What is a depreciation tax shield?

In general, a tax shield is anything that reduces the taxable income for personal taxation or corporate taxation. Depreciation is considered a tax shield because depreciation expense reduces the company’s taxable income. When a company purchased a tangible asset, they are able to depreciation the cost of the asset over the useful life. Each year, this results in some amount of depreciation expense for tax purposes. The formula for calculating a depreciation tax shield is easy. All you need to do is multiply depreciation expense for tax purposes (not financial purposes) and multiply by the effective income tax rate. The result equals the depreciation tax shield as the company will pay lower taxes.

What to do if I failed the CPA exam?

So you failed the CPA exam and you feel lost, right? I know you’re probably frustrated and discouraged, but you might just need to tweak your approach. For each section, we’ve prepared a video that will help you get back on track. If you haven’t used Universal CPA Review, sign up for a free 14-day trial here (no credit card required)! Feel free to reach out to us via email at [email protected]

What to focus on in final week of REG studying?

If you are aiming to retake this in just one week, my biggest suggestion would be to focus on fine tuning your approach and unless you feel like you are solid on this, my suggestion would be to focus heavily on entity tax as it’s where the bulk of the points can be picked up.  Entity tax: Instead of studying entity by entity (e.g., C Corp., S Corp., partnerships etc.) try to understand the differences in the big four entity tax topics. Study entity formation for all three entities, then study taxation for all three, and then nonliquidating & liquidating distribution rules for all three: 1) Entity formation rules for all three entities (e.g., basis in shareholder/partnership interest upon initial contributions) 2) Entity taxation rules for all three entities (no big differences here except a few little things like dividends received deductions for C corps, accumulated earnings tax, PHC tax, separately state & nonseparately stated rules for passthrough entities)  3) Nonliquidating distributions rules for all three entities (C corps – current E&P, accumulated E&P, nontaxable return of capital, cap gain. S corps – AAA account, any existing C corp. accumulated E&P, nontaxable return of capital, cap gains. Partnership – cash, property)  4) Liquidating distribution rules for all three entities.  I would say another good use of time is hammering home the misc. business law topics. I know there is a large volume of content for bizz law for how small it is weighted to your total score, but the devil is in the details (similar to gvt. accounting for FAR) and hammering home gross topics like secured transactions and suretyship can definitely pick up points. 

Will my CPA notify the IRS if my tax return is wrong in a prior year?

The U.S. tax code (IRC) is a nightmare and now more than ever, people are using CPA’s to have their taxes prepared. With millennials using their stimmy checks to invest in cryptocurrencies, start-ups, and Gamestop (GME to the moon), it can be tough to know how to properly report these items. Even with platforms like TurboTax, it is hard for the taxpayer to feel comfortable that their return is accurate and the the IRS won’t pillage your life. Fortunately, hiring a CPA to prepare your tax return isn’t terribly expensive (typically less than $500). One of the first things the CPA will ask for is your prior year tax returns (probably the last two years). They’ll want to look through these and get a sense for how you filed in prior years. If you are worried that the CPA will identify an error in your tax return from last year and will notify the IRS, then stop worrying! The CPA will not tattle on you and notify the IRS. There is a chance they could, but they are not required to. The CPA is only responsible for advising you of the error and helping you determine whether or not you should file an amended tax return. Example Situation Question: A single taxpayer engages a CPA to prepare the year 2 income tax return. In the course of preparing the tax return, the CPA discovers that a return was filed for year 1. Under the AICPA Statements on Standards for Tax Services, which of the following statements is not true regarding the CPA’s duties upon discovering an error in filing the year 1 tax return? Answer: If the CPA finds an error made in a previous year, the CPA must advise the client of the error. The CPA is not required to notify the IRS of the error, and they are not required to file an amended return (the client may choose to do this, but the key is that the only rule in this situation is that the CPA must notify the client of the error).

Are stimulus checks considered taxable income?

No, according to the IRS, stimulus checks are non-taxable income, which means that you won’t have to include the amount in your calculation of taxable income. Technically, the stimulus check is considered a refundable tax credit. The good news for taxpayers is that if you didn’t receive the full stimulus check due to your 2018/2019 tax returns, you can recover the full amount you would be due based on your actual 2020 return. On the flip-side, if your taxable income is significantly higher in 2020 and you would have been phased out, you will not be required to return the money or pay taxes on the stimulus check. Its a win-win for taxpayers!

If I make a donation to attend a charity event, what amount of the donation is tax deductible?

This is addressing the idea that when a taxpayer makes a donation, they are likely receiving consideration or a benefit in return. For example, if the taxpayer paid $250 to attend a charity event, then the taxpayer needs to understand what the fair market value of the ticket is worth. The taxpayer can only deduct the excess paid over the fair market value of the ticket. So, if the ticket had a FMV of $100, then the taxpayer would only be able to deduct $150.