Chapter 4 - 7 Flashcards
What is a manager’s primary goal when making business decisions for their firm?
By entering into transactions which maximize positive cash flow and minimize negative cash flow.
What are the pass-through entities?
Sole proprietorships, partnership, LLC, and S-corp
What is a good rule of thumb for income and deductions?
Any receipt for income is taxable unless explicitly excluded.
Expenses are deductible only if a specific rule states it is.
T or F: PTEs generally have the same tax years as their owners.
True
What 4 variables common to most transactions affect tax consequences?
Time
Entity
Jurisdiction
Income Character
What is income/deduction shifting?
When related entities shift income/deductions earned to the other to produce a favorable tax treatment.
Which doctrine requires that the entity which renders a service or owns capital must pay taxes on that capital?
Assignment of income doctrine
Why is the assignment of income doctrine important?
Otherwise it would be allowable to shift income/capital to someone in a lower tax bracket, thus, paying a lower amount of tax.
Why is the concept of TVM important for tax dollars paid today as opposed to in the future?
A tax dollar paid today is worth more than a tax dollar paid tomorrow.
What is a net operating loss?
An excess deductible business expense over gross income.
T or F: NOLs do not give current tax savings but may be deductible in a future year.
True
What are NOL’s limited to before the deduction?
80% taxable income
Are excess business losses currently deductible?
No, but they carry forward as part of an NOL.
How is taxable income defined?
Gross income minus allowable deductions.
If a firm keeps books and records on a ______________ year, it measures taxable income over the same January through December.
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