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r3 Flashcards

1
Q

What is the max amount a company can deduct for compensation to executives?

A

$1,000,000

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2
Q

Accrual basis taxpayers are required to use what method of accounting for tax purposes?

A

Direct write off method

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3
Q

What are the limitations to business interest expense?

A

Limited to the SUM of:
-business interest income
-30% of adjusted taxable income
-floor plan financing interest expense

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4
Q

What are charitable contributions limited to?

A

10% of taxable income before the charitable contributions CC deduction, the dividends received deduction (DRD), and any capital loss carryback

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5
Q

If property is fully destroyed what amount of loss is deductible?

A

The adjusted basis of the property

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6
Q

IF property is partially destroyed what amount of loss is deductible?

A

Limited to the lessor of:
-the decline in value of the property or
-adjusted basis of the property

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7
Q

What is the tax rule for Start up costs?

A

Deduct $5,000 and amortize the excess over 180 months
-GAAP expense

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8
Q

Are life insurance premiums paid by the corp for policies on key employees deductible?

A

No
- if employee is the beneficiary then deductible by the corporation

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9
Q

Are entertainment expenses deductible?

A

No

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10
Q

Are payroll taxes deductible?

A

Yes

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11
Q

Are federal income taxes deductible?

A

No

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12
Q

What is the carryback/forward rules for corportations

A

Only use capital losses to offset capital gains. Carryback 3 years / forward 5 years

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13
Q

Ownership 0% < 20%

DRD

A

DRD is 50%

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14
Q

Ownership 20% < 80%

DRD

A

DRD is 65%

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15
Q

Ownership is 80% or more

DRD

A

DRD is 100%

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16
Q

The DRD equals the lessor of

A

50% ( or 65%) dividends received or
50% (or 65%) of taxable income computed without regard to DRD, any NOL carryforward, or capital loss carryback

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17
Q

Schedule M-1

A

Part of form 1120 C corporation federal income tax return, where book income is reconciled to taxable income

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18
Q

Schedule M-3

A

A more detailed version of the M-1; it distinguishes between temporary and permanent differences
-required if assets are greater than $10 million

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19
Q

If the allowance method is used for book, what must you do for tax purposes

A

Add back the allowance taken because it is not allowed. Only the direct write off method.

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20
Q

A corporations is considered large if

A

Taxable income is greater than $1 million

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21
Q

General Business Credit consists of:

A

-Investment credit
-Work opportunity
-alternative fuels
-R & D
-low income
-Small employers pension plan

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22
Q

What’s the limitation on business credit?

A

The credit may not exceed “net income tax” less 25% of net regular tax liability above $25,000

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23
Q

Unused Credit Carryover

A

Carried back 1 year and forward 20

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24
Q

What can a corporation do if they pay taxes in a foreign country?

A

They can either take a credit or a deduction for eligible taxes paid or accrued

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25
Q

How to calculate the foreign tax credit

A
  1. Determine the qualified foreign income taxes paid or accrued for the tax year
  2. Compute the foreign tax credit limitation
  3. Take the lesser of 1 or 2
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26
Q

Compute the foreign tax credit limitation

A
  1. Worldwide taxable income * US tax rate
  2. Foreign income / WTI
  3. Multiply 1 and 2
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27
Q

Unused foreign tax credit can be

A

taken back 1 year and forward 10 years

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28
Q

Accumulated earnings tax

A

20% Penalty tax imposed on C corps whose accumulated retained earnings are in excess of $250,000 IFFFF:
the earnings are considered to be improperly retained instead of being distributed as dividends to shareholders

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29
Q

Personal Holding Tax

A

20% on net income not distributed to shareholders

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30
Q

What is a personal holding company

A

-more than 50% owned by 5 or fewer people
-having 60% ordinary gross income of:
Net rent
Interest that is taxable
Royalties
Dividends from unrelated domestic corporation

31
Q

NOL arising before 2018

A

carried back 2 years and forward 20 years

32
Q

NOLs arising in 2018, 2019, 2020

A

can be carried back 5 years and forward indefinitely

33
Q

NOLs arising in tax years after 2020

A

cannot be carried back but can be carried forward indefinitely
-80% max offset

34
Q

How are capital losses treated?

A

Offset by capital gains
-excess are carried back 3 years and forward 5

35
Q

How to qualify as an S corp?

A

-Qualified domestic corporation
-Eligible shareholders (individuals, estates, certain trusts, qualified retirement plans, 501 (c) charities)
-Shareholder limit (100 max, family members count as one)
-One class of stock (differences in common stock voting rights allowed)

36
Q

Can C corporations own shares in S Corp?

A

No

37
Q

What date must you file by in order to be considered S corp for the current year?

A

March 15

38
Q

Can a owner of a S corp be foreign?

A

No

39
Q

What does excess passive investment income mean for an S corp?

A

If more than 25% of the corporations gross receipts are from passive investment income for three consecutive years the S corp status is terminated

40
Q

What is the way shareholders can terminate S corp status?

A

they vote more than 50% consent to a voluntary revocation

41
Q

How are S corporations different from partnerships?

A

An S corp shareholders is not subject to self employment tax

42
Q

What are some separately stated items for S corp K-1?

A

-rental real estate income or loss
-Interest income
-Dividend income
-royalties
-net short term capital gain or loss
-net long term capital gain or loss
-net section 1231 gain or loss
-charitable contributions
-section 179 expense deduction

43
Q

When are fringe benefits deductible?

A

-for non shareholder employees and
-those employee shareholders owning 2% or less of S corp are deductible by the S cop; unless S corp includes the benefit on the W-2

44
Q

Unlike partnerships, S corporation shareholders do not include any…

A

S corporation debt in their stock basis. However, S corporation shareholder does have separate debt basis in loans from the shareholder to the S corporation

45
Q

What is the tax basis limitation for S corporations?

A

A loss can only be flowed through to an S corporation shareholders to the extent of the shareholders tax basis

46
Q

What happens if there is a loss in excess of the shareholders tax basis?

A

A loss in excess of the shareholders tax basis is suspended until tax basis is reinstated in future years

47
Q

A suspended loss due to insufficient tax basis can be carried forward…

A

indefinitely

48
Q

If a shareholder has a suspend loss and they dispose of their shares the loss is..

A

lost

49
Q

Accumulated adjustments account

A

account to hold earnings and profit (retained earnings)

50
Q

How does AAA increase or decrease?

A

Increases through business income, separately stated income and gain. Decreases by business losses, separately stated losses and deduction, nondeductible expenses and distributions (may bot reduce AAA below zero).

51
Q

What is the partnership tax return?

A

Schedule 1065
-informational return that provides info about partnership income and expenses
-Schedule K: separately stated items
-Schedule K-1: Amount and type of each partners share

52
Q

What are guaranteed payments?

A

Reasonable compensation paid to a partner for services provided or use of capital without regard to the partners ratio.

53
Q

How are guaranteed payments treated for the partnership?

A

Tax deduction to the partnership

54
Q

How are guaranteed payments treated for the partner?

A

Included on Schedule K-1 to be included as ordinary income

55
Q

Are syndication costs deductible?

A

Not deductible
-costs associated with raising capital

56
Q

Basis in partnership interest includes

A

Capital account + Partners share of partnership liabilities

57
Q

What is an LLC?

A

A separate legal entity. All member of an LLC have limited liability. Can be treated as Partnership, corporation, sole proprietorship.

58
Q

For partnerships are distributions considered income?

A

Distributions are not income, since the money was taxed when the partnership earned such money

59
Q

Is interest income separately stated?

A

YES

60
Q

What kind of interest expense is a separately stated item?

A

Only investment interest expense. Business interest expense is included in ordinary income

61
Q

Tax exempt organizations are…

A

not for profit organizations that qualify for exemption from federal income tax.
-Section 501 (c) is the most common

62
Q

Examples of 501 (c) organizations

A

-religious
-charitable
-scientific
-testing for public safety
-literary
-educational
-prevention of cruelty to children or animal

63
Q

Are contributions to 501 c organizations deductible?

A

Yes

64
Q

What are the requirements for a private foundation?

A
  • the foundation will distribute income each year as required under the tax law
    -the foundation will not engage in any act of self dealing or retain any excess business holdings as defined in the tax law
65
Q

How to qualify as a public charity?

A

One third of the support must come from governmental units and the public

66
Q

Section 527

A

Political Organizations that are organized and operated for the purpose of collecting contributions, or making expenditures, for an exempt function

67
Q

What are the other organizations that you can donate to and deduct the contributions?

A

US instrumentality or volunteer fire department

68
Q

What is a nexus?

A

The minimum level of contact a taxpayer may have with a jurisdiction to be subject to its tax. Caused by having property, payroll or sales within a state

69
Q

Public Law No. 86-272

A

federal law prohibits a state and its political subdivisions from imposing a net income tax on a persons net income derived from interstate commerce occurring within the states borders

70
Q

What are examples that will trigger a nexus?

A

-owning or leasing tangible personal or real property
-sending employees into the state for training or work
-soliciting sales in a state
-providing installation, maintenance to customers within a state
-accepting or rejecting sales orders within the state

70
Q

Public Law No. 86-272 does not apply to

A

-sales and use taxes
-franchise taxes
-gross receipts taxes

71
Q

What is allocation?

A

Allocation refers to the process of removing the NONBUSINESS income and assigning it entirely to the state where it should be taxed

72
Q

What is apportionment?

A

The portion of income which are not allocated entirely to one state are apportioned to all the states in which the corporation does business
-generally the apportionable items are business income

73
Q

Apportionment factor calculation

A

((Property and rent expense located within the state / total property) + (payroll paid to employees within the state / total payroll) + (sales from sources within the state / total sales)) / 3

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