[jeff]

Welcome to the Q3 2017 CPA Exam Study Group for REG. 🙂

Introduce yourselves and let your fellow NINJAs know when you plan to take your REG exam.

The Five Steps (NINJA Framework): https://www.another71.com/pass-the-cpa-exam/

[pcunniff]

HA! The next question stated this-

Personal holding company income and undistributed personal holding company income differ. Undistributed personal holding company income is computed by adjusting taxable income, then subtracting the dividends paid deduction. Deductions are made from taxable income for federal and foreign taxes; charitable contributions (based on a higher percentage limitation than the 10% of income limitation imposed on corporations); and excess capital gains (i.e., any excess net long‐term capital gain over net short‐term capital loss for the tax year).

Didnt realize they were different things..

[passantsalama]

Rockford Corp., a calendar-year taxpayer, purchased used furniture and fixtures for use in its business and placed the property in service on December 1, 2017. The furniture and fixtures cost $112,000 and represented Rockford's only acquisition of depreciable property during the year. Rockford did not make any special elections with regard to depreciation and did not elect to expense any part of the cost of the property under Sec. 179. What is the amount of Rockford Corp.'s depreciation deduction for the furniture and fixtures under the Modified Accelerated Cost Recovery System (MACRS) for 2017?
$ 4,000
$ 8,000
$16,000
$32,000
Correct answer: 4000 and I answered 8000

[Lamis]

@passantsalama , Mid quarter convention (placed in 4th quarter) under 7 year class asset 3.57% * 112,000= 3998.4 ,so the most correct answer is $4,000 but the question is :do we have to memorize those % ?!

[McGboye]

I think the depreciation is:

1/2(1/4) * 112,000 * 1/7 * 200% = 4,000

1/2(1/4) is 1/2 of a quarter
1/7 because the cost recovery period is 7
200% is bcos we used a double declining balance method

[Lamis]

@mcGboye how did u get this formula? Explain more why1/2(1/4)

[CPATY]

@lamis where did you find that question. Because I just went through Gleim and tried all the start-up cost questions to try and practice the phase out calc. However none of the questions said to deduct $5,000 immediately. Which i know that's what you're supposed to.

Perfect example:
Brown Corp., a calendar-year taxpayer, was organized and actively began operations on July 1, 2017, and incurred the following costs:
Legal fees to obtain corporate charter $45,000
Commission paid to underwriter 30,000
Other stock issue costs 15,000
Brown wishes to amortize its organizational costs over the shortest period allowed for tax purposes. In 2017, what amount should Brown deduct for the amortization of organizational expenses (excluding any immediate expensing allowed)?
A. $2,000
B. $3,000
C. $2,500
D. $1,500

A corporation may elect to amortize its organizational expenses over at least 180 months starting with the month in which it begins business. Organizational expenditures are those incurred incidental to the formation of the corporation. Specifically excluded are expenditures connected with issuing or selling stock and with transferring assets to the corporation. Here only the legal fees to obtain corporate charter are organizational costs and are amortized for a half year. The annual amortization is $3,000 [$45,000 × (12/180)]. The amortization expense for 2017 is only for 6 months (July – December) equaling $1,500 ($3,000 annually × 50%).

That's the answer, which doesn't immediately deduct the $5,000.

[Lamis]

@CPATY all start up costs and org costs less than 50,000 can deduct immediately 5,000 and amortize the rest over 180 months.
Regarding ur example it's clear that it's asking u only about the expense to be amortized it's telling u ” excluding any immediate expense allowed”

However there is some phase outs of the $5,000 that are immediately deducted explained by @kala reread the posts regarding this

[CPATY]

@Lamis oh yeah lol jk! this is what happens when i look too closely

[HoldMyBeerCPA]

Dunn received 100 shares of stock as a gift from Dunn's grandparent. The stock cost Dunn's grandparent $32,000 and it was worth $27,000 at the time of the transfer to Dunn. Dunn sold the stock for $29,000. What amount of gain or loss should Dunn report from the sale of the stock?

A. $0 – My Answer. Correct.

B. $2,000 gain

C. $3,000 gain

D. $3,000 loss

I was able to get this answer correct. However, I don't think I applied the correct rules here. I was thinking that since Dunn's basis in the gift was the FMV at the gift date and he sold it for $2,000 above FMV, he can fully offset the gain against the disallowed $5,000 loss recognized by his grandparent.

Even though I got the answer right, I'm sure I'm mixing up my concepts here. Would someone care to explain the REAL reason why the answer is $0?

[CPATY]

@TurboSandwichCPA

Gift taxes are nontaxable transactions therefore the donor's cost basis is rolled over. however there are a few exceptions; if the FMV @ the date of the gift is below Cost, and you end up selling it below FMV @ the date of the gift, then you use the FMV as the basis to calculate the loss. If you end up selling the asset below the donor's cost but above the FMV @ the date of transfer (as in your question), the recipient does not need to recognize a gain or loss when the asset is sold.

I would set up gift problems the following way; this quickly lets me know what to recognize:
Sale Price: Recognize Gain
Cost: Donor's Cost
Sale Price: No Gain/Loss
FMV: $ Date of Transfer
Sale Price: Recognize Loss

Hope this helps!

[passantsalama]

Boone Corporation, which is not exempt from the alternative minimum tax, reported adjusted current earnings (ACE) of $500,000 for 2017. Its alternative minimum taxable income (before the alternative minimum tax NOL deduction and ACE adjustment) was $200,000. Boone Corporation’s alternative minimum taxable income (after exemption) for 2017 was
$237,500
$372,500
$425,000
$500,000
Answer is 425,000
Wiley Answer: Boone’s pre‐ACE AMTI of $200,000 would be increased by an ACE adjustment of [($500,000 − $200,000) × 75%] = $225,000, resulting in an alternative minimum taxable income of $425,000. No AMT exemption would be available because Boone’s $40,000 exemption would be reduced (to zero) by 25% of AMTI in excess of $150,000.

Why there is no exemption!!

[Amberoneill]

Hi everyone. Sorry if this has been asked before, I couldn't find anything when I searched. I understand that the Sec 179 max is $510,000. Are you all having questions pop up stating it's capped at a max of $500,000? I just want to be sure I'm calculating this correctly. Thanks!

The Section 179 limit is permanently set at $500,000. The Section 179 cap is indexed to inflation in $10,000 increments in future years. Businesses exceeding a total of $2 million of purchases in qualifying equipment have the Section 179 deduction phased out dollar-for-dollar and completely eliminated above $2.5 million.

Sally’s total deduction for the trucks was $848,585:

Equipment purchase $1,110,000
Section 179 (500,000)
50% bonus depreciation (($1,110,000 – $500,000) × 50%) (305,000)
Adjusted basis $ 305,000

1st-year depreciation ($305,000 × 0.1429) ($43,585)
Total expense ($500,000 + $305,000 + $43,585) $848,585

[In it to earn it]

@Amberoneil@live.com, Yes, the limit is 510,000 for 2017 with a phase out starting at 2,030,000. It is updated in Jeff's audio and Wiley has it correct per 2017 as well. I ran into the same confusion….

@pasantsalama, To calculate the exemption, you take AMTI (425,000) minus exemption threshold of (150,000)= 275,000 times .25 = 68,750, which wipes out the exemption of 40,000. I remember the ACE adjustment as the bigger and simpler 75% calculation and the exemption of 40,000 minus 25% of difference between AMTI and 150,000.

@Turbosandwichcpa, Those questions are the easiest, having to do with the dual basis rules. If it is between the FMV at date of transfer and carrying value and it is sold between those two amounts, then no gain or loss is realized.

@Lamis, rather than memorize the correct percent for depreciation, it is easier to understand the fundamentals of MACRS. All five and seven year property is depreciated under 200% double declining balance. Furniture and such is 7 year, computers and autos is 5 year. Usually half year unless 40 percent is put into service in 4th quarter. Then use mid quarter. Getting that down makes the calculation easier. (cost)x 2/7 x .5 for half year or (cost) x 2/7 x 1.5/12, etc. If they give us the chart, then it will make it super easy. There are different ways to look at the half quarter. I think of it as 1.5 months (out of three month quarter) over 12 months. Some of the solutions have it as .5/4. McGboye had 1/2(1/4), but they all come out to .125.

[monicasanta]

NEED HELP please!!
Hey guys, I have a question about Schedule C profit and would appreciate if anyone can help..

Sch C profit is included on Line 12 of Form 1040, while self-employment tax is also included under “other tax” section on Form 1040. We know Sch SE includes profits from Sch C and F. Is profit from Sch C taxed twice then??
Same thing applies to Sch F which is also taxed twice…

Thanks in advance!

[In it to earn it]

@monicasanta From what I understand, the self-employment tax relates to the social security and medicare tax, whereas the taxable income reported on line 12 is income tax, correct? So, it would be the same as the income on line 7 that had the social security and medicare tax withheld, yet then got taxed on income tax as well. Then there is 50 percent of the self employment tax that is deductible for AGI to put those self-employed on the same playing field as other wage earners. Unsure if this is what you were after.

[Author]

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