So, Good co. Should be considered as a sole proprietorship concern and not a C Corporation for the benefit of the tax savings in it. 11. (TCO F) To be deductible for tax purposes, a trade or business expenditure must be _____. 16. (TCO F) Which of the following types of taxes is not deductible? (Points : 5) 3. (TCO F) Describe how the exclusion on a sale of residence can be prorated. (Points : 17) 7. (TCO F) (Becker CPA Review Course, Reg. 1) Smith has an adjusted gross income (AGI) of $120,000 without taking into consideration $40,000 of losses from rental real estate activities. Smith actively participates in the rental real estate activities. What amount of the rental losses may Smith deduct in determining taxable income? (Points : 17) b. $15,000 Choice "b" is correct. Generally, none of the passive losses from real estate are deductible against non-passive income. However, Smith actively participates, which means that the "mom and pop" exception of up to $25,000 will apply. This exception is phased out over AGI of $100,000 through $150,000. That is 50 cents on the dollar. Smith's AGI is $120,000. That is $20,000 into the phase out range. So $10,000 of the $25,000 is phased out and Smith may deduct $15,000 of the $40,000 passive loss. 9. (TCO F) (Becker CPA Review Exam Reg. 1) Randolph is a single individual who always claims the standard deduction. Randolph received the following in the current year: Wages $ 22,000 Unemployment compensation 6,000 Pension distribution (100% taxable) 4,000 A state tax refund from the previous year 425
What is Randolph’s gross income? (Points : 17) Choice "c" is correct. Each item listed here is included in gross income except for the state tax r efund from a prior year. The taxpayer always claims the standard deduction. This means that th e state tax was not deducted in the year it was paid. Under the tax benefit rule, the refund of that tax is not taxable. Wages $22,000 Unemployment compensation 6,000 Pension distribution (100% taxable) 4,000 Total $32,000 11. (TCO F) To be deductible for tax purposes, a trade or business expenditure must be _____. (Points : 5) 16. (TCO F) Fines and penalties paid to the government for the violation of a law are _____. (Points : 5) 3. (TCO F) When might a taxpayer prefer a sale over a like-kind exchange that would result in the non-recognition of gain under Section 1031?(Points : 17) 7. (TCO F) Pam owns a sole proprietorship, and Kevin is the sole shareholder of a C (regular) corporation. Each business sustained a $16,000 operating loss and a $2,500 capital loss for the year. Evaluate how these losses will affect the taxable income of the two owners. (Points : 17)
As a proprietorship is not taxable entity - and all income/loss should be passed through to members. The passive activity limitation is $25,000 - so, because operating losses are less - $16,000 - it doesn't matter and full amount is deductible on Pam's tax return. For the C-corporation loss - the shareholders do not get any personal deduction . The loss stays with the C-corporation and can be used to offset future taxable income of the corporation or carried back to previous years. So Kevin would not get any deductions .
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- Winter '15
- Taxes, Taxation in the United States