Final Review Flashcards
What are the pillar topics when it comes to intangible assets, organization costs, and start up costs?
Organization costs include legal fees and state filing fees
Organization costs and start up costs are treated seperately?
Intangible assets are amortized over 180 months (15 years)
Organization costs: $5,000 can be immediately deducted if costs are below $50,000. This is reduced dollar for dollar for every dollar above 50,000. $55,000 in organization costs means no immediate deduction.
Start up costs are treated the same as organization costs. They include things that happen before you open the business.
What are the pillar topics for Calculating Tax Depreciation for Tangible Business Property Using MACRS?
The types of receovery period are 5, 7, 15, 27.5, 39
5 years: Computeres, vehicles
7 year: Machinery, Equipment, & Office Furniture
27.5: Real residential property
39: Real commercial property
Personal property can either be half year or mid-quarter (Mid Quarter is when >=40% of personal property is placed into service the last quarter)
Real property is mid-month convention
Section 179 is immediate expense and the AICPA will give you this because they want you to know the concept not the specific number
What are the pillar topics for Section 179 deduction?
The total deduction is the lesser of the max for the year or taxable income of the business
The max for the year can be reduced dollar for dollar for the amount of qualified property exceeding the phase out limit for the year
The property has to be new, greater than 50% used for business, can’t be unique software, land is not depreciable, real property is not included, can’t be property from related parties
What does form 4868 do for an individual taxpayer?
They will have a six month extension of time to file their income tax return but it does not give them an extension of time to pay income tax
What is included in rental income?
Rent Payments
Rent payments in advance
Improvement of proper in lieu of rent
Rent cancellation payments
(Reduced by rental expenses)
What is included in a partner’s income if the partnership on distributes 50% of their ordinary income and the partner also has guaranteed payments from the partnership?
100% of their share in the partnership income
Guaranteed payments as well
What is the process to calculate the American Opportunity credit?
100% of the first $2,000 of qualified expenses
25% of the next $2,000
Max is 2,500
(40% is refundable amount)
What are the pillar topics for amortization of intangible assets?
intangible are amortized over 180 months regardless of their expected useful life
what is included in intangibles?
customer list (relationships)
goodwill
software
Can’t amortize something that is from the ordinary course of business
What are the pillar topics for Calculate the amounts to include in an individual’s gross income?
Things included:
Wages
Lottery winnings
Gambling winnings
Guaranteed payments from a partnership
Unemployment compensation
Corporate bonds, dividends
Punititve damages
Traditional IRA/401(k) distributions
Alimony received from a divorce before December 31, 2018
Barters for the FMV of the service you RECEIVED
Excluded
Distributions from Roth IRA
Muni bond income
What is the rule for charitable contributions when it comes to long term/ordinary items?
Long Term items: Deduct the FMV of the asset (30% * AGI)
Ordinary Items: Deduct the Lesser of the Cost Basis/FMV (50% * AGI)
What are key things reported on Schedule E for an individual?
Rental Real Estate
S-Corp % of ordinary Income
% of Ordinary Income from a Partnership
Section 179 deduction for separately stated item
What are the pillar topics for Capital Gains from Investments and Virtual Currencies?
Long term is held >12 months
Short term is held <12 months
First Net Short term gains/(losses) and Long term gains/(losses)
If they are both the same in nature then no further netting
If one is a gain and the other is a (loss) then net them together
Only ($3,000) of capital loss can be deducted against ordinary income for the year
What are the pillar topics for Capital Gains from the Sale of Gifted Assets?
Gain: Use the donor’s adjusted basis and holding period
Neither: No gain/(loss)
Loss: Use the Lesser of the donor’s adjusted basis or the FMV at the time of the gift
What are the pillar topics for Capital Gains from the Sale of Inherited Assets?
Step up in basis
FMV on donor’s DOD or 6 month alternatve vaulation Date
Holding period is always long term
Can deduct only 3,000 of capital loss on individual return
What are the pillar topics for Tax-Exempt Interest and Gross Income?
Muni Bond interest is not taxable
Series EE bond interest is not taxable if used for qualified higher education expenses
Interest income from a Health Savings Account is not taxable if used ot pay for medical expenses
Tax refund is not taxable if the person claimed the standard deduction last year on their tax return
What are the pillar topics for Gifts Received, Life Insurance Proceeds, and Gross Income?
Gift Received are not taxable to the receipient
Life Insurance proceeds are generally not taxable
The exception to this if a person buys one from another person the equation is (Total Life insurance proceeds - amount paid for policy - premiums paid)
What are the pillar topics for Income Reported in the Year of Death for a Decedent?
Income that is received/earned prior to the death of the Decedent is included in their 1040
The rest is included is in 1040-E
What is the Process to calculate the self-employment tax deduction from Form Schedule K-!?
Look at Box 14 for Self-employment earnings (loss) Multiply by 92.35%
Multiply this number by the 15.3% SE tax rate
50% of this number is then deductible for SE Tax
What is the steps to recall how to calculate the QBI deduction for a task based simulation?
1) Sum the gross income which includes: Wages, share of ordinary business income from QTB/SSTB, and Salary or Guaranteed payments less the greater of itemized/standard deduction
2) Check the QBI limitation to see if they are above the threshold and this means SSTB will not get deducted and they will have to check for W-2 and UBIA
3) Determine whether each business is within the U.S. and categorize as a QTB or SSTB
4) Multiply the ordinary business income by 50%
5) Compare this amount for each qualifying business to the (20% * Taxable Income) to get the lesser of the two
What are the pillar topics from Taxation of Income from Disregarded Entities?
The main disregarded entities are sole proprietorships and single member LLCs
A person reported the business income/business expenses on 1040 Schedule C
Salary paid to the person is not deductible and not included in gross income directly but rather indirectly
Schedule E is a schedule for business rent such as payments, prepaid payments, non-refundable deposits received from tenants as well
What are the pillar topics for Taxation of Income from Pass-through Entities?
The two main types of Partnerships and S-corporations and certain LLCs
Income is pass through to the owners and taxed at an individual level. This income is taxed regardless of the entity distributing it to that person or not.
A partner or shareholder can deduct a loss greater than their basis (Debt + Stock Basis)
Distriubitons from partnerships are considered a return of capital and are not taxable
Ordinary income and seperately stated items are two different things
List common separately stated items
What are the pillar topics for HSA and Retirement Contributions?
HSA are health savings account where you can deduct a certain limit based on the tax year.
Traditional IRA contributions can reduce gross income
Rother IRA contributions don’t reduce gross income but they gross tax free and distributions are not taxed
Traditional IRAs might not reduce income if your MAGI is above the threshold
Consideration must be ______ bargained for and __________ sufficient.
mutually
legally
Most offers made by the offeror to the offeree can be __________ anytime prior to acceptance. This is true even if the offer states it will be held open.
Revoked
Advertisements and price quotes generally are not _________, but rather are invitations to deal.
offers
What happens when someone enters into a contract when they are significantly impaired?
The person can disaffirm or rescind if they didn’t have mental capacity. The contract becomes voidable to that person.
What are the things the non-breaching person in the contract can do for anticipatory repudiation in very simply?
Sue immediately
Wait and see, and then possible sue
Cancel the contract
What is the rule for firm offers?
It must be in writing and signed by the merchant
Must be made by a merchant
Offer states that it will remain open for a period of time and no more than 3 months
says that once a written contract is finalized, you generally cannot use earlier statements, agreements, or understandings (oral or written) to change or add to the terms of that written contract.
parole evidence rule
The UCC Sales Article applies to what type of sales?
The sale of goods (specifically movable personal property aka goods)
What happens when a buyer rejects nonconforming goods?
A buyer can do this, and the seller has the right to correct or cure the nonconforming delivery by notifying the buyer it will be corrected on time.
When is a writing not requires for the statue of fraud to be enforceable?
The party admits in court that they made the contract.
What are the type of contract that fall under the statute of frauds?
M: Marriage – Contracts made in consideration of marriage (like prenuptial agreements).
Y: Year – Contracts that cannot be performed within one year from the date they are made.
L: Land – Contracts involving the sale or transfer of interest in land.
E: Executor – Contracts where an executor promises to pay the debts of an estate out of their own pocket.
G: Goods – Contracts for the sale of goods over a certain value (typically $500 or more under the UCC).
S: Suretyship – Contracts where one party agrees to be responsible for the debt of another (a guarantee).
These are the types of contract that have to be in writing under the Statue of Frauds
If an agent exceeds their actual authority (Implied/Express) then a principal can ratify a contract. To ratify a contract, the principal must have knowledge of all _______ ____________
material facts
How can a principal-agent relationship be terminated?
Mutual agree of both parties
Expiration of a period of time
Completion of the purpose of entering into agreement
Revocation by the principal unless the agent is coupled with an interest
Renunciation by the agent: The agent can also choose to resign or renounce the authority given by the principal.
Death or incapacity: The relationship automatically terminates if either the principal or agent dies or becomes legally incapacitate
Bankruptcy: The bankruptcy of the principal (or sometimes the agent) can terminate the relationship, especially if it affects the ability to perform the contract.
Change of circumstances: If circumstances change such that the agent’s role no longer makes sense (e.g., destruction of the subject matter), the relationship may end.
What is an example when the principal may not terminate the agency, and the agency does not terminate by operation of law by the death of the principal.
If the agent has paid for the right o be appointed as an agent, the agency is coupled with an interest and may be revoked only by the agent
What is a right a surety has against a co-surety?
contribution
What are the three available right a surety has against a principal?
Exoneration is the right to compel the principal to pay
Subrogation is the surety’s right to succeed to the creditor’s rights against the principal debtor after the surety pays the creditor
Reimbursement is the surety’s right to recover from the principal whatever the surety pays the creditor.
Which of the following statements is correct regarding an agreement to act as a surety?
The promise of a gratuitous surety must be evidenced by a writing signed by the surety because of the Statute of Frauds (MY LEGS)
What are the three things required for a security interest to attach?
creditor must give value (aka loan)
agreement between the credit and the debtor
debtor must have rights in the collateral
CAD
Which remedy aims to put the non-breaching party in the position they would have been in had the contract been performed as agreed?
compensatory damages
Which remedy involves canceling the contract and restoring the parties to their pre-contractual positions?
Recission
When a court orders a party to perform their contractual duties as agreed, this remedy is known as:
Specific Performance
involves returning the benefit received under the contract to prevent unjust enrichment, ensuring that the non-breaching party is not unfairly enriched at the expense of the breaching party.
Restitution
What type of damages are awarded when a breach occurs, but the non-breaching party does not suffer any measurable loss?
Nominal damages
Which remedy modifies the contract to reflect the true intentions of the parties when the original contract is incorrect due to mistakes or misrepresentations?
Reformation
not typically awarded for breach of contract alone but may be granted in cases involving fraud or egregious conduct to punish the wrongdoer and deter future misconduct.
punitive damages
Qualified improvements to the interior of nonresidential real property that are added after the building is placed into service have what recovery period? Can you recall this from a TBS?
15 year recovery period
In the TBS the asset was a security system
What is the order to take depreciation deductions?
Section 179
Bonus Depreciation
MACRS Depreciation
What type of assets qualify for Section 179 Deduction?
5 year class
7 year class
15 year class
What is the process to calculate the depreciation when you have section 179, bonus depreciation, and then MACRS depreciation?
The order of depreciation is section 179, bonus depreciation, and then MACRS depreciation.
Section 179 is available for assets with a recovery period of 5, 7, or 15 years. Section 179 reduces the basis of the asset with the longest recovery period
The limits will be given you compare the max section 179 depreciation for the year to the taxable income after MACRS and use the lesser of the two
Bonus depreciaiton is available for assets with a cost recovery of less than 20 years and it will be given
MACRS is then calculated based on the assets basis after section 179 and bonus depreciation.
How is a state franchise tax overpayment previously deducted treated for tax purposes?
It is fully taxable
This is from a tbs and I put that it is not taxable thinking that it is similar to a refund for an individual
How are bad debt expense treated on an M-1?
Recall from a TBS. There are three options
Bad debt expense recorded for GAAP purposes is not deductible
Bad debt expense that is actually written off is deductible
Accounts that are recovered in subsequent periods are taxable
Filing for bankruptcy triggers an _________ _________, which halts creditors from taking collection actions, such as foreclosures or garnishments.
automatic stay
What debts will not be discharged by a bankruptcy?
WAFTED
Willful and malicious injury
Alimony
Fraud
Taxes
Educational loans
Debts undisclosed in the bankruptcy petition
How are unsecured creditors typically treated in Chapter 7 bankruptcy?
They receive a pro-rata share of remaining assets after secured creditors are paid
What is the main difference between Chapter 7 and Chapter 13 bankruptcy?
Chapter 7 involves liquidation of assets, while Chapter 13 involves a repayment plan
What are the three requirements for a security interest to attach?
A valid security agreement exists between the debtor and creditor
The creditor gives value (e.g., loan or credit)
The debtor has rights in the collateral (ownership or control)
when a security interest becomes enforceable against the debtor, allowing the creditor to claim the collateral.
attachment
What are the common methods to perfect a security interest?
Filing a financing statement (UCC-1)
Taking possession of the collateral
Automatic perfection (in limited cases, like a purchase money security interest in consumer goods)
Why is perfection important for a secured creditor?
Perfection gives the secured creditor priority over other creditors in claiming the collateral.
What is a Purchase Money Security Interest (PMSI)?
A PMSI is a security interest that gives a creditor priority when they finance the purchase of collateral (e.g., a creditor lends money to buy equipment and takes a security interest in that equipment).
