General Business Income and Expenses Flashcards
On what form does a C Corp report its income and expenses?
Form 1120
On what form does an S Corp report its income and expenses?
Form 1120-S
What makes an expense ORDINARY?
It is common and accepted in the taxpayer’s industry.
What makes an Expense NECESSARY?
It is helpful and appropriate for the taxpayer’s trade or business.
Ordinary and Necessary expenses can be differentiated from what other expenses?
(1) Capital Expense
(2) COGS
(3) Personal
Two types of plans for reimbursing employees for business expenses?
Accountable and Nonaccountable plans
Tax treatment of accountable plan for employee reimbursement?
Can be deducted in category of expense paid.
Tax treatment of nonaccountable plan for employee reimbursement?
Must be deducted as W-2 wage
How to make employee reimbursement plan accountable?
Employee must submit expense reimbursement request.
COGS Formula?
Beginning Inventory
+Purchases
+Cost of Labor
+Uniform Capitalization Costs
+Other Costs
-Ending Inventory
=COGS
T/F Factory overhead is included in COGS?
True
Do FREIGHT COSTS for purchased products/raw materials get capitalized?
Yes
What indirect costs are capitalized under UNICAP?
(1) Rent
(2) Interest
(3) Storage
(4) Purchasing
(5) Processing
(6) Repackaging
(7) Handling
(8) Admin Costs
When can cash basis taxpayer deduct all of prepaid rent (Also Insurance Premiums)? (Not interest?)
If benefit doesn’t extend beyond 12 months, cash basis taxpayer can deduct at once; otherwise must deduct over period of benefit.
Under what circumstances are business meals deductible?
When the meals are provided to a business associate or when they are incurred while traveling.
What is the percentage limit on business meal deductions?
50%
When is an individual determined to be TRAVELING for tax purposes?
They are away from tax home for substantially longer than an ordinary work day and
Sleep or rest is required to meet the demands of the work obligations while away from the individual’s home.
When can sole proprietor deduct costs for business trip outside US?
When trip is entirely for business purposes or meets safe harbor requirements.
What are the safe harbor requirements for a foreign business trip to be considered entirely for business purposes?
(1) The time outside US is no more than one week;
(2) If the time outside US is more than one week, less than 25% of time is spent on personal activities;
(3) Vacation was not a major consideration of the trip.
If safe harbor not met, prorated expenses may still be deducted.
T/F Generally, ordinary and necessary entertainment expenses are deductible?
F
When can entertainment expenses be deducted?
(1) Social events primarily for the benefit of employees; or
(2) Amount is treated as taxable compensation to employees.
What types of organizations is the standard mileage deduction rate available for?
Sole proprietorships.
What is the limitation for business gifts?
$25 per recipient may be deducted
T/F Contributions or gifts to political parties/candidates and lobbying expenses are deductible?
F
What is the tax treatment for income and expenses related to property rented for less than 15 days?
No income or deductions recognized.
T/F Interest expense paid on a loan used to purchase a municipal bond is deductible.
F. No expense on items used to produce tax-free income.
How much of start up costs may be deducted in the first year?
$5,000 plus applicable amount amortized over 180 months
