Business Financial Information Flashcards
One is considered to be an active investor if any of the following are true (5 choices):
- More than 500 hours of annual participation
- Essentially all of the business participation
- More than 100 hours and at least as much as other participants
- Material participation in any 5 of the last 10 tax years.
- Material participation in any 3 of the previous tax years for a personal service.
For any business expense to be deducted, it must be both
Ordinary and necessary
In order to be allowed a depreciation deduction, all three of these must apply:
- Taxpayer must own property
- Taxpayer must use property in business
- Property must have a useful life of more than one year
What form is used to report depreciation on a tax return?
Form 4562
What is the standard mileage rate for operating a car in 2023?
65.5 cents per mile
Are mortgage prepayment penalties deductible as interest?
Yes
Are legal fees paid to acquire business property expensed or added to the cost basis and depreciated?
Added to basis
The cost basis of property converted from personal to business use is the lesser of:
- FMV of the property on the date of change
- The taxpayer’s adjusted basis on the date of change
How long is the identification period for a non-taxable exchange?
45 days
Property in a non-taxable exchange must be received by the earlier of:
- 180 days from when the property was given up in the exchange
- The tax return due date, including extensions, for the applicable tax year
What does NAICS stand for?
North American Industry Classification System
Can a cash or accrual-based taxpayer deduct expenses paid in advance?
No
Which items are not deductible when figuring NOL? (6 items)
- Capital losses in excess of gains
- Section 1202 exclusion
- Nonbusiness deductions
- NOL deduction
- Section 199A deduction
- Section 199 deduction
Each partner separately chooses how to treat their share of (4 items):
- Foreign tax credits
- Mining recapture deductions
- Income from cancellation of debt
- Intangible drilling/mining exploration costs
What is Schedule M-1?
Schedule M-1 is used to reconcile income from books to income on the tax return.
When is Schedule M-1 required to be filed?
If total receipts for the tax year AND total assets at the end of the tax year are $250,000 or more.
What is Schedule M-2?
Schedule M-2 is used to reconcile unappropriated retained earnings per books from the beginning to the end of the tax year
When is Schedule M-2 required to be filed?
If total receipts for the tax year AND total assets at the end of the tax year are $250,000 or more.
What is Schedule M-3?
Schedule M-3 asks certain questions about the corporation’s financial statements and reconciles the financial statement net income (loss) to the taxable income
When is Schedule M-3 required to be filed?
If total assets exceed $10M, they must file M-3 instead of M-1.
Generally, a substantial business inventory requires which method of accounting?
Accrual
When must a taxpayer use the uniform capitalization rules? (APP)
- Acquire property for resale
- Produce real or tangible personal property for use in the business
- Produce real or tangible property for sale to customers
The investment credit is claimed on which form?
Form 3468
What credits are included in the investment credit? (Filed on Form 3468) (REQQQ)
- Rehabilitation
- Energy
- Qualifying advanced coal project
- Qualifying gasificiation project
- Qualifying advanced energy project
Which form does an employer file to claim the employer-provided childcare facilities and services credit?
Form 8882
What is the employer-provided childcare facilities and services credited limited to?
$150,000 per year
How is the employer-provided childcare facilities and services credit calculated?
25% of qualified childcare facilities expenditures and 10% for qualified childcare resource and referral services
What is included in exempt function income for the purpose of filing 1120-H? Income produced from assessments to fund these items
- Pay principal, interest, and taxes on association property
- Maintain association property
- Clear snow from public areas and remove trash
What are qualities of nonqualified preferred stock? (Any apply)
- The holder has the right to require the issuer to redeem/purchase
- The issuer or related person is required to redeem/purchase
- The issuer or related person is required to redeem/purchase even though exercise is unlikely
- The dividend rate on the stock varies with interest rates, commodities, or similar indices.
What do business use limits generally not apply to?
Listed property leased or held for leasing by anyone regularly engaged in the business of leasing property
What items are separately listed on a partner’s Schedule K?
- Ordinary income or loss
- Interest & TE interest
- Net income from rental RE activities
- Gains & losses
- Guaranteed payments
- Dividends
- Royalties
- Charitable contributions
- Sect 1231 gains & losses
For eligible taxpayers with total taxable income over $182,100 ($364,200 MFJ), the QBI deduction may be limited by what?
W-2 wages paid and unadjusted basis of qualified property
The disabled access credit is the lesser of:
- 50% of $10,000
- 50% of the cost of expenditure, minus the first $250
A partner’s basis in a partnership includes the partner’s share of liabilities to the extent: (3 items)
- It creates or increases partnership’s basis in any assets
- Gives rise to a current deduction
- Is a nondeductible, noncapital expense
Fill out the table for passenger vehicle additional depreciation deductions:
- $20,200
- $19,500
- $11,700
- $6,960 (all future years)
Fill out the table for passenger vehicle depreciation with NO additional deductions:
- $12,200
- $19,500
- $11,700
- $6,960
What is the dollar limitation for qualified plan awards?
$1,600
What is the dollar limitation for nonqualified plan awards?
$400
In a partially nontaxable exchange, the basis of the property received is the same as the property given up with the following adjustments:
- Decrease the basis by any money received and loss recognized
- Increase basis by additional costs incurred and any gain recognized
A taxpayer can only deduct expenses for attending conventions on cruise subjects (subject to a max $2,000 per year) if:
- Directly related to business
- US registered vessel
- All ports are US or US possession
- Taxpayer attaches signed statement by self
- Taxpayer attached attaches signed statement by officer
What are the two options a taxpayer has if they give a cash discount?
- Include in income
- Deduct as expense
*Must be consistent from year to year
What must a taxpayer do if they receive a trade discount?
Reduce the cost of inventory by the discount
What benefits can be qualified cafeteria plan benefits excluded from wages and payroll taxes? (5 options)
- Accident and health benefits
- Adoption assistance
- Dependent care assistance
- Group-term life insurance
- Health savings accounts
In general, the amount of a person’s QBI deduction equals the lesser of:
- 20% of taxpayer’s QBI, plus 20% of the taxpayer’s qualified REIT/PTP income
- 20% of taxable income minus net capital gain
What items are generally reported as “other income” for businesses? (FIBSS)
Finance reserve income
Interest
Bad debt recovered
Scrap sales
State gasoline/fuel tax refunds
What form is the work opportunity credit claimed on?
Form 5884
Each partner elects how to treat their share of these 4 items:
- Intangible drilling and mining exploration costs
- Foreign tax credits
- Deduction and recapture of mining exploration expenditures
- Income from debt cancellation
What items in Section 197 are included as amortizable intangibles?
- Goodwill
- Going concern value
- Workforce in place
- Books & records, systems, etc.
- Patent, copyright, formula, etc.
- Customer-based intangible
- Supplied-based intangible
- License, permit, etc.
- Non-compete
- Franchise, trademark, etc.
A taxpayer can generally use any (4) of these accounting methods:
- Cash
- Accural
- Hybrid
- Special methods for income & expenses
What are the 3 exceptions for nontaxable exchanges of property for corporation stock?
- Corporation is an investment company
- Taxpayer transfers the property in bankruptcy
- The stock is received in exchange for debt
What count as organizational costs to be amortized?
- Legal fees incident to organization
- Accounting fees incident to organization
- Filing fees
If you prepare a return but DO NOT charge for it, should you sign as the paid preparer?
No
What businesses MUST be taxed as corporations? (8 apply)
- Refers to as incorporated, corporation, body corporate, body politic
- Refers to as joint-stock company or joint-stock association
- Insurance companies
- Certain banks
- Business wholly owned by government
- Specifically required to be taxed as corporation
- Certain foreign businesses
- Any other who elects to be taxed as a corporation by filing Form 8832
Which family members’ ownership count towards your ownership?
- Siblings (including half-siblings)
- Spouses
- Ancestors
- Lineal descendants
What items does Form 8308 contain?
Telephone number, date of exchange, names, addresses, and TINs of partners in exchange
When is Form 8308 filed by? (2 options)
- With Form 1065 for the tax year that includes the last day of the calendar year when the exchange took place
- Separately within 30 days of notification if the partnership is notified of an exchange after filing Form 1065.
What causes a Form 8308 filing requirement?
When there is an exchange of partnership interests involving unrealized receivables or inventory items
What (5 items) do passive activity rules apply to?
- Individuals
- Estates
- Trusts
- Personal Service Corporations
- Closely Held Corporations
What are the two kinds of passive activities?
- Trade or business activities without material participation
- Rental activities (unless RE pro)
What are specifically not passive activity income items?
- Alaska Permanent Fund dividends
- Income tax refunds
- Personal service income
What types of property are considered Section 1245 property?
- Personal property (tangible or intangible)
- Tangible property (except buildings/structures)
- Real property with adjusted basis
- Single-purpose agricultural structures
- Petroleum storage facilities
What (4) items are noncapital assets?
- Stock in trade, inventory, or other property held for sale
- Accounts or notes receivable
- Copyright, literary, musical, etc.
- US Government Publication
Statutory employees are subject to FICA withholdings if ALL 3 of these apply:
- Service contract states virtually all services are to be provided by them
- No substantial investment in equipment used
- Services are performed on a continuing basis
What is the tax rate for corporation accumulated earnings?
20%
Can an S-Corp have both voting and non-voting stock?
Yes, but the only difference in the stock can be voting power
If property is distributed from an S-Corp, what information should a statement attached to Form 1120-S contain?
Property acquisition and distribution date, FMV on date distributed, and cost basis
The computation of recapture amounts is not necessary when the business use percentage of Section 179 or listed property exceeds:
50%
If a corporation makes a below-market loan to a shareholder, the corporation generally is deemed to make a payment to the shareholder for federal tax purposes. This deemed payment is treated as a(n):
Dividend
What defines a short, mid, and long-term loan for purpose of the applicable federal rate (AFR)?
Short: Less than 3 years
Mid: 3 to 9 years
Long: More than 9 years
Taxpayers must report all income that they receive as Direct Sellers on which Form or Schedule?
Schedule C
Which (4) items are included in cost of goods sold?
- Raw materials
- Work in process
- Finished goods
- Supplies
What are some examples of Section 1250 property?
Commercial buildings, warehouses, barns, rental houses
What kind of loss is a business bad debt?
Ordinary loss
What kind of loss is a non-business bad debt?
Short-term capital loss
What (5) cancelled debts are not included in gross income?
- Bankruptcy
- PPP Loan
- Insolvency
- Qualified Farm Debt
- Qualified RE Debt
Statutory employees include:
- Drivers who are your agent and paid on commission
- Full-time life insurance sales agents
- Individuals who work at home on materials you provide
- Full-time traveling salespeople
For wages to be deductible as an expense, which two things must be true (in addition to being ordinary and necessary):
- It must be reasonable
- It must be for services performed
Is an amount paid to cancel a lease generally deductible?
Yes
Even if a taxpayer meets the other requirements for depreciating property, a taxpayer cannot depreciate these 3 items:
- Property purchased and disposed of in the same year
- Equipment used to build capital improvements
- Certain term interests
Should you continue to depreciate property that is temporarily idle?
Yes
A taxpayer cannot use MACRS for these (5) situations:
- Property placed in service before 1987
- Intangible property
- Films, video tapes, recordings
- Certain property acquired in nontaxable transfer
- Property otherwise elected to exclude from MACRS
Can disallowed Section 179 expense be carried forward indefinitely?
Yes
When would a taxpayer need to recapture Section 179 expense?
If the asset’s business use drops to 50% or less
What is the $ per square foot and maximum annual $ deduction for the simplified home office deduction?
$5 per square foot, $1,500 maximum
What is the maximum commercial clean vehicles credit? (Maximum for under 14,000 pounds and over 14,000 pounds)
$7,500 for under 14,000 pounds, $40,000 for over 14,000
The commercial clean vehicle credit is the lesser of:
- 15% of the vehicle’s cost
- Additional cost of vehicle compared to non-CV
Does the amount a taxpayer receives for granting an easement reduce or increase cost basis?
Reduce
What is the identification period for a like-kind exchange of real property?
45 days
Can a taxpayer deduct taxes assessed for local benefits and improvements that increase the value of the taxpayer’s property?
No, they are added to the building cost basis and depreciated
How are amounts paid to demolish a structure treated for tax purposes?
The amounts paid are added to the basis of the land that the structure was on
Is cost depletion or percentage depletion used for standing timber?
Cost depletion
For mineral property, is percentage depletion or cost depletion used?
Whichever provides the larger deduction
Does every business need to file a tax return if they had no income for the year?
Yes. Every business must file a tax return, regardless of income or loss.
Do business taxes need to be deposited electronically using EFTPS?
Yes
What tax form is filed to record like-kind exchanges?
Form 8824
What three factors are considered when determining if an employee is an employee or independent contractor?
- Behavioral Control
- Financial Control
- Relationship
What three things apply to filing Form 2290?
- File for vehicles over 55,000 pounds
- Must be e-filed if 25 or more vehicles
- Must be filed by last day of month following month of vehicles first use
Listed property is any of the (3) following:
- Passenger automobiles 6,000 pounds or less
- Property used for transportation
- Property used for entertainment, recreation, or amusement
Are loans made to a client, supplier, employee, or distributor that become worthless treated as a business bad debt?
Yes
If a distributee partner sells inventory items held for more than 5 years after the distribution and the property is used as a capital asset at the time it is sold, how is the gain treated?
As capital gain
How are spouses/business partners treated for the purpose of the $25 gifting limit?
They are treated as a single taxpayer
If an employee doesn’t know how the work will be done, only the result, are they an employee or independent contractor?
An employee
Which schedule is filed in regards to a controlled group?
Schedule O
How are farming net operating losses (NOLs) usually treated?
Carried back two years
If you elect to carry farming net operating losses (NOLs) forward indefinitely, can you later revoke this decision?
No
Should a partnership generally conform to the partner’s tax years?
Yes
What items are specifically NOT included as start-up costs?
Deductible interest, taxes, and research/experimental costs
Who must file Form 8300?
Any person who receives more than $10,000 in cash in one transaction or two or more related transactions
What (3) are generally excluded from wages?
- De minimis fringe benefit
- Meals furnished during work hours for the benefit of the employer
- Noncash achievement award valued at $100
Which two taxes are imposed on wagering activities?
Occupational tax and wagering tax
Direct sellers and qualified real estate agents are considered:
Statutory nonemployees
To qualify for bonus depreciation, property must meet certain conditions. Such as these 4:
- Water utility property
- Certain computer software
- A recovery period of 20 years or less
- Qualified film, television, and theatrical productions
