Book 4 Flashcards

Question

Depletion methods

Answer 1

* Natural resources (except land) are subject to depletion * Cost depletion - Asset basis is divided by estimated total number of units then multiplied by units sold * Percentage depletion - Statutory percentage applied to gross income (max 50%) * Once you choose one, it is for all others!

Answer 2

* Prepaid income - taxed in the year of receipt, cannot be deferred * Deferral of advanced payments for goods * Deferral of advanced payments for services

Answer 3

[Appreciation / (FMV - annual exclusion) ) x Gift tax paid] + Basis

Answer 4

Like kind exchange with domestic real property Have 45 days to identify property after property surrendered property must be received 180 days or by tax return

Answer 5

* Similar in use * Functional Use - must be same as old property * Taxpayer use - used in similar endeavors * Time limitation * 2 year period from end of taxable year * 3-years if condemnation of property used in trade or business * Non-recognition * immediate conversion - mandatory * Conversion into money - elective

Answer 6

1245 - all depreciable personal property, patents, copyrights, and leaseholds - OI 1250 - All depreciable real property 25% unless marginal rate is lower Installment notes - 1231 gain recognized first! 1231 has five year lookback recapturing some gain to the amount of losses taken

Answer 7

Losses are ordinary losses up to $50,000 per year and $100 for MFJ - excess is capital losses Gains from sale are capital gains

Answer 8

Section 1202, also called the Small Business Stock Gains Exclusion, is a portion of the [_Internal Revenue Code_](https://www.investopedia.com/terms/i/internal-revenue-code.asp) (IRC) that allows [_capital gains_](https://www.investopedia.com/terms/c/capitalgain.asp) from select small business stock to be excluded from federal tax. Section 1202 of the IRS Code only applies to qualified small business stock acquired after Sept. 27, 2010, that is held for more than five years. The amount of gain excluded under Section 1202 is limited to a maximum of $10 million or 10 times the adjusted basis of the stock. Before Feb. 18, 2009, this provision of Section 1202 excluded 50% of capital gains from gross income. To stimulate the small business sector, the [_American Recovery and Reinvestment Act_](https://www.investopedia.com/terms/a/american-recovery-and-reinvestment-act.asp) increased the exclusion rate from 50% to 75% for stocks purchased between Feb. 18, 2009, and Sept. 27, 2010.³ For small business stocks that are eligible for the 50% or 75% exclusion, a portion of the excluded gain is taxed as a preference item that incurs an additional 7% tax called [_Alternative Minimum Tax_](https://www.investopedia.com/terms/a/alternativeminimumtax.asp) (AMT).

Answer 9

* Tax Preference Items are always positive adjustments * Percentage depletion in excess of basis * tax-exempt interest on certain private activity bonds (not 2009-2010) * Some 1202 Stock (not after 9/27/2010)

Answer 10

* 0-20 * 50% * 20-80 * 65% * 80-100 * 100%

Answer 11

1. **Personal Holding Company Tax** 1. Discourage individuals using Corps for tax avoidance 2. PHC if it meets these 1. Ownership - 50% owned by five or fewer people 2. 60% of the OI is passive income 1. Multiply undistributed PH income by 20% 2. **Personal Service Corporation Tax** 1. 95% of stock held by active or retired employees and are in the PSC fields 2. Taxed at flat rate of 21% 3. **Accumulated earnings Tax** 1. accumulated earnings beyond “reasonable needs” 2. Taxed at flat rate of 20%

Answer 12

2% + Owner is a partner If the above, then accident and health insurance premiums are deductible by Crop and gross income for gross income Once class of stock, domestic holders, no partenership owners, etc. Taxes due by 3/15 for K-1

Answer 13

1. Built i Gains Tax 1. S corps used to be C-corps 2. highest corporate income tax rate to built-in gains 2. LIFO Recapture tax 1. S Corps used to be C-corps 2. Excess inventory valuation of under FIFO over inventory valuation over LIFO 3. OI Tax rate 3. Net Passive Income Tax 1. more than 25% of gross receipts is passive income

Answer 14

Bene is taxed on amount = distribution deduction - this retains its character Simple Trust will issue K-1 / require payments each year

Answer 15

* Failure to File - 5% / month up to 25% * if 60 days late, payment is lesser of $210 or 100% unpaid tax * If for fraudelnt reason, penalty is increased to 15%/month * Failure to Pay * .5% for max of 25% (50 months) * If both occur, FTF is reduced by FTP * Negligence / accuracy penalty * Flat 20%

Answer 16

* **Innocent Spouse** * did not know * **Relief by separation of liability** * no longer married / separated household and did not know * **Equitable relief** * does not qualify for the above * must be attributable to other spouse - the erroneous act

Book 4 Flashcards

(40 cards)