Review Flashcards
A nonprofit entity that is classified as a corporation must file _______ for tax purposes.
990
Is an individual considered an entity?
No
When must a 7203 be attached to a shareholder’s income tax return?
- The shareholder disposes of his/her stock during the tax year
- The shareholder receives a distribution from the S corporation
- The shareholder receives a loan repayment for the S corporation during the tax year
- The shareholder claims a deduction for a loss
Installment sale generally does not apply to:
- The sale of inventory, even if the business receives a payment after the sale
- A sale that results in a loss
- The sale of stock or securities traded on an established market
Safe harbor method to determine the amount of deductible expenses attributable to certain business use of a residence during the year:
$5 per square foot up to 300 square feet ($1,500)
When can a business only deduct the actual expenses of a car and not the standard mileage rate?
When they operate five or more cars or light trucks at the same time. This is considered a “fleet”
What would cause a partnership to automatically be required to file a return electronically?
Having more than 100 partners
Income reported on Schedule F does not include gains or losses from sales or other dispositions of the following farm assets:
- Land
- Depreciable farm equipment
- Buildings and structures
- Livestock held for draft, breeding, sport, or dairy purposes (unless held as inventory or held primarily for sale)
A corporation must make estimated tax payments if it expects its tax due to be ____ or more during the taxable year
$500
What is a “hot asset”
Generally, assets that will generate ordinary income if the partnership had sold them (such as inventory)
Guaranteed Payments
Payments made to a partner without regard to the partnership’s income. For the partner, guaranteed payments are treated as income subject to estimated income taxes and self-employment taxes
Installment payments for estimated tax are due by:
The 4th, 6th, 9th, and 12th months of the corporation’s tax year
If a corporation cancels a shareholder’s debt without repayment by the shareholder, the amount canceled is treated as:
A distribution to the shareholder. The distribution is not deductible to the corporation
If a corporation receives an extraordinary dividend on stock held 2 years or less before the dividend announcement date, it generally must:
Reduce its basis in the stock by the non-taxed part of the dividend
An “extraordinary dividend” is any dividend on stock that equals or exceeds a certain percentage of the corporation’s adjusted basis in the stock. The percentages are:
5% for stock preferred as to dividends, or
10% for other stock.
Guaranteed payments are deducted from:
partnership income before determining the distributive share of income or loss for each partner.
The following are types of expenses that go into figuring the cost of goods sold:
- The cost of products or raw materials, including freight
- Storage costs for unsold inventory
- Direct labor costs for workers who produce the products
- Factory overhead
Can an S corporation deduct amortized organizational expenses?
Yes, because these expenses are simply normal business expenses.
A calendar-year S corporation must file its tax return by:
March 15th
Section 351
if a taxpayer transfers property to a corporation in exchange for stock and immediately afterward, the taxpayer controls the corporation, the exchange may not be taxable.
Schedule L
An IRS schedule that shows a corporation’s balance sheets as of the beginning of the year
If a business’s ending inventory is understated:
net income will also be understated, resulting in (an incorrect) lower taxable income
8832
Used for an LLC that wants to elect federal tax treatment as a C-corporation
A qualifying S-election requires consent from who?
All shareholders
If a partnership is terminated before the end of the tax year, when is its final return due?
15th day of the 3rd month following the termination
When may a partnership elect out of a CPAR?
1.100 or fewer partners
2. Each partner is a permitted partner
CPAR: What are “eligible partners”?
- Individuals
- C corps
- Foreign entity that’s treated as a C corp
- S corp
- Estate of a deceased partner
Who can not elect Qualified Joint Venture status?
A married couple who file separate tax returns
Schedule K-2 & K-3 are used to report?
Items of international tax relevance
Are distributions from a C corp to a shareholder deductible?
No, but they do lower the shareholder’s adjusted basis
What business can use the cash accounting method?
Businesses with average gross receipts (3-year average) under $27 million
A business is required to keep records relating to employment for how long?
At least 4 years after filing the fourth quarter’s returns.
There is no penalty for underpayment of estimated tax if: (C Corp)
- The tax is less than $500
- Each quarterly payment was at least 25%
Cancellation of debt income affecting an S corporation is applied:
At the entity level
What does the term “inside basis” mean in reference to a partnership?
A partnership’s basis in its own assets
An S corporation’s basis in property contributed by a shareholder is the:
Lesser of it’s FMV or the shareholder’s adjusted basis
Can a nonprofit entity be organized as a partnership or sole proprietorship?
No, ut must be organized as a corporation, a trust, or an unincorporated association.
The following expenses related to inventory sold are included in COGS:
- Cost of products or raw materials, including freight
- Storage
- Factory overhead
- Labor costs for workers who produce the products
1128
Used by a corporation to adjust its filing year
M-1 must be prepared by corporations with gross receipts or total assets of:
$250,000 or more
M-3 must be prepared by corporations reporting gross assets of:
$10 million or more
A taxpayer may apply for an EIN online if their principal business is located
in the United States or in any U.S. Territory
943
used by agricultural employers to report wages to agricultural employees
Are sales tax included in a business’s gross receipts?
No, sales tax collected is never treated as business income, instead, they are treated as a liability until the amounts are reemitted to state and local tax agencies
Are excise taxes paid by a business deductible?
Excise taxes may be deductible currently or as the item is used, or may be subject to capitalization
8300
Used to report cash payments of $10,000 or more from a single payment
The amount of the Disabled Access Credit:
50% of qualified expenses, with a maximum credit per year of $5,000.
Disabled Access Credit: Requirements
A business must have had gross receipts of $1 million or less or had no more than 30 full-time employees during the proceeding tax year
Large employers are subject to information reporting requirements and generally use Forms ______ & _____ to report information to the IRS and their employees about the health coverage offered
1094-C and 1095-C
What form must an LLC file to elect to be treated as a C corporation?
8832
What form must an LLC file to elect to be treated as an S corporation?
2553
You can’t use the standard mileage rate if you:
- Use five or more cars at the same time
- Calimed a depreciation deduction for the care using any method other than straight-line deprecation
- Claimed a section 179 deduction on the car or the special depreciation allowance (bonus depreciation) on the car
What happens when a business overstates its ending inventory?
The cost of goods sold is stated too low.
What happens when a business’s ending inventory is understated?
Net income will also be understated
A 52-53 week tax year is a:
fiscal tax year that varies from 52 to 53 weeks but does not have to end on the last day of a month
A 501(c)(3) organization must submit _________ to request a formal exemption from the IRS
1023
Is a schedule K-1 filled with a partner’s individual tax return?
No, they only use the K-1 for the information provided and then put that information on Schedule E
A farmer is allowed to make a single payment, (also called the “required annual payment”). In order to qualify for this special treatment, at least two-thirds of the farmer’s gross income must come from farming (or fishing) activities, and the following rules apply:
- A farmer does not have to pay estimated tax if he files his return and pays all the tax owed by March 1, OR
- If the farmer must pay an estimated tax, he is required to make only one estimated tax payment (called the “required annual payment”) by January 15.
Typical M-1 adjustments
- Federal income tax expenses
- Depreciation deductions
- Meal and entertainment expenses
- Sec. 263A Inventory costs
- bad debts
- Capital loss
- Sale of fixed assets
S corporations that convert from a C corporation are subject to a special tax if the corporation’s excess passive investment income:
Exceeds 25% of gross receipts and the accumulated earnings were carried over from their time as a C corporation.
A C corporation is required to issue a form 1099-DIV to whom?
Any shareholders who receive more than $10 in dividends
When property is distributed by a partnership to a partner, the distributee partner’s holding period for property:
Includes the period the property was held by the partnership
If a business decides to report an inventory loss or theft, what needs to happen?
- They need to report the loss of their business tax return
- They need to adjust the opening inventory to eliminate the loss items and avoid counting the loss twice
If a partner decides to sell their share of a partnership, where should the loss or gain be reported?
On Forms 8949 and Schedules D
When must a taxpayer attach Form 7203 to their income tax return?
- The shareholder disposes of his/her stock during the tax year
- The shareholder receives a distribution from the S corporation
- The shareholder receives a loan repayment from the S corporation during the tax year
- The shareholder claims a deduction for a loss
Who selects the tax year and accounting method for a partnership?
The partnership itself, however, they must generally use the same tax year as the majority of their owners.
Does a capital loss/gain of a C corporation that is carried back/forward retain its character of either short-term or long-term?
No, all capital loss carryforwards or carrybacks are treated as short-term losses only
How long must a business hold assets to avoid “built-in” gains?
5 years or longer
Can an S corporation be subject to NIIT?
No, NIIT only applies to individuals, estates and trusts
What is Form 3115 used for?
To request a change in either an overall accounting method or the accounting treatment fro an individual item
With regards to the filing requirements for S corporations, what does the Schedule L reflect?
Balance sheet per books
With regards to a C corporation, what qualifies as an “affiliated group”?
An affiliated group is when two (or more) corporations are related through common ownership, but are treated as one for federal income tax purposes
Money or property withdrawn by a partner in anticipation of the current year’s earnings is treated as:
A distribution received on the last day of the partnership’s tax year
How long can qualifying start-up costs be amortized over?
180 months
How does a company figure out payments that were never made to them in their taxes?
The amount is typically deducted as bad business debt
What is the last day that a SIMPLE IRA can be established?
October 1st
Exception: If the company is formed after October 1st then a SIMPLE IRA can be setup as soon as possible
If rent is paid in advance, what amount can you deduct in the current year?
Only the amounts paid during the year. Any payments for future years must be deducted in their corresponding year.
Can an employee opt out of a SIMPLE IRA?
No, but they may elect to make no contributions
351 rules
- Immediately after the transfer, the transferors are in control of corporation.
- The transfer is solely in exchange for stock of the corporation.
- Shareholders transfer property to the corporation
When does the estate of a decedent begin?
The day after their death
Under the de minimis expense safe harbor of the final tangible property regulations, a business WITHOUT applicable financial statements can deduct items that cost up to ___________ per invoice or item.
$2,500
Exempt entities that file Form 990 can file what form to receive an automatic 6-month extension of time to file their information return?
8868
A public charity with gross receipts of $50,000 or less can file a Form
990-N
An estate is required to file a fiduciary income tax return if the estate’s gross income for the year is:`
$600 or more
The passive activity rules apply to which entities?
- Individuals
- Estates
- Trusts
- Personal Service Corporations
- Closely held corporations
Are parking tickets incurred while doing business considered an allowable business expense?
No
To deduct a business expense, the expense must be considered:
Ordinary and necessary
Can a cash-basis taxpayer claim a bad business debt if their client doesn’t pay them?
Typically no, because unlike accrual basis taxpayers, they would have never included the payment in their income in the first place.
In order for a taxpayer to deduct automobile expenses as a business expense, they are required to maintain:
Mileage logs or receipts for actual vehicle expenses
Can a taxpayer deduct expenses on a leased vehicle used for their company?
Yes, they can either deduct actual expenses or the standard mileage rate.
If a business decides to use the standard mileage rate in order to calculate automobile expenses, what additional costs may be deducted in addition to the standard mileage rate?
Parking fees and tolls
For ACA purposes, a full-time employee is defined as an employee employed an average of:
30 hours per week, or 130 hours per month.
What depreciation life and convention method is used for qualified leasehold improvements of real property?
15-year straight line
Livestock held for: “draft, breeding, sport, or dairy purposes” are typically treated as farm assets and are:
Depreciated
If you forget to take depreciation on an asset, and the error continues on multiple returns, the IRS treats this as the adoption of an incorrect method of accounting, which may only be corrected by filing Form
3115
Can a farmer use Section 179 depreciation on a greenhouse?
Yes, this is the major exception where a building can use 179 depreciation
The Cost of Goods Sold (COGS) is calculated as follows:
Beginning Inventory + Purchases - Ending Inventory = COGGS
Inventory valuation rules are not the same for all kinds of businesses. The method a business uses to value its inventory must:
Clearly reflect income.
What happens when a business overstates its ending inventory?
The cost of goods sold is stated too low.
What happens when a business’s ending inventory is understated?
Net income will also be understated.
Harold is a 20% partner in the Condor Partnership, LLC, which operates an outdoor mall. Harold is the head of the sales department and works actively in the business. He spent $800 on business-related expenses during a sales conference and the Condor Partnership did not reimburse him. The partnership agreement states that Harold is required to pay for these outside expenses himself. How should Harold treat these expenses on his own return?
Harold may deduct the $800 on his Schedule E, labeled “UPE.”
A partnership representative must be designated on:
Schedule B, Form 1065 of the partnership’s tax return, for every partnership that is subject to CPAR, the centralized partnership audit regime.
A US taxpayer who is a partner in a foreign partnership (or an entity electing to be taxed as a partnership) is required to file:
Form 8865, Return of U.S. Persons With Respect to Certain Foreign Partnerships.
Is the partnership also required to e-file their extension and employment tax returns (payroll returns), as well?
No, partnerships with more than 100 partners are only required to efile their 1065
The due date for a calendar-year partnership’s return is March 15. If you think you may need more time to prepare your partnership return, you should file for an extension using ___________.
Form 7004.
When is a partnership required to file a tax return (Form 1065)?
A partnership is required to file a tax return annually unless it has no activity for the year.
When is the latest that a partnership agreement can be modified?
Before the due date for filing the partnership return for the year, not including extensions.
Partnerships: Separately stated items include the following:
- Section 1231 gains and losses,
- Net short-term capital gains and losses, net long-term capital gains and losses,
- Dividends eligible for the dividends received deduction,
- Charitable contributions,
- Taxes paid to a foreign country,
- Tax-exempt interest and related expenses,
- Investment income and expenses,
- Amounts previously deducted, such as bad debts,
- Real estate income and expenses,
- Section 179 deductions,
- Tax credits, and
- Non-deductible expenses
Shareholders often loan money to a corporation in order to fund business operations. However, in order for a loan to increase a shareholder’s debt basis, the shareholder must ____________________________________.
The shareholder must be the creditor and the loan must be bona fide
351: How much control must a taxpayer receive in order for this to be non-taxable
80% of all voting and non-voting stock
A non-dividend distribution in excess of stock basis is taxed as
capital gain on the shareholder’s personal return.
In order to qualify for this special treatment, at least two-thirds of the farmer’s gross income must come from farming (or fishing) activities, and the following rules apply:
A farmer does not have to pay estimated tax if he files his return and pays all the tax owed by March 1, OR
If the farmer must pay estimated tax, he is required to make only one estimated tax payment (called the “required annual payment”) by January 15.
Income in respect of a decedent (IRD) must be included in the income of one of the following:
The decedent’s estate, if the estate receives it.
The beneficiary, if the right to income is passed directly to the beneficiary and the beneficiary receives it.
Any person to whom the estate property distributes the right to receive it.
A simple trust that distributes all its income currently is allowed an exemption of:
$300
An estate is allowed the income distribution deduction (IDD) for the tax year for any income that must
be distributed currently and for other amounts that are properly paid, credited, or required to be distributed to beneficiaries. This deduction is limited to the distributable net income of the estate.
A corporation does not have to complete Schedule L or Schedule M-1 (Reconciliation of Income), if it meets BOTH of these conditions:
(1) The corporation’s total receipts were less than $250,000 for the tax year,
(2) The corporation’s total assets were less than $250,000 at the end of the tax year.
Any part of a distribution from current-year earnings and profits or accumulated earnings and profits is reported as:
dividend income to the shareholder and is generally taxable as dividend (ordinary) income to the shareholder, rather than as capital gains
Individual shareholders of an S corporation generally have to make estimated tax payments if they expect to owe tax of ______ or more when their return is filed.
$1,000 or more
