CPA Regulation R4 Corp Tax Flashcards
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When a person is investing in a corp as a shareholder with more the 80% of the shares, and they are exchanging a building with FMV $180K and Adj basis of $100 plus cash of $50K. What is the tax income
It would be the $50K boot or if they assum a liability.
The following were contribution to the investment of a corp as shareholders:
Angie a building FMV $150K, Adj basis $100K, Mike $250K cash, and Peter $125 legal service; with shareholder % of 40%, 40% and 20% percent, respectively. what is the g/l for the corp and individuals
The total shareholders investment be over 80% and it is.
Corp G/L = 0 no gain or loss shareholder transaction = capital.
Angie: 0 shares g/l
Mike: 0 share g/l
Peter: $125 gain and tax due to legal service are tax. Pete transition to shareholder was he trans services to earned income which was taxed and her return the earned to Corp for interested in Corp with basis of $125K
The following were contribution to the investment of a corp as shareholders:
Angie a building FMV $150K, Adj basis $100K, Mike $250K cash, and Peter $125 legal service; with shareholder % of 40%, 40% and 20% percent, respectively. what are the basis of the stock to the individual and corp.
Angie : $120K no. liabilities were assumed by corp for Angie’s build. non taxed
Mike: $250K
Peter: $125K
For Corp:
Angie’s building: $150K
Mike’s cash: $250K
Not Pete’s services $125K. The corp either expenses or amortized as start up.
When completed a exchange in corp for shares and you exchange building @ $50K basis with a $10K mortgage liab assumed by corp. what is your basis.
It is the $50. the $10K mortgage is handle differently for tax purposes.
of the SCorp, C Corp, LLC , Sole Proprietors, Personal Service Corp, which one has more flexibility with accounting periods
C Corp same as indv tax payers.
During a shareholder exchange for stock interest in corp there was a land exchange of $40K adj basis, FMv $70K, and $20K boot cash received. What is the tax basis for the corp
There is more than 80% interest by shareholders. It would be the greater of adj basis + gain recognize or debt assumed by corp. Corp assumed no debt. 40 adj basis + 20K boot = 60K
An S Corp with a Fiscal y-e of june 30 that has more than $30M revenue under both cash and accrual methods of accounting. Change to C Corp. using cash basis. What is the rule.
While cash basis is the general rule for most taxpayers,accrual method must be followed for the following reasons:
1. purchase & sales of inventory is more than $25M of avg gross receipts over a 3 yr period.
2. tax shelters
3 Certain farming Corp with rev. of $25M over 3 yr avg prior period.
4. C Corp, trust, unrelated trade or business income, partnerships with C Copr as partners with rev. over $25M avg 3 yr period.
If corp formed with John giving services @ $25K for 30 shares or 30%, Bill giving land with adj basis of $10K and FMV of $100K for 60%, and Ed giving $10K cash. 10% what is the income or tax basis share recognized
When forming corp it must have 80% interest that is non services related. In the form only 70% is non service.
So Bill’s land exchange is FMV 100- adj basis 10 = 90K recognized plus services from John $25K.
Ed’’s cash is not recognized
Total shareholders recogniezed 90 + 25.
When a shareholder in forming a S Corp contributes equipment with basis of $6K and and FMV of $15K, it also has liab on equipment of $12K. how much must corp recognized.
Normally, this is a non transaction. Since the corp is assuming the liab $12K it will offset to adj basis of $6K = $6K recognized.
If John has a corp @ 100% ownership and has basis of $50K. Two yrs later Peter joins @10% with equipment adj basis of $250K and FMV of $500K. What is new basis
Since Peter join at 10% the 80% test basis was not met, he joins at FMV $500. The new basis is $550K
What are the deduction for dividend Received deductions ( DRD)
When you own less than 20% of the other entity you get a 50% deduction on the lessor of dividend received or NOI.
When you own 20% to 80% of the other entity you get a 65% deduction on the lesser of dividend or NOI received
When you own greater than 80% of an entity you get 100% of lessor of dividend received or NOI
NOL does not apply
Example of DRD: Angie owns 15% of Mike Memories.
Mike paid Angie $50,000 in dividend and Mike had taxable income before DRD, NOL deduction, or capital loss carryback of $45,000. what is Angie’s deduction
Angie owns 15% so the gets a 50% deduction in dividend.
Total dividend before DRD is $50,000/2 = 25.000
Tax income before DRD $45,000/2 = $22,500. Lessor of two. take deduction on NOI @ $22,500
From a tax perspective are prepaid rent, prepaid royalties and prepaid interest received are on a cash basis or accrual basis
They are all on a cash basis for tax purposes.
For start up cost how can you deduct on corp taxes
The $5000 and amortized less 5000 /180 month ( 15 years) = total per month in the current month.
For example, In March y1 Corp had $40K in start up cost
$40000- 5000 can take = 35000/180= 194.44 per month 10 months( March 1, yr) 1944. total start up deduction is 6,944
For corp tax purpose total salaries are $360,000 and of that $210,000 is compensation for officer
For Corp separate the officer compensation @$210K for other employees $150K
How can be deducted on Corp tax for charitable contribution
Limited to 10% of gross income
How can be deducted on Corp tax for charitable contribution
Adjusted gross tax income $800K- all other deducton without charitable 436.944= 363.086 taxable income without charitable included *10% = 36,308.
What entities that are not eligible for DRD
The personal ones:
personal service corporation
personal holding companies
personal taxed ( Scorp)
A C corp must complete a M1 reconciliation on 1120 corp tax return :
Accrual basis; purchase assets of a Sole prop including good will $300K; Current federal tax exp. $110.1 and $7.5 goodwill impairment to arrive at the $239.2 book income
book income` or net income : 239.2 \+fed income tax book: 110.1 \+excess capital losses 0 \+income subject to tax not record on books this year (intstallment or rent received in advance) 0 \+Expenses recorded on books but not on tax returns : 0 Book Depr meals in excess of 50% allowance Allw for doubful accounts (increase) Warranty accrual Goodwill impairment( Goodwill/15year = tax amortization- book impairment = Excess tax amortization goodwill) Pension accrued penalties Add all lines Less -Income recorded on books but not on tax returns : tax exempt interest life insurance proceeds -Deductions: on books and not on returns: Tax depreciation Section 179 Direct Write off Actual warranty cost amortization of organizational cost Good per return Add all less then exp - less ( taxable income before DRD and NOL carryforward)
Which of the following fees are expense/amortized for 263 organization startup cost: Commission paid to corp underwriter Legal fees for drafting corp charter professional fees for issue stock printing cost of corp stocl
Just legal fees.
The rest are selling expense.
If DRD recipient has a loss on its I/S, how is DRD handle
will deduct drd = loss - drd = taxable income than split by % ownership. ( most of time 20% or less at 50%)
If a company’s taxable income before credits or DRD is $70K and included $10K dividend unrelated taxable domestic corp. What is taxable income before any credits at a 21% tax rate
The 10K dividend from unrelated domestic is 10% interest and 50% DRD 10,000 * 50% = 5000
70000 - 5000 = 65000*21% tax rate = 13,650
Income before special deduction is
Sales- COS= NI + dividends. Special deduction is DRD
With accrual questions an increase in a/r 35K year 2 from year 1 25K means
There was a $10K increase in revenue
A company with taxable income before charitable contribution deduction is $410K =, including a $20K DRD. Co contributable is $43K. what is charitable contribution
10% of taxable income before charitable. must add back DRD to computation
$410+20K DRD= $430*10% = 43K charitable
In order to have DRD deduction how long must company on stock
specified minimum holding period is 45 days.
When computing the maximum charity contrib @ 10% should you include DRD or any other credits
No : DRD, carryforward loss.
If a sole proprietorship wants to convert to either a C corp or S corp, how would it handle charitable contribution, carryforward loss
C corp : deduct charitable contribution from NI, separately state carryforward loss.
S Corp. separately state bothe charitable and carryforward loss.
Which of the following are 263 expenses and which are not: Research and Dev, advertising, QC, Selling
263: QC
Regular expenses: Research and dev, advertising, selling.
When calculating Ni for charitable deduction do you add back current charitable and DRD
Yes
What is the maximum deduction for business gifts
$25
What is LIFO and FIFO
Lifo low ending inventory, high COGS, low NI
FIFO high ending inventory, low COGC, high NI
NO IRS permission to you LIFO
Nothing that say LIFO use for tax purposes
NI per book $210
Federal income taxes per book $114
tax depreciation in excess of book depr 66
Charitable contr per book 46
what is taxable income
NI per book 210 add back : federal tax 114 because need to what is before tax income charitable 46 because need to determine % of charitable subtract excess depr -66 not book dep =tax before contrib % 304 less (304*10%) 30.4 tax income 273.6
What does Sch M explain
Explains the difference between GAAP and Tax differences
What are permanent
Permanent differences are items of income or expenses that are recognized for financial accounting purposes (book) but never for tax purposes or for tax purposes but never for book purposes. Meal all deductible book and 50% for tax. Entertainment not tax deductible.
Penalties and lobby/political expense all deductible book. No deductible tax. Muni Bonds : added to income on book not on tax. Key premium paid for officer.
What are temporary differences
Temporary differences are items of income or expenses that are recognized in one period for financial (book) purposes but in a different period for tax. These cause differences between recognition of the amount of deductions, but in the long run there is no difference.
Example:
Installment sales; book you would debit a/r for full amount and credit revenue.. for tax you would take only the amount received during the taxable year.
Depr: Book use s/l, where as tax MACRS.
Charitable all is expense on book. Tax limited to 10% adj taxable income and rest carryforward for 5 years. ( remember to add back charitable contrib and drd in calculation)
Start up exp: Book exp all start up on book first $5000 is deducted and 180 months amortized or 15 years.
Bad debt: est. bad debt.on book, tax direct write off.
Warranty exp
For M1 purposes, muni int expenses is added or subtracted
It is added.
Warranty has a beg. credit balance of 120, accrued est exp of 16 and end with a credit balance of 90. what is the exp
T account. DR CR beg bal 120 est accru 16 warranty exp 46 End bal 90 Diff = warranty exp 120+16-90 = 46 deb