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tax 4001 comprehensive final exam
20 percent recapture - ANS-20% of the excess of section 1245 recapture over section 1250 recapture for buildings owned by corporations 2020 maximum deduction - ANS-$1,040, a deduction listed as an above-the-line deduction has what effect on taxable income? - ANS-always reduces taxable income a deduction that must be itemized has what effect on taxable income? - ANS-may have limited or even no effect on taxable income a partners tax basis in his/her partnership interest is adjusted annually to reflect: - ANS-share of partnership items and changes in investment a tax credit is a direct: - ANS-dollar-for-dollar reduction in tax liability -as a result, the value of a credit is greater than the value of a deduction of the same amount above-the-line deduction - ANS-an allowable deduction for an individual taxpayer that can be subtracted from total income to compute AGI activity based tax - ANS-tax imposed on the results of an ongoing activity in which persons or organizations engage ad valorem tax - ANS-a tax based on the value of property adjusted basis - ANS-the initial tax basis of an asset reduced by cost recovery deductions allowable with respect to the basis adjusted gross income equals - ANS-total income less specific above-the-line deductions adjusted net capital gain - ANS-net long term capital gain (reduced by any 28% rate gain or any unrecaptured section 1250 gain) plus qualified dividend income all events test - ANS-the test for determining if an accrued expense is deductible
allowance method - ANS-the GAAP method for computing bad debt expense; the exp is based on the estimated loss from current year receivables alternative minimum tax (AMT) - ANS-a second federal tax system parallel to the regular tax system; congress enacted to ensure that every individual pays at least a minimal tax every year an accrued expense for compensation payable is not deductible in: - ANS-the year of accrual, but in the year the liability is paid any nondeductible expense resulting from the taxable income limitation carries foward: - ANS-to succeeding taxable years any remaining section 1231 gain is combined with Section 1231 losses as: - ANS-part of a year-end netting process because of the excess property limitation, a firm that purchases more than $3,630, of qualifying property in 2020: - ANS-cannot benefit from a section 179 election because its limited dollar amount is reduced to zero because tax credits reduce the regular tax on business income, they are: - ANS-equivalent to a preferential tax rate -thus, tax credits utilize the character variable to reduce tax liability benefits of passthrough losses - ANS-generally deductible in the year the loss is generated, producing a tax benefit at the individual's marginal tax rate (immediate tax savings) book/tax permanent difference(s) - ANS-loss on related party sale book/tax temporary difference(s) - ANS--disposition of asset with different book/tax basis -seller-financed sale eligible for installment sale method -net capital loss bunching - ANS-if itemized deductions are close to standard deduction each year, taxpayer should bunch deductions in alternate years
character of income determines whether the income is taxed at the regular tax or at a special rate, in which suggests: - ANS-tax costs decrease (and cash flows increase) when income is taxed at a preferential rate because of its character characteristics of a C corporation - ANS--limited liability of shareholders -unlimited life -free transferability of interests -centralized management Child credit - ANS--individuals can claim a $2000 credit for a dependent who is a qualifying child under the age 17, and a $500 credit for certain non-child dependents -on a joint return, the total credit is reduced by $50 for every $1000 increment of AGI in excess of $400, -for single individuals and head of households, the credit phaseout begins when AGI exceeds $200, compensation is deductible in the year of payment to: - ANS-cash-basis employees computing regular tax for a c corporation - ANS-corporate income is taxed at a flat rate of 21% deduction - ANS-an offset or subtraction in the calculation of taxable income depreciation deductions are indeed accelerated into the early years of the recovery period. - ANS-depreciation methods depreciation recapture equals: - ANS-the lesser of the gain recognized or the accumulated depreciation/amort. dividend income- preferred rates for individuals - ANS--in some cases, dividend income qualifies for preferential rates dividend income- preferred rates for individuals - ANS--in some cases, dividend income qualifies for preferential rates -capital gains and dividend income reported by a corporation is taxed at the same rates as ordinary income earned income credit - ANS-a refundable income tax credit that offsets the impact of the payroll tax on low-income workers
employees - ANS-employer withholds income and payroll taxes from salary/wage payments -employer issues form w-2 to employee excess social security tax withholding is refunded as a: - ANS-credit against income tax excise tax - ANS-a tax levied on the retail sale of specific goods or services; may be in addition to or instead of a general sales tax explicit tax - ANS-an actual tax liability paid directly to the taxing jurisdiction filing status - ANS--reflects marital and family situation -affects calculation of taxable income -determines rates at which income is taxed firms that purchase qualifying property with an aggregate cost in excess of the limited dollar amount may: - ANS-expense part of the cost of a specific asset(s) for real property, MACRS is an: - ANS-accelerated cost recovery system in name only for start-up corporations, passthrough losses must be carried: - ANS-forward and used to offset income in a taxable year where profits are reported general business credit - ANS-the aggregate of numerous different tax credits available to business enterprises gift tax - ANS--may create taxable event if the donor has exceeded the lifetime limitation -must report gifts over $15,000 (2020) given to an individual graduated rates - ANS-multiple percentages that apply to specified brackets of the tax base guaranteed payments - ANS-a special allocation of ordinary income to the partner receiving it; it is similar to a salary, except that FICA and income tax are not withheld half year convention - ANS-property placed in service on any day of the taxable year is treated as placed in service halfway through the year for MACRS purposes
major exception to the section 61 gross income rule - ANS-individuals who receive gifts of cash or property from a donor or who inherit cash or property from a decedent don't report the receipt as income on Form 1040 marriage bonus - ANS-if spouse incomes are dissimilar, married rates generate lower overall tax marriage penalty - ANS-if spouse incomes are similar, single rates generate lower overall tax MFJ rates also apply to surviving spouse status: - ANS-a widow/widower with a dependent child for two years after death of spouse midmonth convention date placed in service April 2nd how many months of depreciation is allowed? - ANS-8.5 months midmonth convention date placed in service December 18th how many months of depreciation is allowed? - ANS-0.5 months midmonth convention date placed in service July 30th how many months of depreciation is allowed? - ANS-5.5 months midquarter convention - ANS-property placed in service on any day of a quarter is treated as placed in service at the midpoint of the quarter for MACRS purposes minimum tax credit - ANS-AMT liability carried forward indefinitely as a credit against future regular tax liability municipal bond interest - ANS--exempt from federal income tax -taxed at a preferential rate of zero
net capital loss - ANS-the excess of current year capital losses over capital gains net present value (NPV) - ANS-the sum of the present values of all cash inflows and outflows relating to a transaction no deduction allowed for personal, living, or family expenses except for: - ANS--medical expenses -certain taxes -home mortgage interest -charitable contributions nonqualified plan - ANS-treated similarly to a related party bonus- employer cannot deduct compensation expense until year of payment when employee includes in income one exception regarding compensation expense - ANS-an accrued compensation expense is deductible if payment is made to the employee within 2 1/2 months after the close of the employer's taxable year only after the Section 1231 netting process is complete can the taxpayer - ANS-determine whether net capital gain exists (with potential preferential rates) or net capital loss results (with limits on deductibility) owners who sell a home but dont satisfy the requirements may be eligible for reduced exclusion if sale was necessitated by: - ANS--change of employment -health reasons -unforeseen circumstances partial recapture rule for realty - ANS-only accelerated depreciation in excess of straight-line depreciation is recaptured Partnership excess business loss limitation applies to: - ANS-noncorporate partners on their share of business losses flowing through from a partnership partnership losses limited to basis - ANS--cannot deduct losses in excess of basis -excess losses are carried forward indefinitely until additional basis is restored either by additional contributions or additional positive income -this applies to each partnership separately
-doctors, dentists, chiropractors -medical travel expenses -medical aids -prescription drugs -medical insurance premiums recurring item exception - ANS-under this exception, if economic performance occurs within 8 1/2 months after the close of the year, the business can deduct the corresponding expense in the year of accrual regardless of the actual date of disposition, the firm may claim six months of depreciation - ANS-half year convention related parties - ANS-people who are members of the same family, an individual, and a corporation if the individual owns more than 50% of the value of the corporation's outstanding stock, and two corporations controlled by the same shareholders roth IRA - ANS-an investment account through which individuals with compensation or earned income can save for retirement on a tax-exempt basis S Corporation excess business loss limitation applies to: - ANS-shareholders on their share of business losses flowing through from an S corp. S Corporation losses in excess of basis are carried over: - ANS-until the shareholder has basis again S Corporation share of ordinary income is not subject to? - ANS-self-employment tax safe-harbor estimate - ANS-estimated current year tax payments based on the preceding year's tax liability that protect the taxpayer from the underpayment penalty section 1231 asset - ANS-real or depreciable property used in a trade or business (including rental real estate) and intangible business assets subject to amortization held by the owner for more than one year Section 1245 recapture - ANS-full recapture of depreciation/amort. allowed for tangible personalty or purchased intangibles
Section 1250 recapture - ANS-recapture of excess accelerated depreciation over SL depreciation allowed for buildings placed in service before 1987 Section 179 allows firms to: - ANS-expense (rather than capitalize) a limited dollar amount of the cost of certain property placed in service during the year Section 179 election specifically, the election applies to: - ANS-1) qualified improvement property
- other improvements for roofs; heating, ventilation, and air-conditioning property; fire protection and alarm systems; and security systems placed in service after the date the improved nonresidential real property was placed in service section 179 election - ANS-the election under which firms can expense a limited dollar amount of the cost of tangible personalty placed in service during the taxable year Section 179 expense election limitation one - ANS-if a firm purchases more than a threshold amount of qualifying property in a year, the annual dollar amount is reduced by the excess of the total cost of the property over the threshold section 179 expense election limitation two - ANS-once a firm elects to expense the cost of qual. property, the expense is generally deductible. however, the deduction (not the expense) is limited to taxable business income computed without regard to the deduction shareholders of an S corporation can be paid a salary, which is subject to payroll taxes; it then does what to the ordinary income? - ANS-reduces the ordinary income of the S corp. Sole Proprietorship dispositions of business assets are reported on: - ANS-Form 4797 and Schedule C Sole Proprietorship if the schedule C business loss is greater than other sources of income, the net operating loss (NOL) can be: - ANS-carried forward indefinitely Sole Proprietorship interest expense on business debt is: - ANS-deducted on Schedule C Sole Proprietorship
the loss disallowance rule applies to: - ANS-every related party sale, regardless of the actual bargaining stance between the parties the Section 179 election allows many small firms to simply: - ANS-deduct the cost of their newly acquired assets and avoid the burden of maintaining depreciation or amort. schedules the unexpensed cost is capitalized and recovered through depreciation and amortization
- ANS-section 179 election traditional IRA - ANS-an investment account through which individuals with compensation or earned income can save for retirement on a tax-deferred basis types of above-the-line deductions - ANS--educator expenses -health savings account deduction -moving expenses for members of the Armed Forces -deductible part of SE tax (50%) -penalty on early withdrawal of savings -alimony paid -IRA deduction -student loan interest deduction -reserved for future use -certain bus. exp's. of reservists, performing artists, and fee-based gov. officials -self employed SEP, SIMPLE, and qualified plans -self-employed health insurance deduction types of itemized deductions - ANS--real estate tax on investment land -investment interest expense -medical expenses -state and local income or sales tax -personal property tax -foreign income tax -real estate tax on personal residences -charitable contributions -casualty loss from federally declared disasters -gambling losses and expenses -home mortgage interest expenses
under MACRS, all personalty (assets with recovery periods from 3 to 20 years) are assumed to be placed in service or disposed of exactly halfway through the year in which an asset is disposed of. - ANS-depreciation convention under the full recapture rule, an amount of gain equal to accumulated depreciation/amort. (including any section 179 deduction) through date of sale is recharacterized as? - ANS-ordinary income under the midmonth convention: - ANS-realty placed in service and/or disposed of during any month is treated as placed in service (and/or) midway through the month value added tax - ANS-a tax levied on firms engaged in any phase of the production or manufacture of goods and based on the incremental value added by the firm to the goods what are examples of ways that the incidence of the corporate tax could be born by individual taxpayers in the United States? - ANS--higher consumer wages -lower employee wages -lower dividends what do itemized deductions create, but only if the individual elects to itemize? - ANS-tax savings what does the treatment of passthrough entities result in? - ANS-single level of taxation when an asset subject to the midquarter convention is disposed of: - ANS-the disposition is treated as occurring at the midpoint of the quarter in which the disposition occurs when Section 1231 assets are sold at a gain: - ANS-depreciation recapture treats some or all of that gain as ordinary income who is an employee? - ANS-an individual whose duties are controlled (as to how, when, and where) by an employer and who works according to a regular schedule in return for a wage or salary who is an independent contractor? - ANS-is a self-employed individual who performs services for a fee, who controls the way the services are performed, whose work relationship with client is temporary, and who can have multiple clients at the same time
