M3-Gross Income: Part 2 Flashcards
If a rental property is used personally for more than __________ , any net loss from the rental property will be disallowed.
14 days
All related expenses must be prorated between the personal use portion and the rental activity portion. Prorated depreciation is permitted for the rental activity.
Self-employment tax and self-employment health insurance expenses are adjustments from total gross income. They are not deducted from self-employment earnings (i.e., not reported net on line 12 of the Form 1040). (true or false)
True
Cash basis taxpayers deduct interest in the year paid or the year to which the interest relates, whichever is LATER. (true or false)
true
Under the uniform capitalization rules, purchases of inventory for resale may deduct their marketing costs but must capitalize their off-site storage costs. (true or false)
true
Prepaid interest must be prorated over the time for which payment is made. This is true for both cash and accrual basis taxpayers. (true or false)
true
The income is based on the value in money or fair value of property received, not the money billed. (true or false)
true
Earned compensation is subject to self-employment tax. (true or false)
true
Guaranteed payments are reasonable compensation paid to a partner for services rendered (or use of capital) without regard to his ratio of income. This is subject to self-employment tax.
Uniform capitalization rules apply to the following:
1) real or tangible personal property produced by the taxpayer for use in his or her trade or business
2) real or tangible personal property produced by the taxpayer for sale to his or her customers; and
3) real or tangible personal property acquired by the taxpayer for resale, provided the taxpayer’s annual gross receipts for the preceding three years exceeds $10,000,000.
Prepaid rent is income when received even for accrual-basis taxpayer. (true or false)
true
Direct material, direct labor, and factory overhead (applicable indirect costs) are capitalized with respect to inventory under the uniform capitalization rules for property acquired for resale. (true or false)
true
Applicable indirect costs included depreciation and amortization, insurance, supervisory wages, utilities, spoilage and scrap, design expenses, repair and maintenance and rental of equipment and facilities (including offsite storage), some administrative costs, costs of bonus and other incentive plans, and indirect supplies and other materials (including repackaging costs).
If a vacation residence is rented for less than 15 days per year, it is treated as a personal residence. The rental income is excluded from income, and mortgage interest (first or second home) and real estate taxes are allowed as itemized deductions. Depreciation, utilities, and repairs are not deductible. (true or false)
true
The basic formula for determination of net rental income or loss follows:
Gross rental income Prepaid rental income Rent cancellation payments Improvements in lieu of rent (rental expenses) ------------------------------------------------- Net rental income (loss) ============================
If foreign travel is primarily personal in nature (e.g., a vacation) none of the travel expenses (e.g., round trip airfare) incurred will be allowable business deductions, even if the taxpayer was involved in business activities while in the foreign country. (true or false)
true
No self-employment tax is owed if self-employment income, after multiplying by 92.35%, is less than $400. (true or false)
true
Absent any special election, a net operating loss is carried back two years and then forward 20 years. However, taxpayers can elect to forgo the two-year carryback period and just carry the loss forward for 20 years. (true or false)
true
