Taxation of Individuals Chapter 10 Exam Questions And Answers 2024

Taxation of Individuals Chapter 10 Exam Questions And Answers 2024Businesses must capitalize the cost of assets with a useful life of ___________? - correct answer-More than one year What happens if a business forgets to take their depr expense deductions on the tax return? - correct answer-They cannot claim it in the following years - they must amend the return for the missed year. When can businesses begin recouping the cost of assets? - correct answer-One the asset it placed into service (once they begin using it). Adjusted basis/tax basis - correct answer-The amount of an assets cost that has yet to be recovered through cost recovery deductions What is the initial basis of most assets? - correct answer-Cost plus all of the expenses to purchase, prepare, and begin using the asset. Includes sales tax, shipping costs, and installation costs. De minimis safe harbor - correct answer-If they have an applicable financial statement, they may deduct up to $5000 paid for tangible property per invoice. If they don't have an applicable financial statement, they may deduct up to $2500. What if multiple assets are purchased on the same invoice? - correct answer-The price must be allocated to each asset accordingly How do you decide if additional costs after an asset is placed into service are expensed or capitalized? - correct answer-Depends on whether the expense constitutes routine maintenance on the asset or whether it results in the betterment restoration or new or different use for the property. Typically, maintenance is routine and repairs expected to be made more than one over the assets life or a 10-year period are expensed. Basis for assets used for personal purposes and later converted to business assets - correct answer-The lesser of 1) the cost basis of the asset or 2) the FMV of the asset on the date of conversion to business use Basis for nontaxable exchange (like kind exchange) - correct answer-Generally take the same basis the taxpayer had in the property the taxpayer transferred in the transaction. Basis for gifts - correct answer-Carryover basis. Generally the same basis the transferor had in the property. Basis for inheritance - correct answer-Generally receive a basis equal to FMV on the transferor's DOD. MACRS - correct answer-Modified Accelerated Cost Recovery System Personal property vs real property - correct answer-Real property is buildings and land, personal property are tangible property other than real property with a relatively short life. Default Depreciation method for personal property - correct answer-200 percent (double) declining balance method Alternate depreciation method for personal property - correct answer-In tax rates are expected to increase in the coming years, some businesses may want to elect straight line depreciation instead How do businesses elect a depreciation method - correct answer-They must elect a method for all assets put into service for that year DDB depr recovery periods - correct answer-7 years for: furniture fixtures equipment 5 years for: cars light-purpose trucks computers and peripheral equipment SL depr recovery periods - correct answer-10 years for furniture fixtures and equipment 5 years for light purpose trucks 12 years for tools for manufacturing special metal products What is the recovery period for used assets? - correct answer-Same as if they were new. Depr convention for personal property - correct answer-Either half-year or mid-quarter Half-year convention - correct answer-Allows one full half-years depreciation in the year the asset is placed in service, regardless of when it was actually placed in service during the year How to calc half year convention in the year of disposal - correct answer-First calc depreciation for the entire year, then multiply by 50% Depreciation on assets bought and disposed in the same year - correct answer-Depreciation cannot be taken on assets bought and sold in the same year When must the mid quarter convention be used? - correct answer-When more than 40 percent of their total TANGIBLE PERSONAL PROPERTY that is placed in service