SIMULATED EXAM 1 Flashcards
In a situation where the taxpayer pulls out early on a CD
What they are doing is forfeiting there right to the rest of the interest
( The penalty from the bank for pulling the money out is an adjustment )
SO, you record the (ALL)as taxable ) interest income ( all of it that they would earn ) and the penalty would be and adjustment
In a Partnership
REMEMBER THAT LIABILITIES ARE INCLUDED IN THE BASIS OF THE PARTNER
US TAX COURT
Specialized trial court that hears only Federal Tax Cases
The Trials are by judge and NOT by a jury
SECURITY INTEREST ATTACH
LAST TO OCCUR ON THE FOLLOWING:
- Parties must agree to create the security interest by taking possession of the collateral or a written security agreement that has the collateral and is signed by the debtor
2.Creditor must give value in exchange for the security interest AND debtor must have rights in the collateral
FILLING is NOT NECESSARY
When Both Parties agree to new terms that are different from original contract and a new agreement has been established then its called accord.
When agreement is fulfilled, the fulfillment is called satisfaction
An Accord AND Satisfaction
1/2 Of Self-Employed taxpayers self-employment tax
Is for the Employer Portion of taxes AND is an adjustment ( FOR AGI )
The other half is personal and is NOT deductible
Increases on Accumulated Adjustments account of an S-Corp
AKA Triple AAA account
It is increased by separately stated and non-separately stated income and gains
(Exception: Tax-Exempt income & Certain Life Insurance Proceeds)
CIRCULAR 230
Prohibits a practitioner from endorsing or negotiating refund checks which the IRS has issued to the client
Federal Law prohibits a state from imposing an income tax on net income
If orders are taken within the state
Accepted at corporate headquarters outside of the state
AND
Shipped from a location outside of the state
Fed Law will prohibit the state from imposing an income tax on net income
The Company has no physical presence in the state
Voluntary OR Involuntary Petition
May be filed under Chapter 7 or 11
Corporations making Charitable Contributions to recognized the allowed deduction of 10% of taxable income
Taxable income is calculated before the deduction of:
Just REMEMBER THE TRUE TAXABLE INCOME OF THE CORP
- Any Charitable Contribution
- The dividends-received deduction
- Any Capital loss Carryback
INCOME TO BE TAXABLE ON A TAX RETURN
IT MUST BE BOTH REALIZED AND RECOGNIZED
SEC 179
OVER $3,050,000 SUBTRACT IT
WHATEVER IN EXCESS SUBTRACT FROM
$1,220,000
MODIFICATIONS OF A SALES CONTRACT UNDER UCC
If its been modified the contract AS IT HAS BEEN MODIFIED that determines whether a writing is required under the STATUE of Frauds
Primary activity for Foundations is
Making grants to other charitable org and ind
Personal reputation awards and punitive damage awards
Are both included in taxable income
IRS PUBLICATIONS
Are NOT considered a primary authoritative source when one is conducting tax research
REAL PROPERTY
Includes land and all items permanently affixed to the land
EX: Bldg, paving etc
Workers’ Comp
Covers both occupational diseases and aggravations of preexisting diseases.
The Statue of Frauds requires contracts involving
The Sale of goods to be evidenced by a writing if the price is $500 or more
HOWEVER, if any of these exceptions apply,
An oral contract will be enforceable
Specifically manufactured goods
Written confirmation
Admitted in court
Performed (extent of the performance of the party sought to be held liable)
A Security Interest in accounts
May be perfected by filing
NOT through Possession
NOR Attachment
Tom can deduct medical expenses he paid for his mother-in-law
The definition of “dependent” for purposes of qualifying medical expenses does NOT consider the gross income limit
Taxpayer can avoid any penalty by showing that the taxpayer acted in good faith
Had reasonable cause to support the tax return position
Did NOT have willful neglect
Organizations that test products for public safety
Are Classified as 501C3 public charities
FUTA - FEDERAL UNEMPLOYMENT TAX ACT
Credits for this tax are allowed to employers for certain state unemployment taxes paid by the employer
Property, other than real property,
Is depreciated at Half-yr Convention unless the mid-quarter exception applies
Mid-Quarter Convention for equipment
Mid-month Convention for BLDG
A minor can effectively disaffirm a contract up until
The time of 18th BD
AND
Shortly thereafter
Up until that time, a minor is without capacity for contracts not involving necessities
Medical Expenditures
Includes:
Services Rendered by physicians, surgeons, dentists, and other medical professional
Equipment, Supplies, and diagnostic devices needed for these purposes
Common items:
1. Prescription Drugs ( not recommended drugs )
2. Surgery that fixes and injury/condition ( NOT elective surgeries )
3. Other supplies related to medical conditions
4. Doctor office visits ( like a physical )
5. Med insurance premiums ( or long-term care premiums )
Reduce the expenditures by the insurance reimbursement received in that YEAR ( ONLY )
When Dealing with MACRS
Type of Property
- Personal Property (things you can touch but not land or bldg)
- Real Property (things you can touch that are land or bldg)
- Intangible Property (things you can’t touch)
Depreciable Lives
Personal Prop - 1/2 Yr or Mid- Qtr
- 5 yrs - Comp equipment, automobiles
- 7 yrs - Furn, fixtures, machinery, and equipment
Real Prop - Mid-Month
- 27.5 yrs - Residential
- 39 yrs- Non- Residential
Intangible Prop:
- 180 months (15 years ) for most intangibles ( but not all )
MACRS (CONVENTIONS)
Personal Prop:
- Half-yr (default )
- Mid-Qtr (if more than 40% of personal prop was placed in service in 4th qtr) 5YR & 7YR Personal Prop
Real Prop:
- Mid-month
Intangible Prop:
- Full-month (ALWAYS GETS FULL MONTH)
BASIC CALCULATION
Basis X MACRS DEP FACOTR = Current year cost recovery
MACRS Tables account for the depreciation convention in the 1st YR ONLY
NEVER get a full YR of Cost Recovery in YR Sold
Special issues when it comes to MACRS
- Land is NEVER DEPRECIATED
- MACRS tables account for the depreciation convention in the 1st year only
- If we sell prop, we must manually apply the depreciation convention
(NEVER get a full year of cost recovery in year sold!)
Calculation if Prop sold during yr
Basis X MACRS Dep Factor X Portion of Yr Owned = CY Cost Recovery
Portion of yr owned depends on convention
- 1/2 yr = 6/12
- Mid Qtr, its 1.5/12, 4.5/12, 7.5/12, or 10.5/12
- For Mid Month, 0.5/12 through 11.5/12 (12 options based on month)
So middle of the last month
Calculating Tax for IRA distributions
Deductible Contributions + Earnings = Taxable Portion of IRA
Taxable Portion / Total Account Balance = Taxable %
Taxable % X Distribution for that year = Taxable Portion of IRA
Remember BASE
When calculating Partner’s adjusted basis
- Beginning Basis
- Additions
- Subtractions
- Ending Basis
Always Set - Up Like this
Capital + Liabilities = Basis
When an Involuntary petition for Bankruptcy is filed
Pay attention cause that means that there is a gap of when the petition was filed and when the order of relief started
In involuntary petition for Bankruptcy
REMEMBER
SAG, WEG, CTI
Order of Distribution:
A. Secured debt paid first
B. Priority debt paid second as follows
SAG
Support Obligations
Admin Exp
Gap Claims
WEG
Wages
Employee benefit w/in 6 mos
Grain Farmers & Fishermen
CTI
Consumer Deposits
Tax Claims
Injuries from DWI/DUI
C. General unsecured debt
