EA Part 2-Passkey 5-6 Flashcards
Under accrual method of accounting, a taxpayer generally deducts or capitalizes business expenses when both of these apply:
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)
Tax-free amount of gifts allowed to employee?
$25 per person, excluding wrapping and shipping
There are two travel per diem rates, one for…
…combined lodging & meal costs, and a per diem rate for meal costs alone.
Pub 1542 Per Diem Rates
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
Who are DOT workers who get special 80% meal allowance?
- 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
if a business uses standard mileage rate first year an auto is put into service, and later changes to using actual expenses…
it will have to use straight line depreciation
Standard mileage rate cannot be used by
C corporations.
But C corp can choose to reimburse employee shareholder under an accountable plan.
Form 8819
Expenses for Business Use of Your Home
Interest Expense: interest paid in advance can only be deducted in the tax year…
in which it is due. Cannot receive a tax deduction by paying interest early.
A taxpayer may claim a business bad debt deduction only if the amount owed was…
previously included in his gross income.
Form 4562
Depreciation and Amortization.
Use Form 4562 to amortize ratably over 180 months (15 years) any remaining start-up expenses
In 2012, businesses may deduct $___ for both start-up and organizational expenses. If expenses exceed $___, there is a ___ reduction until deduction is eliminated.
$5,000
$50,000
dollar-for-dollar
Start-up costs are paid or incurred for:
creating an active trade or business, or
investigating the creation or acquisition of an active trade or business
Start-up costs may include:
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
Start-up costs do NOT include
deductible interest, taxes or research & experimental costs
Organizational Costs must be an expense and include:
- 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
Example of qualifying organizational costs include:
- 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
Which business entity is permitted to deduct charitable donations?
Only C Corporations
Deduction is limited to 10% of taxable income
The IRS does not allow what types of expenses as business deductions?
- 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
Employer-provided benefits cannot favor “key employees” defined as
- 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
a HCE (highly compensated employee) is
- 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
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…,
25%
.
A qualified plan award (achievement, length of service or safety) is one that…
does not discriminate in favor of HCE.
An employer’s deduction for Achievement Awards given to a single employee is limited to:
- $400 for awards that are not qualified plan awards
- $1,600 for all awards, whether qualified or not
Employer can deduction Educational assistance for tuition, fees, books, supplies & equipment. Amount deductible in 2012 is
$5,250.
If employer pay more, the excess is taxed as wages to the employee.
Employers can exclude the value of Employee Discounts from wages up to:
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
The term capitalize means to include certain expenses __
in the basis of property you produce or in your inventory costs rather than deduct them as a current expense.
You recover capitalized costs through deductions for ___
depreciation, amortization, or cost of goods sold when you use, sell, or otherwise dispose of the property
Under the uniform capitalization rules, you must capitalize all direct costs and __
an allocable part of most indirect costs you incur due to your production or resale activities.
You are subject to the uniform capitalization rules if you:
- 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.
To elect S status, a properly completed and timely filed
Form 2553 must be filed
