Re-Review Notecards

Question 1

Tax benefit rule

Answer 1

Tax benefit rule: says that “an itemized deduction recovered in a subsequent year is included in income in the year recovered”

So, you would include in taxable income by whatever $ amount the itemized deduction exceeds the standard deduction in the prior year’s filing (ex: can be a state tax refund).

Question 2

Mailbox rule

Answer 2

• says that acceptances are generally effective when upon dispatch (fax, mail, e-mail, etc.) if properly addressed - unless the offeror opts out by saying they need an acceptance to be received to be effective (acceptance must be received before the offer expires)
• no contract is formed if the method of acceptance is invalid (not a proper form)

Question 3

IRA distribution penalty rules

Answer 3

• if you withdraw before age 59.5, then you will be penalized for 10% of the proceeds that are not rolled into another IRA
• so, (withdrawal x marginal rate) to figure out what you will pay income tax on

Question 4

MACRS

Answer 4

39 years - office building
10 years - boats and water transportation
7 years - office furniture
5 years - automobiles, light trucks, computers, typewriters, copiers, duplicating equipment, and other such items
3 years - special tools and certain racehorses

Question 5

MACRS Half-Year Convention

Answer 5

provides that one-half of the first year’s depreciation is allowed in the year in which the property is placed in service, regardless of when the property is placed in service during the year, and a half-year’s depreciation is allowed for the year in which the property is disposed of.

Question 6

When can a CPA show work papers without the client’s consent?

Answer 6

Lawful subpoena.

Prospective purchasers, as long as the prospective purchasers do not disclose the confidential information.

Quality control panel.

AICPA/State Trial Board.

Court proceedings.

When GAAP requires disclosure of such information in the financial statements.