REG 1.0

Question 1

• How can interest expense be treated?

* State and local tax refunds taxed?

Answer 1

• Prorated
• Only taxed if itemized the previous year

**Interest on state government obligations usually not taxed

Question 2

• What portion of sale from personal residence is tax exempt for single individual?
• Are proceeds collected from life insurance taxable?

Answer 2

• 250,000 exempt
• No

CORPORATIONS:

• Rule 1: Life insurance premiums paid for insurance on officer’s life where the corporation is the owner and beneficiary of the policy are NOT deductible
• Rule 2: Life insurance premiums paid on employees lives, considered fringe benefit and would therefore be DEDUCTIBLE by the corporation

Question 3

*Distinguish b/w ISO and ESPP?

Answer 3

Qualified

• ISO
  1. Not more than 10% holder
  2. Option price not less than FMV
  3. Stock held at least 2 years from grant and 1 year from exercise date
  4. Report compensation income in year the option is recieved

Qualified
*ESPP
1. Not more than 5% holder
2. Option price not less than 85% of stock when granted
3. Stock held at least 2 years from grant and 1 year from exercise date
4. Capital Gain Exception:
If option price < FMV on grant date recognize as ordinary income

LESSOR
Option Price 80
FMV on Grant = 100
Exercise 180
Sell 200

LESSER
-Diff = FMV stock sold - Exercise Price (200-180)=20

-Diff = FMV stock on grant date - Exercise Price (100-180)=80

Question 4

*When dealing with net earnings from self employment, how is this determined?

Answer 4

*Take total amount of self employment income and factor in 7.65% tax

**Of the self employment tax paid taxpayers can take an adjustment deduction of 50% of the 7.65% tax

Question 5

• Can liability insurance premiums be deducted?

* Is personal disability insurance premiums deductible?

Answer 5

• Yes

* No (only medical and hospital insurance premiums are deductible)

Question 6

*What is the maximum loss which one can take on CAPITAL LOSSES on investment stock sale?

Answer 6

*(3,000)

Question 7

• What is the rule with suspend passive losses?

* General rule for children who make income

Answer 7

• Can be carried forward but no back

* Under 18 if income below 1,000 do not have to file a return

Question 8

*Name the different schedules:
A
B 
C 
D:
SE:
E:
F:
1120S:

Answer 8

A: 1040 (Report Ordinary Income)
B: Interest and Ordinary Dividends
C: Business Profit or Loss (Personal exemptions not allowed on schedule C)
D: Capital Gains and Losses 
SE: Self Employment Tax
E: Supplemental Income or Loss (Rental)
F: Farm Income or Loss 
1120S: Income, dividend, loss of S corp shareholders part of K1 document

Question 9

• Owning a business how is salary to self treated?

* What tax rate should be used?

Answer 9

• Salary to self a draw not a deduction

* Marginal tax rate

Question 10

• Long term contracts
• percentage of completion
• Income recognition

Answer 10

• Income recognition: % of completion
• total cumulative costs for year / total exp cost for contract
• take ratio and X by contract price (subtract any amount of income already recognized