Business Tax Flashcards
For businesses what is the business interest expense limited to
- The business interest income plus
- 30% of the adjusted taxable income for the taxable
year
In cases where the business interest expense exceeds the limitation amount, the excess amount is carried forward indefinitely.
There is an exception provided to small businesses (other than tax shelters) that satisfy the gross receipts test. The business satisfies this exception if for it has average annual gross receipts for the 3 year period ending on the year prior to the current taxable year that are equal or less than 26 million. It increases to 27 million in 2022 and 29 million in 2023
Checkpoint - Self Study
In general what is a NOL
In general a NOL is where a TP business deductions are greater than the taxpayer’s gross income.
The TCJA modified the NOLD deduction for taxable years beginning after 2017. What was modified
- Limit the NOL deduction to 80% of taxable income determined without regard to the NOL
- Repeal of the two-year carryback provisions
- Change the 20 year carryforward provision to be indefinite
Checkpoint - Self Study
The BIE deduction limitation has special rules relative to applying the deduction limitation to partnerships and S Corporations.
In general, the business interest limitation is
applied at the partnership level and not at the partner level. However, if the partnership has an interest expense limitation (i.e., disallowed business interest expense), the disallowed amount is not carried over by the partnership to the following year. Rather, it is allocated to the partners in the current year as an increase in basis.
Relative to a business how does a Simple IRA plan work?
The simple IRA plan allows for employees to contribute to an IRA as a salary deferral while also receiving some company contributions which is a % of their contribution or a % of their compensation. The contributions are lower than a 401K but less costly to operate
When does a Simple IRA plan need to be established
You must have the plan in place by October 1 of the year employees will be making contributions
How does eligibility work in a Simple IRA plan for businesses?
In a simple IRA plan employees with a year of service which is $5,000 of compensation must be covered. With a Simple IRA Plan you can keep out employees for up to 2 years
Can employers make contributions to employees in a Simple IRA plan for small businesses
Yes and employer contributions are mandatory. There are two formula’s
1. 2% of of Non Elective. Which means you have to g
give 2% of pay to all eligible employees whether
they contribute or not
2. 3% Match. Which is a dollar for dollar match up to
3% of pay. Therefore in a matching scenario the
employee has to make contributions to get the
matching amount
Source: YTV : How Simple IRA Plans Work
Greenbush Financial Group
Can I deduct Medicare Premiums if I am self employed
Since 2012 the IRS has allowed self employed individuals to deduct all Medicare premiums. This also includes premiums for their spouses. The entities that qualify are self-employed, partner in partnership or S-Corporation. This is above the line of business. The deduction is an above the line
Ref: YTV Greenbush Financial Group & Money Smart Board
What is an accountable plan and how does it work?
Source: ChatGPT 8-3-23
An accountable plan is a set of rules and guidelines established by an employer to reimburse employees for business expenses incurred on behalf of the company. It is important for both employers and employees because it allows the reimbursement to be treated as a tax-free expense rather than taxable income. Under an accountable plan 3 key requirements must be met.
1. Business Connection
2. Substantiation
3. Return of Excess
Is good will a capital gain or ordinary income
Source: ChatGPT
Goodwill can be treated as either a capital gain or ordinary income, depending on the circumstances of its sale or disposition. If good will is sold as part of the business , any gain realized on the sale of goodwill will generally be treated as a capital gain.
How do you report the sale of a business on an installment sale?
Source: ChatGPT
Complete IRS Form 6252. This form is used to report the details of the installment sale, including the total selling price, gross profit percentage, and the installment sale income for the tax year. You’ll need to provide information about the installment payments received during the tax year and the principal portion, interest portion, and gross profit percentage attributable to each payment.
What is a specialized service trade or business (SSTB) as it relates to the QBID?
ChatGPT
The QBID is generally available to all qualifying busi but certain types of bus are subject to limitations & exclusions.
A SSTB refers to a type of business that is considered to be service oriented and rely primarily on the skills and expertise of the business owner or employees. Such businesses often involve the performance of services in the fields of health, law, accounting, actuarial sciec, performing arts, consulting, The QBID for owners of SSTBs is subject to income limitations.
Section 163j business interest expense limitation applies to what entities
Bradley Burnett
Applies to all entities (C Corps, S Corps, partnerships including single member LLCs and trust and estates to LIMIT deductibility of business interest expense.. It is effective for tax years beginning AFTER 12-31-17
Prior to TCJA it was only applicable to C-Corps
BIE limitation cannot exceed the sum of what?
Bradley Burnett
For tax years beginning after 12-31-17, BIE cannot exceed the sum of:
1. Business interest income
2. 30% of adjusted taxable income (ATI)
and
3. Floor financing interest expense (vehicle
dealers)
For purposes of 163j a business under section 162
