Individual TaxationUnder what accounting basis are individual tax returns prepared?

Cash Basis. Note: This basis is NOT allowed for Corporations, Partnerships with a C-Corp partner, or for inventories.

Individual TaxationWhat are the deductions to arrive at Adjusted Gross Income (AGI) for individuals?

*MSA/HSA contributions*Investment penalties for early withdrawal*Self-employed medical insurance premiums*Self-Employment Tax (approx. 50%)*IRA Contributions*Student loan interest (can't be another taxpayer's dependent)*Moving expenses*Alimony*Tuition - can't take AOC/Lifetime Learning Credit for same expense *Teacher expenses*Attorney fees in discrimination lawsuit

Individual TaxationWhich items can be carried over to future years on an individual tax return?

Investment interest expense in excess of investment incomeCharitable contributionsExcess Section 179Capital lossesAMT PaidPassive Activity Losses

Individual Taxation Characterize the following carryover: Passive Activity LossNo carryback

Can carry forward indefinitely

Individual Taxation How is excess 179 expense carried forward?Carry forward to next year.

Use in any year is limited to taxable income.

Individual TaxationHow long can investment interest expense in excess of investment income be carried forward? Indefinitely.

Individual Taxation How long is the carry forward for charitable contributions? Can be carried forward 5 years.

Individual Taxation How long is AMT paid carried forward, and how is it applied?

It can be carried forward indefinitely.

It may be applied against future *regular* income tax, but not against future AMT tax liability.

Individual Taxation How are capital losses applied in individual taxes?

$3,000 net capital loss can be taken in each year, the rest is carried forward indefinitely.

The loss retains its character (STCL or LTCL).

Individual TaxationHow does an individual capital loss carryover differ from a corporate capital loss carryover?

Corporate capital loss carryovers may be carried back 3 years and forward 5 years. Individual capital losses are carried forward indefinitely.

Individual capital loss carryovers retain their character (STCL or LTCL). Corporate loss carryovers are carried forward as STCL only.

Individual TaxationWhat ratio is applied to principle payments in an installment sale to determine the gain in a given year? Gross Profit / Contract Price

Individual TaxationWhat is the contract price in an installment sale for income tax purposes?

Contract Price = Sales Price - Liability assumed by buyer

Individual TaxationOn an individual return, regular mortgage interest on what loan amount is deductible? $1,000,000

Individual TaxationInterest on home equity loans up to what amount are deductible on an individual tax return? $100,000

Individual TaxationWhat business gift amounts are deductible on Schedule C of form 1040? What amount for service awards?

$25 per person for gifts

Service awards up to $400

Individual Taxation What income can business losses offset on a 1040?

They may only offset active business income.

Note: W2 wages are considered active business income.

Individual Taxation What income can passive losses offset on a 1040?

Only passive income such as rental income or limited partnership income.

Note: Wages are ACTIVE (cannot be offset by passive) and Interest/Dividends are PORTFOLIO (cannot be offset by passive)

Individual Taxation Are interest and dividends active or passive income? Neither. They are portfolio income.

Individual TaxationWhat is (are) the depreciation convention(s) for personal property? Mid-year/Mid-quarter

Individual Taxation When is the mid-quarter convention used?For depreciation when 40% or more of all purchases occur in 4th quarter.

Individual Taxation What depreciation convention is used for real property? Mid-month

Individual TaxationWhat depreciation life and convention are used for leasehold improvements? 15 year straight line (S/L)

Individual TaxationWhat amount of business start-up costs can be deducted? How is it expensed?

Up to $5,000

Amortized over 180 months

Reduced dollar-for-dollar by amount over $50,000

Individual Taxation How are medical expenses deducted on a 1040?On Schedule A:

Amounts in excess of 10% of AGI may be deducted

Individual TaxationWhich personal insurance premiums are not deductible as medical expenses on Schedule A?

Accident or disability insurance premiums are not deductible.

Individual TaxationUnder what circumstances can medical expenses paid on behalf of another be deducted on someone's Schedule A?

Must be a citizen of North America

Must live with you, or if they do not, must be mother/father or a relative closer than a cousin.

Benefactor must provide more than 50% support to the beneficiary.

Individual Taxation Which foreign taxes are deductible?

Foreign INCOME and REAL ESTATE taxes are deductible.

Foreign personal property taxes are NOT deductible.

Foreign tax assessments are not deductible- they are added to the basis.

Individual TaxationHow is net investment income calculated, for the purpose of deducting excess investment interest expense?

Gross investment income - investment expense in excess of 2% of AGI = net investment income

Investment interest expense in excess of net investment income is deductible.

Individual Taxation What investment interest is never deductible?Investment interest expense on tax-free securities is not deductible.

Individual TaxationWhen are mortgage points deductible and how are they deducted?

They are deductible if they represent prepaid interest on purchase of a new home or improving a home.

Refinance points are amortized over the life of the mortgage.

Individual TaxationHow are charitable contributions of LTCG property and property related to a charity's function deducted?

Deducted at fair market value (FMV), up to 30% of AGI

Individual TaxationHow are charitable donations for STCG property and property not related to the charity's function deducted on Schedule A?

Deduction is taken for adjusted basis in the property, up to 50% of AGI.

Individual Taxation Does a casualty loss affect the basis of property?No. It decreases the fair market value (FMV) of the property.

Individual Taxation How is the deductible portion of a casualty loss calculated?

Take the lower of either A) Decrease in FMV or B) Basis in property (call this number GROSS LOSS)

GROSS LOSS - insurance proceeds received - $100 - 10% of AGI = Deductible casualty loss

Individual TaxationWhat are the miscellaneous deductions on Schedule A, and how are they deducted?

Deductible in excess of 2% of AGI

Continuing Education - if required to keep your jobBusiness travel50% Meals and entertainmentUnion DuesTax prep feesLegal fees to collect alimony Appraisal fees to value casualty loss of charitable contributions

Individual TaxationWhich itemized deductions are not subject to phaseout based on income or other factors?

MedicalCasualty GamblingInvestment Interest Expense

Individual Taxation Define qualifying child for most individual tax factors.

Must be resident of North America

Under age 19, or under age 24 if a student

Individual Taxation Define qualifying relative for most individual tax factors?

Must be citizen of North America

Must live with you, unless mother/father or relative closer than a cousin

You must provide more than 50% support to the individual

Individual TaxationHow is minor income taxed at a parent's rate calculated (AKA kiddie tax)?

Child's unearned income - early withdrawal penalties- $1,000- Greater than $1,000 or child's itemized deduction related to unearned income= Amount taxed at parents' rate

Individual TaxationCan spouses married filing jointly use different accounting methods?

Yes, if they each own a small business. All non-business income is cash basis.

Individual Taxation At what rate is self-employment tax assessed?

15.3% of net earnings from self-employment

(Note: executor of an estate is NOT self-employment income)

Individual TaxationWhat is a refundable tax credit? Which individual tax credits are most commonly refunded?

A tax credit which takes the taxpayer's tax owed on the return below zero, resulting in a refund to the taxpayer.

Earned Income Credit (EIC), American Opportunity Credit and the Additional Child Tax credit.

Note: the REGULAR child tax credit is NOT refundable.

Individual Taxation How many education credits may be taken on a tax return?

American Opportunity Credit - per student

Lifetime Learning Credit - per taxpayer

Note: The American Opportunity Credit is refundable.

Individual TaxationWhat estimated tax payments must be paid in by an individual taxpayer either via withholding or by quarterly tax payments?

The lesser of:

90% of current year's total tax

100% of prior year's total tax

110% of prior year's total tax (if AGI is $150,000 or more)

Individual TaxationWhich farming costs related to land are deductible? Which aren't?

Deductible: Costs incurred to PRESERVE soil/water

Non-deductible: Costs incurred to drain wetlands or prep for irrigation (i.e. improve land)

Individual TaxationWhich depreciation table is used for personal tangible property related to farming? MACRS 150

Individual TaxationHow long does the taxpayer have to petition the court for appeal after an audit? 90 days

Individual TaxationIf no petition to appeal is filed, how long does a taxpayer have to pay tax due after an audit? 10 days

Individual Taxation What is the statute of limitations for a tax audit?

3 years, generally

6 years if 25% or more of gross income was omitted

The clock starts on the LATER of the due date or the filing date of the return.

There is NO STATUTE OF LIMITATIONS for either fraud or failure to file a required return.

Individual Taxation How is non-business bad debt deducted on a 1040? It is treated as a STCL

Individual TaxationHow long does an individual taxpayer have to file a claim for refund?

Refunds must be claimed within 3 years of the return due date or within 2 years of being paid, whichever is later.

Individual TaxationWhen are life insurance premiums of an employee includable in income?

Premiums paid by an employer for coverage in excess of $50,000 per employee are includable in income.

Individual Taxation When are scholarships not taxable?

When they are not in return for services rendered,

AND

The money is used *only* for tuition and books

Note: Scholarships for room and board are includable in income.

Individual Taxation What interest income is tax free?

State & municipal bond interest

US EE Savings Bond interest (note: HH bond interest is taxable)

Individual Taxation Which dividend income is tax free?S-corporation (actually distributions)

Life insurance

Individual TaxationHow much social security income can be taxed for individuals in higher income brackets? Up to 85%

Individual Taxation Is unemployment compensation taxable? Yes.

Individual TaxationWhich damages awarded in lawsuits are taxable? Which are not?

Payments made to make you whole are NOT taxable (i.e. to pay for losses of property, body parts or earning ability)

Any payments for punitive damages ARE taxable.

Individual Taxation Are workman's compensation insurance benefits taxable?No - similar to an award for damage to make a person whole.

Individual TaxationWhich of the following are taxable: Child Support, Divorce Property Settlements, Alimony

Alimony IS taxable.

Child support and divorce property settlements are NOT taxable.

Individual Taxation Adoption expenses - Are they deductible?

NO, they are not deductible. However tax benefits are available through the adoption CREDIT.

Individual Taxation Describe alimony recapture.

2nd Year: (3rd year - 2nd year - $15,000)

1st Year:1st Year Alimony Paid- Avg alimony paid in 2nd & 3rd years- $15,000- Recapture from 2nd year=1st Year Alimony Recapture

Total Recapture = 1st Year Recapture + 2nd YearRecapture

Individual Taxation How are Net Operating Losses (NOLs) utilized?Can be carried back 2 years

If any left, can be carried forward 20 years.

Individual Taxation Which IRA contributions are deductible?Traditional IRA = deductible

Roth IRA = not deductible

Individual Taxation When can a couple file married filing jointly?

They must be married at the end of the year.

If one spouse dies, they must be married at the end of the year.

Individual Taxation What are the requirements for filing as Head of Household?

Must have a dependent child

Must provide more than 50% of the child's support

Must live with them more than 50% of the year

Individual Taxation What are the requirements for filing as qualifying widower?

Must have a dependent child.

Essentially gets MFJ status for the year of death + 2 tax years

if you are an eligible educator, you can deduct ____________________ as an adjustment to income. $250 qualified expenses you paid. ($500 for married teachers)who is considered an eligible educator for the adjustment?

k-12 teacher, instructor, counselor, principal, or aide in a school for at least 900 hours during a school year

what are qualified expenses for educator expenses?

ordinary and necessary expenses paid in connection with books, supplies, equipment (including comp equip, software, and services) and other materials used in the classroom.

what are qualified educator expenses reduced by?

1. excludable U.S. series EE and I savings bond interest from Form 88152. nontaxable qualified state tuition program earnings3. nontaxable earnings from Coverdell Education Savings accounts4. any reimbursements you received for these expenses that were not reported to you in box 1 of your form W-2

what are the four types of individual retirement accounts?

1. deductible IRA2. nondeductible IRA3. Roth IRA4. coverdell education savings accounts (IRA)

when must the contribution be made for the adjustment for a deductible IRA to be allowed? by the due date of the tax return for individuals: april 15

when will a taxpayer not be permitted to deduct a contribution to an IRA?

1. excessive AGI ($56+, 89+) and active participation in another qualified plan

what is the phase-out for the deductible IRA contribution for an individual who is not an active participant, but whose spouse is? MAGI between $167,000 and $177,000

a taxpayer generally may deduct from income the amount of a regular IRA contribution. the max deduction is limited to: the lesser of $5,000 or the individual's compensationwhat is included in compensation? salary, wages, commissions, bonuses, and alimony

what is not included in compensation? interest, dividends, annuity income, and pensionswhat is the additional catch-up contribution?

if over 50 yrs old by december 31st, allowed an additional contribution (adjustment") of $1000"

which phaseout limits are higher, deductible IRAs or roth iRas? roth iras

qualified nontaxable distributions of roth iras are those made at least five years after the taxpayer's first contribution to a roth ira and made:

1. after the taxpayer reaches age 59.52. to a beneficiary after the taxpayer's death3. because the taxpayer is disabled4. for use by a first time" homebuyer to acquire a principal residence. there is a lifetime $10,000 limit on qualified distributions for this purpose."

what are the tax effects of a coverdell education savings account?

non-deductible contributions, but tax-free accumulation of earnings and tax-free distributions

what are the tie limits associated with coverdell education savings accounts?

contribute up to 18 years, and the beneficiary must use it by age 30

ay amounts remaining when the beneficiary reaches 30 years of age must be distributed (except in the case of a special needs beneficiary). distribution may take one of two forms:

1. distributed to beneficiary, taxable and assessed a 10% penalty2. rollover to another family member of the taxpayer

what is the maximum contribution per year for a coverdell education savings account? $2,000 what is the adjustment for education loan interest?

limited to $2500. any excess or disallowed is personal interest and not deductible. phaseout at $60k-$75k

what are the tuition and fees above the line deduction?

applies regardless of whether the education was work-related. expenses above the maximum of $4,000 are only deducible as education expenses (itemized deductions subject to 2% of AGI limitation). [$4,000 if 80k]

what is a health savings account and how does it work?

HSAs enable workers with high-deductible health insurance to make pre-tax contributions of up to $3,050 to cover health care costs. these amounts are increased by $1,000 for those who reach age 55 within the year. excludable withdrawals if used for qualified medical expense of any account beneficiary.

no contributions allowed once a taxpayer becomes covered by medicare parts A or B.

what is an archer medical savings account?

similar to IRAs, but they are used for health care. typically used only if HSA is unavailable.

when are moving expenses deductible to arrive at agi?

work related. new workplace is 50 miles further. 39 weeks (75%) of the next year. only direct moving costs are allowable. employer reimbursements are excludable from income to the extent the amounts qualify as deductions.

which moving costs are deductible to arrive at agi?

travel and lodging of the taxpayer and his family. transportation expenses are deductible at actual out-of-pocket amounts of 16.5% per mile. tolls and parking fees, but not other amounts, can be added to the milage rate if it is used. transporting household goods and personal effect to the new location.

which moving expenses are non-deductibe?

meals, pre-move house hunting, expense of breaking a lease, temporary living expenses.

what is a keogh (profit sharing) plan?self employed taxpayer subject to the self-employment tax is generally allowed to set up.

what is the max annual deductible amount of a keogh plan? 49,000, or 25% net (keogh/self-employed) earningshow much of self-employment tax can be an adjustment? 50% of social security/medicare taxhow much of self-employed health insurance can be an adjustment?

all of it, provided the plan is set up in the name of the self-employed individual or the individual's business

how is the penalty on early withdrawal of savings (interest income) treated? adjustment to income. do not net against interest ncome

what tax break is there for attorney fees paid in discrimination cases?

in certain cases, an adjustment is allowed for attorney fees paid in connection w/ age, sex, or racial discrimination and whistleblower fees cases. limited to the amount claimed as income from the judgment.

what tax break is given for domestic production activities?

taxpayers will receive an adjustment for a percentage (9%) of qualified production activities income or the taxpayer's taxable income without considering the deduction (whichever is less). form 8903 will be filed.

when can married filing separately use the standard deduction? available only if both taxpayer and spouse do not itemize.

what is the standard deduction for dependent of another?

amount is the greater of 950 or his earned income plus 300. may claim the same additional standard deduction as other taxpayers for blindness and/or age 65 or over status.

what is the limitation on itemized deductions?

none. there used to be one with agi exceeding certain thresholds, not anymore though.

payments on behalf of these individuals qualify for the itemized deduction for medical expenses:

1. yourself2. spouse3. dependent who received over half his or her support from you (under $ taxable income and precludes joint return do not matter)

what is the formula to calculate how much medical expenses are deductible?

qualified med expenses - insurance reimbursement = qualified medical expense paid".

subtract 7.5% agi = deductible medical expenses"

types of deductible medical expenses

medicine and drugs, doctors, medical and accident insurance, required surgery, transportation to medical facility, physically handicapped costs

types of non-deductible medical expenses

elective surgery, the part of social security tax paid for basic medicare, funerals, life insurance, capital expenditures up to the increase in fmv of the property because of the expenditure, health club memberships, personal hygiene

what happens to reimbursement of expenses by an employer that exceed the total of medical or dental expenses paid by a taxpayer? included in gross incomewhat happens to reimbursement of medical expenses received in the current year that was deducted in a year prior? included as part of gross income in year receivedare federal income taxes taken as an itemized deduction? nowhen are foreign real estate taxes paid deductible? only for real estate held as an investmenthow are real estate taxes on land held for appreciation treated? may be capitalized or deducted at the option of the taxpayer

what are the types of taxes that can be used in itemized deductions?

1. real estate tax2. state and local foreign income tax3. personal property tax4. sales tax

when can you deduct sales tax?taxpayer may elect to deduct either state and local income taxes or state and local general sales taxes

how is sales tax deducted?

the amount is either1. the total of actual general sales tax paid2. irs table, plus any amount of sales tax paid for a motor vehicle, boat, or other IRS approved items

what are taxes that are not deductible?

federal taxes (including social security), inheritance taxes for states, business and rental property

what are the two categories of qualified residence interest for home mortgages? acquisition indebtedness and home equity indebtedness

acquisition indebtedness is debt that is:

1. incurred in buying, constructing, or substantially improving the taxpayer's principal and second home, and2. secured by home3. points related to acquisition indebtedness are deductible immediately4. refinancing points must be amortized over the period of the loan

what is the limit on acquisition indebtedness?

interest on up to 1,000,000 of principal of acquisition indebtedness is deductible as qualified residence interest. excess is treated as personal interest, and not deductible.

what is home equity indebtedness?

debt that is secured by the taxpayer's principal or second residence, but is not acquisition indebtedness" (i.e. not used to acquire, build, or improve the home) used for anything"

the maximum that can be treated as home equity indebtedness is the lesser of:

1) $100,0002) FMV of the property reduced by the amount of outstanding acquisition indebtedness (aka the equity in home)

is personal (consumer) interest deductible? nohow is education loan interest treated? adjustment, not an itemized deduction. up to $2500are gifts given to organizations tax deductible? yesare gifts given to needy families tax deductible? noare political contributions tax deductible? nowhat is the maximum allowable deduction for charitable contributions? overall limit = 50% of agi

what are the limitation rules for charitable contributions?

overall limit = 50% agi

1. cash may be all 50 %.2. general property - lesser of basis of FMV3. long-term appreciated property is limited to the lesser of - 30% of agi - the remaining amount to reach 50% after cash contributions

how much of agi can be deducted for gifts to a non-operating private foundation? 20%

what is the deduction for contribution of services?

none for value and time, but can deduct out-of-pocket expenses incurred. 14 cents per mile, or cost of gas and oil. parking and tolls.

what is the deduction for hosting a foreign exchange student? $50 for each full monthfor contributions of more than $___ of noncash property, the taxpayer must file form _____ $500. form 8283

when is a written appraisal needed for charitable contributions?

if more than $5,000 for any one item or group of similar items, except that no appraisal is needed for publicly traded securities

what is the calculation for casualty and theft losses?

loss (smaller of basis and decreased fmv)- insurance recovery= taxpayers loss- $100= eligible loss- 10% of agi= deductible loss

when are miscellaneous itemized deductions allowed?

only to the extent that the miscellaneous deductions combined exceed 2% of agi and were not taken as part of an allowable adjustment

what are the types of miscellaneous itemized deductions?

1. unreimbursed business expenses2. educational expenses3. uniforms4. business gifts5. business use of home6. employment agency fees7. expenses of investors - safe deposit box and investment advice8. subscriptions of professional journals9. tax preparation fee10. debit card convenience fees incurred to pay income tax

what are the types of unreimbursed business expenses that can be used as itemized deductions?

travel, meals and lodging (overnight), transportation expenses, meals and entertainment expenses (50%)

what are examples of refundable credits?

1. child tax credit (refund is limited)2. earned income credit3. withholding taxes4. excess social security paid5. long-term unused minimum tax credit6. american opportunity credit (40% refundable)7. making work pay credit8. adoption credit

what is the child and dependent care credit?

a tax credit of 20% to 35% of eligible expenditures. one dependent = 3,000 max expenditures, 2 or more dependents = $6000 max expenditures

who is eligible for the child and dependent care credit?

qualifying child, under age 13, who can be claimed as a dependent; disabled dependent who meets support test; spouse who is disabled and not able to take care of himself

for the child and dependent care credit, how is the amount that is multiplied by the applicable percentage computed?

using the lowest of:1. the earned income of the spouse with the lesser amount2. the actual childcare expenditure3. the maximum amount (3000 or 6000)

what are eligible expenditures for the child and dependent care credit? babysitter, nursery school, day care. NOT grammar school.how do you determine the credit computation for the child and dependent care credit?

under $15k agi = 35%phaseout = 35-20%over 43k = 20%

what is the credit for the elderly and/or permanently disabled?

credit of 15% of eligible income to individuals who are 65 years of age or older or under 65 and retired due to permanent disability

what are the base amounts for each filling status for the credit for elderly/permanently disabled?

$5000 for a single person$7500 if MFJ and BOTH are qualifying individuals$3750 for married filing separately

what are the agi limits for each filling status for the credit for elderly/permanently disabled

single 7,500mfj 10,000mfs 5,000

what is the calculation for the credit for the elderly/disabled?

base amount - all social security - 1/2 excess agi = balance.

balance x .15 = credit

what is the american opportunity credit for?

education expenses for a student's first four years of college education. can have multiple students.

how is the american opportunity credit calculated

100% of the first $2000 expenses, 25% of the next $2000 expenses. (max = $2500)

what are the qualifications of the student to receive the american opportunity credit?

- half time in one academic period during the year- not convicted of federal or state felony drug offense in calendar year for which expenses are incurred

is there a phaseout for the american opportunity credit? yeswhat part of the american opportunity credit can be refunded?

40% of it is refundable, and the nonrefundable portion may offset both regular and amt

what is the lifetime learning credit?

20% of qualified expenses up to $10k. available for unlimited number of years for qualified tuition and related expenses (EXCEPT BOOKS). only one kid per year

is there a phaseout for the lifetime learning credit? yes

how can you use coverdell education savings account distributions in conjunction with education credits?

distribution canot be used for the same educational expenses for which either the american opportunity credit or lifetime learning credit was claimed

what is the limit for the adoption credit? $13,170 per child

what is the timing for the adoption credit?

credit is claimed for years after the payment is made until the adoption is final, at which point expenses paid in the year it becomes final are claimed in that year. for foreign children adopted, no credit can be claimed until the year it becomes final. in either case, expenses paid in later years can be claimed in the year paid

what is the purpose of the retirement savings contributions credit?

be nice to people with low income who contribute to a traditional IRA or Roth IRA.

what is the limitation of the retirement savings contributions credit?

limited to the excess of the regular income tax liability and AMT liability over the taxpayer's nonrefundable personal credits. no carryover allowed.

who is eligible for the retirement savings contributions credit? over 18, not a dependent, not a full-time student

is a foreign tax credit an itemized deduction or a credit?

it could be either. there is a limit on the credit, so an individual might find it better to deduct the taxes as an itemized deduction instead.

what is the allowable amount of foreign tax credit?

limited to the lesser of1. foreign taxes paid or2. foreign taxable income/(taxable income + exceptions) x u.s. tax = foreign tax credit limit

what is the carryover of disallowed foreign tax credit? cary back one year, carry forward ten yearswhat is the limit for the general business credit?

can't exceed net income tax" (regular income tax + amt - nonrefundable tax credits), less the greater of:

1. 25% of regular tax liability above 25,000, or

2. tentative minimum tax for the year"what is the carryover for unused general business credits? generally carried back one year and forward 20 years

what is the work opportunity credit

available to employers who hire employees from a targeted group. part of the gen business credit.

a. 40% of first $6,000 of first year's wagesb. 40% of firs $3,000 to certain summer youth

what is the child tax credit? taxpayers ma claim a $1,000 tax credit for each qualifying child""what is the age limit for the child tax credit? must be under the age of 17is there a phase-out for the child tax credit? yes

what is the refundable limit for the child tax credit?

lesser of:a. excess child tax credit (over tax liability)b. earned income less 3,000 times 15%

what is the eligibility of the earned income credit?

1. live in the u.s. for more than half the taxable year,2. meet low-income thresholds3. not have more than a specified amount of disqualified income4. between the ages of 25 and 65 if there are no qualifying children5. file a joint return with spouse with certain exceptions

what is defined as earned income

wages, salaries, tips, other employee compensation, and earnings from self employment. does not include pension and annuity income. AMT liability will not affect the credit

an individual cannot claim the credit if the individual has disqualified income" exceeding $____. disqualified income includes:"

$3,100. disqualified income includes taxable and nontaxable interest, dividends, net rental and royalty income, net cap gains income, and net passive income other than self-employment income

if there is excess FICA with two or more employers: taxpayer may claim the excess as a credit against income taxif there is excess FICA with one employer: employer must refund the excess to the employee

what is the small employer pension plan start-up costs credit?

small businesses (those with 100 or less employees who earned at least $5,000 in the preceding tax year), a credit is allowed for 50% of the first $1,000 (up to $500 per year) of qualified start-up costs for establishing a new qualified pension plan for three years

what is the small business healthcare tax credit?

a credit of up to 35% of the employer's costs of the plan premiums, provided the employer contributes at least 50% of the costs of health coverage. allowed as an offset to AMT. not refundable.

how long can the small business healthcare tax credit be carried forward? 20 years

which costs are excluded from the small business healthcare tax credit?

the costs for family members, sole-proprietors, partners, S corp owners with greater than 2% ownership, and shareholders owning more than 5% of corps are excluded

what is the health coverage tax credit?

for eligible individual taxpayers, a credit of 80% of healthcare premiums for qualified health insurance paid by certain taxpayers for the taxpayer and qualifying fam is allowed

what is the residential energy credit?

max credit of 30% of qualifying nonbusiness energy property or improvements, up to a max credit of $1500 (solar electric property, water heaters, small wind energy prop and geothermal pumps have no limit)

what are the exemption amounts for AMT?

single - $33,750 - .25 ( amti - $112,500)

MFJ - $45,000 - .25 (amti - $150,000)

MFS - $22,500 - .25 (amti - $75,000)

what are the adjustments to amt?

P - passive activity lossesA - accelerated dep (post 1986)N - net operating lossI - Installment income of a dealerC - Contracts - % completion vs. completed contract

T - tax deductions"

I - interest deductions on some home equity loansM - medical deductions (limited to excess over 10% agi)M - miscellaneous deductions not allowedE - exemptions (personal) and standard deduction"

what are the tax preference items?

1 - Private activity bond interest income (on certain bonds)2 - percentage depletion the excess over adjusted basis of property3 - pre-1987 acc dep

what is the credit for prior year minimum tax?

certain allowable AMT paid in a taxable year may be carried over as a credit to subsequent taxable years. it may only reduce regular tax, not future amt.

what is the carry-forward for the credit for prior year minimum tax? foreverwhat is the limitation on the credit for prior year minimum tax?

AMT created from certain permanent differences cannot be carried forward as part of the credit.

what is the general statute of limitations for when the gov't can assess an additional tax?

three years from the later of the due date of the return or the date the return is filed (including amended returns)

what is the statute of limitations if there is a 25% understatement of gross income?

6 years from the later of the due date of return or date return is filed

what is the statute of limitations for fraudulent and false returns? no statue. forever!what is the form for a refund? form 1040x

when can you file a refund claim?three years after you filed it, or two years after the time the tax was paid if you didn't pay when filling.

when can you file for a refund for bad debts and worthless securities? seven years later of: due date of return or when it is filedwhat is form 1139 for? to claim a refund of corporate income taxes.

what is form 1045 for?to request a quick refund of individual income taxes due to the carry back of a net operating loss

what is form 843 for? to request a refund of taxes other than income taxa taxpayer is required to make estimated quarterly tax payments if both of the following conditions are met:

1. $1000 or more tax liability2. Inadequate Tax estimates (less than 90% of current year's tax or 100% of last years tax)

what is a contract? a promise that the law will enforcewhat is an express contract? a contract formed by language, oral or writtenwhat is an implied-in-fact contract? a contract formed by conduct

what is an implied-in-law contract or quasi-contract

not a contact at all. remedy that allows a plaintiff to recover a benefit unjustly conferred upon the defendant.

remedy to prevent unjust enrichment

what is a unilateral contract?there is one promise, which is given in exchange for performance. not a contract until performance is completed

what is bilateral contract?two promises--a promise is exchanged for a promise. contract is formed as soon as the promises are exchanged

what is an executory contract? duties remain to be performed under the contractwhat is an executed contract? all of the duties under the contract have been performed

what is common law?derived from courts. contracts involving real estate, insurance, services and employment.

what is uniform commercial code (UCC)?

statutory law which governs contracts for sale of goods (moveable things)

what are the three requirements of a legally enforceable contract?

1. an agreement made up of an offer and an acceptance2. an exchange of consideration3. a lack of defenses

in what manner can an offer be made?express - oral or writtenimplied - based on conduct

to be an offer, the communication must:

create a reasonable expectation in the offeree that the offeror intends to make a contract

what are the three questions to be considered about an offer?

1. was there an intent to make a contract?2. were the terms definite and certain?3. was there communication to the offeree?

are advertisements offers?generally no. they are usually considered only to be invitations seeking offers.

how can an advertisement be an offer?

if it specifies the offeree. an advertisement that limits the scope of the persons who can accept (like first five customers to call)

terms are definite and certain in a UCC contract offer if they include: quantity

terms are definite and certain in a common law contract offer if they include:

1. identity of the offeree and the subject matter2. the price to be paid3. the time of performance4. the quantity involved5. the nature of the work to be performed

what are the three ways to terminate an offer?

1. revocation by offeror2. rejection by employee3. termination by operation of law - automatic

when can an offeror revoke his offer?

generally any time before acceptance by communicating the revocation to the offeree (three exceptions: option, unilateral, firm offer)

what is a direct and indirect way for an offeror to communicate the end of an offer?

1. call them2. sell to someone else

how are offers made by publication revoked? same manner they were offered.when is a revocation of an offer by offeror effective? when received by the offeree. when published.what are the three exceptions to the general rule on an offeror's power to revoke an offer?

1. option contract2. unilateral contracts3. firm offer

what is an option contract?distinct contract in which the offeree gives consideration to keep the offer open

what are the ways an oferee can terminate the offer?

1. rejecting it2. counter offer3. silence

how to distinguish between a counteroffer or an inquiry?

counteroffer is both a rejection and an offer. an inquiry is just feeling the other party out by questioning

when is a rejection of an offer by an oferee effective? when receivedwhat time period must an offeree accept an offer?

within the time specified, or if no time period is specified, whithin a reasonable time

what are the ways an offer an be terminated by operation of law

1. death or insanity of parties2. destruction of subject matter3. illegality

who is allowed to accept an offer?only the person to whom the offer was made. only option contracts are assignable

if the offeror specifies a method of communication, that method must be used. a purported acceptance utilizing another method is a ______ counterofferoffers, rejections, revocations, and counteroffers effective when ___ received

what is the mailbox rule?acceptances of an offer are effective when they are dispatched (mailed, telegraphed,etc) if properly addressed

what is the mirror image rule?common law contracts require an acceptance to mirror the offer to be effective. (change anything and it's a counteroffer)

how can an offeror opt out of the mailbox rule?

by stating in the offer that the acceptances must be received to be effective

what are the elements of consideration:

there must be something of legal value given by each party and there must be a bargain for exchange

when is something of legal value?

if it constitutes either a detriment to the promisee or benefit to the promisor. [promisee agrees to do something he is not already obligated to do]

does consideration need to have monetary value?

no. as long as promisee is promising to do something that he is not already obligated to do or promising to refrain from doing something that he legally could do

does consideration need to flow to one of the parties? no, it could go to a third partydoes consideration have to be fair? nois promising to performance existing duty sufficient consideration? nois forbearance to sue a valid consideration? yeswhat does a bargained for exchange" mean?"

something is not consideration unless it was given in exchange for other consideration

what is detrimental reliance/promissory estoppel

a promise made by one party and detrimentally relied upon by another can be enforced without consideration.

what are some types of defenses?

fraud, innocent misrepresentation, duress, undue influence, mutual mistake, illegality, minors, intoxication, mental incompetency, statue of limitations, statute of frauds, impossibility, substituted contract, novation, contions, prevention of performance, prol evidence, unconscionability

what are the elements of fraud?

1. misrepresentation of material fact2. actual and reasonable reliance by the plaintiff on the misrepresentation3. intent to induce plaintiff's reliance on the misrepresentation4. damages5. scienter (knowing that the statement was false or made with a reckless disregard for the truth

regarding elements of fraud, what does it mean to have a misrepresentation of material fact?

must be a material fact - opinions or statements of value do not constitute facts unless made by experts

regarding elements of fraud, what does it mean to have actual and reasonable reliance the plaintiff relied on the misrepresentationregarding elements of fraud, what does it mean to have an intent to induce reliance?

the purpose in making the misrepresentation was to induce reliance

regarding elements of fraud, what does it mean to have damages?

the defendant is liable to anyone who suffers a loss. the defrauded party may rescind the contract or sue for money damages, but not both.

regarding elements of fraud, what does it mean to have a scienter?

intent to deceive. must make it knowingly or intentionally. could be reckless disregard for the truth (constructive fraud or gross negligence)

when does fraud in the execution occur?

when a party is deceived into signing something that he does not know is a contract. void - no meeting of the minds.

when does fraud in the inducement occur?

the defrauded party is aware she is making a contract, but terms are materially misrepresented. voidable

what is an innocent misrepresentation?

has all the elements of fraud except scienter. misrepresentation is made innocently, not intentionally

what is duress?arises when a party's free will to contract is overcome by an unlawful use of a threat of harm.

in duress, if the harm threatened is physical force, the contract is ___ voidin duress, if the harm threatened is economic or social force, the contract is ___ voidable

what is undue influence?a party's free will to contract is overcome by the defendant's abuse of a position of trust or confidence

in defenses, what is a mutual mistake?

if both parties to a contract are mistaken as to a material fat regarding the contract, the adversely affected party can avoid the contract. [does not apply to mistakes of value bc that is an opinon]

in a mutual mistake, if the subject matter of the contract is not in existence when the contract is made and neither party knows this, the contract is ___ voidis a unilateral mistake generally a defense to a contract? noa unilateral mistake as to a material fact is a defense if ________ if the other party knew or should have known of the mistake

failure to have a license required to protect to public makes a contract ___ void

failure to have a license required to raise revenue makes a contract _____ still enforceablemost promises not to compete are _______ illegal because they violate antirust law

promises not to compete in employment contracts and in the sale of a business are enforceable if they meet 3 tests of reasonableness:

1. reasonably needed to protect a legit bus interest2. reasonable in duration3. reasonable as to distance (geographically)

when can a minor disaffirm a contract?

anytime while a minor or even within a reasonable time after becoming an adult. the minor must generally return whatever she possesses when she disaffirms

when will a minor be bound on his or her contracts?

if they are for necessities of life, including food, clothing, and shelter

a person can become bound on the contracts he enters into as a minor upon reaching the age of majority by ____ ratifying the contract

for minors who are now of age, a contract may be ratified by:

1. failing to disaffirm within a reasonable time after reaching age2. expressly ratifying the entire contract orally or in writing3. retaining or accepting the benefits

intoxication is a defense to a contract only if it prevents __________

the promisor from knowing the nature and significance of his promise AND the other party knew of the impairment

a contract made by a party whose mental capacity is so deficient that he is not capable of understanding the nature and significance of the contract is voidable

a contract made by a party after she is adjudicated mentally incompetent is voidstatute of limitations provide that a legal action must be commenced within what period of time for common law agreement? four to six years from date of breach

what does statue of frauds" mean"six contracts requiring a writing (only needs to be signed by the party trying to avoid the contract)

what are the six contracts that require writing?

contracts where:M Marriage is considerationY cannot be performed in a yearL interests in Land (including leases of real property)E by executors (to pay estate debts out of personal funds)G - sale of goods $500+S surety (assuming debt of another)

in determining if a writing is required, the one-year period runs from the ____ date of the contract, not from when performance begins

what are the exceptions to the year requirement for writing a contract?

if it is possible to perform in a year, or if one party has fully performed the contract.

what are the exceptions for the land requirement for writing a contract?

1. leases of land for less than a year2. full or partial performance[two of the following:a. payment in whole or in partb. making valuable improvements on the landc. possession of the land

what writing is necessary for the statue of frauds?

the whole contract doesn't need to be in writing. just need a writing that provides evidence of material terms of contract and a signature of the person being sued. doesn't need to be in one single document

what happens if you fail to satisfy the statue of frauds? could still have a contract--it's just not enforceablewhat happens if the subject matter of the contract has been destroyed? contract may be avoided due to impossibilitywhat happens if there is death or incapacity of a person to perform a personal service? contract will be discharged due to objective impossiblitywhat does accord and satisfaction and substituted contract" mean?"

accord - agreement to substitute one contract for anothersatisfaction - execution of the accord

until the accord is satisfied a party may sue under ____ may sue under the original contract or the accord.a substituted contract is very similar to an accord and satisfaction case, but ____

but the duties under the original contract are discharged immediately

what is novation?when a new contract substitutes a new party for an old party in an existing contract. all parties must agree to the release

what is a condition precedent?a condition that must occur before the other party must perform

what is a condition concurrent?conditions that must occur simultaneously (example: payment of money and exchange of goods)

what is the parol evidence rule?

prohibits a party in a lawsuit involving a final agreement from introducing evidence at trial of statements made prior to or contemporaneously with the written contract that seek to vary the terms of the contract

what is unconscionability?

based on notions of fairness. used when a clause or a contract is extremely unfair and the party having the benefit of the unfair term had substantially superior bargaining power

at common low, if there has been a material or substantial breach, the non breaching party can _______. if the breach is only minor, the nonbreaching party is not discharged, but is ________.

discharged from the contract.but is entitled to damages

what are the options when there is an anticipatory repudiation?

1. immediately sue for damages2. await the time for performance3. cancel the contract

what is the intention of damages payments?

to put the nonbreaching party in as good of a position he would have been if there were no breach

what can specific performance damages be used for? land or unique items - not services!can a party receive specific performance and compensatory damages? no, one or the other.

what is a liquidated damage clause?clause that specifies what damages will be if there is a breach. HAS TO BE REASONABLE - not a penalty!

when are punitive damages available? for fraud

what is the doctrine of substantial performance?

under common law, can't rescind a contract if it has been substantially performed. only remedy would be monetary damages for the minor breach.

what are quasi-contract (restitutional) damages?

if parties are discharged from a contract and one party has already bestowed a benefit on the other, they can get it back.

what are the limitations on monetary damages? forseeability and mitigation

what is the general rule for third-party beneficiaries?

only the parties to the contract have rights under the contract. an exception exists for INTENDED third-party beneficiaries.

what does it mean to be in privity of contract? only the parties to the contract have rights under the contractwho can enforce, intended or incidental beneficiaries? only indendedwhat is the minimum requirement for a third party? must be named or specifically described in the contractwhat is a donee beneficiary in regards to third-party receive their interest as a giftwhat is a creditor beneficiary in regards to third-party receive their interest because a party owes them something

who can a third party beneficiary sue? can sue the promisor if the promisor fails to performwhat is an assignment of rights? if a party wants to give contract rights to a third partywhat is a delegation of duties? if a party wants to have a third perform contractual dutiesthe general rule is that any contract right may be assigned and any contract duty may be delegated. what are the exceptions?

if it will change the obligor's risk or the duty involves specialized personal services

what is the effect of delegation? both parties are liable unless there is a novationwhen a mortgage is assumed, who is liable?

both the assignor/mortgagor and the assignee are personally liable

who is liable if you assume a mortgage? what if you take subject to the mortgage?

assumed mortgage - both assignor and assignee are liable

subject to the mortgage - only assignor is liable

when does a creditor have the right to assign their receivable money to someone else?

always, even if the contract prohibits assignment. just have to give notice

is the UCC limited to merchants? no. it applies to all contracts for the sale of goods

how to qualify as a firm offer?

1. seller must be merchant2. offer must be in writing and signed by merchant3. must give assurances it will be kept open for a certain time

how long are firm offers good for? time stated, but no longer than 3 months

does the mirror image apply under the UCC? nounder the sales article, new or different terms are ignored unless _____ the contract is between merchantsunder the UCC, a shipment of nonconforming goods is _______ both an acceptance and a breach of contractthe accommodated shipment rule applies only when _______

shipment is used as the means of acceptance. (not promise to ship)

what are the ucc's rules for auctions?

1. the bid is the offer and the fall of the hammer is the acceptance2. unless otherwise stated, all auctions are with reserve"

3. in "without reserve" the goods must be sold to the highest bidder"in a UCC contract, you have to specify the quantity, unless it's an output and requirements contracthow do you modify a contract under the ucc?

don't have to give extra consideration....everyone just has to agree on the new change

what is the statute of limitations under the ucc? 4 years

what are the four exceptions for the written contract requirement for sale of goods over $500?

s - specifically manufactured goodsw - written confirmation between merchants. if you don't object in 10 DAYS, doesn't matter if you didn't sign!a - admitted in courtp - performed

for a defense for the UCC, the contract need not be impossible to perform. it only needs to be ____ impracticable.under the ucc, what is the sellers duty to the customer?

get the goods and give them notice that it's ready. don't have to deliver!!

title and risk of loss cannot pass until the goods are first ____

identified. meaning they are marked, segregated or in some manner identified as goods for the specific buyer

when there is no contract term specifying when the risk of loss passes, you have to determine if it is ______ a carrier case or a non-carrier case

what is a carrier case?parties contemplate a common carrier will be used to ship the goods (like UPS)

what is a non-carrier case? buyer will pick up the goods at the sellers place of businessif unknown, do you assume a seller is a carrier or non carrier? non-carrier. general rule is seller has no duty to deliver.if there is no common carrier involved, then you need to know what about the seller? if it is a merchant or notwhen does the risk pass for a noncarrier nonmerchant seller? risk passes on tender of delivery of goods to the buyer.when does the risk pass for a noncarrier merchant seller?

risk passes on actual delivery (when the buyer takes physical possession)

if there is a common carrier involved, what do you need to know about the contract? if it is a shipment contract or destination contractwhen does the risk pass for a carrier shipment contract? when the goods are delivered to the carrier. on a truck bed.when does the risk pass for a carrier destination contract?

when the goods reach the destination and seller tenders delivery

what does FAS Free along side mean?requires seller to deliver goods along side of a specific vessel. risk of loss passes to the buyer when the seller gets the goods

what does CIF Cost Insurance Freight mean?

the contract price includes the cost of goods, insurance, and freight. risk of loss is on buyer during shipment

what does f.o.b. free on board mean? specifies what city in which the risk of loss passes

when does title pass under UCC?whenever the parties agree. if there is no agreement, title passes on delivery. (shipment vs. delivery)

if the buyer rejects the goods, who owns the goods? title reverts back to seller

to fulfill the requirement of perfect tender under the UCC, the goods must conform to all the four warranties:

1. express warranties2. the implied warranty of title3. implied warranty of merchantability4. implied warranty of fitness for a particular purpose

what is the implied warranty of title?

the seller implicitly warrants that they had the right to sell the goods. good title, no stated encumbrances, and no infringements

the warranty of title and the warranty against encumbrances are made automatically by every seller unless disclaimed. only ______ automatically make the warranty against infringements. merchant sellerscan a general disclaimer disclaim title? merchandise is sold as is" "with all faults"" no. can only be disclaimed by specific languagewhat is the implied warranty of merchantability the goods are fit for ordinary purpose. made only by merchants.can a general disclaimer disclaim merchantability? merchandise is sold as is" "with all faults"" yeswe hereby disclaim any and all warranties"" claim means nothing! can't do thatwhat is the implied warranty of fitness for particular purpose?

buyer relies on any seller to select goods for the buyer's particular purpose.

can disclaimer disclaim the implied warranty of fitness for particular purpose? as is" "with all faults?" yesunder the UCC, is warranty liability limited by privity? nodoes a disclaimer of merchantability have to be written? nodoes a disclaimer of fitness have to be written? yeswhat is a tort? wrongful act, could be intentional or negligent

those injured by goods can sue negligent sellers. they must prove:

1. seller owed them a duty of care2. seller breached the duty by failing to use due care3. damages 4. causation

what is strict products liabilitythose injured by goods can sue. focus is on the product and not on the seller's conduct. has to be a merchant

when youre suing for tort, does privity matter? nounder the UCC Sales Article, if one party has reasonable grounds to believe the other party will not perform when required, what can she do?

make a written demand for an assurance of performance from the other. failure to give this assurance is an anticipatory repudiation

who has the duty to mitigate in the UCC? both buyer and sellerif an insolvent buyer has already received the goods, the seller may reclaim them within ___ days after the receipt 10.00liquidated damages - if the buyer has made a down payment and breaches, the seller may keep the lesser of _____ lesser of $500 or 20% of the price

what is replevin?

the right to recover goods wrongfully in the hands of the seller. may be used if the goods are identified and the buyer cannot reasonably cover

can a true owner recover stolen goods from a 3rd party? yes

what are the exceptions to the general rule that a true owner can recover stolen goods from a 3rd party?

1. entrusting. if the owner of goods entrusts them to a merchant2. voidable title. tricked - bad check

for corporations tax consequences, there is no gain or loss to the corporation issuing stock in exchange for property in the following transactions:

1. formation -- issuance of common stock2. reacquisition - purchase of treasury stock3. resale - sale of treasury stock

in a corporation formation, the general rule is that the basis of the property received from the transferor/shareholder is the greater of:

greater of: - adjusted basis (nbv) of the transferor/shareholder (plus any gain recognized by the transferor/shareholder), or- debt assumed by corporation (transferor may recognize gain to prevent a negative basis)

if the aggregate adjusted basis of property contributed to a corp by each transferor/shareholder in a tax-free incorporation exceeds the aggregate fmv of the property transferred:

the corp's basis in the property is limited to the aggregate fmv of the property to prevent the transfer of property with built in losses" to the corporation"

the shareholder contributing property (not services) in exchange for corporation common stock has no gain or loss if the following conditions are met:

1. 80% control of the voting stock and 80% of the non-voting stock2. boot not received

what are three gross income items that represent temporary differences between tax and book items? interest, rental, and royalty income received in advance

what are GAAP income items that are not includible as taxable income?

interest income from municipal or state obligations/bonds, proceeds from life insurance on the life of an officer where the corp is the beneficiary, and federal income taxes are not deductible

what is the limit on the domestic production deduction?

can't exceed 50% of the W2 wages paid by the corporation for the year

how much is the domestic production deduction?

9% of the lesser of:1. qualified productions activities income (QPAI)2. taxable income (disregarding the QPAI deduction)

How is QPAI calculated?domestic production gross receipts- cogs, other expenses, and other deductions

a publicly held corporation may not deduct compensation expenses in excess of _____ paid to the CEO or ________ unless based upon __________

$1,000,000; the four other most highly compensated officers; qualifying commissions or a performance based plan of the company

entertainment expenses for officers, directors, and 10% or greater owners may be deducted only to the extent that ___ they are included in the individual's gross incomebonuses paid by a(n) ____ basis taxpayer are deductible in the tax year when all events have occurred that establish a liability with reasonable accuracy, and provided they are paid within ____ accrual; within 2.5 months after year endaccrual method taxpayers must use the _____ method to write off bad debts specific charge off (direct write-off method)all interest paid or accrued during the taxable year on indebtedness incurred for _______ is deductible business purposesinterest expense on loans for investment has a limitation on deductibility of _____ net investment income (taxable)prepaid interest expense must be allocated to _____ the proper period to which it is related. (incurred & paid)corporations making contributions to recognized charitable orgs are allowed a max deduction of ___ 10% of their taxable income

for charitable deductions, total taxable income is calculated before the deduction of:

1. any charitable contribution deduction2. the dividends received deduction3. any NOL carryback4. any cap loss carryback5. u.s. production activities deduction

is business property is partially destroyed, the loss is:

the lesser of:a. the decline in value of the propertyb. the adjusted basis of the property immediately before the casualty

if business property is fully destroyed, the amount of the loss is: the adjusted basis of the property

what is the deduction for organizational expenditures and start-up costs?

may elect to deduct up to 5,000 or each, and the excess is amortized over 180 months from when the business started. (5,000 reduced if costs are over 50,000)

what are the included costs for the organizational expenditures and start up costs deduction?

fees paid for legal services in drafting the corporate charter, bylaws, minutes of organization meetings, fees paid for accounting services and fees paid to the state of incorporation

what costs are excluded from the organizational expenditures and start up costs deduction?

costs of issuing and selling the stock, commissions, underwriter's fees, and costs incurred in the transfer of assets to a corporation(cost of raising $)

what is the GAAP rule for organizational expenditures and start-up costs? expensehow are goodwill, covenants not-to-compete, franchises, trademarks, and trade names amortized?

on a straight-line basis over a 15 year period beginning with the month that the intangible was acquired

what is the difference in the treatment of purchased goodwill (yrs 2002 and forward)?

tax rule - amortized on a straight line basis over 15 years

GAAP rule - not amortized; test for impairment

what is the deductibility for life insurance premiums for corporations?

if the corporation is names as the beneficiary, it is not tax deductible. if an insured employee is named as beneficiary

what is the deductibility of business gifts? $25 per person per year

which taxes are deductible for corporations?

all state and local taxes and federal payroll taxes are deductible when incurred on property or income relating to business. federal income taxes are not deductible. foreign income taxes may be used as a credit

are lobbying and political expenditures tax deductible? nowhat is the capital loss carryover for corporations? 3 years back, 5 years forwardwhat rates are capital gains taxed at for corporations?

same rate as ordinary corporate income (no special cap gains rates apply, as with individual taxpayers)

what is the carryforward for net operating losses for corporations? 2 back, 20 forwardwhen must form 1120X be filed? 3 years from the filling date

is the charitable deduction allowed in calculating the NOL for a corporation? nois the dividends received deduction allowed to be deducted before calculating the NOL? yes

what is the cost method of valuation?

inventories are valued at cost (including DL, DM and attributable indirect costs), less discounts, plus freight-in. the cost methods of prime cost" (no overhead) and "direct cost" (which includes variable overhead only) are not allowable for tax purposes"

what is the lower of cost or market method of valuation?

inventories are valued at the lower of cost or market, which for normal goods is generally the current bid price at the date of inventory per each item in inventory (i.e. the lower amount is determined based on each item, not based on the aggregate value of the inventory)

what is the rolling-average method of valuation?

this method will generally not be allowed when inventories are held for long periods of time in some circumstances or when costs tend to fluctuate significantly (unless the taxpayer regularly re-computes costs and makes certain adjustments), as the method may not clearly reflect income in certain cases

what is the retail method of valuation?

in general, the retail method will approximate the cost or the market of items in inventory by subtracting the mark-up percentage to retail from the retail price, typically from inventory that has a large volume of items

what are common inventory identification methods (cost-flow assumptions) fifo, lifo, specific identification methodif you use lifo for taxes, which methods can you use for financial statement purposes? only lifo

how are unsalable or unusable goods valued?

they must be valued at the expected selling price (bona fide selling price") within 30 days minus the costs to dispose of them"

what is the formula for the general business credit?

the credit may not exceed net income tax" (regular tax plus alt min tax less nonrefundable tax credits, other than the alt min tax credit) less the greater of:

25% of regular tax liability above $25,000ortentative minimum tax for the year"

how are unused business credits carried over?

although some limits must be applied separately, unused credits may generally be carried back 1 year and forward 20 years

what is the purpose of the dividends received deduction? to prevent triple taxation of earningswhat is the percentage ownership needed to have a dividends received deduction of 70%? 0% to

who can have a 100% dividends received deduction?

affiliated corporations - (80-100% ownerships)small business investment corps - (makes equity and long-term credit available to small business concerns)

what does the half year convention apply to?

in general, a half year convention applies to personal property, under which such property placed in service or disposed of during a taxable year is treated as having been placed in service or disposed of at the midpoint of the year

when does the mid-quarter convention applied?

if more than 40% of depreciable property is placed in service in the last quarter of the year, the mid-quarter convention must be used

what are the macrs depreciation rules for property other than real estate? 200% and 150% declining balance method

what are the macrs depreciation rules for residential rental property? (apartments and duplex rental homes) 27.5 year straight line depreciationwhat are the MACRS depreciation rules for non-residential real property (real property that is not residential rental property and that does not have an ADR midpoint of more than 27.5 yrs) 39 year straightlinewhat convention does macrs real estate use? mid-month convention

what is the limit for the deduction of section 179 property?

limit is $250,000 of new or used property

maximum amount is reduced dollar for dollar by the amount that exceeds $800,000

deduction is not permitted when a net loss exists or if the deduction would create a net loss

SUVs can only be expensed to $25,000

a taxpayer may chose to depreciate property on a straight-line basis. if a taxpayer chooses straight-line, he may choose which recovery periods?

the regular recovery period or a longer alternative depreciation system (ADS) recovery period

what is depletion allowed for?allowed on exhaustible natural resources, such as timber, minerals, oil and gas

what are the two methods of depletion?

1. cost depletion2. percentage depletion

what is the cost depletion method?the unit depletion rate multiplied by the number of nits sold for the year

what is the percentage depletion method?

the deduction is limited to 50% of taxable income (excluding depletion) from the well or mine. the allowable percentages range from 5% to 22% depending upon the mineral or substance being extracted. percentage depletion may be taken even after the costs have been completely recovered and there is no basis

what items can be expensed and/or amortized on a straight-line basis over a period of years, regardless of their useful life?

--business start up expenses or org costs ($5,000, 180 month)-- research expenses (existing trades or businesses may amortize research expenses over a 60 month period)--pollution-control facilities

how are section 1231 assets treated? capital gain, ordinary loss

how is section 1245 treated?

personal business property. recapture all accumulated depreciation as ordinary income, the remaining is cap gain under 1231

how is section 1250 treated?

real business property. accelerated depreciation in excess of straight line dep is recaptured as ord income, and the remaining dep is taxed at a 25% max rate. the remaining gain is treated under sec 1231

when is the tax return due for a c corp? 15-Marwhat is form 7004? the 6 month extension for a c corp

the accrual basis method for accounting for tax purposes is required for the following:

1. accounting for purchases and sales of inventory2. tax shelters3. certain farming corps4. some c corps, trusts, and partnerships, provided that the business has greater than $5 mil of average annual gross receipts for the three year period ending with the tax year

what is the statue of limitations for a corporation? 3 ears. 6 years for 25% misstatement.when are corporations required to pay estimated taxes?

on the fifteenth day of the fourth, sixth, ninth, and twelfth months of their tax year

when can you get the underpayment penalty for estimated payments of corp tax?

if you don't make the estimated payments and the amount owed on the return is $500 or more.

how much estimated tax is a small corp supposed to pay?

lesser of:- 100% tax for the current year- 100% tax for the preceding year[cannot be used if the corp owed no tax for the preceding year, or the preceding year was less than 12 months]

how much estimated tax is a large corp supposed to pay? must pay 100% of the tax as shown on the current year return

who is defined as a large corporation for estimated tax purposes?

a corp whose taxable income was $1 mil or more in any of its three preceding tax years

what are the requirements to be entitled to file a consolidated return?

all the corporations in the group:1. must have been members of an affiliated group at some time during the tax year2. each member of the group must file a consent

what is an affiliated group?

a common parent directly owns:1. 80% or more of the voting power of all common stock, and 2. 80% or more of the value of all outstanding stock of each corporation

who is denied the privilege of consolidating returns, even if they meet the ownership test?

s corps, foreign corps, most real estate investment trusts (REITs), some insurance companies, and most exempt orgs

are brother sister corps allowed to file consolidated returns? no

what are the advantages of filing a consolidated return?

capital and operating losses may offset the gains of another corp, NOL carryover may be applied against the income of the consolidated group, and dividends received are 100% eliminated in consolidation because they are intercompany dividends

what are the disadvantages of filling a consolidated return?

1. mandatory compliance with complex regulations2. in the initial consolidated tax return year, a double counting of inventory can occur if group members had intercompany transactions3. tax credits may be limited by operating losses of other members4. the election to file consolidated returns is binding for future years and may only be terminated by disbanding the group or seeking permission of the IRS

for corporate AMT, what are the adjustment items to income?

long term contracts, installment sale dealer, excess depreciation post-1986

for corporate AMT, what are the preference addbacks?

percentage depletionprivate activity - issued post '86 tax exempt interest incomepre '87 acrs excess depreciation

for corporate AMT, what are the Adjusted current earnings differences?

muni interest income tax exempt interest incomeincrease CSV life insuranceNon S/L depreciation (after '89; excess over alt depr. sys. life)Dividends received deduction (under 20% ownership)

for corporate AMT, what is the adjustment for long-term contracts?

the difference between revenue calculated under the completed contract method and revenue calculated under the percentage-of-completion method

for corporate AMT, what is the adjustment for installment sales - dealer?

difference between full accrual revenue and installment sales revenue

for corporate AMT, what is the adjustment for excess of depreciation of tangible property placed in service after 1986?

excess depreciation over:1. straight line for real property using a 40 yr life, or2. 150% declining balance (with a switch to straight-line for personal property using the applicable class life

for corporate AMT, what is the preference for percentage depletion?

a preference exists for the excess of percentage depletion over the adjusted basis of the property

for corporate AMT, what is the preference for private activity bonds?

a preference exists for tax exempt interest for certain private activity bonds issued after 1986

for corporate AMT, what is the preference for pre-1987 acrs depreciation?

a preference exists for the excess of ACRS accelerated dep over straight line on pre-1987 property

what is the exemption amount for corporate AMT? $40,000 less 25% of AMTI in excess of $150,000what is the tax rate on the amti? flat 20%

what credits are allowed for corp amt? the foreign tax creditwhat is the carryforward of the corporate amt? carried forward indefinitely, but not carried back.

who is the accumulated earnings tax imposed on?

regular C corps whos accumulated earnings are in excess of $250,000 if improperly retained instead of being distributed as dividends to (high bracket) shareholders [personal service corps are entitled to only $150,000]

who is not subject to the accumulated earnings tax?

personal holding companiestax exempt corpspassive foreign investment corporations

what is the additional tax rate for accumulated earnings? flat 15%

what is the purpose of a personal holding company?

coporations set up by high tax bracket taxpayers to channel their investment income into a corporation and shelter that income by the low normal tax or the corp, instead of paying their higher individual tax rates on that income

what is the definition of a personal holding company?

corps more than 50% owned by 5 or fewer individuals (either directly or indirectly at any time during the last half of the tax year) and having 60% of adjusted ordinary gross income consisting of:Net rentInterest that is taxableroyaltiesdividends from an unrelated domestic corp

what is the additional tax assessed for personal holding companies?

additional 15% on personal holding company net income not distributed

are personal holding company's subject to the accumulated earnings tax? no

taxable income must be reduced by ______ to determine the undistributed personal holding company income prior to the dividend paid deduction federal income taxes and net long-term capital gainare the accumulated earnings tax and personal holding company tax self-assessed? AET is assessed by IRS. PHC tax is self-assessed.what is the tax rate for personal service corporations? denied graduated rates. taxed at a flat 35%how is E&P calculated on the tax return? adjusting the taxable income of the corpa corp's E&P is a major factor in determining the ability of the corp to _____ pay a dividend to the shareholders

what are the negative adjustments that reduce current e&p?

1. federal income tax expense2. non-deductible penalties, fines, political contributions, meals and entertainment, etc3. officer life insurance premiums4. expenses for production of tax exempt income5. non-deductible charitable contributions6. non-deductible capital losses

what are the positive adjustments that increase current e&p?

1. refunds of fed income tax paid2. tax exempt income3. refunds of items that were not subject to regular tax under the tax benefit rule4. NOL deductions5. life insurance proceeds where corp is beneficiary6. dividends received deduction7. carryovers of cap losses8. carryovers of charitable contribution9. non-taxable cancellation of debt not used to reduce basis of property

what are examples positive or negative adjustments that increase or decrease e&p?

1. losses and gains that have diff effects on taxable income vs. E&P2. changes in the csv of certain life insurance policies3. excess dep for e&p over that for regular income tax4. diff in allowable deductions for org and start-up expenses5. installment income method adjustments6. completed contract income vs. percentage of completion income adjustments7. amortization of intangible drilling costs adjustments8. section 179 expense per reg tax vs. ratable dep of the same property using a five year life

what is the general calculation for the ending accumulated e&p?

beginning acc e&p+ current e&p- distributions from current e&p- distributions from acc e&p= accumulated e&p at end

corp distributions are first applied to _____, then to _______, and then to _____.

if any excess remains, it is classified as ___________

current E&P, accumulated E&P, and return of capital.

excess distributions" and reported as capital gains distributions"

can current and accumulated e&p be netted?

not generally. only if current e&p is negative and acc e&p is positive

how are current earnings and profits allocated to distributions? on a pro rata basis to each distributionhow are accumulated earnings and profits allocated to distributions?

applied in chronological order, beginning with the earliest distribution

what are constructive dividends?

transactions, while not in the form of dividends, are treated as such when the payments are not in proportion to stock ownership

what are examples of constructive dividends?

1. excessive salaries paid to shareholder employees2. excessive rents and royalties3. loans to shareholders where there is no intent to repay4. sales of assets below fmv

what is a stock dividend? distribution by a corporation of its own stock to its shareholders

when are stock dividends taxable? if the shareholder as a choice of receiving cash or other propertywhat is the general rule for the taxable amount of a corporation paying a dividend

payment of a dividend does not create a taxable event. a dividend is the reduction of e&p

what is the chain of events for a corporation distributing appreciated property?

1. corp has no e&p (div would not be taxable income2. corp distributes appreciated prop as a dividend3. corp has a recognized gain (on property div)4. corp gain increase/creates corp e&p5. div to shareholder is not taxable income (to the extent of e&p)

what happens if a stock redemption is proportional?

it is taxable dividend income to shareholder-ordinary income. generally, the corp either redeems or cancels the stock pro-rata for all shareholders

what happens if a stock redemption is disproportional?

sale by shareholder subject to taxable capital gain/loss to shareholder. the percentage ownership after the redemption must be less than 50% and must be less than 80% of the percentage ownership before the redemption

if the corporation is liquidated, the transaction is subject to ____

double taxation (the corp and shareholder must generally recognize gain or loss)

what are the two general forms of how a corporation can be liquidated?

corp sells assets and distributes cash to shareholders, or corp distributes assets to shareholders

what are the types of tax-free reorganizations?

type a - mergers and consolidationstype b - acquisition by one corp of another corp's stock, stock for stocktype c - the acq by one corp of another corp's assets, stock for assetstype d - dividing of the corp into separate operating operationstype e - recaptializationstype f - mere change in identity, form, or place of org

what is the gain or loss recognized when a parent liquidates its subsidiary?

no gain or loss recognized by either. parent assumes basis of sub's assets as well as any unused nol or cap loss or charitable contribution carryovers

what constitutes non taxable event for a corporation? the reorg is a nontax transaction and all tax attributes remain

what constitutes non taxable event for a shareholder?

the reorg is a nontaxable transaction, the shareholder continues to retain his orig basis, and the shareholder recognizes gain to the extent he receives boot in the reorg

a reorg is treated as a nontaxable transaction because _______ it results in the continuation of a business in a modified formwhen a corporation's stock is sold or becomes worthless, an original stockholder can be treated as __________

having an ordinary loss instead of a capital loss, up to $50,000 (100,000 for mfj). any loss in excess would be capital loss

who is eligible for the 50% exclusion of gain from small business stock?

a noncorp shareholder who holds qualified small bus stock for more than 5 years.

what is the maximum exclusion and limitation of the 50% exclusion of gain from small business stock?

50% of the greater of:-10 times the taxpayer's basis in the stock- 10 million dollars

a qualified corp eligible for the 50% exclusion of gain of small bus stock must have the following:

1. stock issued after 19932. acquired at the original issuance3. c corp only4. less than $50 mil of capital as of date of stock issuance5. 80% of the value of assets must be used in the active conduct of qualified trades or businesses

what is the gain for small business stock taxed at? 28%

to qualify as a small business corp, who would meet the qualified corporation requirement?

-domestic-may not file with a C corp

to qualify as a small business corp, who would meet the eligible shareholders requirement?

- must be individual, estate, or certain types of trusts- may not be a nonresident alien- qualified retirement plans and 501c3s may be shareholders- neither corps nor partnerships are eligible shareholders- grantor and voting trusts are permissibl

to qualify as a small business corp, who would meet the shareholder requirement? there may not be more than 100 shareholders.to qualify as a small business corp, who would meet the class of stock requirement?

there may not be more than one class of stock outstanding. however, differences in common stock voting rights are allowed. preferred stock is not permitted

when do you have to elect s corp status for the year? before march 15generally all the tax on an s-corp is passed on. however, what are the three taxes that are imposed on S corps?

1. lifo recapture tax2. built in gains tax3. tax on passive investment income

what is the lifo recapture tax for s corps?

C corps that elect S status must include in taxable income for the last c corp year the excess of inventory computed under fifo over lifo. resulting tax paid in four equal installments - first is paid with the final c corp return, remaining paid by the s corp

what is the built-in gains tax for s corps?

an unrealized built in gain results when the following two conditions occur:1. a c corp elects s corp status2. the fmv of the corp assets exceeds the adj basis of corp assets on the election date

an s corp is exempt from a tax on built in gains if:

1. the s corp was never a c corp2. the sale or transfer does not occur within 10 yrs (7 years for 2009-2010) on the first day of the first year the s election was made3. the s corp can demonstrate that the appreciation occurred after the s election4. the s corp can demonstrate that the asset was acquired after the s election5. the net unrealized built-in gain has been completely recognized in prior tax years

what is the built in gains tax rate for s corps?

multiply 35% by the lesser of:1. recognized built in gain for the current year or2. the taxable income of the s corp if it were a c corp

what is the tax on passive investment income for an s corp?

an s corp is subject to an income tax of 35% on the lesser of net income or excess passive