Exam 16: Tax Deductions and Travel Expenses for Employees and Self-Employed Individuals

A fire totally destroyed office equipment and furniture which Monica uses in her business. The equipment had an adjusted basis of $15,000 and a FMV of $10,000 before the fire. The furniture's adjusted basis was $5,000 and its FMV was $2,000 before the fire. Monica's AGI for the year is $60,000. Monica does not have insurance on the destroyed assets. How much is Monica's deductible casualty loss?

On January 31 of the current year, Sophia pays $1,000 for an option to acquire 100 shares of Texas Corporation common stock for $105 per share at any time prior to December 31. As of December 31, Sophia had not exercised the option or sold it. Which of the following statements is correct?

Which of the following statements regarding involuntary conversions is incorrect?

During the current year, Kayla recognizes a $40,000 Sec. 1231 gain on sale of land and a $22,000 Sec. 1231 loss on the sale of land. Prior to this, Kayla's only Sec. 1231 item was a $10,000 loss six years ago. Kayla is in the 24% marginal tax bracket. The amount of tax resulting from these transactions is

Corporations must divide their deductions between deductions for and deductions from AGI.

As a corporation, the S corporation can elect a fiscal year of its choosing.

A cash- basis taxpayer pays a bill with a credit card. The underlying expenditure is not deductible until the credit card bill is paid.

Kickbacks and bribes paid to federal officials are deductible only if related to the taxpayer's trade or business.

Jared wants his daughter, Jacqueline, to learn about the stock market. He loans Jacqueline $30,000, but does not require Jacqueline to pay interest. Jared tells Jacqueline that she can repay him from the proceeds of future stock sales. Discuss the tax issues that Jared should consider.

Why did Congress establish Health Savings Accounts (HSAs)? How do HSAs operate?

All of the following business forms offer limited liability except the

What is the effect of a change in a partner's interest in the partnership during the year?

If a 13- year- old has earned income of $500 and interest and dividends of $2,500, all of the income can be reported on the parent's return.

An electrician completes a rewiring job and is paid $1,000 by the customer in November. The customer has a small fire in his house and sues the electrician for the repayment of the $1,000 fee plus damages in December. The electrician reaches a settlement with the customer in the following February and refunds the $1,000 fee. How should the electrician treat these events when he files his tax return in April?

Cobra Inc. sold stock for a $25,000 loss five years ago. It has been carrying over the capital loss for five years, and the loss will expire at the end of this year because Cobra has not had any capital gains. Earlier this year Cobra sold a parcel of land held four years for business use and will recognize a $30,000 gain. Cobra is thinking about selling some machinery used in its business for the past three years. During this time technology has dramatically changed so Cobra will recognize a $32,000 loss on the sale of the machinery. Cobra is trying to decide whether to sell the machinery at year- end or early next year. Cobra is profitable and has a consistent marginal tax rate of 21%. When should Cobra sell the equipment?

DEF Corporation and MNO Corporation are both C corporations. To date, DEF has earned $100,000 of taxable income, and MNO has earned $500,000. Each corporation expects to earn another $100,000 of taxable income before year- end. MNO will pay more tax on its incremental $100,000 of taxable income than will MNO.

When an individual taxpayer has NSTCL and NLTCG, the loss is offset against NLTCG from the 28% group, then NLTCG from the 25% group, and finally against NLTCG from the 15% or 20% group.

In 1980, Mr. Lyle purchased a factory building to use in business for $480,000. When Mr. Lyle sells the building for $580,000, he has taken depreciation of $470,000. Straight- line depreciation would have been $400,000. Mr. Lyle must report

Antonio owns land held for investment with a basis of $28,000. The city of Lafayette exercises the right of eminent domain and Antonio receives a payment of $48,000. What is Antonio's realized gain?

Describe the differences between the American Opportunity Tax credit and the Lifetime Learning credit.