Cheat Sheet Print Edit - Chapter 9 Ordinary normal common...

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Chapter 9: Ordinary : normal, common, accepted. Necessary : appropriate and helpful. Reasonable : Not clearly define. IRS will reject Arm’s length : relatives that pay more. Domestic : primary bus: 100% airfare. Not staying overnight : meal donot get deduct. Foreign : Airfare can be prorated. >75% “primary bus” 100% or (<1wk) “primary personal>75%” prorated Primary personal for both Domestic and Foreign: No transportation. Form of clothing : not deduct Entertainment and meals are ½ deductible: amount*(1-(.5*marginal rate) DPAD = 9% * lessor QPAI or taxable business income (modified AGI). Limited to 50% wage of QPA . Tax Inc. after DPAD = Inc. - DPAD Self-employed Bus vs Manufacture Income: $100,000 $100,000 - 1 2 𝑆? 𝑡𝑎𝑥 - 1 2 𝑆? 𝑡𝑎𝑥 (.9235*.153*50%) - 1 2 ?𝑃𝐴? = AGI =AGI Casualty and Theft: Business : Total Loss = Ins.-A.Basis. Partial Loss = Ins.-lessor (of decline in FMV or Repair). Same for personal. No deduction limit, For AGI Personal : Total Loss = Ins. - lessor (FMV before or FMV after). From AGI. $100/event and 10% AGI floor. Large Corp. must use accrual. Adopted at first tax return. Choose/Adopting (1 st year). Can be permissible (cash, accrual) or impermissible method Stay for 2 years. Changing method. Cash : Revenue recognized (received or constructively) All . Prepaid e xpenses: (≤ 12 months start this year and end nxt yr. Ok for prepaid RENT . Deduct all . NOT INTEREST. Accrual Recognized Rev when earned or received . All event tests on earliest of ( complete , payment is due or payment is received. ??? Rent and Interest expenses : deducted ( accrued ) over the period of lease/loan term because of economic performance Within 3.5 months, can deduct the full amount at current year. Prepaid interest and rent income must recognized “no deferral allowed” Other income may use “Full - inclusion” or “Deferred if elected”. Deferral method recognized Rev. only 2 years (1 st year, and all remainders 2 nd year). Full inclusion : entire amount for the initial year. Inventory uses Accrual for both cash and accrual taxpayer: Expenses are same as Accrual. Exception : Cash method can use cash method if 3 years prior Avg. annual gross receipts < $10 mil and the primary is services. If primary income is inventory last 3 years gross receipts < $1mil.

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