TAX - outline

TAX - outline - INCOME less EXCLUSIONS GROSS INCOME 1 items...

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INCOME less: EXCLUSIONS GROSS INCOME 1. items not usually reported by business entities (unique): c) unemployment compensation d) SS benefits received f) misc. income, such as lottery winnings, prizes, awards 2. investment income: aka portfolio income; interest from bonds and dividends received from C-corps. are included in gross income; qualified dividends & net capital gains (0% to 15%) less: DEDUCTIONS FOR AGI 1. expenses paid/incurred in carrying on of trade/business : Schedule C – business expense deducted against business profits – only amounts paid on behalf of their employees (advertising, car & truck expenses, commissions & fees, contract labor costs, depletion, employee benefit programs, insurance (other than health), interest, legal & professional a) bad debts : when $ owed becomes uncollectible; the $ must’ve been in GI the current year or a prior year to be deducted; deduct the adjusted basis; nature of loan must be related to sole prop’s business [otherwise it’s recognized as ST capital loss (can be deducted against capital gains + $3000)] b) transportation expense : use “standard milage rate” to reimburse employees and deduct for the business; “actual method” must be used when using 5+ cars : depreciate personal property used for a business; the amount is FMV or adjusted basis (whichever’s <) – use “ADS” when listed property is used for <50% of business and “MACRS” when listed property is used for >50% of business d) office in home deduction: (and depreciation) – home mortgage interest and real estate taxes part of the home office cannot be deducted because they’re already itemized e) employee compensation : when an employee/employer relationship exists, an unreasonable amount distributed to an employee-shareholder is treated as a div. dist. not as compensation; may enter into a “repayment agreement” to mitigate losing a compensation deduction (employee repays the employer the unreasonable amount & take that as a business deduction) factors the courts use in determining whether salary/wages paid to employees are reasonable: i) the employee’s role in the company, responsibilities shouldered, duties performed iii) employee’s salary compared to similarly situated salaries v) whether the business is earning a satisfactory return on equity vi) the cost of living in the locality
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vii) internal consistency of salaries paid to all employees of the company limit: public companies cannot deduct >$1 mil. compensation to “covered employees” EXCEPTIONS: specified commissions, compensation based on performance, income. pay. under a written binding contract as of
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TAX - outline - INCOME less EXCLUSIONS GROSS INCOME 1 items...

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