Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

ACCT 621 > Chapter 3 - Introduction and Operating Rules > Flashcards

Chapter 3 - Introduction and Operating Rules Flashcards

1
Q

Corporation Tax Formula

A

Income
- Exclusions
= Gross Income
- Deductions except for NOL and DRD
= Taxable Income before NOL and DRD
- NOL Deduction
- DRD
= Taxable Income

Tax on Taxable Income
- Tax Credits
= Tax Due or Tax Refund

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

Individual Tax Formula

A

Income
- Exclusions
= Gross Income
- Deductions for AGI
= Adjusted Gross Income
- Greater of… itemized or standard deduction
- Deduction for qualified business income
= Taxable Income

Tax on Taxable Income
- Tax Credits
= Tax Due or Tax Refund

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

Gross income includes:

A
  • Compensation for services rendered
  • Business income
  • Gains from selling property
  • Interest
  • Rents
  • Royalties
  • Dividends
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

Although both individuals and corporations are entitled to exclusions from gross income, corporate taxpayers are….

A

allowed fewer

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

What are exclusions that apply to both individual and corporate taxpayers?

A

Interest on municipal bonds and life insurance proceeds

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

In determining what is NOT a capital asset, section 1221…

A

makes no distinction between corporate and non corporate taxpayers

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

In the area of nontaxable exchanges, both corporations and individuals…

A

do not recognize gain or loss on a like-kind exchange and may defer recognized gain on an involuntary conversion

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

The disallowance of losses on property sales to related parties and on wash sales of securities applies to…

A

both individual and corporate taxpayers

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

The exclusion of gain from the sale of a personal residence applies to…

A

individuals, NOT corporations

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

Business deductions are allowed for…

A

both corporations and individuals

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

Business deductions include:

A

interest
certain taxes
losses
bad debts
accelerated cost recovery
charitable contributions
net operating losses
research and experimental expenditures

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

Is there a distinction between business and nonbusiness bad debts for corporations?

A

No

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

Are corporations allowed an interest expense deduction if tax-exempt securities are purchased with borrowed funds?

A

No, individuals aren’t either

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

What kind of credits are not allowed to corporations?

A

Personal in nature - child and dependent tax credits, the credit for elderly or disabled taxpayers, and earned income credit

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

Which entity is subject to a progressive tax rate and which is subject to a flat tax rate?

A

Individuals - progressive tax rate
Corporations - flat tax rate

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

All allowable corporate deductions are treated as…

A

business deduction

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

Is AGI relevant to corporations?

A

No

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

How is taxable income computed for corporations?

A

Gross Income - Allowable Deductions

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

Do itemized deductions, standard deduction, and deduction for qualified business income apply to corporations?

A

No

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

Does the limitation on “excess business losses” apply to corporations?

A

No

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

Personal service corporations

A

A corporation whose principal activity is the performance of personal services (health, law, engineering, architecture, accounting actuarial science, performing arts, or consulting) and where such services are substantially performed by the employee-owners (section 269A(b))

22
Q

Newly formed corporations can usually chose an accounting period except…

A

S Corporations are restricted to the use of a fiscal year

23
Q

A PSC is a corporation:

A
  • formed to provide “personal services”
  • where the services are substantially performed by shareholder-employees; AND
  • where more than 10% of the stock (in value) in held by shareholder-employees
24
Q

“personal services”

A

fields of health, law, engineering, architecture, accounting, actuarial science, performing arts, or consulting

25
Q

To limit deferral of income possibilities, a PSC generally must use a calendar year. However, a PSC can elect a fiscal year under either of the following conditions:

A
  • A business purpose for the year can be demonstrated
  • The PSC year results in a deferral of not more than three month’s income. An election under section 444 is required, and the PSC’s deduction for the shareholder-employee salaries will be limited if payment of those salaries is disproportionately postponed beyond December 31
26
Q

The cash method is unavailable to corporations except for…

A
  • S corporations
  • Corporations engaged in the trade or business of farming/timber
  • Qualified PSCs
  • Corporations with average annual gross receipts of $29 million or less for the most recent 3-year period
27
Q

A corporation using the accrual method of accounting must observe a special rule in dealing with cash basis related parties.

A

If the corporation has an accrual outstanding at the end of any taxable year with a related party, it cannot claim a deduction until the related party reports the amount as income.This rule is most often encountered when an accrual method corporation deals with a cash method individual who owns more than 50% of the corporation’s stock. However, in the case of personal service, ANY shareholder-employee is treated as a related party for purposes of this limitation.

28
Q

Accrual basis taxpayers generally must recognize gross income no later than the…

A

tax year in which the income is included as income for financial statement purposes. In addition, accrual taxpayers can elect to defer income inclusion of advance payments for goods and services to the end of the tax year following the tax year of receipt.

29
Q

Capital gains and losses result from…

A

the taxable sales or exchange of capital assets

30
Q

Individuals pay a preferential tax rate of 0, 15, or 20% on net capital gains. Corporations…

A

receive no favorable tax rate on long-term capital gains; this income is taxed at the normal tax rate

31
Q

Can corporate taxpayer deduct net capital losses against ordinary income?

A

No, Individuals, however, can deduct t up to $3,000

32
Q

How long can capital losses be carried back? How long can they be carried forward?

A

Back: 3 years
Forward: 5 years

33
Q

When carried back or forward, a long-term capital loss is treated as….

A

a short term capital loss

34
Q

Do section 1245 and 1250 depreciation recapture rules apply to both individual and corporate taxpayers?

A

Yes

35
Q

Corporations may have more depreciation recapture on the disposition of….

A

section 1250 property than individuals because of section 291 recapture

36
Q

Under section 291, a corporation has additional ordinary income equal to…

A

20% of the excess of…
1. the amount of depreciation recapture that would be required IF 1245 applied to the disposition, over
2. the amount of depreciation recapture computed under 1250 .

1231 portion of the corporation’s gain on the disposition is reduced by the additional recapture

37
Q

Under section 1250, recapture is limited to…

A

the excess of accelerated depreciation over straight-line depreciation

38
Q

___ deprecation taken on section 1245 property is subject to recapture.

A

ALL

39
Q

A limitation on the deduction for business interest applies…

A

to all taxpayers

40
Q

Business Interest

A

interest paid one accrued on trade or business debt

41
Q

Under section 163(j), the deduction for business interest for any year is limited to the sum of:

A
  1. the taxpayers business interest income for the year,
  2. 30% of the taxpayer’s adjusted taxable income for the year, and
  3. the taxpayers floor plan financing interest for the year
42
Q

Any business interest deduction disallowed by reason of limitation is treated as…

A

Business interest paid or accrued in the succeeding tax year. The carry forward period is unlimited.

43
Q

The business interest deduction limitation does not apply to…

A

certain small businesses (in general the small business exception applies to taxpayers with average gross receipts of the 3-year period of $29 million or less)

44
Q

Business interest income

A

the amount of interest income includible in gross income for the year that is related to a trade or business

45
Q

Congress believes that a corporation typically with have neither investment interest income nor investment interest expense; instead…

A

all interest income and interest expense of a corporation is assumed to be part of the corporation’s trade or business.

46
Q

Adjusted taxable income is taxable income computed without regard to any:

A
  1. nonbusiness income, gain, deduction, or loss
  2. business interests or business interest income
  3. net operating loss deduction, AND
  4. deduction for qualified business income (199A)
47
Q

The 30% of adjusted taxable income amount cannot…

A

be less than zero

48
Q

“Floor plan” financing

A

Auto dealers acquire their inventory via debt, debt secured by the inventory

49
Q

Floor plan financing interest

A

Interest on debt from acquiring inventory is deductible without limitation

50
Q
A

ACCT 621 (11 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions