EA Part 2-Passkey 5-6

Question 1

Under accrual method of accounting, a taxpayer generally deducts or capitalizes business expenses when both of these apply:

Answer 1

1) all-events test has been met; all events have occurred that fix the fact of the liability & liability can be determined with reasonable accuracy
2) Economic performance has occurred (which occurs as the property or services are provided or the property is used)

Question 2

Tax-free amount of gifts allowed to employee?

Answer 2

$25 per person, excluding wrapping and shipping

Question 3

There are two travel per diem rates, one for…

Answer 3

…combined lodging & meal costs, and a per diem rate for meal costs alone.

Question 4

Pub 1542 Per Diem Rates

Answer 4

Rates differ based on domestic and foreign travel, and by location.
Or can use simplified “high-low” of
$242 big cities, $163 lower-cost cities

Question 5

Who are DOT workers who get special 80% meal allowance?

Answer 5

• Interstate truck operators & bus drivers
• air transport workers (pilots, crew, dispatchers, mechanics & control tower operators)
• railroad employees (engineers, conductors, crews, dispatchers, control operations)
• merchant marines under Coast Guard regulations

Question 6

if a business uses standard mileage rate first year an auto is put into service, and later changes to using actual expenses…

Answer 6

it will have to use straight line depreciation

Question 7

Standard mileage rate cannot be used by

Answer 7

C corporations.

But C corp can choose to reimburse employee shareholder under an accountable plan.

Question 8

Form 8819

Answer 8

Expenses for Business Use of Your Home

Question 9

Interest Expense: interest paid in advance can only be deducted in the tax year…

Answer 9

in which it is due. Cannot receive a tax deduction by paying interest early.

Question 10

A taxpayer may claim a business bad debt deduction only if the amount owed was…

Answer 10

previously included in his gross income.

Question 11

Form 4562

Answer 11

Depreciation and Amortization.

Use Form 4562 to amortize ratably over 180 months (15 years) any remaining start-up expenses

Question 12

In 2012, businesses may deduct $___ for both start-up and organizational expenses. If expenses exceed $___, there is a ___ reduction until deduction is eliminated.

Answer 12

$5,000
$50,000
dollar-for-dollar

Question 13

Start-up costs are paid or incurred for:

Answer 13

creating an active trade or business, or

investigating the creation or acquisition of an active trade or business

Question 14

Start-up costs may include:

Answer 14

analysis or survey of potential markets;
advertisements for the opening of the business;
salaries for employees who are being trained and their instructors;
travel & cost for securing prospective distributors, suppliers or customers;
salaries & fees for executives or consultants, or for similar professional services

Question 15

Start-up costs do NOT include

Answer 15

deductible interest, taxes or research & experimental costs

Question 16

Organizational Costs must be an expense and include:

Answer 16

• for the creation of the business
• chargeable to a capital account
• for partnerships, the cost must be incurred by the due date of the tax return for the year business begins
• for corporations, the cost must be incurred before the end of the first tax year

Question 17

Example of qualifying organizational costs include:

Answer 17

• cost of temporary directors
• cost of organizational meetings
• filing fees for partnerships
• state incorporation fees for corporations
• legal and accounting fees for setting up the business

Question 18

Which business entity is permitted to deduct charitable donations?

Answer 18

Only C Corporations

Deduction is limited to 10% of taxable income

Question 19

The IRS does not allow what types of expenses as business deductions?

Answer 19

• political contributions, including indirect such as advertising in a political convention program
• lobbying expenses
• dues for country clubs, golf & athletic clubs, hotel & airline clubs
• penalties & fines paid to any governmental agency
• legal & professional fees for personal nature items, such as draft a will

Question 20

Employer-provided benefits cannot favor “key employees” defined as

Answer 20

• an officer with annual pay > $165,000 in 2012 or
• an employee who is either a 5% owner or
• • a 1% owner who annual pay was >$150,000

Question 21

a HCE (highly compensated employee) is

Answer 21

• an officer
• shareholder who owns >5% of voting power or value of all classes of stock
• an employee who is highly compensated based on the facts & circumstances or
• a spouse or depend of a person described above

Question 22

If a plan gives __% of all benefits to HCE or key employees, the employer is required to include the value of the benefits they could have selected in their wages…,

Answer 22

25%

.

Question 23

A qualified plan award (achievement, length of service or safety) is one that…

Answer 23

does not discriminate in favor of HCE.

Question 24

An employer’s deduction for Achievement Awards given to a single employee is limited to:

Answer 24

• $400 for awards that are not qualified plan awards

- $1,600 for all awards, whether qualified or not

Question 25

Employer can deduction Educational assistance for tuition, fees, books, supplies & equipment. Amount deductible in 2012 is

Answer 25

$5,250.

If employer pay more, the excess is taxed as wages to the employee.

Question 26

Employers can exclude the value of Employee Discounts from wages up to:

Answer 26

20% discount on SERVICES of price charged customers, or for a discount on MERCHANDISE,
the company’s gross profit percentage multiplied by the price nonemployee customers pay

Question 27

The term capitalize means to include certain expenses __

Answer 27

in the basis of property you produce or in your inventory costs rather than deduct them as a current expense.

Question 28

You recover capitalized costs through deductions for ___

Answer 28

depreciation, amortization, or cost of goods sold when you use, sell, or otherwise dispose of the property

Question 29

Under the uniform capitalization rules, you must capitalize all direct costs and __

Answer 29

an allocable part of most indirect costs you incur due to your production or resale activities.

Question 30

You are subject to the uniform capitalization rules if you:

Answer 30

• Produce real or tangible personal property.
• Acquire property for resale. However, this rule does not apply to personal property if your average annual gross receipts are $10 million or less.

Question 31

To elect S status, a properly completed and timely filed

Answer 31

Form 2553 must be filed