Chapter 17

Question 1

Accrual Basis Corporations

May claim charitable contributions deduction in year preceding payment if 2 requirements are met.

Answer 1

• Authorized by board of directors in by the end of that year.
• Paid on or before the 15th day of the third month of the next year.

Question 2

As a general rule, charitable contributions of property results in a deduction equal to the property’s ? at the date of the gift.

Answer 2

Fair Market Value

Question 3

Contributions of ? property should be avoided because the ? will never be recognized.

Answer 3

Loss property

loss will never be recognized

Question 4

Capital gain property contributions are valued at?

Answer 4

Fair Market Value

Question 5

In two situations the charitable contribution of capital gain property is measured by the basis of the property rather than the FMV

Answer 5

1. Contributions of tangible personal property & charity puts it to unrelated use
2. contributions to certain private non operating foundations (meaning they are not funded by the general public and they do not run charities of their own)

Question 6

The deduction for a contribution of property that, if sold, would result in O.I. for the taxpayer, is limited to the ? of the property

Answer 6

Basis

Question 7

Certain contributions of inventory to:

Deduction is calculated as?

Answer 7

• contribution of property for use that is related to the organizations exempt function and such use is solely for the care of the ill, needy, or infants.
• Books to a public school that useds books in its educational programs
• tangible personal research property constructed by the corp to a qualified educational or scientific organization that uses the prop for research or experiementation, or research training. (must be contributed within 2 yrs of contruction, use must begin with donee)
• contribution fo computer equip. to a qualified educational org or public library that uses prop for educational purposes. (must be contributed 3 yrs within date of acqusition and original use must begin with donor or donee)

Deduction is the lesser of:

• Propertys basis + (50%*[FMV-Basis])
• Propertys basis*2

Question 8

A corporations charitable contribution deduction is limited to ?

Answer 8

10% of taxable income.

Question 9

Any excess of the 10% limit can be?

Answer 9

Carried Forward for 5 years.

Question 10

Completed Contract Method

May be used for?

Answer 10

1. Home Construction contracts (in which at least 80% of the estimated cost are for dwelling units in buildings with 4 or fewer units.)
2. Certain other real estate construction contracts that meet 2 requirements

• contract is expected to be completed within 2 yr period beginning on ddate of commencement
• contract is performed by a taxpayer whos avg annual gross receipts for the 3 taxable years preceding the tax year in which the contract is entered into do not exceed 10 million.

Question 11

Domestic Production Activities Deduction (DPAD)

Formula

Answer 11

Domestic Gross Production Receipts

(Qualified Production Activities Expenses)

Qualified production activites income

(pick lesser of QPAI and Taxable income to multiply by the 9%)

that equals your tentative DPAD, compare tentative DPAD to 50% of your W-2 wages the lower of these is your DPAD

Question 12

Net Operating Losses general rule for corporations

Answer 12

Carry back 2 years, carry forward 20.

You can elect to only carry forward, but once you make that election you cannot change it.

Question 13

Dividends Received Deduction

Calculation

Answer 13

Multiply the Dividends received by the Deduction %

Multiply the Taxable income by the Deduction % (income + dividend income - expenses)

Limit the deduction to the lower of the two, unless an NOL is created or enhanced by the first step.

Question 14

Eligible Organizational Expenditures:

Answer 14

• State incorporation fees
• accounting fees and cost for legal advice regardin the legal structure of your biz
• expenses of temporary board of directors
• cost of organizational meetings

Question 15

Nondeductible organizational costs:

Answer 15

• interest or taxes that would be deductible if biz were already in operation
• cost of issuaing and selling stock
• cost associated with transferring assets to the biz

Question 16

Eligible start up costs:

Answer 16

• advertising the opening of the biz
• cost associated with creating a website
• rent paid in advance of the opening of the biz
• costs from analyzing potential markets, products, etc
• salaries paid for employees being trained & their instructors

Question 17

The amount of organizational or start up costs that are not deductible in the first year of operation must be deducted? (time frame)

Answer 17

over a 180 months

Question 18

Estimated tax payments

Small Corporations

Answer 18

Lesser of

• 100% of tax for current year
• 100% of tax for last year

Divided into four equal payments

Question 19

Estimated Tax Payments

Large Corporations

Answer 19

Must use current year, however the first payment can be 1/4 of last years tax. The difference between what payment 1 should have been and what it actually was should be added to the 2nd payment. The last two payments will be for their full “correct” amounts.

Check yourself and make sure that the total is equal to the current year tax total.

Question 20

Schedule M-1: going from Net Income per books to Taxable Income

Answer 20

Add back: federal income tax per book, interest paid on tax exempt bonds, premiums paid on key employee life insurance, excess of cap losses over cap gains, difference between charitable cont ded and actual contributions made, difference in depreciation, prepaid rent income in year received

Subract out: interest income on tax exempt bonds, life insurance proceeds received as a reuslt of death of key employee.