SIMULATED EXAM II Flashcards
Worker’s Comp Laws
Employers are generally strictly liable for injuries to employees
Filing of a position in Bankruptcy invokes
an automatic STAY against all attempts to collect on most debt of the debtor
If a company chooses to NOT take a credit for Foreign Taxes Paid
Then they can deduct them instead
S Corp revoked then
They need to wait 5 years before making a new S election
In Corporations
- State Income Taxes are deductible
- Interest Earned on US Treasury bonds are taxable
- Int Exp on bank loans to purchase US Treasury bonds are deductible since the interest income earned on US Treasury bonds is taxable
Note: Int exp to carry municipal bonds is not deductible
Statute of Limitations for an alleged breach of contract
Commences on the date of the alleged breach
The Statute of Limitations refers to the time period in which the case must be filed
Time period varies from state to state depending on the type of case
Statue of frauds
Contracts are not enforceable unless they have evidence
by a writing
EX: A contract to employ someone for life is not such a contract, since the person might not live a year. So this kind of contract is enforceable even absent a writing
Nonresidential real property
Is depreciated straight-line over 39 yrs
Casualty Losses
Smaller loss ( lesser of cost or decrease in FMV )
Earned Income Credit
If the Taxpayer files Married Filing Separately
This disqualifies the taxpayer from getting the credit
A CPA owns his workpapers
BUT
Needs to get client’s consent or a court order to disclose
Only 50% of business meals are deductible
Doesn’t matter if company reimburses their employees for meals and the reimbursement are not treated as wages subject to WH
When a CPA discovers and error on Tax Return
They must notify the client of the error
A security Interest
Is perfected in the new collateral for 20 Days from the debtor’s receipt of the proceeds
A home mortgage lien
is NOT subject to state homestead exemption if it is a purchase money mortgage
Worthless Security
Is treated as being sold or exchanged on the last day of the yr is becomes worthless
A Corp that has been an S Corp from its inception
Have Passive investment income in excess of 25% of gross receipt for 3 consecutive years
Be owned by a bankruptcy estate
US Tax Court is the only Fed Trial Court where
Taxpayers may have disputes litigated W/O first paying the disputed tax liability
For S Corp
Section 1231 Gain is separately stated
A 1245 Gain
Goes on as Ordinary Income
Organization Expense
Deduction are limited to $5,000 in first year
Anything over these expenses will be amortized for 15 years or 180 months
Special Assessment for Sidewalks on Annual Property Tax Statement are NOT deductible
Make sure you subtract this from the statement
Principal Residence Taxes are Tax Deductible
Vacation residence also Real Estate Taxes are Deductible
NOTE Max SALT deduction
Limited to $10,000
State
And
Local
Tax
In a Partnership
Retirement Plan Contributions for partners are separately stated
- Separately Stated Deduction BUT Deducted from Federal Income Tax Purposes »_space;DO NOT INCLUDE RETIREMENT IN DEDUCTION FOR OBI only include the employee portion
Health Insurance Premiums for Partners are treated as Guaranteed Payments to Partners
-Health Insurance Premiums are separately stated BUT Deducted from Federal Income Tax Purposes AND for OBI
MACRS
The greater than 40% RULE only applies to Personal Property places in use in 4th Quarter
**NOTE: Very important , the table that you use when it was purchased is the table that you will use when you sell the asset
EX: you bought in 4th quarter you sold it in Feb, your going to use 4th QTR Convention then adjust manually when selling it
$60,000 X 22.80% * 1.5/12 Last month in Jan
MACRS (When selling an item)
Portion of Year Owned Depends on Convention
– For Half-Year, its always 6/12
– For Mid-Qtr, its 1.5/12, 4.5/12, 7.5/12 or 10.5/12
So if we sold it Jan 1 your going to say 1.5 months throughout the year
OR, if you sold it Dec 31st your go to the middle of the 4th qtr
– For Mid-month, it can be 0.5/12 throughout 11.5/12 (12 options based on months)
When sold real prop (bldg) then you use the month it was purchased as convention then when selling use same month then multiply for month sold
For ex: asset purchased May, use convention for May then it was sold in Dec.
$300,000 X (May convention) 2.564% * (month sold dec) 11.5/12 = $7,372
Business expense for a client
is limited to $25
Summary of a Substantial Understatement
IND: An understatement is substantial if it exceeds the greater of:
A) 10% of the correct tax, OR
B) $5,000
CORP: An understatement is substantial if it exceeds the lesser of:
A) The Greater of 10% of the correct tax, or $10 k, or
B) $10,000,000
If Understatement is not substantial, it is considered a “negligence or a disregard of tax rules”
Penalty for both unsubstantial & substantial understatements = 20% of the portion of the underpayment
It can be Unsubstantial
OR For Negligence or disregard of the tax rules its considered Substantial
Guaranteed Payments is included
In a Partners Taxable Income
For a teacher
Max allowed deduction is $300
Max Allowed Deduction for student loan Interest is
$2,500
In Casualty Loss
Smaller of
The Damages
OR
Decrease in basis
out of pocket costs for volunteering
Can be deducted - added to your cash contributions
