Temporary differences(result in Deferred Taxes):

Gross income:Installment sales

income when receivedRents and royalties received in advance

income when receivedDividends Equity Method

income whendividends receivedOrdinary expenses:Bad debts

expense using direct write-offmethodEstimated liability for contingencies

noexpensing/deduction until liability is paidContributions

expense is limited to 10% of adjusted taxable incomeDepreciation

expense using MACRSforfast depreciation(salvage value is ignored)

o
MACRS

For 3, 5, 7, 10-year property use

200%
DB. For 15 and 20-year, use
150%
DB.

Residential Rental Property 27.5 year SL

Non-Residential Real Property 39-year SL

o
Section 179(on new/used prop acquired in yr)

2008-2010 = $250,000expense maximum

Maximum expense amount is reduced $ for $ when property exceeds $800,000Amortization

o
Start up costs

expense $5,000 max

+
Excess amortized over 180 months
o
Franchises

amortizeover 15 years
o
Goodwill

amortize over 15 yearsDepletion

o
Straight Line (Cost) vs. Percentage

Percentage of sales

SL (Cost) = $1,000,000/1,000,000 barrels = $1/barrel

50,000 sold = $50,000 depl

o
Percentage in excess of Sales

Percentage of sales

% of Sales = Limited to 50% of taxable income (excluding depletion from well/mine)

For oil/gas properties, overall limitation is 100% of taxable incomeProfit and Pensions

no expensinguntil paidAccrued Expenses (50% owner/family)

no expensinguntil paidSpecial itemsNet

Capital
Loss

not deductible, can only be used to offset capital gains

o
Carry-back 3 years, carry-forward5 years

Carried overas a SHORT TERMcapital loss Net

Operating
Loss

Carry-back 2 years, carry-forward 20 years

o
No charitable contribution deduction is allowed in calculating the NOL
o
The dividends received deduction is allowed to be deducted
before
calculating the NOLResearch and Development

Expense/Amortize/Capitalize

Permanent differences:
Gross incomeDividends Received Deduction 100/80/70% exclusion

excluded foreverItems not includible in taxable incomeState and Municipal Bond Interest

Not taxable incomeLife Insurance Proceeds

Not taxable incomeOrdinary expensesInterest expense

o
Tax-free Investment

Not deductibleContributions

Limited to 10% of adjusted taxable incomeDepreciation Different basis of Asset

Use tax basisDepletion Percentage in Excess of Cost

Percentage of salesMeals and entertainment

Generally 50% deductibleGAAP expense items that are not tax deductionsLife insurance expense

not deductiblePenalties

not deductibleLobbying/Political expense

no deductionFederal income taxes

not deductibleSpecial itemsNet

Capital
Loss

Related Shareholder

Not deductibleResearch and Development

Expense/Amortize/Capitalize

Income:
W
ages,
I
nterest,
D
ividends,
S
tate/Local Tax Refund,
A
limony Received,
B
usiness Income,
C
apitalGain/Loss,
I
RA Distribution/Income,
P
ension/Annuity Distribution/Income,
R
ental Income/Loss,
K
-1 Income/Loss,
U
nemployment Compensation,
S
ocial Security Benefits,
O
therIncome
Adjustments[Deductions in Arriving at AGI Above the Line Deductions]:
E
ducator Expenses,
I
RA contributions,
S
tudent Loan Interest Expense,
T
uition/Fee Deduction,
H
ealth Savings Account,
M
oving Expenses,
O
ne-half Self Employed FICA,
S
elf-Employed Health Insurance,
S
elf-Employed Retirement,
I
nvestment Early WithdrawalPenalties,
A

limony Paid
Itemized Deductions[Deductions From AGI Below the Line Deductions]:
M
edical (in excess of 7.5% of AGI),
T
ax Income or Sales and Property,
I
nterestHome/Investments,
C
haritable contributions (up to 50% of AGI),
C
asualty/Theft(in excess of 10% of AGI + $500 floor),
M
iscellaneous (in excess of 2% of AGI),
O
ther miscellaneous

Exemptions:

Qualified Child
C
lose Relative
: Son, Daughter, Stepson, Stepdaughter, Brother, Sister, Stepbrother, Stepsister, ora descendant of any of
these. Legally adopted child or foster child is okay.
A
ge Limit
: Under 19 or under 24 if full-time student. Attends school at least part of each of fivemonths during
taxable year, night classes do not apply. This does not apply tototally/permanently handicapped children.
R
esidency
:Must live with parents for more than half of the tax year.
E
liminate Gross Income Test
:N/A
S
upport Test
:Child did not provide over 50% of their own support.** 2009 Updates: **1 . Q C m u s t b e
y o u n g e r t h a n t a x p a y e r 2.QC cannot file a joint return unless it is to
recover taxes paid (refund)3.If parents of QC do not claim the QC, only those with an AGI
higher than the parent with the highest AGI can claim the QCQualified Relative
S
upport Test
: Over 50% support, scholarships are not included as support
U
nder a Specific Amount of Taxable Gross Income
: Less than
$3,650
in taxable income
P
recludes Dependent Filing a Joint Tax Return
:Cannot file a joint return elsewhere unless toclaim refund of all taxes paid.
O
nly Citizens
: Residents of U.S./Canada/Mexico
R
elative
: Children, grandchildren, parents, grandparents, brothers, sisters, aunt, etc.
OR
T
axpayer Lives with Individual for WHOLE year
: Unless in a retirement home