R3, M5 S Corporation Overview Flashcards
Non separately stated items = part of your net business income (ordinary Deduction for the business)
Income statement revenue and expenses that deals with the business. Revenue - Deductions
Separately Stated Items (eg: other income, loses and deductions on K-1
Affect each shareholders differently that’s why it’s called separately stated items. Eg: Interest Income, Dd Income, Royalties, Section 179 Deduction, rental income, Section 1231 gains or losses, charitable contributions, rental real estate income.
Realized Gain / loss
Represent the real amount of gain / loss from disposition or exchange of property
Recognized gain / loss
Amount that should be included in gross income (always taxable) or deducted from gross income for income tax purpose
Short-term capital gain
Long-term capital gain
short term capital gains are treated as an Ordinary Income. Base on individual tax rate
Long term capital gains is considered as
Under the parol evidence rule, oral evidence will be excluded if it relates to:
A contemporaneous oral agreement relating to a term in the contract.
The parol evidence rule generally bars evidence of prior or contemporaneous oral statements offered to vary the terms of a fully integrated written contract. Oral evidence is permissible when the contract is incomplete, ambiguous, invalid, or subject to a condition precedent, or when modification is made after the original contract is written. A contemporaneous oral agreement will be excluded.
A calendar-year taxpayer purchases a new business on July 1. The contract provides the following price allocation: customer list, $100,000; trade name, $50,000; goodwill, $90,000. What is the amortization deduction for the current year?
$8,000
Customer lists, trade names and goodwill are purchased intangible assets, which taxpayers amortize over 180 months using the full-month convention beginning with the month of acquisition. [($100,000 + $50,000 + $90,000) / 180] × 6 months = $8,000
Customer lists, trade names, and goodwill are purchased intangible assets eligible for amortization.
Acorn and Bean were general partners in a farm machinery business. Acorn contracted, on behalf of the partnership, to purchase 10 tractors from Cobb Corp. Unknown to Cobb, Acorn was not authorized by the partnership agreement to make such contracts. Bean refused to allow the partnership to accept delivery of the tractors and Cobb sought to enforce the contract. Cobb will:
Prevail because Acorn had apparent authority to bind the partnership.
A general partner has apparent authority to bind the partnership and other partners in respect to all ordinary transactions within the apparent scope of the partnership business. A farm machinery business probably regularly purchases tractors. Thus, there was apparent authority here.
Apparent authority = is the power of an agent to act on behalf of a principal, even though not expressly or impliedly granted.
Implied authority is authority that an agent reasonably believes he or she was given by the principal along with any express authority. Because Acorn knew that he did not have express authority to make the contracts here, he could not reasonably believe that he had implied authority to do so.
Jimet, an unmarried taxpayer, qualified to itemize deductions. Jimet’s adjusted gross income was $30,000 and he made a $2,000 cash donation directly to a needy family. During the year, Jimet also donated stock, valued at $3,000, to his church. Jimet had purchased the stock four months earlier for $1,500. What was the maximum amount of the charitable contribution allowable as an itemized deduction of Jimet’s current year income tax return?
$1,500
$1,500. The stock is ordinary income property because it was held for one year or less, so the amount of the deduction for the stock is the lesser of the adjusted basis ($1,500) or the fair market value at the time it was contributed ($3,000), which is $1,500.
In evaluating the hierarchy of authority in tax law, which of the following carries the greatest authoritative value for tax planning of transactions?
Internal Revenue Code.
The IRC holds the most authoritative value.
Regulations give directions on how to apply the law outlined in the Internal Revenue Code. Regulations have the second most force and effect, second only to the IRC.
Which of the following statements is correct regarding the declaration of a stock dividend by a corporation having only one class of par value stock?
A stock dividend is a corporation’s ratable distribution of additional shares of stock to its stockholders.
Stock dividends are dividends in the corporation’s own authorized but unissued shares given to existing shareholders on account of their shares.
Who cannot be a S Corporation
No Corporation, Partnership
NB: 100 limit is the max of members of SCorporation
Eligibility: Individual( not be a non resident alien. Must be a US citizen or US resident), Estate, Trusts, Qualified retirement plan s and 501(c) (3) charitable organization, Single member LLC(not multiple member LLC).
Family count as 1 member in a S Corporation. Ex spouses count as family members, nephew, aunt, cousin
