CPA Regulation (REG) › Deductible & Non-Deductible Corporate Expenses
Funnie, Inc. manufactures consumer products and sells them to distributors. Funnie advertises its products to increase sales and enhance the value of its trade name. What is the appropriate treatment for the advertising costs?
Amortize the costs over 60 months
Amortize the costs over 15 years
Deduct the costs currently as ordinary and necessary business expenses
Amortize the costs over 36 months
Advertising expenses are treated as those incurred in the normal course of business, and for tax purposes are expensed in the period the costs are incurred. There is no amortization of these costs.
In the case of a corporation that is not a financial institution, which of the following statements is correct with regard to the deduction for bad debts?
If the reserve method was consistently used in prior years, the corporation may take a deduction of a reasonable addition to the reserve for bad debts.
On the approval form the IRS, a corporation may change its method from direct charge-off to reserve.
Either the reserve method or the direct charge-off method may be used, if the election is made in the corporation’s first taxable year.
A corporation is required to use the direct charge-off method rather than the reserve method.
Accrual-basis taxpayers (which includes corporations) are required to use the specific charge-off (aka direct charge-off) method for tax purposes. This does not preclude a corporation from using the reserve method for financial reporting purposes, as required.
For a C Corporation, _____ are able to be expensed or amortized during the organizational process.
Legal fees associated with charter drafts
Costs associated with issuing company stock
Underwriter commissions
All of the above
Stock sale costs cannot be expensed or amortized during the organizational period, only legal fees necessary to form the company.
ABC Corp, a calendar-year corporation, reimburses employees for properly substantiated qualifying business meal expenses. The employees are present at the meals, which are neither lavish nor extravagant and the reimbursement is not treated as wages subject to withholdings. What percentage of meal expenses may ABC deduct?
100%
80%
50%
0%
Only 50% of meal expenses are deductible.
A corporation’s penalty for underpaying federal estimated taxes is:
Fully deductible if reasonable cause can be established for the underpayment
Fully deductible in the year paid
Not deductible
Partially deductible
The penalty for underpayment of federal estimated taxes is not deductible.
ABC Corp, a calendar year corporation, reimburses employees for properly substantiated qualifying business meal expenses. The employees are present at the meals, which are neither lavish nor extravagant and the reimbursement is not treated as wages subject to withholdings. What percentage of meal expenses may ABC deduct?
100%
80%
50%
0%
Only 50% of meal expenses are deductible.
A corporation’s penalty for underpaying federal estimated taxes is:
Fully deductible if reasonable cause can be established for the underpayment
Fully deductible in the year paid
Not deductible
Partially deductible
The penalty for underpayment of federal estimated taxes is not deductible.
What is the maximum amount of capital losses in excess of capital gains that a C corporation may deduct in a year?
$0
$3,000
$5,000
$10,000
For C corporations, capital losses may only be deducted to the extent of capital gains in a given year. Excess capital losses may, however, be carried back three years or forward five (again, only to the extent of capital gains in those years).