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Taxable Income
Deductions
Credits
Acronyms
IRC and the Movies
100
While preparing its tax return, a company discovers it has incurred expenses of $1,500 for meals provided to its employees at the office during busy season. What is the total deduction the company can take regaring these expenses.
$1,500. Section 274(e)(1) allows for a deduction for food and beverages furnished on the business premises of the taxpayer primarily for employees.
100
A company received a $100,000 dividend from a company in which it owned 15%. If the taxable income before the dividend received deduction was $60,000; what would be the allowed dividend received deduction?
$70,000. Section 172(d)(5) explains if deduction would result in NOL, amount of deduction is not limited to 70% of taxable income. Dividend Received Deduction = 100,000 * 70% = $70,000; Taxable Income Limitation = 60,000 * 70% = $42,000; Normally would take the lower amount (Section 246(b))unless Dividend Received Deduction would generate a net operating loss
100
What Credit was intruduced in order to eliminate double taxation on foreign earnings? If it is taken as a credit, then it can not be taken as a deduction according to section 275(a)(4).
Foreign Tax Credit
100
Section 172 "NOL"
Net Operating Loss
100
After a life-threatening incident, Tony Stark builds himself an armored suit. He completes his final suit after some research and prototypes were built. What code section should Tony read to determine if he can take a credit for the research expenses?
Ironman; and IRC Section 41
200
A company has incurred a Net Operating Loss in 2011 and would like to utilize this loss to offset either prior years income or future income. How many years can the company carry this loss back and forward?
NOL carryback is 2 years; NOL carryforward is 20 years; IRC Section 172
200
On February 16th, 2012 ITW purchases the Assets of ABC Corp resulting in $900,000 of intangibles. How much amortization expense can ITW deduct on its 2012 tax return?
$55,000 (900,000 / 180 months = 5,000 per month * 11 months in 2012 = 55,000); Section 197(a) allows for a 15 year amortization life (180 months) beginning with the month of acquisition.
200
What are the four part tests that a company must prove in order to take a credit for qualified research and development expenses?
Technological Uncertainty, Process of Experimentation, Technological in Nature, New or Improved functionality; IRC Section 41(d)
200
Section 199 "QPAI"
Qualified Production Activities Income
200
Four friends go to Las Vegas for a bachelor party. During the trip Stu, who is a dentist, pulls out his own tooth but can't remember why. Since teeth pulling is common in his business, he would like to deduct some of the weekend expenses as meals and entertainment. Which code section should he reference?
The Hangover; and IRC Section 274 specifically (k) and (n)
300
A company pays $500,000 for a new building to expand operations. In determining its taxable income, how much of this capital expenditure can the company report as a deduction?
0. According to Section 263, no deduction is allowed for capital expenditures for new buildings.
300
A company acquires a $1,000,000 machine on January 1st, 2012 which has a 5 year tax life. What is the depreciation expense that would show up on the 2012 tax return related to this machine?
2012: 600,000 (500,000 Bonus + 100,000 normal); 2013: 160,000; 2014: 96,000; 2015: 72,000; 2016: 72,000; Section 168 allows for 50% bonus depreciation in first year, applicable method 200% declining balance switching to straight line in first year that SL is more, and the applicable convention is half-year.
300
According to Section 42(f) regarding Low Income Housing Credits, how many years would a taxpayer be able to take this credit?
Credit is claimed over a 10 year period in equal parts.
300
Section 241 "DRD"
Dividends Received Deduction
300
In this 2002 movie, an aspiring rapper spends his days working at the Detroit Stamping factory and battle rapping co-workers during his lunch break. If he decided to give up rap for accounting and wanted to impress his boss, which code section could he tell his boss about to take advantange of the domestic manufacturing deduction?
8 Mile; and IRC Section 199
400
A foreign CFC located in Australia that pays local tax at 30% distributes $70 of its E&P to the US which equates to 50% of its total E&P. Based on Section 78, what is the US taxable income and the actual tax due assuming a US rate of 35% and the company elects to use Foreign Tax Credit.
Taxable income is $100 and actual tax due $5. Deemed Gross Up = Taxes * (Distribution/E&P); Deemed Gross UP = $60 * (70/140) = $30; Taxable Income = Distribution + Gross Up; Taxable Inocme = $70 + $30 = $100; Tax Due = Federal tax due - Deemed taxes paid; Tax Due = ($100 * 35%) - $30 = $5
400
What would be the allowable Domestic Production Deduction given the following: Gross Reciepts of 30,000; Allocable expenses of 10,000; Production related wages of 5,000; and Taxable income of 22,000?
$1,800; Section 199 deduction is lesser of: 1. Taxable Income or QPAI at 9% - OR - 2. 50% of producton related wages; Taxable Income = 22,000; QPAI = 30,000-10,000 = 20,000; Lessor is 20,000 * 9% = 1,800; 50% of production wages = 2,500; Section 199 dedcution would be 1,800.
400
What would be the R&D Credit given the following facts: Average gross reciepts for prior 4 years of $100,000; Qualified Research Expensees of $20,000; Fixed Base Percentage of 12%
$1,600; Section 41; Credit = (QRE - Fixed Base Amount) * 20%; Fixed Base Amount = Fixed Base Percentage * Avg gross receipts (12% * 100,000) = 12,000; Credit = (20,000 - 12,000) * .2 = 1,600
400
Section 199 "DPGR"
Domestic Production Gross Receipts
400
In this fourth installment, John Connor destroys the LA branch of Skynet which prevents the machines from eliminating mankind. If Skynet chooses to rebuild it's facilities in LA, what code section could they reference to determine the depreciable life and method for the new assets? (Assuming the IRS and taxes still exist)
Terminator Salvation; and IRC Section 168