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CPA: REG > REG Random Deck > Flashcards

REG Random Deck Flashcards

1
Q

Life Insurance Tax

A

First 50,000 of coverage provided by company is NOT taxable. The rest is

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2
Q

Rent Revenue under Accrual Basis

A

Deferred revenue counts
Cash received plus change in A/R plus deposits.

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3
Q

Expenses under Accrual Basis

A

Deduct expenses in year incurred IF they will be paid out within 2.5 months after YE.
Contributions can be deducted if declared and paid after the 15th day of the 4th month after YE - still subject to contribution 10% AGI limit.

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4
Q

Org Costs Deduction

A

Must be legal fees or org costs
5,000 in first year is fully deductible as long as it does not exceed 50,000. If it were 52,000, then only 3,000 would be allowed and the remaining 49,000 would be amortized.
The rest is amortized over 180 months and included in the total deduction.

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5
Q

Life Insurance Premiums

A

Expense:
Paid on behalf of employees where someone other than company is the beneficiary - DEDUCTIBLE
Paid on behalf of Officer who’s beneficiary is the company - NOT DEDUCTIBLE
Income:
Received from death of officer when company is the beneficiary - NOT INCLUDED AS INCOME

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6
Q

Capital Losses in Excess of Gains (Corp vs Individual)

A

Corp - No excess is allowed in current year, but is carried back 3 or forward 5
Individual - 3,000 for current year

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7
Q

C Corporations that must do accrual

A

Average annual income of over 29 million
Tax Shelter
Manufacturers

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8
Q

Qualified Business Income Deduction

A

0.2

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9
Q

basis of inherited property vs gifted property

A

Gifted - typically carryover
Inherited - FMV at time of death or at alternate valuation date if chosen.

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10
Q

Section 179 deduction

A

Maximum of 1,160,000.00 deduction. Is reduced by the assets value OVER 2,890,000.00
Example: 3,000,000 asset would be 1,050,000 since 3 mill is 110,000 greater than 2,890,000 so that reduces the 1,160,000 deduction to 1,050,000.00

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11
Q

Partnerships Income for Partners Tax Return

A

Return on capital (Distributions NOT in excess of basis) is not taxed as income but portion of income is.
If partner takes out loan from partnership, that is NOT included but is seen as a liability.
Guaranteed Payments ARE income
Separately stated items ARE included

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12
Q

For an Organization to qualify as publicly supported, org’s total support should be?

A

At least 1/3 from the governmental units and general public

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13
Q

Childcare/Dependent Credit

A

Maximum of 6,000 for two or more dependents. Can be 20-35% of the lesser of the expenses up to 3,000 each child or the lowest income for the parents.
Child must be 13 years or younger
Also can apply to a disabled spouse

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14
Q

Dependent test for a qualifying relative

A

The dependent must have lived with the parents/guardians for the FULL year and not have provided half of their living expenses.

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15
Q

Wash Sale

A

When someone sells stock at a loss before OR after 30 days of buying the same or substantially identical stock.
The loss is deferred and not recognized at the sale
It is ADDED to the basis of the newly purchased stock and is recognized once that stock is sold at a later date.

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16
Q

Capital Assets

A

Non depreciable assets not used in trade or business. Investments in treasury bonds would be an example. Land, when not owned and sold by a developer as “inventory”, is also a considered a capital asset.

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17
Q

IRA Deduction

A

If a spouse is NOT an active part in a retirement plan, then total AGI phase out begins at 218,000. If under, than that spouse can deduct the full 6,500. If spouse IS an active part, then total AGI phase out begins at 116,000 for that spouses portion.
Lets say couples AGI is 124,000. For the non part spouse, 6,500 is deductible. For part spouse, the 124,000 - 116,000 phase out must be included. This is 8,000 of the 20,000 range (116,000 to 136,000) so 40%. This 40% is applied to the 6,500 max deduction and reduces it by 2,600 (40%) resulting in 3,900.
Total deduction is 3,900 + 6,500 = 10,400
AGI over 218,000 disqualifies the deduction entirely.

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18
Q

PTIN Required when

A

preparing a substantial portion of a return for a client FOR compensation
Not required when doing a return for an employer.

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19
Q

Reportable Transaction

A

The term “reportable transaction” is any transaction that the Secretary of the U.S. Treasury Department has determined as having a POTENTIAL for either tax AVOIDANCE or tax EVASION

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20
Q

Non Residential Real Property MACRS

A

Uses the Mid-Month convention which uses only half of the month that it is acquired in the calculation of depreciation regardless of when it was put in service during the month
39 year life straight line

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21
Q

Life Insurance Tax

A

First 50,000 of coverage provided by company is NOT taxable. The rest is

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22
Q

Rent Revenue under Accrual Basis

A

Deferred revenue counts
Cash received plus change in A/R plus deposits.

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23
Q

Expenses under Accrual Basis

A

Deduct expenses in year incurred IF they will be paid out within 2.5 months after YE.
Contributions can be deducted if declared and paid after the 15th day of the 4th month after YE - still subject to contribution 10% AGI limit.

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24
Q

Org Costs Deduction

A

Must be legal fees or org costs
5,000 in first year is fully deductible as long as it does not exceed 50,000. If it were 52,000, then only 3,000 would be allowed and the remaining 49,000 would be amortized.
The rest is amortized over 180 months and included in the total deduction.

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25
Q

Life Insurance Premiums

A

Expense:
Paid on behalf of employees where someone other than company is the beneficiary - DEDUCTIBLE
Paid on behalf of Officer who’s beneficiary is the company - NOT DEDUCTIBLE
Income:
Received from death of officer when company is the beneficiary - NOT INCLUDED AS INCOME

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26
Q

Capital Losses in Excess of Gains (Corp vs Individual)

A

Corp - No excess is allowed in current year, but is carried back 3 or forward 5
Individual - 3,000 for current year

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27
Q

C Corporations that must do accrual

A

Average annual income of over 29 million
Tax Shelter
Manufacturers

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28
Q

Qualified Business Income Deduction

A

0.2

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29
Q

basis of inherited property vs gifted property

A

Gifted - typically carryover
Inherited - FMV at time of death or at alternate valuation date if chosen.

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30
Q

Section 179 deduction

A

Maximum of 1,160,000.00 deduction. Is reduced by the assets value OVER 2,890,000.00
Example: 3,000,000 asset would be 1,050,000 since 3 mill is 110,000 greater than 2,890,000 so that reduces the 1,160,000 deduction to 1,050,000.00

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31
Q

Partnerships Income for Partners Tax Return

A

Return on capital (Distributions NOT in excess of basis) is not taxed as income but portion of income is.
If partner takes out loan from partnership, that is NOT included but is seen as a liability.
Guaranteed Payments ARE income
Separately stated items ARE included

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32
Q

For an Organization to qualify as publicly supported, org’s total support should be?

A

At least 1/3 from the governmental units and general public

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33
Q

Childcare/Dependent Credit

A

Maximum of 6,000 for two or more dependents. Can be 20-35% of the lesser of the expenses up to 3,000 each child or the lowest income for the parents.
Child must be 13 years or younger
Also can apply to a disabled spouse

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34
Q

Dependent test for a qualifying relative

A

The dependent must have lived with the parents/guardians for the FULL year and not have provided half of their living expenses.

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35
Q

Wash Sale

A

When someone sells stock at a loss before OR after 30 days of buying the same or substantially identical stock.
The loss is deferred and not recognized at the sale
It is ADDED to the basis of the newly purchased stock and is recognized once that stock is sold at a later date.

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36
Q

Capital Assets

A

Non depreciable assets not used in trade or business. Investments in treasury bonds would be an example. Land, when not owned and sold by a developer as “inventory”, is also a considered a capital asset.

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37
Q

IRA Deduction

A

If a spouse is NOT an active part in a retirement plan, then total AGI phase out begins at 218,000. If under, than that spouse can deduct the full 6,500. If spouse IS an active part, then total AGI phase out begins at 116,000 for that spouses portion.
Lets say couples AGI is 124,000. For the non part spouse, 6,500 is deductible. For part spouse, the 124,000 - 116,000 phase out must be included. This is 8,000 of the 20,000 range (116,000 to 136,000) so 40%. This 40% is applied to the 6,500 max deduction and reduces it by 2,600 (40%) resulting in 3,900.
Total deduction is 3,900 + 6,500 = 10,400
AGI over 218,000 disqualifies the deduction entirely.

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38
Q

PTIN Required when

A

preparing a substantial portion of a return for a client FOR compensation
Not required when doing a return for an employer.

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39
Q

Reportable Transaction

A

The term “reportable transaction” is any transaction that the Secretary of the U.S. Treasury Department has determined as having a POTENTIAL for either tax AVOIDANCE or tax EVASION

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40
Q

Non Residential Real Property MACRS

A

Uses the Mid-Month convention which uses only half of the month that it is acquired in the calculation of depreciation regardless of when it was put in service during the month
39 year life straight line

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41
Q

UCC Sales Article

A

Shipment Contracts - “FOB Seller’s Loading Dock”
Title Passes to buyer once they the supplier successfully delivers to common carrier, even if the goods are non conforming.

42
Q

Deductions (For AGI and itemized)

A

Mortgage Interest, Sales Tax, and medical expenses are itemized
IRA contribution and Alimony (prior to 2019) are FOR AGI deductions.

43
Q

Courts in which Taxpayer brings original jurisdiction lawsuits to IRS

A

Tax Court
District Court
US Court of Federal Claims

44
Q

Partnership Distributions

A

Partnerships are taxed on their share of income NOT distributions

45
Q

For S Corps, stock and debt basis are separate

A

Stock is inc/dec by share of income/loss.
Debt inc/dec by debt issue/payment
Guarantee of debt does NOT affect debt basis, only direct loans

46
Q

S Corp Tax Exempts Interest

A

S Corps basis INCLUDES tax exempt interest.

47
Q

Personal Holdings Company Federal Income Tax Deduction

A

Personal holding company deducts federal income taxes when computed undistributed personal holding company income.

48
Q

Gambling losses

A

are deductible up to gambling income for the tax year
Shown as a FROM AGI deduction in itemized

49
Q

S corps Stock type

A

have one type of stock for the purpose of voting on matters such as a termination. Must have a total of 50%

50
Q

Annuity Taxation

A

Annuity return of capital is NOT taxable

51
Q

Section 179

A

cost recovery - expenses full purchase price up to 1,160,000 in first year for qualified depreciable property NOT land.

52
Q

Effects of Death on Contract

A

Death will terminate contracts UNLESS the acceptance is made before the death. Then it is still binding

53
Q

Overpayment of Social Security Tax

A

Only claimed as credit IF by two or more employers

54
Q

MACRs

A

Commercial are 39 years straight line HALF month depreciable
If put in service August 1, still only count as half of the month for depreciation
Residential is 27.5 years
Salvage value is IGNORED

55
Q

Goodwill amortization

A

over 15 years or 180 months
Start amortization when assets are put into service NOT when deal is made.

56
Q

Qualifying Spouse or Widow

A

Needs to be in the year after death, since the current year will be married filing jointly.
Is two years following the event assuming no remarriage. Ex: died in 2022, 2023/2024 qualify but 2025 does not.
Requires maintaining 50% home of a dependent child for FULL year (can’t move to grandparents)
Can NOT be taken if no qualifying child
Married filing jointly rates

57
Q

Head of Household

A

Filer must be unmarried
Must maintain more than half of the home of a qualifying person including a relative, parent, dependent child for at least 6 months out of the year. Not required to live with the qualifying person IF a parent/relative

58
Q

Qualifying Relative Rule

A

Must either live with taxpayer ALL year or be a close relative (RELATIVE)
Cannot be someone else’s qualifying child
Must provide at least half of relatives total support for year (SUPPORT)
Must make GI less than personal exemption amount (4,700) (INCOME)

59
Q

Qualifying Child Rule

A

Must be child, sibling or step sibling - or a descendent of any of these (grandchild) (RELATIVE)
Under 19 at EOTY or 24 and full time student for at least 5 months of year (AGE)
Scholarships do NOT count towards income for PARENTS but does count for other assuming relatives
Must have lived with taxpayer over half of year and had costs provided of over 50%. (RESIDENCY and SUPPORT)
For full time students, it is assumed that their primary residence is the parents home unless otherwise stated.

60
Q

Multiple Support Agreement

A

Multiple people supporting one dependent. All those who contribute over 10% can claim as dependent.

61
Q

Divorce Rights to Dependent

A

Who has custody or more time supporting the dependent
If equal, who has more AGI but can be waived

62
Q

Tax Exemption of accumulated interest for Series EE US Savings Bonds after 1989

A

Purchases must be sole owner or joint with spouse
Must be used for tuition/book expenses
Must be acquired after age 24
Any scholarships or nontaxable income must reduce the exemption benefit received by the purchaser, spouse or dependent.

63
Q

Tax Benefit Rule

A

Under the tax benefit rule, an itemized deduction recovered in a subsequent year is included in income in the year recovered
A deduction from a prior year that is then refunded would be benefiting twice, so that amount is taxed as income.
Only takes effect if taxpayer itemized deductions, NOT if they did the standard since they technically did not deduct for the state income tax amount.

64
Q

Allowable deduction for partnership and also added to partner’s individual tax return

A

Guaranteed payments made to partners. These are deducted by the business since it is technically salaries paid (expense). This then flows to the individual partners and they have to report it as income to be taxed ordinarily.

65
Q

Business Meals Deduction

A

Only 50% is deductible

66
Q

Hobbies

A

Any income received is taxable but any expenses incurred are NOT deductible. Must be an activity that is not for profit and qualifies as a hobby.

67
Q

Rental Income Qualification

A

Must have rented out his PRIMARY residence for at least 15 days during the year.
Any income/expenses are not reportable. Taxes and interest can be if itemized

68
Q

Married Filing Jointly

A

Must be married at least by the end of the year
Cannot be legally separated but MAY live apart.

69
Q

Salaries for Partnerships and S Corps

A

S Corps shareholders are treated as employees so their salary is deductible for the entity. They will be treated as W2 employees and get a W2
Partnerships partners cannot be employee and receive guaranteed payments which are Schedule K1 items, NOT W2

70
Q

Social Security Thresholds

A

Max of 85% of SS benefits are taxable regardless of income.
For High income (modified AGI of 34K MFJ 44k) - 85%
Middle (25-34K or 32K-44K MFJ) - 50%
Low (less than 25K or 32k MFJ)- 0%

71
Q

Guaranteed payments to partners

A

Not contingent on anything. Paid out regardless of income
Flows through via K1 to partners

72
Q

Group Term Life Insurance

A

This is a nontaxable fringe benefit up to 50,000. Then the rest is taxed as income

73
Q

Tax Equation

A

Gross Income
+/- Adjustments
= Adjusted Gross Income
- Greater of Standard or Itemized Deductions
- QBI Deduction
=Taxable Income
* Tax Rate
= Income Tax Liability
+ Other Taxes
- Tax Credits
- Payments
= Net Tax Due or Refund

74
Q

Education Loan Interest

A

Is limited to 2,500 per year
Can be deducted as long as interest is paid
Has a phase out

75
Q

Maximum Annual Deductible for SEP IRA contributions

A

Lesser of 66,000 or 20% of Net earnings (shown below)

Net self-employment income
50,000
(3,532) [$7,064 × 50%] 50% of self-employment taxes
Self-employment earnings before SEP IRA
= 46,468
× .20 Times 20%
Calculated SEP IRA Deduction
= 9,294

76
Q

Qualified Business Income Deduction

A

Only applies to qualified business income. 20% with phaseouts and thresholds.

77
Q

Calculate Casualty Loss

A

Must be in a federally declared disaster area
Deductible in year of loss
The loss is the difference between the property’s before and after value.
Is the loss minus 10% of AGI minus $100 per casualty.

78
Q

Property Given to Charity

A

Itemized deduction is the value of the FMV at the time of donation but limited to 30% of AGI.

79
Q

Basis for GIFTED Stock

A

Normally carryover basis unless FMV is less than carryover
If sold at a gain, then the original basis is used to reduce the gain.
If sold at a loss, the lesser of the original basis and the FMV at the date of the gift is used to reduce the loss
If the selling price is less than the original basis but more than the FMV, then no G/L is reported.

80
Q

Basis for Converting from Personal to Business Use

A

If Sales price when sold is greater than the adjusted cost basis at time of sale, then the adjusted cost basis is used.

81
Q

Education Loan Interest Deduction

A

Is a FOR AGI deduction or above the line
Must not be above the threshold.
Is the lower of interest paid OR 2,500

82
Q

Casualty Loss Formula

A

Adjust basis minus insurance proceeds minus 100 minus 10% of AGI

83
Q

Divorces settled before 2019

A

Alimony is deductible for payor and charged as income for receiver. Only cash or cash equivalent is reportable. Settlements, child support and other misc amounts are NOT reportable.

84
Q

IRA Contribution Deduction

A

If one spouse is an active participant in a company plan, then there is a phase out for them at 116,000 and complete at 136,000
For a spouse is not an active part but is married to one who is, phase out begins at 218,000 and complete at 228,000

85
Q

Kiddie Tax Calculation for Unearned Income

A

Amount taxed at parent’s marginal rate is the unearned income minus 1,250 standard deduction for dependent minus an additional 1,250 which is taxed at the dependent’s rate. The rest is taxed at parents

86
Q

Sale of Partnership Gains

A

Capital Gains or Losses unless attributable to unrealized receivables or inventory

87
Q

Personal holding income

A

includes amounts received by the corporation under a contract to furnish personal services to a third party where the third party can specify the individual who is to perform those services and where that individual owns 25% or more of the corporation

88
Q

Unrelated Business Income

A

Activities UNRELATED to tax exempt purpose.

89
Q

Rental Income for Individual

A

If the use for personal purposes is, the greater of 14 days or 10% of days rented out, the unit is considered a home.

If a home is rented out for less than 15 days during the year, it is treated as a personal residence and the rental income is excluded from taxation.

If a home, or personal residence, then utilities, insurance and other expenses are NOT deductible nor is income reportable.
RE Taxes and interest are schedule A itemized deductions regardless.

90
Q

Dividends Received Deduction (DRD) Holding Period

A

Corp must own investee stock for more than 46 days during the 91 day period beginning on the date 45 days BEFORE the ex-dividend date.
DRD not available to S Corps

91
Q

Voluntary Petition Chapter 7 Bankruptcy

A

Stays collection action from secured and unsecured creditors
Does not need to show liabilities are greater than FMV of assets

92
Q

accountant-client privilege

A

enforceable state by state
makes conversations between the two confidential unless subpoenaed. Applies for civil and criminal cases.
Confidential, NOT privileged in most settings

93
Q

Corporate Reorganization

A

In general gain/loss not a taxable event

94
Q

Warranties

A

May be disclaimed explicitly
Implied warranties can be disclaimed by only by specific language UNLIKE “as is” or “all warranties”. Implied warranty is that the goods sold have a clean title and are good to sell.

95
Q

Passive Loss Deduction

A

Up to $25,000 of passive losses from rental real estate can be offset by individuals against active and portfolio income in any one year. The $25,000 maximum is reduced by 50% of the difference between the taxpayers modified adjusted gross income (adjusted gross income before any IRA deduction, taxable social security benefits, or passive activity losses) and $100,000. When the taxpayers modified AGI reaches $150,000, the offset is eliminated. Since Cobbs modified AGI for the current year exceeds $150,000 ($200,000 > $150,000), no amount of the loss attributable to the rental real estate can be used as an offset against income from nonpassive sources. (The rental loss could be used against nonpassive sources if Cobb was a qualified real estate professional.)

96
Q

attachment of security interest can become enforceable by

A

property owned by debtor and must have rights to it
must have a security agreement with description of collateral
secured party must give value
for PERFECTION, a financing statement must be issued, not for creation of security interest

97
Q

Partnership Guaranteed Payments

A

Deductible by partnership and income to partner on individual tax return.

98
Q

S Corp Allowable Shareholders

A

Cannot have other corps or partnerships be shareholders.
Can have estates, qualified profit sharing plans.

99
Q

S Corp Election

A

An S election made by the 15th day of the third month of the taxable year is retroactively effective on the first day of the taxable year.
All shareholders must give written consent.

100
Q

Trad/Roth IRA Deductions

A

For Roth, principal invested is never taxable. Earnings are at the appropriate tax rate if not distributed properly.
For trad, if contributions were deducted, the proportion of those are taxed and other contributions that were NOT deducted are not taxed.

101
Q

Fraud/Gross Negligence and CPA Liability

A

CPA liable to all parties who use info - no provity allowed, assuming they can prove the elements (intent, damages, misrep of facts, reliance on facts)

102
Q
A

CPA: REG (6 decks)

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