Class 1-4 Notes

Question 0

3 factors for income recognition

Answer 0

1 economic benefit
2 recognized
3 realized

Question 1

Results of tax court cases provide…

Answer 1

Legal precedent

Question 2

Realized: when cash is obtained…

Answer 2

Earnings process is complete

Question 3

Circular 230

Answer 3

Code of conduct for corporations to submit taxes to IRS

Question 4

Location of where businesses are incorporated, significance?

Answer 4

Must adhere to state statutes and taxes where incorporated

Question 5

Partnership, what kind of entity is it? Where is its income recognized?

Answer 5

Flow through entity

Income recognized on individual return

Question 6

Removal of an existing partner, how does this effect the partnership?

Answer 6

It dissolves the partnership

and a legal document is required to form a new partnership

Question 7

How are capital assets used in an ordinary trade or business taxed?

What are examples of capital assets?

Answer 7

Taxed as ordinary income

Ex. Inventory, A/R, Property, Plant, Equipment

Question 8

Capitalizing

Answer 8

Put money into a business

Question 9

When you decrease all of a company’s retained earnings, what account can you take money out of?

Answer 9

Can take money from additional paid in capital

Question 10

What 2 tax forms does an LLC have a choice of filing

Answer 10

Form 1040 Schedule C

Form 1120 (filed by corporations)

Question 11

S-Corporation

Answer 11

Tax election to be a flow through corporation

Question 12

What is the big advantage of an LLC filing as a corporation?

Answer 12

Shareholder employee can receive a paycheck

Question 13

Can you get a paycheck as a sole proprietorship?

Answer 13

No

Question 14

Form 11205, is for what kind of entities?

Answer 14

Flow throw entities

Question 15

What is the business structure of most CPA firms?

Answer 15

Mostly LLPs

Question 16

How does an S-Corporation file?

What does its business structure look like?

Answer 16

Files like a corporation

Looks like a partnership

Question 17

Where do S-Corporations and partnerships file deductions

Answer 17

On individual returns

Question 18

3 differences each between Book GAAP and Tax IRC

Answer 18

Book GAAP: 1 Accrual, 2 meals and entertainment = 100% expense,
3 straight line depreciation (depends on election)

Tax IRC: 1 Accrual or Cash with limitations, 2 meals and
Entertainment = 50% expense, MACRS depreciation

Question 19

Accountants record events in terms of transactions with what goal?

Answer 19

Trying to deduct as much as possible while stating revenue

accurately

Question 20

The purpose of dealing with reconciling records is to…

Answer 20

Minimize taxes

Question 21

Closely held

Answer 21

Private company

Can be family owned business

Question 22

Corporations: charitable contribution limit

What is the limit on a charitable carry forward

Answer 22

Corporations limited to 10% ATI

Charitable carry forward has a 5 year limit

Question 23

Controlled groups

Answer 23

One or more subsidiaries under ownership

Question 24

Brother sister

Answer 24

Common owners in controlled group Shareholders of both companies

Question 25

How are personal service corporations taxed? Examples of personal service organizations?

Answer 25

Flat rate of 35% no matter the amount Ex. Health, law, accounting, actuaries

Question 26

How often must corporations make estimated payments?

Answer 26

Must make estimated quarterly payments

Question 27

Nonliquidating distribution

Answer 27

Company still exists after distribution is paid

Question 28

If 2 or more people are working together it is automatically characterized as...

Answer 28

A partnership

Question 29

Section 351

Answer 29

Defers gain on noncash items in exchange for stock

Question 30

If you avoid section 351

Answer 30

You can tax a capital loss But you must pay higher taxes later because stock basis Is 0

Question 31

When can corporations use cash accounting instead of accrual when preparing taxes?

Answer 31

When they have under $5 million in income

Question 32

Cash sales equation

Answer 32

Cash sales = accrual sales - current A/R + A/R from prior year

Question 33

Cash Expenses equation

Answer 33

Cash expense = expenses - current A/P + A/P from prior year

Question 34

How do corporations treat net capital gains?

Answer 34

Taxed at ordinary income rates

Question 35

Corporations: Net capital losses, what can't they be used for?

Answer 35

Can't be used against ordinary income gains

Question 36

Organization expenditures include 2 things? What is their amortization period?

Answer 36

Legal fees, lisences Amortized over 180 months

Question 37

How long can a NOL go forward?

Answer 37

20 years

Question 38

Sequencing

Answer 38

Order of calculation

Question 39

In a closely held corporation, when a shareholder owns over 50%, what kind of tax treatment will they get?

Answer 39

They will never get capital gains treatment

Question 40

Section 267

Answer 40

Losses of an over 50% shareholder are disallowed from sale | Between related parties

Question 41

Accumulated

Answer 41

Retained earnings from prior years

Question 42

What account is any dividend deducted from?

Answer 42

Retained earnings

Question 43

Right of first refusal

Answer 43

Current investors of company see if they want more shares

Question 44

Section 318

Answer 44

Attribution rules

Question 45

Treatment of stock dividends 2 examples covered in class

Answer 45

1 if cash is an option in dividend it is taxable 2 if cash is not an option in the dividend, you must recalculate the Stock's basis

Question 46

When is the best time to pay tax?

Answer 46

When there is the wherewithal to pay

Question 47

How are capital gains and losses treated for corporations? 4

Answer 47

1 Capital gains are treated as ordinary income 2 don't get $3,000 deduction on capital losses 3 can carry capital losses back 3 years (go back and amend past returns) and forward 20 years 4 can't use capital losses to offset ordinary gains

Question 48

Recapture depreciation

Answer 48

Potential to be treated as gain by corporation

Question 49

How is the timeframe of an NOL carryover different from a capital loss?

Answer 49

NOL can be carried back 2 years and forward 20 years Can skip going back

Question 50

Organizational deduction examples?, what is madatory?

Answer 50

Legal and professional fees Mandatory to capitalize and amortize over 180 months

Question 51

How long is a startup deduction amortized over?

Answer 51

60 months

Question 52

Corporations don't use FMV on charitable contribution of...

Answer 52

Capital gains

Question 53

How much of a dividends received deduction does an 80% owner of a company get?

Answer 53

100% dividends received deduction

Question 54

Corporations don't get a dividends received dedication if...

Answer 54

They hold the company for less than 45 days of when the dividend Is received

Question 55

Domicile

Answer 55

Cut out of paying US taxes

Question 56

Production activities deduction, what are its limitations?2

Answer 56

Expenses related to US production activities (manufacturing) Limited to 50% wages of production activity

Question 57

Getting a distribution from the paid in capital account, how is the distribution treated?

Answer 57

No longer a dividend but a return of capital

Question 58

Nonliquidating payout

Answer 58

Everything distributed but paid in capital and capital of common Stock

Question 59

Taxes are considered what kind of expense?

Answer 59

Operating expenses

Question 60

When a transferor transfers both assets and services, how is the stock treated?

Answer 60

All stock counts towards ownership, but portion allocated to services is considered income

Question 61

Par value

Answer 61

Allocate value of stock between common stock and additional | Paid in capital