Exam 1 review questions
1. During 2015, Marvin had the following transactions:
Bank loan (proceeds used to buy personal auto)
Child support paid
Gift from aunt
Gain from sale of city of Bloomington bonds
Interest from City of Bloomingt
Discuss the legal and nontax characteristics
of different types of legal entities
Describe the different types of entities for
Corporation Formation (Section 351)
Various Business Forms
Chapter 15 - Comparitive ways of doing busines
Tax forms of each
Sole-proprietorship reports on the tax return of the owner, Schedule C.
Partnerships report income to partners on K-1, and partners report the inc
Chapter 6 Losses and loss limitations
Bad debts Cash basis taxpayers do not have bad debts, because A/R don't exist.
Accrual basis taxpayers must use the write-off method, and not the allowance method.
Collection of previously written off bad debts then b
What is an employee vs. a sub-contractor (self employed)
Definitions of independent contractors
Contractor has the right to specify the end rsults and the ways and means that the results are
attained (who has control of the proces
1. a. Employee trait. Self-employed persons usually acquire their job skills on their own.
b. Independent contractor trait.
c. Employee trait. Independent contractors most often have their own tools.
d. Independent contractor trait.
e. Independent contrac
Chapter 16 Introduction of taxation on individuals
Everything is income unless specifically excluded.
Income - broadly conceived - everything
Deductions for adjusted gross income
Adjusted gross income (state of illinois starts
1. a. AGI $65,000
Less: Itemized deductions (12,000)
Personal and dependency exemptions (6 $3,700) (22,200)
Taxable income $30,800
b. AGI $80,000
Less: Standard deduction (head of household) (8,500)
Personal and dependency exemptions (4 $3,700) (14,800)
Property Transactions, Capital Gains and Losses, Section1231 and Recapture provisions
Long term capital gains are taxed at 0% if you marginal tax rate is 10% or 15%, and 15% if your
marginal tax rate is greater than 15%.
Section 1231 property is
Property transactions - Basis, gain or loss, and non-taxable.
Amount realized - Basis (adjusted) = Realized gain or loss.
Realized gain or loss is reduced by postponed gain and by tax-free gains.
Recognized gain - capital gains or ordinary incom
Trade or business - intent to make a profit.
Ordinary and necessary, and substantiated.
Expenses expressly listed as not deductible:
Bribes and payments to government officials
Fines and penalties
Reasonable - compensation - If ov
What is income - IRS concerned, everything is income, and then they exclude certain items
Broadly defined, everything is income
Deductions - Business - ordinary and necessary expenses, Individuals - Deductions for Adjusted
Tax bill is based on the tax rate and the tax base (amount that the tax is figured on)
Progressive - tax rate increases as the tax base increases - federal income taxes.
Proportional - tax rate stays the same as the tax base increases - Illinois income ta