R1 - Gross Income: Pt 2

Question 1

Interest Expense on Sch C.

Answer 1

• Must be incurred and paid. Meaning, it cannot be deducted until the tax year to which the interest relates.

Question 2

SE Tax Base

Answer 2

92.35% of SE net income.

Question 3

Sch C: Net Taxable Loss Limitation

Answer 3

$500K (MFJ); $250K (all others)

Excess is CF Wakanda forever.

Question 4

UNICAP Rules

Answer 4

• Consists of capitalizing RM, DL, and OH (inventory)
• Do not capitalize SG and A
• Required when sales >$26MM
• Exempt when a business has avg gross receipts of =<26MM
• Applies to manufacturers of Tangible Personal Property

Question 5

LT Contracts

Answer 5

• Required to use % of completion for tax unless small contractor or home construction contractor. These last two may use completed contract method.
• UNICAP rules apply.
• To be classified as LT contract, must be for the manufacture of a unique item for a specific customer, and can’t be sold to others.

Question 6

% of Completion Calc

Answer 6

Work done/Total work = % earned

Question 7

Farm Income Averaging

Answer 7

• Reported on Sch J

- Farmers can elect to average some or all of the CY income over the past 3 yrs.

Question 8

Rental Income

Answer 8

Rental Income
(+) Prepaid Rental Income
(+) Rent Cancellation Payment
(+) Improvement in lieu of Rent (at FMV)
(-) Rental Exp
(=) Net Rental Income/Loss

Question 9

Vacation Home Rental

Answer 9

• Allocate costs
• Net loss not allowed.
• <14 days or 10% usage to treat is a personal residence rental and exclude from income.

Question 10

Tax Planning

Answer 10

1. Defer Taxable Income

2. Accelerate Tax Deductions