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25 Cards in this Set
- Front
- Back
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Can a c corporation use the cash method of accounting?
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Yes if annual gross for any three year preceding period does not exceed $5 million
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What portion of a contract price is reportable as income under the percentage of completion method?
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Contract price x Costs incurred during the period/total estimated costs for the contract
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What is the dividends received deduction?
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The amount of the dividends received deduction is based on the % ofstock owned in the corporation by the receiving corporation. If 20% or less, 70% deduction, Btwn 20 and 80%=80% and if 80 or more 100%
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What is the accumulated earnings tax?
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A tax on aretained earnings in excess of $250 K of a corporation c
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What are personal services corporations?
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regular corporations operating in the professional fields of HALE health, accounting, law and engineering. . They have a flat rate of 35% income tax and are permited to use a cash basis of accounting.
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What is the personal holding company tax?
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The PHC tax applies if the corporation meets an ownership test(50% owned by 5 of fewer individuals; and a passive income test (60% of the corps ordinary gross income consists of personal holding company income, i.e, income from securities and other income producing property. The tax is a flat rate of 15% on undistributed income.
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What is section 1244 stock
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If at the time of forming a regular corp, the total capital contributions are less than $1 million, and stock is issued in xchange for money, there are favorable tax consequences. Up to $100K of a loss in the sale of such stock may be deducted as ordinary loss ($50K if tp is single).
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What is an S Corporation?
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An S corporation is a type regular corporation that has elected to be taxed as a partnership. Each shareholder is treated as ageneral partnership S corporations may be required to pay built in gains tax, LIFO recapture tax and excess net passive income tax. To terminate its existence, the S corp must be formally dissolved, or converted to a c corp. They can have no more than 100 shareholders
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What is an LLC
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It is a hybrid business entity that combines limited liability and the pass through tax treatment associated with a general partnership. The LLC may choose how it wishes to be taxed
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What is a business trust
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In a trust the business is held and managed for the benefit of persons who hold transferable certificates issued by the trustees indicating how the shares of the business are divided and owned.
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What are the disadvantages of a regular corporation
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1) Increased organizational and operational complexity; 2) Minority shareholders may have little voice; 3) The possibility that ownership will spread beyond a small preferred member of shareholders.; 4) A flat tax rate of 35%
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How is income treated in community property states
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Half of earnings of each spouse is considered to be owned by the other spouse. If spouses are living apart, a spouse will be taxed oly on their own actual earnings from personal services if they do not file a joint return
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How is interest computed on below market loans
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Use the federal government borrowing rate compounded semiannually. Gifts loans-gift has been made in the amount of imputed interested. Compensation loans- ER has interest income and compensation expense for the interest, EE has compensation income and interest expense; corp/shareholder loans corp will have interest income and a dividend distribution, s/h will have dividend income and interest expense. Exceptions=no interest is imputed for loans in aggregate of $10K or less
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How do passive activity rules apply to limited partners
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Limited partners are passive owners and passive activity rules apply
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How does dissolution of a partnership occur
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Dissolution occurs when a partner ceases to be associated with the partnership. The new partnership is liable for the obligations of the old partnership. Dissolution by law--death bankruptcy or illegality, dissolution by judicial decree--application of a partner or application of third party
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What is the affect of dissolution on a partnership
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Dissolution terminates the authority of partners except the authority to complete unfinished business
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What are some unique xracteristics of S corporations
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Only citizens or residents of US may be shareholders. If owns 2% or more of stock, shareholder-EE must include benefits in gross income. S corporations have special taxes--built in gains tax, LIFO recapture tax and excess net passive income tax
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How are LLCs taxed
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An LLC can be taxed as a sole proprietorship, partnership, corporation, S corporation
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How do you form an LLC
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Must file an article of organization with the state. partnerships or corporations can be converted into an LLC
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What is a trust
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A legal arrangement wherein an individual transfers prperty to a trustee.
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What is a simple trust
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Must distribute all income to beneficiaries each year. Charitable donations are prohibited. Prinicipal donations are prohibited
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What is a complex trust
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A trust in which income can be accumulated. Principal can be distributed. The trust pays tax on accumulated income
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What is a grantor trust
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Grantor pays tax on all trust income. Trustis ignored for income tax purposes. A trust will be a grantor trust if the grantor retains the power to control enjoyment. These powers include the power to add or remove beneficiaries, determine the timing of distributions; alter the beneficiaries share, retain a reversionary interest in either corpus or income, control enjoyment. revoke trust
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When a trust receives both taxable and taxfree income, how is the beneficiary taxed on DNI (distributable net income
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DNI will only be taxed on a portion of the distruution received.
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ABC Trust has DNI of $100K of which $40K is nontaxable. The beneficiary received a distrubition of $20K during the year. What portion of the distribution will be taxed?
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$8K or 60%
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