Deck 2

Question 1

Accruable expense

Answer 1

One in which the services have received/performed but have not been paid for by the end of the reporting period

Question 2

Vacation residence rule

Answer 2

If a vacation residence is rented for less than 15 days per year, it is treated as a personal residence. The rental income would therefore be excluded from income. Taxes are considered itemized deductions

Question 3

Basic formula for net rental income =

Answer 3

Gross rental income + prepaid rental income + rent cancellation payments + Improvements in lieu of rent - rent expenses

Question 4

Taxpayers who sell stock or securities on an established securities market must recognize gains and losses on what date?

Answer 4

The trade date for both cash and the accrual method of accounting

Question 5

Retirement money cannot be withdrawn until what age?

Answer 5

59.5 years old (If the money is withdrawn before the age of 59.5, the premature distribution is subject to a 10% penalty tax)

Question 6

What is not a deductible expense on Schedule C?

Answer 6

Personal expenses (Ex: personal use of an automobile, health care for you and your family); Schedule C items should be only those related to the operation of the business itself

Question 7

HIM DEAD Mnemonic (exception to penalty tax)

Answer 7

Home buyer (1st time), Insurance (medical), Medical expenses in excess of 10% of AGI, Disability, Education, Education, and Death

Question 8

Passive activity

Answer 8

(i)Any activity in which taxpayers do not materially participate and (ii) as a general rule, such taxpayers’ rental real estate investments, regardless of the extent of such taxpayers’ involvement with the rental real estate operations

Question 9

The Uniform Capitalization Rules of Code Sec. 263A apply to retailers whose average gross receipts for the preceding three years exceed what amount?

Answer 9

$10,000,000

Question 10

Example of nontaxable fringe benefit:

Answer 10

The first $50,000 of group term life insurance is a nontaxable fringe benefit

Question 11

Tax rule for suspended passive activity losses

Answer 11

Suspended losses can be carried forward, but not back, until realized

Question 12

Generally passive losses are only deductible against:

Answer 12

Other passive income

Question 13

If the event is taxable:

Answer 13

Income = FMV; Basis = FMV

Question 14

If the event is nontaxable

Answer 14

No income; Basis = NBV

Question 15

IN order to be taxable, the gain must be both:

Answer 15

Realized and recognized

Question 16

Only passive losses may offset what?

Answer 16

Passive income

Question 17

Partially taxable fringe benefits rule (portion of life insurance premiums)

Answer 17

Premiums above the first $50,000 of coverage are taxable income to the recipient

Question 18

Examples of Tax-Exempt Interest Income:

Answer 18

State and local government bonds/obligations, bonds of a U.S. possession, Series EE (educational expenses)

Question 19

Tax-free distributions include:

Answer 19

Return of capital, stock split, stock dividend, life insurance dividend