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Flashcards in Deck 2 Deck (19)

Accruable expense

One in which the services have received/performed but have not been paid for by the end of the reporting period


Vacation residence rule

If a vacation residence is rented for less than 15 days per year, it is treated as a personal residence. The rental income would therefore be excluded from income. Taxes are considered itemized deductions


Basic formula for net rental income =

Gross rental income + prepaid rental income + rent cancellation payments + Improvements in lieu of rent - rent expenses


Taxpayers who sell stock or securities on an established securities market must recognize gains and losses on what date?

The trade date for both cash and the accrual method of accounting


Retirement money cannot be withdrawn until what age?

59.5 years old (If the money is withdrawn before the age of 59.5, the premature distribution is subject to a 10% penalty tax)


What is not a deductible expense on Schedule C?

Personal expenses (Ex: personal use of an automobile, health care for you and your family); Schedule C items should be only those related to the operation of the business itself


HIM DEAD Mnemonic (exception to penalty tax)

Home buyer (1st time), Insurance (medical), Medical expenses in excess of 10% of AGI, Disability, Education, Education, and Death


Passive activity

(i)Any activity in which taxpayers do not materially participate and (ii) as a general rule, such taxpayers' rental real estate investments, regardless of the extent of such taxpayers' involvement with the rental real estate operations


The Uniform Capitalization Rules of Code Sec. 263A apply to retailers whose average gross receipts for the preceding three years exceed what amount?



Example of nontaxable fringe benefit:

The first $50,000 of group term life insurance is a nontaxable fringe benefit


Tax rule for suspended passive activity losses

Suspended losses can be carried forward, but not back, until realized


Generally passive losses are only deductible against:

Other passive income


If the event is taxable:

Income = FMV; Basis = FMV


If the event is nontaxable

No income; Basis = NBV


IN order to be taxable, the gain must be both:

Realized and recognized


Only passive losses may offset what?

Passive income


Partially taxable fringe benefits rule (portion of life insurance premiums)

Premiums above the first $50,000 of coverage are taxable income to the recipient


Examples of Tax-Exempt Interest Income:

State and local government bonds/obligations, bonds of a U.S. possession, Series EE (educational expenses)


Tax-free distributions include:

Return of capital, stock split, stock dividend, life insurance dividend