Corp Tax Sims

Question 1

Fully deductible , Partially deductible, Not deductible?

org expenses incurred but no deduction was taken in that yeas

Answer 1

No deductable

Must make the election in the year of inception and begin amortizing in the month the entity commences operation

Question 2

Fully deductible , Partially deductible, Not deductible?

life insurance premium paid when the corp is NOT the beneficiary

Answer 2

Fully deductible

The insurance policy is considered an employee benefit and therefore are deductible to the corporation.

If the corp is the beneficiary - it is considered a key person policy and the premiums are NOT deductible

Question 3

Fully deductible , Partially deductible, Not deductible?

vacation pay fully vested incurred during the year and paid in

Answer 3

Fully deductible

accrual based company can deduct accrued vacation, and bonuses that are paid within 2.5 months of the year end

Question 4

Fully deductible , Partially deductible, Not deductible?

State franchise tax

Answer 4

Fully deductible

This is an ordinary cost of doing business and is deductible

Question 5

Fully deductible , Partially deductible, Not deductible?

luxury sky boxes

Answer 5

partially deductible

If you rent for a season then you can only deduct the cost of the most expensive seat in the arena

Question 6

True/False?

the commercial real estate method of arriving at AMT is S/L

Answer 6

True

Real Property is deprecated using S/L for both regular tax and AMT

Question 7

True/False?

The corp exemption amount reduced the AMT taxable income

Answer 7

True

A corp is allowed an exemption of 40K which reduced AMT

It phases out when a corp’s AMT exceeds 150K and is eliminated at 310K

Question 8

True/False? The ACE adjustment can be a positive or negative number

Answer 8

True

it can be a negative due to the extent that the positive ACE Adjustment were more than negative adjustment in the past

Question 9

True/False? depreciation on personal property to arrive at AMT taxable income before ACE adjustment is S/L over MACRS

Answer 9

False

For reg tax - you can use double declining

For AMT - the excessive over 150% is an adjustment that increases to AMTI

Question 10

True/False?

AMT is the excess of the tentative minimum tax over reg tax liability

Answer 10

True

Question 11

True/False?

You can include muni interest except for private activity bonds before ACE adjustment

Answer 11

False

no include muni interest income
But yes add back private activity bonds

Question 12

True/False?

the max amount of corp exemption is 150K

Answer 12

False

the max amount of corp exemption is 40K which is phased out beginning at 150K - 310K

Question 13

True/False? The 70% DRD is used to calculate ACE

Answer 13

False -

70% is added back to AMTI to determine ACE

the 80% and 100% deductions are available to determine ACE

Question 14

True/False? Muni interest is included to determine ACE

Answer 14

True

Both muni an private activity income is added back to determine ACE

Interest on private Activity bonds is added back to determine AMTI

Question 15

True/False? sum of year digit is depreciation method used for personal property to determine ACE

Answer 15

False

ACE used 150% declining balance method

Question 16

Do loans made to a corporation from a shareholder increase their basis?

Answer 16

No - only in flow through entities is this the case

Question 17

Amount and increase/decrease taxable income

Reliant’s disbursements included reimbursed employees’ expenses in Year 3 for travel of $100,000, and business meals of $30,000. The reimbursed expenses met the conditions of deductibility and were properly substantiated under an accountable plan. The reimbursement was not treated as employee compensation.

Answer 17

15,000

Increase

Question 18

Amount and increase/decrease taxable income

Reliant’s books expensed $7,000 in Year 3 for the term life insurance premiums on the corporate officers. Reliant was the policy owner and beneficiary.

Answer 18

7,000

increase

Question 19

Amount and increase/decrease taxable income

Reliant’s books indicated an $18,000 state franchise tax expense for Year 3. Estimated state tax payments for Year 3 were $15,000.

Answer 19

0

no effect

Question 20

Amount and increase/decrease taxable income

Book depreciation on computers for Year 3 was $10,000. These computers, which cost $50,000, were placed in service on January 2, Year 3. Tax depreciation used MACRS with the half-year convention. No election was made to expense part of the computer cost, and Reliant elected not to use bonus depreciation.

Answer 20

0 no effect

Computers are 5-year property and are depreciated using the double-declining balance (DDB) method under MACRS for tax purposes. DDB depreciation can be calculated by doubling the straight-line rate of 20% per year (i.e., 1/5); thus, since the half-convention is used and Year 3 is the year the computers were placed in service, depreciation for tax purposes is calculated as 40% × $50,000 cost × 6/12 months = $10,000. This is the same as the depreciation expensed for book purposes, so no adjustment is required on Schedule M-1 to reconcile book net income to taxable income.

Question 21

Amount and increase/decrease taxable income

For Year 3, Reliant’s books showed a $4,000 short-term capital gain distribution from a mutual fund corporation and a $5,000 loss on the sale of stock that was purchased in Year 1. The stock was an investment in an unrelated corporation. There were no other Year 3 gains or losses and no loss carryovers from prior years.

Answer 21

1000

increase

Question 22

Amount and increase/decrease taxable income

Reliant’s Year 3 taxable income before the charitable contribution and the dividends received deductions was $500,000. Reliant’s books expensed $15,000 in board of director authorized charitable contributions that were paid on January 5, Year 4. Charitable contributions paid and expensed during Year 3 were $35,000. All charitable contributions were properly substantiated. There were no net operating losses or charitable contributions that were carried forward.

Answer 22

0

no effect