In 2013, Ross was granted an incentive stock option (ISO) by his employer as part of an executive compensation package. Ross exercised the ISO in 2015 and sold the stock in 2017 at a gain. Ross's profit was subject to the income tax for the year in which
Stock was sold
Recasto owns a second residence that is used for both personal and rental purposes. During 2017, Recasto used the second residence for 50 days and rented the residence to Louis for 200 days. Which of the following statements is true?
Utilities and maintenance on the property must be divided between personal and rental use
Gary Judd is an individual proprietor trading as Lake Stores, an accrual basis enterprise that had been using the allowance method for determining bad debt expense for both book and tax purposes. At December 31, 2016, Lake's allowance for doubtful account
$4,000 in bad debts and doesn't have to include any portion of reserves in taxable income
During the current year, a farmer paid $20,000 for an approved conservation plan to prevent erosion of farm land. If the farmer had gross receipts of $80,000 and $20,000 in costs of livestock sold, what is the farmer's net farm profit?
Can take 25% of the conversion
80,000-20,000-15,000
On December 1, 2017, Krest, a self-employed cash-basis taxpayer, borrowed $200,000 to use in her business. The loan was to be repaid on November 30, 2018. Krest paid the entire interest amount of $24,000 on December 1, 2017. What amount of interest was de
$2,000 (24,000*1/12)
Jon, a cash-basis taxpayer, is the sole proprietor of a deer farm. Part of his farm land was transferred to the bank for partial payment of a loan. The remaining loan balance was discharged. He received the following amounts during 2017:
Deer sales $100,0
$54,000
Most farm-related income is reported in Part 1 of Form 1040 Schedule F; however, one exception to that is the reporting of capital gains. Capital assets include livestock used for breeding and are reported on Schedule D. The cost of livestock purc
Federal social security act
Applies to self employed persons
The theatrical agency of Power & Tyrone employs two people full-time. Which of the following is true with regard to federal unemployment insurance?
In terms of industry and # of employees, Power & Tyrone is within the class of employers covered by the federal unemployment tax act
During the examination of the financial statements of Viscount Manufacturing Corporation, the CPAs noted that, although Viscount had 860 full-time and part-time employees, it had completely overlooked its responsibilities under the Federal Insurance Contr
Since employers and employees owe FICA taxes and since the employer must withhold the employees' tax from their wages as paid, Viscount must remit to the government a tax equal to the amount assessed directly against the employer and the employee.
John Budd files a joint return with his wife. Budd's employer pays 100% of the cost of all employees' group term life insurance under a qualified plan. Under this plan, the maximum amount of tax-free coverage that may be provided for Budd by his employer
$50,000
Bobby is a sole proprietor. During 2017, he incurred the following expenses:
Rental payments for the next 2 years (i.e., 2018 and 2019)
$3,000
Country club dues (Bobby frequently entertains clients at the country club) 7,500
Meal expenses incurred while m
$750
Deduction of gross income is allowed for meal expenses, up to 50% of the actual expense.
Phil Armonic is actively engaged in the oil business and owns numerous oil leases in the Southwest. During 2017, he made several trips to inspect oil wells on the leases. As a result of these overnight trips, he paid the following
Plane fares $4,000
Hotel
$5,650
Plane fares: $4,000
Hotels: $1000
Meals ($800*.5) - $400
Ent ($500*.5) - $250
Total deduction $5,650
Jim Domuch, a calendar-year taxpayer, operates a novelty shop as a sole proprietor. During the current year, he incurred the following expenses in his business. Which is not deductible in the current year?
Sales taxes on the purchase of $50,000 of equipment used in the business.
In January 2017, Mr. D, who is self-employed, purchased a new automobile, which he uses 100% for business. During 2017, he drove the car 14,000 miles. Mr. D also owns another automobile, which he uses occasionally for business but primarily for personal p
$8,560
$8,560 (16,000 miles � $0.535)
In June of Year 1, a farmer paid a premium of $3,000 for tornado insurance on the barn. The policy will cover a period of 3 years beginning on July 1, Year 1. During the same year, the farmer spent $5,000 to repair the barn roof and another $5,000 to repa
Insurance: $500 (3000*(6/36)
Repairs/mainenance: $6,000 (5000+(.2*5000)
Self Employment Income Gross Income = Gross Sales - COGS+Other GI = GI form Business
50% limit to deductible meal and entertainment - no lavish trips or meals allows
Standard Mile Rate deductions: $0.535 for 2017
Self employment tax is 6.2% for first 127,200 then 1.45% there after, for FICA Taxes
Prepaid insurance must be pro rated over the entire yr
Deduction is allowed for valid deduction of bad debt, deductible if basis in AR to deduct
Cost of borrowing loans is generally deductible
Business gifts are deductible and limited to $25 per person per year
Startup costs - deductible of $5000 start up and organizational costs in the taxable yr the biz begins
Interest and taxes on vacant land are deductible
Medical reimbursement plans by employer are deductible
Political contributions are not deductible
Expenditure related to producing tax exempt income isn't deductible
Rental property goes on schedule E. Must be rented 14 days a yr for deductions to be allowed. Vacation home rules ally when taxpayer uses the residence for more than 14 days or more than 10% of the # days the place is rented.
The general rule is that, to be deductible, the amount must be both ordinary and necessary.
For FICA and SS, employer must pay 6.2% of the first $127,700 of wages plus 1.45% for Medicare tax, on cap on medicare tax.
Tier 1 - From $0 to $127,200; 7.65% � Employee's wages (Social Security + Medicare)
Tier 2 - From $127,200 to $200,000 or $250,000; 1.45% � Employee's wages (Medicare)
Tier 3 - Above $200,000 of earned income; 2.35% � Employee's wages (Medicare + Addition
Self Employment Tax
Tier 1 - From $0 to $127,200; 15.3% � Net self-employment income
Tier 2 - From $127,200 to $200,000 or $250,000; 2.9% � Net self-employment income
Tier 3 - Above $200,000 or $250,000; 3.8% � Net self-employment income
Fringe Benefits - an employees Gross Income doesn't include the cost of any qualified fringe benefits supplied or paid for by the employer
Employee discounts are excluded by GI
$255 per month can be excluded for employer provided transit passes and transportation
$255 per month is available for employer provided parking
both excludable
Cost of group term life insurance up to $50k is excluded from the employee's GI.
If cost is $120, employee contributes $50, $70 is added to their gross income
Incentive Stock Options: Recognized when sold. If held for 2 or more yrs after option was granted and 1 or more after option exercised, long term capital gain
Other wise is income to employee when sold
Value of meals furnished to an employee by or behalf the employer is excluded from the employee's GI if the meals are furnished on the employer's business premises and for employer's convenience
Cafeteria plans - benefit plan under all participants are employees and can get cash or nontaxable benefits. Cash add to the GI
Nontaxable benefits include
Dependent care assistance
Group term life insurance coverage up to $50,000
Disability benefits
Accident and health benefits
Group legal services
Income from farming is reported on a form 1040D
Gains from sale of live stock are income
Distribution s form a cooperative are income
Payment from Ag programs - 1099G
Commodity Credit Corporation Loans - Farmers may choose to treat CC loans as taxable income in the yr the loan proceeds are received
Crop insurance proceeds are income the yr received
Pmts received for contract/custom work
A farmer engaging in farming or fishing can choose to average all or some of their income over the course of 3 yrs, individual, partnership, or a shareholder in an S corp can elect to do farm income averaging
Farm expenses, can deduct cost of cattle, can deduct normal mileage rate and other car related expenses, can only deduct 25% of gross farm income
Cost of freight on live cattle is to be deducted when purchased.
Insurance premiums
Deductible taxes include real estate and personal property taxes on farm biz assets, FICA take, employee with holdings, FUTA tax and federal highway use tax
Utilities, Mis
Alt Partnership, a cash-basis, calendar-year entity, began business on October 1, 2017. Alt incurred and paid the following in 2017:
Legal fees to prepare the partnership agreement $12,000
Accounting fees to prepare the representations
in offering materia
200
12,000/(180*3)
What percentage is used when calculating the U.S. Production Deduction?
9%
After filing and paying last year's tax liability of $40,000, the taxpayer received a notice from the IRS assessing last year's liability at $46,000. Which of the following statements concerning this situation is true?
The taxpayer may be assessed an accuracy-related penalty due to substantial understatement of income tax.
Farmer Jane received the following income during the current year:
Materials as a direct payment from agricultural program $30,000
Insurance proceeds for crop losses last year 50,000
Rental of spare rooms attached to residence 14,400
Discharge of loan for
$82,500
$30,000+$50,000+$2,500
Clyde operated a food distribution business. He leased a small warehouse in 2015 for $60,000 per year for a 3-year term. The lease was to start on July 1, 2015. Clyde paid the first 2 years' rent in advance in May 2015. Clyde then began to make monthly pa
$60,000
Nan, a cash basis taxpayer, borrowed money from a bank and signed a 10-year interest-bearing note on business property on January 1 of the current year. The cash flow from Nan's business enabled Nan to prepay the first three years of interest attributable
Deduct the current yr's interest and amortize the balance over the next 2 yrs
Harold Thompson, a self-employed individual, had income transactions for Year 1 (duly reported on his return filed in April Year 2) as follows:
Gross receipts $400,000
Less cost of goods sold and deductions (320,000)
Net business income $ 80,000
Capital g
$109,000
($400,000+36,000)*.25
According to the Securities Act of 1933, which of the following statements is correct regarding an issuer of securities?
If an issuer sells a security and fails to meet certain disclosure requirements, the purchaser may sell it back to the issuer and recover the price paid.
Bank Corp., a calendar-year corporation, reimburses employees for properly substantiated qualifying business meal expenses. The employees are present at the meals, which are neither lavish nor extravagant, and the reimbursement is not treated as wages sub
50%
Clark, quarterback for the Metropolis Superheroes, Inc., football team, is also the majority shareholder. He performs no services other than playing as quarterback for the team. His salary is twice that of the next highest-paid player in the league, even
Its deductible to the art of the reasonable value of Clark's services
ABC Corp. leases two buildings. The first lease started January 1, 2017, and was for 3 years at $10,000 per year rent. ABC paid $30,000 in January for the entire 3-year term. The second lease started July 1, 2017, and was for 5 years at $6,000 per year re
$13,000
Venus Motor Company has two plants from which it manufactures cars: Nevada, U.S. and Mexico. In addition, all executives of Venus and its subsidiaries are offered a discount when they lease cars from the company. All gross receipts are from the sales and
$2,150,000
On New Year's Eve, Hal sent three bottles of champagne to the three owners of the Day & Night Cleaners to thank them for their business during the year. Each bottle of champagne cost $75. Each of the owners took the champagne home. Earlier in the year, Ha
$75 (3*25)
Baker, a sole proprietor CPA, has several clients that do business in Spain. While on a 4-week vacation in Spain, Baker took a 5-day seminar on Spanish business practices that cost $700. Baker's round-trip airfare to Spain was $600. While in Spain, Baker
$1,200
A cash-basis farmer with gross farm income of $95,000 incurred the following expenses:
Feed for the current year $ 5,000
Combine rental with an operator 1,500
Auger rental without an operator 50
Phone line installation 65
Farm labor 30,000
The phone insta
$61,450
The net farm profit is $61,450 [$95,000 - $5,000 - $1,500 - $50 - ($30,000 - $3,000)].
Frank Clarke, an employee, was covered under a noncontributory pension plan. Frank died on April 15, 2017, at age 64 and, pursuant to the plan, his widow received monthly pension payments of $500 beginning May 1, 2017. Mrs. Clarke also received an employe
$14,000
Dr. Merry, a self-employed dentist, incurred the following expenses:
Investment expenses $ 700
Custodial fees related to Dr. Merry's Keogh plan 40
Work uniforms for Dr. Merry and Dr. Merry's employees 320
Subscriptions for periodicals used in the waiting
$1,730
320+100+1300
In 2013, Ross was granted an incentive stock option (ISO) by his employer as part of an executive compensation package. Ross exercised the ISO in 2015 and sold the stock in 2017 at a gain. Ross's profit was subject to the income tax for the year in which
Stock was sold
Recasto owns a second residence that is used for both personal and rental purposes. During 2017, Recasto used the second residence for 50 days and rented the residence to Louis for 200 days. Which of the following statements is true?
Utilities and maintenance on the property must be divided between personal and rental use
Gary Judd is an individual proprietor trading as Lake Stores, an accrual basis enterprise that had been using the allowance method for determining bad debt expense for both book and tax purposes. At December 31, 2016, Lake's allowance for doubtful account
$4,000 in bad debts and doesn't have to include any portion of reserves in taxable income
During the current year, a farmer paid $20,000 for an approved conservation plan to prevent erosion of farm land. If the farmer had gross receipts of $80,000 and $20,000 in costs of livestock sold, what is the farmer's net farm profit?
Can take 25% of the conversion
80,000-20,000-15,000
On December 1, 2017, Krest, a self-employed cash-basis taxpayer, borrowed $200,000 to use in her business. The loan was to be repaid on November 30, 2018. Krest paid the entire interest amount of $24,000 on December 1, 2017. What amount of interest was de
$2,000 (24,000*1/12)
Jon, a cash-basis taxpayer, is the sole proprietor of a deer farm. Part of his farm land was transferred to the bank for partial payment of a loan. The remaining loan balance was discharged. He received the following amounts during 2017:
Deer sales $100,0
$54,000
Most farm-related income is reported in Part 1 of Form 1040 Schedule F; however, one exception to that is the reporting of capital gains. Capital assets include livestock used for breeding and are reported on Schedule D. The cost of livestock purc
Federal social security act
Applies to self employed persons
The theatrical agency of Power & Tyrone employs two people full-time. Which of the following is true with regard to federal unemployment insurance?
In terms of industry and # of employees, Power & Tyrone is within the class of employers covered by the federal unemployment tax act
During the examination of the financial statements of Viscount Manufacturing Corporation, the CPAs noted that, although Viscount had 860 full-time and part-time employees, it had completely overlooked its responsibilities under the Federal Insurance Contr
Since employers and employees owe FICA taxes and since the employer must withhold the employees' tax from their wages as paid, Viscount must remit to the government a tax equal to the amount assessed directly against the employer and the employee.
John Budd files a joint return with his wife. Budd's employer pays 100% of the cost of all employees' group term life insurance under a qualified plan. Under this plan, the maximum amount of tax-free coverage that may be provided for Budd by his employer
$50,000
Bobby is a sole proprietor. During 2017, he incurred the following expenses:
Rental payments for the next 2 years (i.e., 2018 and 2019)
$3,000
Country club dues (Bobby frequently entertains clients at the country club) 7,500
Meal expenses incurred while m
$750
Deduction of gross income is allowed for meal expenses, up to 50% of the actual expense.
Phil Armonic is actively engaged in the oil business and owns numerous oil leases in the Southwest. During 2017, he made several trips to inspect oil wells on the leases. As a result of these overnight trips, he paid the following
Plane fares $4,000
Hotel
$5,650
Plane fares: $4,000
Hotels: $1000
Meals ($800*.5) - $400
Ent ($500*.5) - $250
Total deduction $5,650
Jim Domuch, a calendar-year taxpayer, operates a novelty shop as a sole proprietor. During the current year, he incurred the following expenses in his business. Which is not deductible in the current year?
Sales taxes on the purchase of $50,000 of equipment used in the business.
In January 2017, Mr. D, who is self-employed, purchased a new automobile, which he uses 100% for business. During 2017, he drove the car 14,000 miles. Mr. D also owns another automobile, which he uses occasionally for business but primarily for personal p
$8,560
$8,560 (16,000 miles � $0.535)
In June of Year 1, a farmer paid a premium of $3,000 for tornado insurance on the barn. The policy will cover a period of 3 years beginning on July 1, Year 1. During the same year, the farmer spent $5,000 to repair the barn roof and another $5,000 to repa
Insurance: $500 (3000*(6/36)
Repairs/mainenance: $6,000 (5000+(.2*5000)
Self Employment Income Gross Income = Gross Sales - COGS+Other GI = GI form Business
50% limit to deductible meal and entertainment - no lavish trips or meals allows
Standard Mile Rate deductions: $0.535 for 2017
Self employment tax is 6.2% for first 127,200 then 1.45% there after, for FICA Taxes
Prepaid insurance must be pro rated over the entire yr
Deduction is allowed for valid deduction of bad debt, deductible if basis in AR to deduct
Cost of borrowing loans is generally deductible
Business gifts are deductible and limited to $25 per person per year
Startup costs - deductible of $5000 start up and organizational costs in the taxable yr the biz begins
Interest and taxes on vacant land are deductible
Medical reimbursement plans by employer are deductible
Political contributions are not deductible
Expenditure related to producing tax exempt income isn't deductible
Rental property goes on schedule E. Must be rented 14 days a yr for deductions to be allowed. Vacation home rules ally when taxpayer uses the residence for more than 14 days or more than 10% of the # days the place is rented.
The general rule is that, to be deductible, the amount must be both ordinary and necessary.
For FICA and SS, employer must pay 6.2% of the first $127,700 of wages plus 1.45% for Medicare tax, on cap on medicare tax.
Tier 1 - From $0 to $127,200; 7.65% � Employee's wages (Social Security + Medicare)
Tier 2 - From $127,200 to $200,000 or $250,000; 1.45% � Employee's wages (Medicare)
Tier 3 - Above $200,000 of earned income; 2.35% � Employee's wages (Medicare + Addition
Self Employment Tax
Tier 1 - From $0 to $127,200; 15.3% � Net self-employment income
Tier 2 - From $127,200 to $200,000 or $250,000; 2.9% � Net self-employment income
Tier 3 - Above $200,000 or $250,000; 3.8% � Net self-employment income
Fringe Benefits - an employees Gross Income doesn't include the cost of any qualified fringe benefits supplied or paid for by the employer
Employee discounts are excluded by GI
$255 per month can be excluded for employer provided transit passes and transportation
$255 per month is available for employer provided parking
both excludable
Cost of group term life insurance up to $50k is excluded from the employee's GI.
If cost is $120, employee contributes $50, $70 is added to their gross income
Incentive Stock Options: Recognized when sold. If held for 2 or more yrs after option was granted and 1 or more after option exercised, long term capital gain
Other wise is income to employee when sold
Value of meals furnished to an employee by or behalf the employer is excluded from the employee's GI if the meals are furnished on the employer's business premises and for employer's convenience
Cafeteria plans - benefit plan under all participants are employees and can get cash or nontaxable benefits. Cash add to the GI
Nontaxable benefits include
Dependent care assistance
Group term life insurance coverage up to $50,000
Disability benefits
Accident and health benefits
Group legal services
Income from farming is reported on a form 1040D
Gains from sale of live stock are income
Distribution s form a cooperative are income
Payment from Ag programs - 1099G
Commodity Credit Corporation Loans - Farmers may choose to treat CC loans as taxable income in the yr the loan proceeds are received
Crop insurance proceeds are income the yr received
Pmts received for contract/custom work
A farmer engaging in farming or fishing can choose to average all or some of their income over the course of 3 yrs, individual, partnership, or a shareholder in an S corp can elect to do farm income averaging
Farm expenses, can deduct cost of cattle, can deduct normal mileage rate and other car related expenses, can only deduct 25% of gross farm income
Cost of freight on live cattle is to be deducted when purchased.
Insurance premiums
Deductible taxes include real estate and personal property taxes on farm biz assets, FICA take, employee with holdings, FUTA tax and federal highway use tax
Utilities, Mis
Alt Partnership, a cash-basis, calendar-year entity, began business on October 1, 2017. Alt incurred and paid the following in 2017:
Legal fees to prepare the partnership agreement $12,000
Accounting fees to prepare the representations
in offering materia
200
12,000/(180*3)
What percentage is used when calculating the U.S. Production Deduction?
9%
After filing and paying last year's tax liability of $40,000, the taxpayer received a notice from the IRS assessing last year's liability at $46,000. Which of the following statements concerning this situation is true?
The taxpayer may be assessed an accuracy-related penalty due to substantial understatement of income tax.
Farmer Jane received the following income during the current year:
Materials as a direct payment from agricultural program $30,000
Insurance proceeds for crop losses last year 50,000
Rental of spare rooms attached to residence 14,400
Discharge of loan for
$82,500
$30,000+$50,000+$2,500
Clyde operated a food distribution business. He leased a small warehouse in 2015 for $60,000 per year for a 3-year term. The lease was to start on July 1, 2015. Clyde paid the first 2 years' rent in advance in May 2015. Clyde then began to make monthly pa
$60,000
Nan, a cash basis taxpayer, borrowed money from a bank and signed a 10-year interest-bearing note on business property on January 1 of the current year. The cash flow from Nan's business enabled Nan to prepay the first three years of interest attributable
Deduct the current yr's interest and amortize the balance over the next 2 yrs
Harold Thompson, a self-employed individual, had income transactions for Year 1 (duly reported on his return filed in April Year 2) as follows:
Gross receipts $400,000
Less cost of goods sold and deductions (320,000)
Net business income $ 80,000
Capital g
$109,000
($400,000+36,000)*.25
According to the Securities Act of 1933, which of the following statements is correct regarding an issuer of securities?
If an issuer sells a security and fails to meet certain disclosure requirements, the purchaser may sell it back to the issuer and recover the price paid.
Bank Corp., a calendar-year corporation, reimburses employees for properly substantiated qualifying business meal expenses. The employees are present at the meals, which are neither lavish nor extravagant, and the reimbursement is not treated as wages sub
50%
Clark, quarterback for the Metropolis Superheroes, Inc., football team, is also the majority shareholder. He performs no services other than playing as quarterback for the team. His salary is twice that of the next highest-paid player in the league, even
Its deductible to the art of the reasonable value of Clark's services
ABC Corp. leases two buildings. The first lease started January 1, 2017, and was for 3 years at $10,000 per year rent. ABC paid $30,000 in January for the entire 3-year term. The second lease started July 1, 2017, and was for 5 years at $6,000 per year re
$13,000
Venus Motor Company has two plants from which it manufactures cars: Nevada, U.S. and Mexico. In addition, all executives of Venus and its subsidiaries are offered a discount when they lease cars from the company. All gross receipts are from the sales and
$2,150,000
On New Year's Eve, Hal sent three bottles of champagne to the three owners of the Day & Night Cleaners to thank them for their business during the year. Each bottle of champagne cost $75. Each of the owners took the champagne home. Earlier in the year, Ha
$75 (3*25)
Baker, a sole proprietor CPA, has several clients that do business in Spain. While on a 4-week vacation in Spain, Baker took a 5-day seminar on Spanish business practices that cost $700. Baker's round-trip airfare to Spain was $600. While in Spain, Baker
$1,200
A cash-basis farmer with gross farm income of $95,000 incurred the following expenses:
Feed for the current year $ 5,000
Combine rental with an operator 1,500
Auger rental without an operator 50
Phone line installation 65
Farm labor 30,000
The phone insta
$61,450
The net farm profit is $61,450 [$95,000 - $5,000 - $1,500 - $50 - ($30,000 - $3,000)].
Frank Clarke, an employee, was covered under a noncontributory pension plan. Frank died on April 15, 2017, at age 64 and, pursuant to the plan, his widow received monthly pension payments of $500 beginning May 1, 2017. Mrs. Clarke also received an employe
$14,000
Dr. Merry, a self-employed dentist, incurred the following expenses:
Investment expenses $ 700
Custodial fees related to Dr. Merry's Keogh plan 40
Work uniforms for Dr. Merry and Dr. Merry's employees 320
Subscriptions for periodicals used in the waiting
$1,730
320+100+1300