Current Tax System • Why do we have an income tax, what is the legal basis, how does congress use tax law? • What is the audit process utilized by the IRS as part of the administration of tax law? • What ethical guidelines will apply to you in your tax

Current Tax System

· Why do we have an income tax, what is the legal basis, how does congress use tax law?

· What is the audit process utilized by the IRS as part of the administration of tax law?

· What ethical guidelines will apply to you in your tax practice?

Tax Law

· What are the economic, social, equity, and political considerations that justify various aspects of the tax law?

· Describe the role played by the IRS and the courts in the evolution of the federal tax system

· What is the purpose of each of these three sources of tax law: statutory, administrative, and judicial ?

Deductions and Exemptions

· Define all parts of the federal income tax formula

· Arrive at the correct number of personal exemptions

· Apply dependency exemption rules

· Calculate the tax liability

· Determine the correct filing requirement and status for a taxpayer

· Understand basic property transaction rules

Gross Income – Concepts and Inclusions

· Distinguish between the economic, accounting, and tax concepts of gross income

· Determine if a taxpayer should pay the tax on a particular item of income

· Determine if certain items are considered income by applying the Internal Revenue Code rule

Exclusions from Gross Income

After completing this section, you should be able to do the following:

· Identify when to exclude an item from gross income

· Identify when receipts can be excluded under the tax-benefit rule

· Describe when income must be reported from the discharge of indebtedness

Deductions and Losses in General

· Determine the benefit derived from deductions for and from adjusted gross income

· Determine the special rules that apply to the following items: public policy limitations, political activities, excessive executive compensation, investigation of business opportunities, hobby losses, vacation-home rentals, payment of others’ expenses, personal expenditures, capital expenditures, related-party transactions, and expenses related to tax-exempt income

Business Expenses

· Determine how to apply a bad debt deduction

· Determine the tax effects of worthless securities, including §1244 stock

· Correctly apply the tax rules for deductible and nondeductible losses of individuals

· Determine the proper application of a casualty loss deduction

· Calculate the domestic production activities deduction

· Determine the effect of the carry back and carryover provisions

Depreciation

· Identify the time periods for the different tax depreciation methods

· Determine the cost recovery under MACRS

· Identify listed property and special rules for them

· Calculate the amortization amount for an intangible asset

Employee Expenses

· List the business and personal expenditures that are deductible either as miscellaneous itemized deductions or as other itemized deductions

· Calculate the moving expense deduction

· Calculate the contribution to a retirement account

· Identify limitations on itemized deductions

Certain Itemized Deductions

· Identify deductible and nondeductible, personal expenses

· Identify medical expenses and calculate the medical expense deduction

· Identify the deductibility of state and local income taxes and sales taxes

· Identify limitation on certain itemized deductions applicable to high-income taxpayers

Passive Activities

· Explain why at-risk and passive loss limitations were put into tax law

· Identify the taxpayers subject to passive loss rules that limit deductions for losses

· Discuss the rules for identifying a passive activity

· Apply the rules for material participation

· Describe how passive loss rules apply to rental activities

Tax Credits

· Explain why congress creates tax credits that reduce federal tax collections

· Identify the difference between refundable and nonrefundable credits and how they are applied

· Identify business-related tax credits

· Identify tax credits that apply to individual taxpayers

Partnership Distributions

· What are the rules pertaining to partnership taxation?

· What tax impacts are there when forming a partnership with cash and property contributions?

· What accounting periods and accounting methods can partnerships use?

· Does a partnership have a taxable income?

· How is a partner’s income tax return affected by specific partnership items?

· Determine a partner’s basis in the partnership interest and explain how liabilities affect the basis computation.

· Are there limits on deductions for partnership losses?

· How are transactions between a partner and the partnership reported?

· What are the impacts to individual partners when liquidating a partnership?

· How is a selling partner’s gain or loss on the sale or exchange of a partnership interest reported?

· Do partnership provisions also apply to limited liability companies (LLCs) and limited liability partnerships (LLPs)?

Trusts, Estates, etc.

· What are trusts, estates, beneficiaries, and other parties?

· How are the accounting and taxable income of a trust or estate and the related taxable income of the beneficiaries determined?

· Illustrate the uses and implications of distributable net income.

Accounting Standards

· What are the objectives of financial accounting?

· What are generally accepted accounting principles?

· What ethical rules do accountants have to follow related to financial reporting?

Conceptual Framework

· What are the basic assumptions used in accounting?

· What are qualitative characteristics of accounting information?

· What impact do constraints have on reporting accounting information?

· What is the rule-setting authority of the Financial Accounting Standards Board, the Securities and Exchange Commission with regard to accounting regulations and enforcement, and the International Accounting Standards Board?

Receivables — Valuation Methods

· What methods are used to account for bad debt expense?

· What is the journal entry to record bad debt expense under each method?

· How do you calculate the allowance for bad debt?

· What is the journal entry to record accounts receivables sold with recourse and without recourse?

· Explain how discounts offered to customers have an effect on the value of receivables

Inventory-Valuation methods

· What impact do free on board (FOB) terms have on inventory valuation?

· What is the effect of the dollar-value last-in, first-out (LIFO) on income and asset valuation?

Acquisition and Disposition

· What is the cost of property, plant, and equipment?

· How is construction-project interest costs recorded?

· What is a lump-sum purchase of assets, and how is each asset valued?

Depreciation and Depletion

· What is depreciation? What is accumulated depreciation?

· What are the different methods used for depreciation?

· What is the journal entry to record depreciation under each method?

· What is the best method to use for depreciation based on given circumstances?

· What method is used to calculate depletion?

Intangible Assets

· What is the difference between a tangible and intangible asset?

· What is goodwill?

· What is the estimated useful life of a trademark, copyright, and patent?

· What method is used to cost allocate an intangible asset?

· How are research and development costs accounted for?

· How do the impairment rules impact asset value?

Current Liabilities

· How are short-term payables recorded?

· How are dividends payable recorded?

· What are unearned (or deferred) revenues, and how are they recorded?

· What items are included in payroll and the associated payables?

· What is a contingency, and when do the disclosure requirements require recording in the accounting records?

· What is an imputed interest rate, and how is it used?

Long Term Liabilities

· What are the characteristics of different types of corporate bonds?

· Why are bonds issued at a price different from face value?

· How is a bond issue-price determined?

· How are the accounting entries different for straight-line and effective interest amortization?

· How is the accounting different for a bond issuance between interest dates?

· How is the value of long-term notes payable calculated?

· How is off-balance-sheet financing used?

Capital Acquisition from Investors

· How are stock issuances recorded?

· How are stock splits accounted for?

· How does the accounting change if a stock dividend is large vs. small?

· Does the income statement reflect gains from treasury stock reissuance?

· How do common and preferred stock differ?

· Do stock options have any effect on the balance sheet?

· What is done on each of the dates associated with a dividend?

Dilutive Securities and Earnings per Share

· How are stock options recorded?

· How is a conversion from debt to common stock recorded?

· What impacts does a convertible preferred class of stock have on earnings per share?

· Do stock dividends and stock splits impact earnings per share calculations?

· What is the difference between basic earnings per share and diluted earnings per share?

Investments

· What are the different types of securities?

· How do the accounting entries change for securities at cost and at equity?

· What effect did the Securities Act of 1933 have on investments?

· What effect did the Securities Exchange Act of 1934 have on investments?

Revenue Recognition

· What are the eight ways to recognize revenue?

· What is channel stuffing, and how does the practice affect revenue recognition?

· What methods can be used to report revenue on long-term construction projects?

· How do the rules change when accounting for discontinued operations?

· What are extraordinary items?

· How does a change in accounting principle affect the income statement?

Accounting and Income Tax Rule Differences

· Using given data, what is deferred tax asset or deferred tax liability?

· Identify temporary and permanent tax differences.

· How are deferred taxes over multiple years affected based on the marginal-rate tax system?

· How do the rules for tax loss carry backs and carry forwards differ?

· What are intra-period tax allocations?

Pensions

· What are two types of pension plans?

· What is the journal entry to record pension expense under each type?

· What is a defined benefit plan compared to a defined contribution plan?

Leases

· What are the four capitalization rules used to classify a lease as a capital lease or an operating lease?

· What is the journal entry to record the minimum lease payment?

· What is the journal entry to record a lease payment when a residual value is present?