[jeff]

Welcome to the Q4 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/

[HushedChoas]

@benj2017 I thought it was March 15th?

EDIT: Per IRS website as well, you are correct and its currently 2.5 months
https://www.irs.gov/instructions/i2553

EDIT2: Just realized I can't count months. Thank goodness my exam is soon so I can stop burning out too.

[Anonymous]

Can someone explain the sale of stock when it was initially gifted? this really confused me since Wiley didn't go into full details with the lessons but it was heavily tested on my mock exam.

[joonpark1212]

Could anyone share their thoughts on couple conceptual questions below?

1. Can a taxpayer's sole proprietorship become a C corporation and send out taxpayer's salary to the taxpayer? If so, The C corporation taxable income will decrease while the taxpayer's wages/salaries in form 1040 will increase.

2. Assuming Partnership uses fiscal year and it ends in June 2016, which year does the calendar-year using taxpayer include the share of partnership income in 2016 or 2017?

[Anonymous]

@joonpark1212 ,

1) Yes, this falls under tax planning so you would probably need to know more information about the specific business and the tax rates the corporation would be paying versus the individual taxpayer to make a decision either way. You would also need to have an idea of what deductions would be available to the corporation and the taxpayer, etc.

2) The calendar year taxpayer would include partnership income from a fiscal year tax year in the same year his/her tax year ends. So income from 7/1/2015-6/30/2016 would be included in the taxpayer's 1040 for year 1/1/16-12/31/16.

[Anonymous]

@drzflow4

When you receive a gift your basis is same as the donor's basis increased by gift tax paid. (there is a formula for this, but it's kinda long, just look it up)

If the FMV of the stock is less than adjusted basis (AB) when you receive the stock then you have a dual basis for the stock.

So basically if you sell the stock for more than the AB you recognize gain, and if you sell it for less than FMV you recognize a loss. If you sell it in between FMV and AB, then you don't recognize gain or loss.

This is weird but basically if you get stock with a AB of $1000 and FMV of $500, then you only recognize gain if you sell over $1000, and you only recognize loss if you sell under $500. If you sell it for between $500-$1000, then you recognize $0 gain or loss.

[joonpark1212]

@benj2017

Thanks for the clear explanation! Could you be able to help me on couple more conceptual questions I have below? I've been googling for these for awhile now.

1. Estate tax related_ In calculating decedent's gross estate, does Tenancy in common property get included? Also, does having right of survivorship make a difference?

2. Passive Activity Loss(PAL) related_ In most CPA review materials, a PAL from a non-material participating partnership gets deducted up to a rental income(passive income), but I was wondering if the PAL from one partnership can be deducted up to a passive income from another non-material participating partnership / S corporation.

[VanDammage]

Just got back from the exam. That was….difficult. I felt well prepared going in, had gone through Wiley's study program and then all of the Ninja MCQ questions and sims. I was scoring pretty well in both of those study programs. Unfortunately, there was a good bit of stuff on the exam that I hadn't seen in any study materials, or there would be small wrinkles to the study material that complicated the answer so it wasn't straightforward. Some of the sims seemed intentionally confusing or vague. I also couldn't tell which one was pretest. The pretest questions were pretty obvious for FAR and AUD.

Nothing to do now but wait

[JRM]

Can someone please explain the answers and how to get them for SIM 5 on the AICPA practice exam!!

[JCC]

It seems so simple but i'm still getting caught up on these M1 Book to Tax and Tax to Book questions.
Is there an easy way to think about it? And memorize a certain list of items to add or subtract?
The direction confuses me.

[Clockwork]

I am studying with Gleim. I'm running multiple choice questions as my second attempt at REG is November 29th and I am confused on something (shocking, I know).

I am doing questions on FICA & FUTA and sometimes the questions will ask for “net income from self-employment” and sometimes it will ask for “net earnings from self-employment.” Could someone please explain to me the difference between the two, if there is one?

The book doesn't really explain it and I'm not sure if they're just terms that that the review system uses when asking questions and that's not how the CPA exam will refer to it or that's another different term the CPA exam uses that we never referred to by that name in school.

[Anonymous]

@Clockwork

Net income from self-employment = income – expenses (net profit from Schedule C)

Net Earnings from self-employment = (income – expenses) *.9235 (used to calculate S/E Tax on Schedule SE)

Basically, a regular employer gets to deduct the employer portion of FICA when determining their tax liability, so to level the playing field the IRS lets a self-employed person deduct it when calculating their tax owed.

You get a break on Schedule SE when calculating S/E Tax, and then you get a break when calculating regular tax liability where you can deduct 1/2 of S/E Tax above the line (for AGI).

So net earnings from self-employment is essentially net profit reduced by the employer portion of FICA which you then use to calculate your S/E tax. Then on the 1040 you use Schedule C Net Profit to compute tax, but you get to reduce by 50% of the S/E tax. (On the 1040, Line 12 is Net profit from the Schedule C, and on Line 27 you can deduct 1/2 of S/E tax.)

[Andria – Another71]

Test Your Might: FAR – NINJA MCQ

Post your answer in the Facebook thread for a chance to win a NINJA Sniper Package of your choice (Book, Notes, Audio, Videos, MCQ/SIMS, Audio, & Flashcards – $197 Value).

One winner will be randomly chosen on Friday(ish). HIYA!

[AR]

Hi Everyone,

Active/material participation in rental real estate activity is considered a passive activity. I came across two MCQs in Ninja, and cannot figure out why the net passive activity loss is used in arriving at the loss allowed in Question 2 but not in Question 1. Below are the questions with the solutions and I quote:

Question1. Mary From, single, owned rental real estate which generated a tax loss of $60,000. Mary materially participated in the rental activity. Mary's adjusted gross income before considering the $60,000 loss was $130,000. What amount of the loss can offset income from nonpassive sources?
A. $15000 B. $10000 C. 0 D. $60000
Answer B

Rental activities are considered passive activities even if the taxpayer materially participates. However, for rental real estate activities, a loss up to $25,000 may be deducted. However, the $25,000 loss must be reduced by half of the adjusted gross income (before the loss) in excess of $100,000. Thus, the deduction is $10,000 ($25,000 − (0.50 × $30,000)).

Question 2. Lane, a single taxpayer, received $160,000 in salary, $15,000 in income from an S corporation in which Lane does not materially participate, and a $35,000 passive loss from a real estate rental activity in which Lane materially participated. Lane's modified adjusted gross income was $165,000. What amount of the real estate rental activity loss was deductible?
A. 0 B. $15000 C. $25000 D. $35000
Answer B

Individuals may offset up to $25,000 ($50,000 if married filing jointly) of ordinary income with rental real estate activities. This deductible loss is reduced (but not below zero) by 50% of the amount by which the modified adjusted gross income of the taxpayer for the year exceeds $100,000.
• First, the passive activities were netted $15,000 from the S corporation – $35,000 from the rental = $(20,000).
• Second, the salary of $160,000 is decreased by the net $20,000 passive activity loss for a modified AGI before limitation of $140,000.
• Third, the amount of $140,000 that exceeds $100,000 is multiplied by 50%, equaling $20,000.
• Fourth, the rental loss of $35,000 is decreased by the $20,000 limitation, leaving an allowable deduction of $15,000.

Any inputs?

Thanks in advance.

[Anonymous]

@AR ,

If you go back one page in this study group thread and scroll about halfway down, another poster asked basically the same question and there were a number of responses explaining the reasoning…

[AR]

Thanks @benj2017. Got it sorted out.

[Author]

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