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Flashcards in M2 Deck (42):

Gifts and inheritences

Gifts and inheritences are both tax free to the recepient ( Tax is often paid by the person giving the gift or the estate upon death)


Damages for personal injury-workers comp

specifically excludede from gross income


Payment for university sponsored research

no exclusion under tax law even if for benefit of university


Social security benefits

85% of the social security benefits is the maxium amount to be included in gross income



State and local obligations are not taxable . However federal obligations and interest on state and federal tax are taxable


Unemployment compensation

Included in Gross income


prizes and awards

Generally the fair market value of prizes and awards is taxable income. However there is an inclusion when the following conditions are met . When the winner is selected for the award without any action on the winenrs part and than assigns the award to a government unit or charitible organization


accruable expenses

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


Individual capital loss maximum




are non-taxable to degree seeking students to the extent that all the proceeds are spent on tuition , fees, books and supplies.


property settlements out of divorce

Are not taxable


Amortization of premium of a bond

The bonds basis is reduced by amortization


Stock trade

Whether on the cash or accrual method of accounting the sale of stock, must recognize gains and losses on the trade date rather than the settlement date


IRA Penalty

Amount withdrawn * Marginal tax rate+ Amount withdrawn *10% penalty rate


Taxable interest

includes amounts received from general investment accounts as well as interest on federal obligations . Interest received from state and municipal are not taxable.


HIM dead

It is important to note that if amounts removed have been previously deducted on the TP tax return, there that amount is taxable


if question says paid alimony of $10K to be reduced by 20% on childs 18 bday

this means that 20% is child support and the remaining 80% is alimoney


state tax refund from prior year

if TP claimed standard deduction, this means that the state tax was not deduction in the year paid therefore it is not taxable


Group term life insurance

the first $50 K is a non taxable fringe benefit. Amounts exceeding this are taxable based on tax tables



Only prorated amount of cost recovery is not taxable. Total purchase amount/ months of life expectancy =Y
Y* number of months in the current year receiving payments



Includes only payments received in cash or cash equivalents ( payment if bills on behalf of ex spouse


Life insurance policy

Total amount/total yers = non taxable portion


Jury duty fees

Adjustment to AGI


Interest income on EE bonds

tax exempt is using for higher education if purchaser of bonds is sole owner of bonds or joint owner with his or her spouse, TP is over 24 when issued,, reduced by tax free scholarships of the tax payer, spouse or dependant childen


Cash basis tax payer

should report income for the year in which income is either actually or constructively received whether in cash or property



means that clark did not itemize in the prior year and therefore did deduct any sales income taxes last year. Under the tax rule the refund is not taxable this year because the TP did not deduct the tax last year


Life insurace proceeds

Life insurance proceeds on the life of an officer when the corp is the owner and beneficiary are not reported as taxable income of the corporation. Also any expense related to the premiums would not have been deduction by the corp


State and local tax refunds

The receipt of a state or local income tax refund in a subsequent year is not taxable if the taxes paid did not result in a tax benefit in the prior year. If itemized in prior year = state or local refund is taxable . If standard deduction used = non taxable


Accountable plan vs non accountable plan

non - accountable - any amt received from employer is part of gross income


rental property

if used personally more than 14 days any net loss from the rental property will be disallowed. All related expense must be prorated between the personal use portion and the rental activity portion


Uniform capitalization rules

Purchases of inventory for resale may deduct their marketings costs but must capitilize their offsite storage costs


Deductions to arrive to self employment income

All neccesary and ordinary expenses connected with the business. Estimted federal income tax is not an expense


taxable income

value of money or fair value of property, not amount billed


AR formula

Begin R+ sales-CC= ending AR . Accrual basis taxable income in sales


Uniform cap rules application

real or tangible property produced by TP for use in his trade of business or for sales to his customers or for resale


Prepaid rent

Prepaid rent is income when received even for an accrual based tax payer


Uniform cap rules

DM, DL and factory overhead are capitalized


Vacation residence

If a vacation residence is rented for less than 15 days per year, it is treated as a personal residence, the rental income is excluded from income. Depreciation, utilities and repaids are not deductible


Net rental income

Gross rental income +prepaid rental income+rent cancellation payments+ improvement in lie of rent - rental expenses. If security deposits are not held sep than include as rental income otherwise liability


net self employment income

Owner or spouse salary is considered a draw and not a deduction. Also if owner gets paid a salary he is paying taxes on net income, therefore his salary will not be included in his tax return as taxable income


Schedule C

no personal deductions allowed. Onlt those items related to operations and business itself.


Uniform capitilzation rules

do not apply to inventory acquired for resale if TP average gross receipts for the preceeding three tax years do not exceed $10m