Business Taxation

Learning Objectives

Chapter 1

1. Recognize sole proprietorships, partnerships, and corporations as organizational formats for new and existing businesses.

2. Identify how choice of entity relates to the type of records to keep, listing issues related to substantiation and documentation.

3. Specify available accounting periods and methods and the methods for identifying and valuing inventory items.

After studying the materials in Chapter 1, answer the exam questions 1 to 11.

Chapter 2

1. Identify the various types of income and their implications, including the hidden income tax dangers of cancellation of indebtedness income, tax recoveries, and depreciation recapture.

2. Specify the existing basic business and investment tax credits, naming their tax requirements, and business asset types that affect the character of gain or loss, and recognize the tax treatment on the disposition of business assets, including non-recognition transfers and §1231 assets.

Chapter 3

1. Recognize the importance of §162 in deducting and substantiating business expenses and costs and specify the implications of the deduction timing and limits specifying the treatment of not-for-profit activities.

2. Identify conditional sales contracts, leveraged leases, and true leases, and determine how to qualify for rent expense deductions including through leasehold improvements.

3. Specify the various forms of interest expense under §163(a) recognizing related reporting and filing issues, and identify the distinctions between deductible and nondeductible interest.

4. Recognize deductions for real estate, state, and local taxes and list deductions for home office use, research and experimentation costs, barrier removal, and mine development.

5. Identify the various forms of tax treatment under the concepts of depreciation and amortization, including the effect on amortization of §197.

6. Determine the differences between cost depletion and percentage depletion as a means of accounting for the reduction of a product’s reserves.

7. Specify the types of bad debt and their effect on accounting and the various methods for dealing with bad debt.

8. Recall MACRS classifications, cite the recapture provisions and exceptions, and identify the alternative depreciation system.

Chapter 4

1. Specify the common-law rules used by the IRS to determine whether a person is an employee for purposes of FICA, FUTA and federal income tax withholding.

2. Identify the tests for wages to be deductible and how excluded fringe benefits can result in more employer deductions and incentive-based compensation to employees.

3. Recognize the use of deferred compensation agreements including the basic types of nonqualified deferred compensation, and the tax consequences related to these plans.

Chapter 5

1. Identify the apportionment of business and personal use of an automobile, including deduction limitations, and specify the various depreciation methods such as MACRS and §179 expensing.

2. Recognize personal auto leasing, its advantages and disadvantages, and the various kinds of leasing arrangements that can be used, such as closed-end or open-end leases.

3. Recall the standard mileage method listing its limitations and identify the various working condition fringe benefits including their impact on the gross income of employees.

4. Identify the various valuation methods used in determining the actual value of an employee’s personal use of an automobile specifying the reporting options available to the employer.

Chapter 6

1. Identify deductible business travel expenses by:

a. Specifying the differences between transportation and travel in order to benefit from the appropriate business tax deduction;

b. Recalling IRS definitions of a taxpayer’s tax home for travel and transportation purposes;

c. Recognizing how time acts as a critical factor in distinguishing a temporary from an indefinite job assignment; and

d. Specify the distinctions between business and non-business days.

2. Determine the factors associated with the business purpose requirement stating how they determine deductible expenses for meals and currently restricted entertainment.

3. Identify the applicable federal per diem rate from any one of several methods and the different reporting and income inclusion treatments given to self-employed persons or reimbursed employees.

Chapter 7

1. Recognize the requirements and characteristics of qualified retirement plans by:

a. Citing the limitations imposed by ERISA and TEFRA;

b. Specifying trust requirements and tests associated with these requirements, such as the ratio test; and

c. Identifying three classes of vesting listing how the vesting standards affect retirement plans.

2. Determine the differences between defined contribution and defined benefit plans recognizing the different types of plans and their effect on retirement benefits.

3. Identify Keogh Plans, traditional and Roth IRAs, and SIMPLE 401(k) plans by specifying their characteristics and determining how and when they may and may not be appropriate.

Chapter 8

1. Recognize the benefits of company-provided insurance policies by identifying how to qualify for group term life insurance and citing the requirements of retired lives reserve funds and split-life insurance policies.

2. Specify the requirements that determine insurance premium deduction and, identify the interest dis-allowance rule, the uniform capitalization rules citing their relation to production or resale activity costs.

Chapter 9

1. Recognize the elements of general estate planning such as the unlimited marital deduction, including the qualified terminable interest property trust, stepped-up basis, and former modified carryover basis rules.

2. Identify the primary dis-positive plans, such as simple wills, the various types of trusts, annuities, related family documents, and conservator-ships.

3. Specify the various special business issues related to estate planning, such as methods of business valuation, the implications of important revenue rulings, the use of estate planning tools recognizing buy-sell agreements and, deferred compensation agreements.