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