Misc Flashcards
(127 cards)
1
Q
Which agency is responsible for determining the CPE requirements for licensed CPAs?
A
States board of accountancy
2
Q
How long after the termination of an S corp can they reelect that same status?
A
Fifth year from the current tax year
3
Q
Involuntary petition in bankruptcy cannot be filed against whom?
A
A farmer
4
Q
When calculating COGS what items are included?
A
Beginning inventory + purchases + costs to produce inventory - ending inventory
5
Q
A shareholder has the right to inspect corporate books and records as long as….
A
The demand to inspect is for a proper purpose
6
Q
Self-employed health care payments are deductible….
A
As an above the line deduction and can be 100% of payments made subject to limitation of earned income derived from the business (can’t create a refundable credit)
7
Q
Entities that are tax reporting/flow-through entities
A
General partnerships
Limited partnerships
LLPs
LLCs
S corporations
8
Q
Entities that provide each owner a right to participate in management
A
General partnerships
LLPs
LLCs
9
Q
Entities where liability for business obligations of all owners is limited
A
LLPs
LLCs
S corps
C corps
10
Q
MACRS 5
A
Computers, printers, copiers, vehicles
11
Q
MACRS 7
A
Office furniture and fixtures
12
Q
MACRS 15
A
Leasehold improvements, land improvements, fencing, landscaping
13
Q
MACRS 27 1/2
A
Residential rental property
14
Q
MACRS 39
A
Nonresidential real property
15
Q
MACRS half year convention
A
Most commonly used
Treated as placed into service at the midpoint of the year
Half a year of depreciation for first and last year
16
Q
Mid-quarter convention
A
Used when more than 40% of total depreciable property is placed into service in the last quarter of the year
Each asset is treated as placed into service in the midpoint of the quarter in which it was purchased
17
Q
Mid-month convention
A
Primarily used for real property
18
Q
What is AGI?
A
Adjusted Gross Income
AGI is the total gross income minus specific deductions.
19
Q
What form is used to report additional income and adjustments to income?
A
Form 1040, Schedule 1
Schedule 1 is used when income cannot be reported directly on Forms 1040, 1040-SR, or 1040-NR.
20
Q
What is the maximum deduction for educator expenses?
A
$300 annually
Eligible educators can claim this for unreimbursed expenses for classroom supplies.
21
Q
What is a Health Savings Account (HSA)?
A
A tax-exempt account for future medical expenses
Must be used with a High Deductible Health Plan.
22
Q
What are the contribution limits for an HSA for self-only coverage in 2024?
A
$4,150 ($5,150 for age 55+)
Family coverage limits are higher.
23
Q
Who can deduct moving expenses for military members?
A
Active duty military members
Deduction applies if moving due to a permanent change of station.
24
Q
What percentage of self-employment tax can self-employed individuals deduct?
A
50% of the self-employment tax
This is to arrive at AGI.
25
What is the maximum annual contribution for a self-employed SEP plan in 2024?
Lesser of 25% of earnings or $69,000
## Footnote
Contributions reduce net earnings for calculation purposes.
26
Is alimony paid under divorces executed after 2018 deductible?
No, it is nondeductible
## Footnote
Alimony payments for divorces executed before 2019 are deductible.
27
What is the IRA contribution limit for 2024?
$7,000 ($8,000 for age 50+)
## Footnote
Contributions must be made by the due date of the return.
28
What happens if distributions from an IRA are less than required minimum distributions?
A 25% excise tax is imposed
## Footnote
Required distributions must begin by April 1 following age 73 or retirement.
29
What are the AGI phaseout ranges for IRA deductions for married filing jointly in 2024?
$123,000 to $143,000
## Footnote
Phaseout applies for those with earned income over these limits.
30
What is the penalty for early distributions from a traditional IRA before age 59 1/2?
10% penalty tax
## Footnote
Exceptions include death, disability, and certain medical expenses.
31
What is the contribution limit for Coverdell Education Savings Accounts (CESA)?
$2,000 per child
## Footnote
Contributions are phased out based on AGI.
32
What is the AGI phaseout range for student loan interest deduction for married filing jointly in 2024?
$165,000 to $195,000
## Footnote
Deduction is subject to income limits.
33
What is the difference between itemized and standard deductions?
Itemized deductions are claimed if greater than the standard deduction
## Footnote
Taxpayers must elect to itemize by filing Schedule A.
34
What is the standard deduction for married filing jointly in 2024?
$29,200
## Footnote
Additional amounts apply for age or blindness.
35
What is the basic standard deduction limit for a dependent child under 19?
Greater of $1,300 or earned income plus $450
## Footnote
Limit applies up to the single standard deduction amount.
36
What form is used to report itemized deductions?
Schedule A
37
List four types of expenses included in itemized deductions.
* Medical and dental expenses
* Taxes paid
* Interest paid
* Charitable contributions
38
What percentage of AGI must medical expenses exceed to be deductible?
7.5%
39
To qualify for a medical expense deduction, what must the expense be paid for?
The taxpayer, the taxpayer’s spouse, or a dependent
40
What type of medical expenses are deductible?
* Diagnosis, cure, mitigation, treatment or prevention of disease
* Transportation essential to medical care
* Medical insurance
* Long-term care premiums and services
41
What is a medical expense deduction not allowed for?
Activities designed merely to improve general health unless prescribed by a physician.
42
What is the maximum deductible amount for state and local taxes for a taxpayer who itemizes deductions?
$10,000 ($5,000 for MFS)
43
What types of taxes can be deducted under itemized deductions?
* Real property taxes
* Ad valorem personal property taxes
* State and local income taxes
* General state and local sales tax
44
Is federal tax deductible?
No
45
What is the limit on qualified residence interest deduction?
No more than $750,000 of acquisition and home equity indebtedness
46
What qualifies as home equity indebtedness?
All debt secured by a qualified residence not exceeding the fair market value reduced by acquisition indebtedness.
47
What is the limitation for investment interest deduction?
Only to the extent of net investment income.
48
What types of interest are not deductible?
* Personal interest expense
* Interest related to producing tax-exempt income
49
What is the general rule regarding personal interest expense?
It may not be deducted.
50
What is the maximum percentage limit for charitable contributions to 50% limit organizations?
50% (60% for cash contributions)
51
What is required for donations of clothing and household items to be deductible?
Must be in good or better condition or valued by a qualified appraisal at $500 or more.
52
What is a key requirement for cash donations of $250 or more?
Must have a written receipt from the organization.
53
What is the deduction limit for capital gain property donated to 50% limit organizations?
30% AGI (special limit)
54
What is the treatment for out-of-pocket expenses incurred while volunteering for a charitable organization?
They are deductible.
55
What is the deductible amount for a ticket to a charitable event?
The purchase price exceeding the FMV of the event’s admission.
56
What is the deduction limit for contributions to non-50% limit organizations?
30% AGI (regular limit)
57
What type of property is deductible for charitable contributions?
* Cash
* Capital gain property
* Ordinary income property
58
For investment held longer than one year, how is the charitable contribution deduction calculated?
Fair market value at the time of donation.
59
What must be true for a taxpayer to carry forward excess contributions?
They must be carried forward for 5 years.
60
What is the limitation for itemized deductions for personal casualty and theft losses?
Only losses attributed to federally declared disasters and losses exceeding $100 are deductible
## Footnote
Aggregate losses must exceed 10% of AGI.
61
What does QBID stand for?
Qualified Business Income Deduction
## Footnote
It is defined under Section 199A.
62
What is the tax rate for C corporations?
21% flat tax rate.
63
What is the allowable percentage reduction for qualifying taxable income under QBID?
20% reduction.
64
What types of income are considered Qualified Business Income (QBI)?
Only income from core business activities
## Footnote
Non-core activities like capital gains and dividends are excluded.
65
What is the overall QBID limitation based on?
The lesser of:
* 20% × Qualified business income
* 20% × (Taxable income – Net capital gains)
66
True or False: Salaries and wages from S corporations are considered QBI.
False.
67
What is the definition of Specified Service Trades or Businesses (SSTBs)?
Trades where the principal asset is the reputation of employees or owners.
68
List some examples of SSTBs.
* Health (e.g., physicians, nurses)
* Law
* Accounting
* Performing arts
* Financial services
* Athletics
69
What is the de minimis rule regarding SSTBs?
If gross receipts are $25 million or less, up to 10% can be from specified service without being classified as SSTB.
70
What are the taxable income thresholds for QBID limitations in 2024?
* Lower threshold: $383,900 (married filing jointly), $191,950 (single)
* Upper threshold: $483,900 (married filing jointly), $241,950 (single)
71
What is the W-2 limit for QBID?
The greater of:
* 50% of W-2 wages paid
* 25% of W-2 wages paid plus 2.5% of unadjusted basis of qualifying property.
72
What is the effect of a Qualified Business Loss (QBL)?
QBLs are carried forward to later years to reduce future QBI.
73
Fill in the blank: If the net QBI for the year is negative, it is treated as a _______.
Qualified Business Loss (QBL).
74
True or False: Taxpayers can aggregate QBIs for QBID calculation.
True.
75
What is the advantage of aggregating QBIs?
Allows QTBs with insufficient wages and property to use those of other QTBs for a larger QBID.
76
What is the limitation of QBID for SSTBs when taxable income exceeds the upper threshold?
There is no QBID for SSTBs.
77
What is the total IRA contribution limit for a couple filing jointly if both are age 50 or older?
$16,000 total ($8,000 per spouse)
| If only one spouse has taxable income, the max is still $16k.
78
Under what condition can up to $25,000 of rental real estate losses be deducted against nonpassive income?
When the taxpayer actively participates in the rental real estate activity
79
When is a taxpayer not considered to be actively participating in a rental real estate activity?
When the individual and spouse together own less than 10% of all interests in the activity.
80
If Steve and his wife own 10% of a rental property and manage it, how much of their $4,000 loss can they deduct against nonpassive income?
They can deduct the full $4,000 since they qualify under the active participation rule.
81
What is the order in which suspended passive losses are applied upon full disposition of a passive activity?
(1) Income from the same passive activity
(2) Income from other passive activities
(3) Any other income or gain
82
What are the two components of the self-employment tax for 2024?
Social Security (12.4% on first $168,600) and Medicare (2.9% on all income, no ceiling).
83
How is net earnings from self-employment calculated for self-employment tax purposes?
By reducing net income from self-employment by the employer-equivalent portion (7.65%) of the SE tax.
84
Under IRC § 6655(d), how is the minimum installment for estimated taxes calculated?
It's 25% of the required annual payment, which is the lesser of 100% of current year tax or 100% of the preceding year’s tax.
## Footnote
If estimated taxes increase during the year, a catch up payment for the third quarter payment must be made to ensure 75% of estimated tax is reached
85
What increases a shareholder's basis in S corporation stock under IRC § 1366?
Capital contributions and income items, including ordinary income and separately stated income or gains.
86
What decreases a shareholder's basis in S corporation stock?
Distributions not included in income and nondeductible, noncapital expenditures.
87
How are personal expenses paid by the S corporation treated for a shareholder?
They are treated as distributions to the shareholder.
88
What must take place prior to a corporation being voluntarily resolved?
1. Board approval of a dissolution resolution
2. Shareholder vote of approval
3. Filing of articles of dissolution with the secretary of state.
Voluntary dissolution without a board resolution is permitted upon unanimous written consent of the shareholders.
89
A seven-person partnership lacks a partnership agreement. Under the Revised Uniform Partnership Act, how many votes are required to approve an extraordinary transaction of partnership business
Unanimous vote is required to (1) amend a partnership agreement, (2) admit a new partner, and (3) determine other nonroutine matters. Therefore, an extraordinary transaction of partnership business would be considered a nonroutine matter, and a unanimous decision would be required, so all 7.
90
What elements must be established when a client is suing an accountant for unintentional tort of negligance?
1. The accountant owed the client a duty.
2. The accountant breached that duty.
3. The accountant's breach actually and proximately caused the client's injury.
4. The client suffered damages.
91
Requirements to form an agency relationship
1. An agreement between principal and agent on the relationship and subject matter.
2. Legality of the subject matter.
3. Capacity of the principal.
Note: Contract is NOT required.
92
Requirement for tax return preparers to maintain records
Retain a completed copy of each return or claim prepared for 3 years after the close of the return period
OR
Keep a list for 3 years that includes the taxpayers' names, identification numbers, tax years, and types of returns or claims prepared.
93
What steps must be taken when a principal discharges an agent?
1. Actual notice of the discharge to those the agent had previously dealt with must be sent.
2. Constructive notice to others who might have known of the agency must be given.
94
Circumstances for revocation of an S Corporation election
Revocation can be made only with the consent of shareholders who hold more than 1/2 of the number of issued outstanding shares of stock (both voting and non-voting) of the corporation.
95
Can a corporation recognize a gain or loss when purchasing and selling its own stock?
Under Sec. 1032(a), a corporation recognizes no gain or loss on the receipt of money or other property in exchange for its own stock, including treasury stock.
96
What is the charitable contribution deduction for corporations limited to?
10% of taxable income (taxable income needs to include dividends-received deductions taken and capital loss carrybacks included).
97
Contracts that are of no effect and are not recognized under law are ________?
Void
98
Contracts that are valid but enforceable by only one party are?
Voidable
99
Starting in 2021, Net Operating Loss (NOL) is subject to what limitation?
80% of taxable income can be used towards Net Income. The rest can be carried forward indefinitely.
100
What are the three conditions that trigger a mandatory termination statement filing for consumer goods?
(1) The collateral consists of consumer goods, (2) no obligation is secured by the collateral, and (3) no commitment to give value exists.
101
When must a secured party file a termination statement if the collateral is consumer goods?
Within 1 month, or within 20 days after receiving an authenticated demand from the debtor, whichever is earlier.
102
What triggers the 20-day deadline for filing a termination statement regardless of collateral type?
Receipt of an authenticated demand from the debtor, if no obligation is secured and no commitment to give value exists.
103
Under what condition is a termination statement not required to be filed automatically for non-consumer goods?
If the debtor does not make an authenticated demand.
104
Undistributed personal holding company income is?
Taxable income net of specific adjustments and the dividends-paid deduction. Federal income taxes accrued and capital gains (net of related federal taxes) are subtracted from taxable income.
105
If the exempt-organization is a corporation, it will pay tax on unrelated business income at ________________________________________ rates?
Corporate tax rates
106
Payments to shareholders are deductible to the S-Corporation as ___________________________________________
Ordinary wages and are reported as deductible wages on Form W-2. These wages are then taxed to the shareholders as salary income.
107
Payments to partners for services are ________________________________
Deductible as ordinary expenses in computing the partnership income or loss and are a separately stated item on Schedule K. The partner receiving the payment would report it as self-employment income on the individual income tax return.
108
How are foreign taxes paid by an individual treated?
Taken as an itemized deduction or as a credit against federal taxes due.
109
Attachment occurs when_________________________________
(1) value is given by the secured party,
(2) the debtor obtains rights in the collateral, and
(3) the debtor and creditor acknowledge the creation of a security interest by a signed security agreement or by collateral in the possession of the secured party.
110
What costs are excluded from Section 195 treatment for start-up costs and cannot be capitalized?
Costs that are capital in nature or related to the formation of the corporate entity, such as expenses for issuing stock, legal fees for drafting the corporate charter, or interest on loans before operations begin.
111
An S Corporation can be terminated based on any one of the following conditions:
1. Voluntary termination - Requires shareholders holding a majority of the shares to make an election to terminate.
2. Termination due to ineligibility - S-Corp status will be revoked automatically if an event occurs that causes it to violate one of the requirements.
3. Termination if passive income test is failed for 3 consecutive years - More than 25% of gross receipts is from passive income AND the corporation had C-Corp earnings and profit, at the end of each of the 3 consecutive taxable years. (Passive investment income includes receipts from rents, royalties, dividends, interest, annuities and the gain from sales or exchanges of stock of securities.)
112
A claim for refund must be filed by the taxpayer within:
3 years from the time the return was filed or
2 years from the time the tax was paid, whichever of such periods expires the later
And, if no return was filed by the taxpayer, within 2 years from the time the tax was paid.
113
A CPA who prepares a client's federal income tax return for a fee must keep a copy of the completed return for ____________ or a penalty may be assessed.
3 years
114
When land is foreclosed, what's the basis for any income recognized?
Since the land is foreclosed in full and a final settlement of debt, it is a non-recourse loan and the gain recognized is the [outstanding loan balance immediately before foreclosure – the basis of the property].
115
When non-liquidating distributions of cash and property are made to a partner, the basis is ______________________________
First reduced for cash distributions, followed by property distributions
116
In a distribution of property, the partner’s basis in the property is the lower of ______________________
The partnership basis in the property (inside basis) or
The partner’s basis in the partnership interest before property distribution (outside basis).
When a partner receives both cash and property, the cash is first accounted for against the partner’s basis and then property.
117
The test for duress is ___________________
Whether the improper threats actually caused an individual to enter into a contract against her or his will
118
What is the phaseout range of AGI for the $25,000 exception available to taxpayers to deduct passive rental activity against ordinary income if they are active participants?
An exception is available for taxpayers (active participants) whose AGI is < $100,000, who can deduct up to $25,000 of passive rental activity losses against ordinary and portfolio income.
For AGI < $100,000, the full $25,000 is deductible.
For AGI, in excess of $100,000 but less than $150,000, the deduction is computed as $25,000 - 50% (AGI - $100,000).
For AGI > $150,000, no deduction is allowed.
119
Capitalized costs under UNICAP include:
Pre-Production Costs:
1. Design Costs
2. Bidding Costs
3. Purchasing Expenses incurred before the production or acquisition of the property
Production Costs:
1. Direct Materials
2. Direct Labor
3. Direct & Indirect Production Costs (Factory Overheads)
120
C-Corps deduction for capital losses
Can be carried back 3 years and forward 5 years
Only against other capital gains
Cannot result in a NOL
121
Indicators of a fraudulent conveyance to prevent a creditor from satisfying a judgment
Debtor remaining in possession of property transferred
Debtor retention of an equitable benefit in property conveyed
Conveyance occurred in secret
122
What is the maximum gain a single taxpayer can exclude from the sale of a personal residence?
Up to $250,000, provided they lived in the home for 2 of the last 5 years.
123
How often can a taxpayer use the home sale exclusion for a personal residence?
Once every two years.
124
When does a promoter remain personally liable on a pre-incorporation contract, even if the corporation adopts it?
The promoter remains personally liable unless the contract explicitly states otherwise or a novation occurs.
125
What is a novation in the context of a pre-incorporation contract, and how does it affect the promoter’s liability?
A novation is when the third party agrees to hold only the corporation liable instead of the promoter. It requires agreement among the third party, the promoter, and the corporation, and it relieves the promoter of liability.
126
Under common law, who can sue a CPA for fraud, and what does fraud include?
Any injured person, even one unknown to the auditor, can sue a CPA for fraud. Fraud includes both constructive fraud and actual fraud, which involve an intent to deceive.
127
Is privity of contract required to sue a CPA for fraud under common law?
No, privity of contract is not required. A CPA who commits fraud or gross negligence is liable to any injured party, even if the party was unforeseen.
