MCQ review Flashcards
How are late tax penalties calculated
Witholding needs to be the lesser of 90% of current year liability or 100% of prior year (110% if AGI is <150k)
Use Taxes Due - Withholding amount to calculate penalties on late returns, at 5% per late month for filing and .5% per month for late payment
What does cash basis refer to
Cash or property either actually or constructively received
What are ordinary, capital, and section 1231 assets?
Ordinary income assets are current assets of a business i.e. assets acquired or produced with the intention of being sold in the ordinary course of business.
Example - Inventory & Accounts Receivable:
Section 1231 assets are non-current business assets i.e. assets comprising principally personal and real property used in the trade or business and held for over 12 months whose eventual sale or disposal is only incidental to the business,
Example - PPE and Land:
Capital assets are investments & non-business assets i.e. all assets that do not qualify as ordinary income or section 1231 assets such as investments, assets for personal use.
When can interest expense be deducted (timing)
Only in the year it is due even if it is prepaid
What are the rules surrounding Sec 179 depreciation?
The Section 179 deduction under TCJA is $1,160,000 for the 2023 tax year and beyond, with a phaseout starting at $2,890,000.
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When are alimony payments deductible?
From divorces settlements from 2018 or ealier
Which revenue recognition method is used in tax for contracts
Percentage of completion method unless the firm has less than 29 million in average annual gross receipts 3 years prior
What rules surround charitable donations?
Corporations are limited to 10% AGI with a limited carryforward
Individuals are limited to 30% AGI with a five year carryforward
Rules when disposing gifted assets at a loss
If devalued property is acquired by gift, then the basis to the donee is determined at the time of disposal. When devalued gifted property is disposed of in a taxable transaction at a price between the fair market value and basis at the date of the gift then no gain or loss is recognized.
How much capital losses can corporations deduct
Only up to capital gains
What are the DRD % amounts
80% Interest = 100% DRD
20-79% = 65% DRD
<20% = 50% DRD
What are the income requirements of a personal holding company
Personal Holding Companies (PHCs) are corporations that satisfy both conditions: (i) 5 or fewer individuals own more than 50% stock (either directly or indirectly) at any time during the last half of the year and (ii) 60% or more revenue from passive sources (taxable interest, dividends, rents and royalty income)
How are R&D expenses treated in tax law
As per TCJA, starting in 2022, research and experimental expenditures are to be capitalized and amortized over 5 Years (R&E done within US) and 15 Years (R&E done outside US).
How is the installment sale method recorded
The amount of gain that is taxable each year = Payments Received x Gross Profit %.
Example:
Gross profit % = 40%
Payment received = $20,000.
Gain Recognized = $20,000 x 40% = $8,000.
What happens to passive activity losses upon disposal
Can be used to offset Ordinary and Portfolio income