M3 Gross Income: Part 2 Flashcards
Net Income from Self-Employment formula (Schedule C)
Gross business income
Profit or Loss
Schedule C Expenses. Can you pay a salary to yourself?
NO - be considered a draw (can pay salary to others)
Schedule C Expenses. Interest expense on business loans paid in advance by cash basis taxpayer, when can they be deducted?
The tax period which the interest relates
Cash basis = INCURRED AND PAID
For Part III Cost of Goods Sold (on the Schedule C), what method must be used for inventory?
ACCRUAL
What are the two taxes on net business income?
1) Income Tax
2) Federal Self-Employment Tax (SE Tax) - you are both an employee and an employer
Schedule C net taxable loss carryover rules.
Can deduct up to amount of income, excess 2-year carryback or 20-year carry forward
UNIFORM CAPITALIZATION RULES (263A).
What inventory costs are required to be capitalized (3)
1) Direct Material
2) Direct Labor
3) Applicable indirect costs (i.e. factory overhead,
warehousing, rents, etc.)
UNIFORM CAPITALIZATION RULES (263A).
Costs NOT required to be capitalized?
Selling, advertising, marketing, G&A, research, and officer comp
Farming Income - Schedule F. What basis of accounting must be used?
Cash OR Accrual (most use cash)
Rental Income/Loss (Schedule E). Rental of Residence (personal home), if rented fewer than 15 days, treat as?
Personal residence, rental income EXCLUDED (i.e. Pope comes to town and you rent out your apartment for 5 days - wouldn’t have to claim the income)
Rental loss of personal residence allowed?
NO
Rental income/loss NONresidence. Can a loss be deducted? Exception?
Considered passive and only can deduct up to extent of passive income.
EXCEPTION - active participant in rental activity can deduct up to $25,000 of rental losses against nonpassive income
