Mod 35 Wrong Answers Flashcards
Accounts receivable resulting from services rendered by a cash basis taxpayer have…
2) why?
A zero tax basis
Because the income is not yet reported
ordinary and necessary trade or business expenses are deductible by a sole proprietor on…
Schedule C Profit or Loss of a business
Licensing and regulatory fees as well as continuing education expenses of a sole proprietor are considered…
Trade or business expenses
Contributions to a self employed individual’s qualified Keogh retirement plan are deductible on…
Page 1 of Form 1040 to arrive at AGI
The maximum deduction contributions to a defined contribution Keogh retirement plan is limited to the lesser of…2
1 $51,000 in 2013 or
2 25% self employment income
A loss (less than $50,000 or $100,000 if filed joint return with spouse) sustained on a Sec. 1244 stock is generally deductible as…
Ordinary loss in Form 4797- Sales of Business Property
To the extent that the loss of a Sec. 1244 stock that exceeds ($50,000 or $100,000) is deductible as…
2) a gain is treated as…
capital loss on schedule D
2) a capital gain on schedule D
Interest paid on installment purchases of household furniture is considered…2
1 personal interest and
2 is not deductible
Qualified residence interest, investment interest, passive activity interest or business interest are…
Not considered personal interest
Late payment charges by a utility, interest on income tax, under payments, installment plan interest are considered…
Personal interest
Alimony paid to former spouse who reports the alimony as taxable income is deductible on…
Page 1 of Form 1040 to arrive at AGI
An individual can deduct medical expenses in the same year a…
Credit card charge is made
State inheritance taxes paid on a bequest that was received are…
Not deductible
Other taxes that are not deductible in computing individuals federal tax include…3
1 federal estate and gift tax
2 federal income taxes
3 social security and other employment taxes paid by employee
An individual’s self-employment tax is computed in Schedule SE and is added as…
An additional tax in arriving at individual’s total tax
One half of a sole proprietor’s self employment tax for 2013 is deductible for 2013 on page 1 of Form 1040 to arrive at AGI, even if the tax was…
Not paid until the return was filed in April 2014
The cost of subscriptions to professional journals used for business are…
An ordinary and necessary business expense
The cost of subscriptions to professional journals used for business are an ordinary and necessary business expenses and are fully deductible by a self employed individual in…
Schedule C-profit or loss from business
Qualifying contributions to a self employed individual’s simplified employee pension plan are deductible on…
Page 1 of Form 1040 to arrive at AGI
The loss resulting from the sale of Green’s personal residence is…
Why?
Not deductible
Because property was held for personal use
Only losses due to casualty or theft are deductible for…
Personal use property
How do you determine the pension annuity amounts excluded from income per year, if an employee contributed $24,000 and was expected to live for 20 years?
$24,000/240 months = $100 excluded per month x 12
$1,200 excluded/year
Cafeteria plans are employer sponsored benefit packages that offer employees a choice between…2
1 taking cash or
2 receiving qualified benefits
Cafeteria plan:
Qualified benefits include 4
1 accident and health insurance
2 group term life insurance
3 coverage under dependent care
4 group legal services program
Under a cafeteria plan, an employee may select their…
Own menu of qualified benefits
Cafeteria plan:
If an employee chooses qualified benefits they are…
Excluded from employee’s gross income to extent allowed by law
Deferred compensation plans other than 401k plans are…
Not included in definition of cafeteria plan
An interest forfeiture penalty for making an early withdrawal from a certificate of deposit is deductible on…
Page 1 of 1040 to arrive at adjusted gross income
An interest forfeiture penalty for making a premature withdrawal from a certificate of deposit should be deducted from…2
1 Gross income in arriving at AGI
2 in year penalty is incurred
Alimony recapture may occur if alimony payments…
Sharply decline is second and third years that payments are made
Under alimony capture, during the 3rd year the payor must…
2) And the payee is…
Report the recaptured alimony as gross income in the 3rd year
2) allowed a deduction for the same amount
Recapture for the second year, occurs to the extent that alimony paid in the second year ($30,000)…
Exceeds alimony paid in the 3rd year by more than $15,000
Ex $30,000 - ($0 + $15,000) = $15,000 recaptured
Alimony recapture for the first year occurs to the extent that alimony paid in the first year exceeds…
Average alimony paid in 2nd and 3rd years by more than $15,000
An exchange of services for property or services is sometimes called…
Bartering
If you are a doctor and billed client for one amount, and they repay you with property, taxable income should be based on…
FMV of property received
The transfer of the title in the home to an ex wife is…
1 Not a cash payment and
2 cannot be treated as alimony
Mortgage cash payments on an ex wife’s property are not alimony because…2
1 They will be made throughout the mortgage period and
2 not terminate in event of ex wife’s death
Income with regard to a decedent must be included in…2
1 Gross income of heir who receives it
2 treated in same character (ordinary or capital)
Income in respect to cash basis decedent includes…
1 Bonus earned before tax payer’s death and
2 not collected until after death
What is the amount of net rental income that landlord who lives in 2 identical apartments should include in adjusted gross income? As far as rental expenses…
50% of rental expenses can be allocated towards the rental unit
Painting the rental apartment is just…
For the one apartment so 100% allocation allowed
If an accrual method taxpayer accrues $1,000 in 2014 and finds out in 2015, the exact amount of income for 2015 was $1,200. The tax payer would…
Include the $200 in 2015 taxes
In taxes generally there is no deduction in…
Prepaid interest
When a taxpayer pays interest for a period that extends beyond the end of a tax year, the interest paid in advance must…
Be spread over the period to which it applies
When a $20,000 of unpaid salary was unqualifiedly available to a cash basis cash payer during the tax year, the tax payer is…
Considered to have constructively received it
If 2013 bonuses are paid by a cash basis employer in 2014, they are…
Deductible in 2014 as a business expense
International accounting firms are considered…
Qualified personal service corporations
To use the cash basis method of accounting, a qualified personal service corporation must not…2
1 not have inventories
2 not have average annual gross receipts for 3-yr. period that
exceed $5 million
Bad debt expense for cash basis taxpayer’s are…
Not deductible
Portfolio income or loss must be excluded from…
2) portfolio income will be…
Computation of income or loss resulting from a passive activity
2) separately passed through to partners
When interest income derived by the partnership resulted from a temporary investment, the interest income must…2
1 Be classified as portfolio income and
2 Can’t be noted against operating loss from business
Rental activity is a passive activity without…
Without regard to whether or not tax payer materially participates
In activity
Can passive rental activity credits be used to offset tax attributable
non passive activities?
No
What is the MACRS deduction for used furniture and fixtures placed into service in 2013?
7 yr property using 200% declining balance
Under MACRS, what convention applies for furniture and fixtures? 2
1 normally half year convention in year of acquisition
2 mid quarter convention must be used if conditions met
When is mid quarter convention used?
More than 40% of all personal property placed in service in last
quarter
Determine the portion of $600,000 cost of machine that can be treated as Sec. 179 expense deduction for 2013?
2) deduction is reduced $ for $ when it…
Up to $500,000 expensed instead of capitalized
2) exceeds $2 million
If an unemployed person moves to a new state over 50 miles away, they can…
Deduct qualified moving expenses
Penalty for breaking a lease is…
Not a qualified moving expense
Contributions to a Roth IRA must be made by the due date of the taxpayer’s return this does…
Not include extensions
Emergency room fees for a son or daughter that does not qualify as a dependent are…
Not deductible
Emergency room fees for family member are only deductible if…
They qualify as your dependent
Legal expenses and agency fees in connection with adoption are…
Treated as non deductible personal expenses
For credit card payments for medical expenses…
It does not matter if they are paid off in next year
Counts in year credit card is charged
Premiums paid onMedicare B supplemental medical insurance…
Qualify as deductible expense
Nursing care for healthy baby…
Not deductible as medical expense
One half or self employment tax is…2
Not deductible from gross income in arriving at AGI
1/2 is deductible
Deductible medical expenses include those incurred by a tax payer, taxpayer’s spouse, dependents of taxpayer or any person for whom…
The taxpayer could claim dependency except that person had
Gross income over $3,950
2013 state and local income taxes paid by a cash basis tax payer are…
Deductible on 2014 tax return (the year paid)
Real property tax must be apportioned between the buyer and seller for tax purposes according to the number of days in real property tax year that each owns the property even though…
They did not make an apportionment
In determining the portion of realty taxes deducted by the buyer:
Delinquency taxes charged by seller and paid by buyer are…2
1 not deductible
2 added to the cost of property
The realty taxes (other than delinquency taxes) are…2
1 apportioned between buyer and seller for number of days they
Held the property during the year
2 deductible
Self employment is not…
2) It is…
Not deductible as an itemized deduction
2) it’s deductible from gross income in arriving at AGI
For a qualified residence, utilities expense and insurance expense are…
Nondeductible personal expenses
Bank interest used to purchase US debenture bonds is classified as…
2) it is only deductible to the extent of…
Investment interest
2) net investment income
Investment interest is not deductible if…
There is no net investment income
If a contribution of art sold 4 months after purchase, the deduction is limited to…
It’s adjusted basis (not FMV)
By reserving the right to use an possess a collection for the contributor’s lifetime, there is…
No deduction available because the gift was not completed
By reserving the right to use an possess a collection for the contributor’s lifetime, there is no deduction available. The deduction will be available when…
Entire interest is transferred to museum
All unreimbursed business expenses of an outside salesman are…
Deducted as miscellaneous itemized deductions
An outside salesman is an…
1 Employee who primarily solicits business for his employer
2 while away from his employer’s place of business
Voluntary benefit fund contributions are…
Not deductible
When a question asks for miscellaneous deductible expenses, I should…
Multiply AGI by 2% and subtract it
Preparation of a will is…
A personal expenses and not deductible
A dependency exemption can be claimed for spouse on a husband’s separate return only if…2
1 spouse had no gross income and
2 was not claimed as another person’s dependent in the tax year
Providing Sole support for a niece who has no income…
Makes her a qualifying relative
Providing Sole support for a niece who has no income, makes her a qualifying relative because the tax payer…2
1 provided over half her support
2 income was less an $3,950
A 21 year old son and full time student, who had income of $6,200 and provided 70% of his own support…2
1 Is not a dependent
2 Fails the support test
Excluded from computation of self employment income is…4
1 estimated income taxes on self employment
2 charitable contributions
3 investment income
4 gains/loss on disposition of property use in trade/business
If an individual works for more than one employer, and combined wages exceed the maximum use for FICA purposes…
Too much FICA tax will be withheld
If an individual works for more than one employer, and combined wages exceed the maximum use for FICA purposes. The excess results from…
Correct withholding of 2 or more employers
The excess of FICA tax withheld from correct withholding by 2 or more employers should…
Be claimed as credit against income tax
The American Opportunity credit provides for a maximum credit of…
Also give its composition
$2,500 per year (100% of first $2,000 + 25% of tuition, fees, course materials)
The American Opportunity Credit is available on a…
Per student basis
To be eligible for the American Opportunity Credit a student must be enrolled on a…
At least Half time basis
The lifetime learning credit is available on…
A per tax payer basis
Both lifetime learning credit and American Opportunity credit cover tuition paid for…3
1 taxpayer
2 spouse
3 dependents
The normal three year statute of limitation claim is extended to for refund claims or bad debts is extended to…
7 years from filing date
