Reg 1 Module 3

Question 1

How many day does a property have to be used to consider it rental.

Answer 1

more than 14 days

Question 2

When can interest on a business loan be deducted for cash basis taxpayer

Answer 2

The interest can be deducted when the interest is paid and incurred.

This is also true to Accrual taxpayers.

Question 3

Uniform capitalization can be used if one of the following occur.

Answer 3

1. The real or tangible personal property produced by the taxpayer for the use in his of her trade or business
2. real or tangible personal property produced by the taxpayer for sale to his or her customers
3. real or tangible personal property acquired by the taxpayer for resale, provided the taxpayer’s annual average gross receipts for the preceding three years exceeds 25,000,000.

Question 4

Rental income:

Formula

&

Even if it is a accrual basis taxpayer, is prepaid income recognized in year paid.

Answer 4

Gross Rental Income
Prepaid Rental Income
Rent Cancellation Payment 
Improvement-in-lieu of rent 
(Rental Expenses)

= Net rental income/loss

yes.

Question 5

Uniform Capitalization costs

Answer 5

Direct material, direct labor and factory overhead (applicable indirect costs) are CAPITALIZED with respect to inventory under the uniform capitalization rules.

Question 6

what is considered Factory overhear (indirect costs) for UNICAP

Answer 6

Depreciation & Amortization
insurance
supervisory wages
utilities 
spoilage & Scrap 
design expenses 
repaid and maintenance 
rental equipment and facilities (including offsite storage) 
some admin costs
costs of bonus and other incentive plans
indirect supplies and other materials.

Question 7

Non deductible expenses on schedule C include:

Answer 7

• Salaries paid to sole proprietor (considered a draw) also not income for wages - 100% is net self - employment taxable
• Federal Income Tax

- Personal portion of :
  Auto, travel and meals
  Interest Expense - home 
  Sch A
  state and local tax exp - Sch 
  A
  health insurance exp - Adj.

• bad debt expense: cashbasis taxpayer
• Donations - Sch A
• Entertainment expenses

Question 8

On schedule C an accrual basis taxpayer an only deduct which form of bad debt expense

Answer 8

Direct write-off method only.

Cash basis tax payers CANNOT deduct any form of bad debt expense.