REG 1 Module 3 Flashcards
Are salaries paid to the sole proprietor deductible?
No - considered a draw
Is federal or state income tax deductible?
Federal - no
State - yes
Are state and local taxes reported as an itemized deduction or on Schedule C?
Itemized
Where do you report health insurance of a sole proprietor?
Adjustment for AGI, not on Schedule C
Is bad debt for a cash or accrual basis taxpayer deductible?
Cash basis - No
Accrual basis - Yes
Where do you report your charitable contributions? (Schedule A or C)
Schedule A
What are two taxes on net business income?
Income tax and Federal self-employment tax
What is the medicare and social security tax amount?
Medicare - 2.9
Social Security - 12.4
How is the SE tax calculated?
Calculated on 92.35% of self-employment income
then you take that amount and multiply by 15.3%
How is net taxable loss treated?
Deduct loss against other source of income, when it exceeds that amount it’s allowed as a carryover:
1) 2-year carry back
2) 20-year carry forward
How is a residence treated if it’s rented fewer than 15 days?
Personal - excluded from income
How is a residence treated if it’s rented for 15 or more days?
If it’s rented for 15 or more days and used for personal purposes for the greater of:
i) more than 14 days
ii) more than 10% of the rental days
it is treated as personal/ rental residence.
Expenses must be prorated
Mortgage interest and property taxes - based on annual period
Rest of expenses - based on usage
* You are able to deduct personal part of interest and taxes but not other expenses. (on Schedule A)
How do you treat a rental loss (rented more than 15 days)?
You can never show a loss (carryover to next years)
How do you treat prepaid interest for a cash basis taxpayer?
Prorate for the month that they paid, can’t deduct full prepaid amount at once. (same for accrual)
True or False: Ordinary income from an S Corporation is subject to SE tax.
False - taxable on their own individual tax return
ordinary income from partnership may be subject to SE tax
True or False: Guaranteed payments from services rendered to a partnership are subject to SE tax.
True
What is the difference between cash and accrual basis gross taxable income calculation?
Cash Basis - Gross taxable income is the amount collected from customers (Beg A/R and End A/R does’ matter)
Accrual Basis - Gross taxable Income = Beg A/R + Sales - - Cash Collections
When do Uniform Capitalization Rules apply?
Real or tangible personal property:
- Produced for Use
- Produced for Sale
- Acquired for Resale: does not apply if gross receipts for three years do not exceed $10,000,000 annually
What is included in net rental income?
Gross Rental Income \+ Prepaid Rental Income \+ Rent cancellation payments \+ Improvements in lieu of rent (Rental Expense)
- Security deposit not included
True or False: Airfare is an allowable business deductible if on vacation if the taxpayer was involved in a business activity while on the trip.
False
How are payroll taxes for the business owner treated and for employees?
Yourself: 50% are deductible for AGI - (NOT on Sch. C)
Employees: 100% are deductible on Sch. C
When would you forgo a carry back on a net taxable loss and it carry forward instead?
You would do this if there are higher marginal tax rates in the future so that you can have a higher benefit. (low marginal tax rates in the carry back high in the future)
