[Anonymous]

Becker Question –

In year 1 Starke Corp, an accrual calendar year corp. reported book income of $380,000. Included in that was $50,000 municipal bond interest income, $170,000 federal income tax expense and $2,000 interest expense on debt incurred to carry municipal bonds. What is the taxable income as reconciled on Starke’s M-1 of Form 1120?

The answer is $502,000

Explanation Municipal bond interest, interest on debt incurred to carry municipal bonds and federal income tax expense are not included in taxable income.

I understand the $50,000 being subtracted and $170,000 being added. Can somebody explain the $2,000?

[HeartsMimiCPA]

Expenses incurred to carry municipal bonds are not tax deductible. If they were allowed to deduct the expenses it would almost be like a bonus, they don't have to pay tax on the 50k and they'd get to reduce their taxable income by another 2k.

Expenses to carry taxable debt is deductible.

AUD - 65, 89!
REG - 70, 89!
FAR - 78!
BEC - 77!

Finally!
Experience 06/30/15
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[knights88]

A general rule: if the income is not taxable, the expenses related to it aren't usually deductible either

Likewise, if the income is taxable, the expenses to get the income are usually deductible.

FAR 94 Jan 14
AUD 90 May 14
REG Aug 14
BEC

CPAexcel and Wiley test bank

[Ken]

you have to be careful when you try to reconcille either from tax income to book income or the apposite way? For your question, the method that helps me to remember is that: ” Ok, is this expense allowable to calculate for taxable income?” I don't think so. So you subtract it to calculate the taxable income, and it is not allowed, so you will need to add back for M-1 Calculation.

Please correct me if I am wrong or someone has a better way to remember this, please share with us so we can all take down this beast. Thank you!!

REG : 62, 67, 81. Tick- Expire 01/02/2016
BEC : 72, 67,71,76. Tick Expire 10/25/2015
AUD : 60, 62, 62, 74(8/30) - 10/1/2015 - oh geez
FAR : 68, 64, 72(7/24) - 10/20/2015- oh geez

I am WHINING...

" Just take it without worrying about the 75. Man, that is not easy!"

[Author]

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