R1 Review Flashcards
An S corporation pays one of its individual shareholders for services rendered to the S corporation, and a general partnership pays one of its partners for services rendered to the partnership. Which of the following statements is accurate regarding these payments?
The S corporation should classify the payments as deductible wages reportable on Form W-2.
A shareholder in an S corporation can be an employee of the corporation. The individual shareholder-employee would receive a salary for the services rendered to the S corporation; therefore, the payments should be classified as deductible wages reportable on Form W-2.
services rendered to the S corporation would be classified as deductible wages reportable on Form W-2 since the shareholder can receive a salary from the S corporation as compensation.
A partnership would classify the payments to the partner as guaranteed payments reportable on Schedule K-1, rather than nondeductible partnership distributions.
Unlike S corporations, a partner in a partnership cannot be an employee of the partnership, so a partner cannot receive a salary for the services rendered. Instead, the partnership gives the partner a guaranteed payment as compensation for the services rendered. Guaranteed payments are reported on the partner’s Schedule K-1 and included in ordinary income on the partner’s individual income tax return, rather than being reported as wages.
Which of the following statements is correct regarding the deductibility of an individual’s medical expenses?
A medical expense deduction is allowed for payments made in the current year for medical services received in earlier years.
A medical expense deduction is allowed for payments made in the current year for medical services received in earlier years.
Pam Petty, age 45, withdrew $10,000 from her traditional IRA. Pam’s AGI is $50,000. Pam is employed as a receptionist for the entire year. In which of the following situations would Pam be subject to an early withdrawal penalty?
Pam paid $12,000 for medical insurance.
If a taxpayer withdraws money from an IRA before the age of 59½, is unemployed, and has received 12 consecutive weeks of unemployment compensation under federal or state law, and purchases medical insurance, there is no penalty for the early withdrawal. Pam is subject to an early withdrawal penalty because she is fully employed.
Which one of the following will result in an accruable expense for an accrual-basis taxpayer?
A repair completed prior to year end but not invoiced.
RULE: An accruable expense is one in which the services have been received/performed but have not been paid for by the end of the reporting period.
The facts indicate that a repair was completed prior to year end but not yet invoiced. If it has not yet been invoiced, it is assumed that it has also not yet been paid for. Therefore, this is a situation in which the repair expense would be accrued at year end. Services have been performed, but they have not been paid for, as they have not even been invoiced yet.
If taxpayer rented his primary residence for less than 15 days during the year,
There is no rental income to deduct on tax return
In the current year, a self-employed taxpayer had gross income of $57,000. The taxpayer paid self-employment tax of $8,000, self-employed health insurance of $6,000, and $5,000 of alimony pursuant to divorce finalized in 2007. The taxpayer also contributed $2,000 to a traditional IRA. What is the taxpayer’s adjusted gross income for the year?
$40,000
Adjusted gross income is gross income minus adjustments. Half of the $8,000 self-employment tax is an adjustment for AGI, as is the $6,000 self-employed health insurance, the $5,000 alimony, and the $2,000 contribution to a traditional IRA. Alimony paid pursuant to a divorce settlement executed on or before December 31, 2018, is deductible by the payor. Alimony paid pursuant to a divorce settlement executed after December 31, 2018, is not deductible. All of these amounts (total of $17,000) are subtracted from the $57,000 gross income to arrive at AGI of $40,000.
Jasmin purchased 100 shares of Pinkstey Corporation (publicly traded company) on January 1 of Year 1 for $5,000. The FMV of the shares at the end of Year 1 was $6,000. On January 1 of Year 4, Pinkstey Corporation declared a 2-for-1 stock split when the fair market value of the stock was $65 per share. On January 1 of Year 5, Jasmin sold all of her Pinkstey Corporation stock when the fair market value was $40 per share. Which of the following statements is true?
Jasmin has no taxable income for the Pinkstey Corporation stock in Year 4.
The 2-for-1 stock split is not a taxable event. After the split, Jasmin has 200 shares of Pinkstey Corporation stock with a basis of $25/share. Jasmin is taxed in Year 5 on the sale of the stock: $40 x 200 shares = $8000 – $5000 stock basis (200 shares x $25/share) = $3000 long-term capital gain.
Krete, an unmarried taxpayer with income exclusively from wages, filed her initial income tax return for Year 8. By December 31, Year 8, Krete’s employer had withheld $16,000 in federal income taxes and Krete had made no estimated tax payments. On April 15, Year 9, Krete timely filed an extension request to file her individual tax return and paid $300 of additional taxes. Krete’s Year 8 income tax liability was $16,500 when she timely filed her return on April 30, Year 9, and paid the remaining income tax liability balance.
What amount would be subject to the penalty for the underpayment of estimated taxes?
$0
Provided the taxes due after withholdings were not over $1,000, there is no penalty for underpayment of estimated taxes. Note that there would be a failure to pay penalty on the $200 that was not paid until April 30, but this is a separate penalty.
Which of the following statements about the child and dependent care credit is correct?
The credit is available for the cost of the care of a disabled spouse.
The expenses for care of a spouse who is disabled and unable to take care of himself or herself are eligible for the credit, up to a maximum expenditure of $3,000.
An individual starts paying student loan interest in the current year. How many years may the individual deduct a portion of the student loan interest?
Duration of time that interest is paid.
There is no limitation of the number of years that the interest may be deducted, other than that the interest may be deducted only when paid.
