nd $1,000 is taxed at child’s rate)
[NOTE: as an option, parents can pay an ADDITIONAL $100 tax PLUS claim th unearned income in excess of $2,000 on their return - The Gross Income MUST be from Int and Div ONLY and must be LESS than $9,500]
AMT
What is the Framework for calculating AMT?
Taxable income ADD or LESS Adjustments ADD the Tax Preferences = AMTI (AMT Taxable Income) LESS the EXEMPTION Amt = AMT base MULTIPLIED by AMT Tax Rate = Tentative Minimum Tax LESS Regular Tax = AMT
AMT
ADJUSTMENTS
Are these adjustments positive or negative?
BOTH - can increase or decrease taxable income in calculating AMT
AMT
ADJUSTMENTS
Are these permanent or Temporary differences?
TEMPORARY
AMT
ADJUSTMENTS
What are some AMT Adjustments?
(Not including the Itemized Deduction Adjustments)
- -1. Excess MACRS of real prop OVER ADS of 40 yrs S-L
- Excess MACRS of Pers Prop OVER ADS 150% DDB
- Diff in Gain/Loss due to Depn changes (above)
- COMPLETED CONTRACT METHOD (Must use %Complete)
- Incentive Stock Options (Excess of FMV over Exercise Price)
AMT
ADJUSTMENTS
What are some Itemized Deductions that are adjustments?
- MEDICAL EXPENSES (Must exceed 10% of AGI)
- TAXES - State, Local, Foreign & Prop - NOT ALLOWED
- MORTG INT - Limited to Acquisition Int (Excludes Home Equity Int)
- Certain Invest Int Exp NOT Allowed
- MISC 2% DEDUCTIONS - NOT Allowed
- STANDARD DEDUCTION - NOT Allowed
- EXEMPTION AMOUNT - NOT Allowed
- ITEMIZED DEDUCTION LIMITATION ADJ (due to phase-out requirements in 2013)
AMT
TAX PREFERENCES
Are these positive or negative?
Examples include…
-POSITIVE - ALWAYS ADDED
(Usually will not see)
- Depn concerning Pre-87 Real Prop, Pers Prop
Excess intangible drilling costs
42% of excluded gain from sale of certain small bus. stock
