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

S corporations are a common form for small businesses because they offer more flexibility than partnerships in terms of ownership structure and allocation of income.

Rich, an individual investor, lives in a land of no taxation and receive a $10,000 bonus. He invests this amount in a bond that pays interest of 4% per year and holds the bond for 5 years, reinvesting the interest annually at the same 4% return. At the end of 5 years the $10,000 original investment accumulates to

The involuntary conversion provisions which allow deferral of gain are mandatory.

Nicole has a weekend home on Pecan Island that she purchased in 2013 for $250,000. Recently, the home was appraised at $260,000. After the appraisal, a hurricane hit Pecan Island, severely damaging Nicole's home. The hurricane was declared a federal disaster. An appraisal placed the value of the home at $140,000 after the hurricane. Because of its prohibitive cost, Nicole had no hurricane insurance. Before any reductions or limitations, Nicole's casualty loss amount is

Rowan and Sanjay are equal partners in a partnership, which uses the calendar year as its tax year. On September 1, this year, Hailley contributed $60,000 cash for a one- third interest in the partnership. The partnership reports $72,000 of ordinary income for the tax year ending on December 31 of this year. The income allocation to Hailley is (assume the elective proration method with a monthly convention)

Kuda owns a parcel of land she acquired on June 1, 2012, as an investment. She exchanges the land on July 5, 2018, for a storage building to be used in her business and marketable securities to be held as an investment. On what date does the storage building's holding period begin?

Jen and Saachi are the owners of J&S Legal Services, P.C., an incorporated law firm treated as a C corporation for tax purposes. Jen and Saachi work full- time in the firm, performing all of the legal services. This year, J&S generates taxable income of $100,000 from the active business operations, and also reports investment interest income of $22,000 and losses of $28,000 from a passive activity. As a result, J&S Legal Services, P.C. reports taxable income of

Pamela owns land for investment purposes. The land is worth $300,000 (basis of $260,000 to Pamela). Pamela exchanges the land, plus $20,000 cash, for a warehouse to be used in her business. The FMV of the warehouse is $400,000, but the warehouse is subject to a mortgage of $80,000, which is assumed by Pamela. Pamela must recognize a gain of

An S corporation distributes land with a basis of $60,000 and a FMV of $90,000 to its shareholder. The tax results of the distribution will be

A taxpayer will be ineligible for the earned income credit if he or she has disqualified investment income of more than $3,500 in 2018. Disqualified income includes all the following except

Glen owns a building that is used in business. The building is worth $200,000, but is subject to a mortgage of $40,000. Glen's basis in the building is $120,000. Glen exchanges the building for investment land worth $150,000 plus $10,000 cash. In addition, the other party assumes the mortgage which will be held for investment. Glen must recognize a gain of

Camellia, an accountant, takes a new job located 1,000 miles away from her current job location. She has to pay a moving company plus the transportation costs for herself to move to the new location, totaling $6,000. After she submits all the receipts, the new employer reimburses her in full. Camellia will treat the reimbursement and the moving costs as follows:

Marcia and Dave are separated and negotiating a divorce agreement. They live in a common law state and have two children who will remain with Marcia. Dave is willing to transfer the jointly owned home to Marcia. He wishes to keep the couple's jointly owned boat. Dave will either transfer securities to Marcia ($100,000 adjusted basis, $150,000 fair market value) or will pay her $30,000 for 5 years with interest of 8%. What issues should Marcia and Dave consider when formulating their divorce agreement?

Individuals are the principal taxpaying entities in the federal income tax system.

One- half of the self- employment tax imposed is allowed as a for AGI deduction.

Property is generally included on an estate tax return at its historical cost basis.

Material participation by a taxpayer in a passive activity is satisfied if the individual participates in the activity for more than 500 hours during the year.

The term "thin capitalization" means that the corporation is financed primarily with capital stock rather than debt.

The citation "Rev. Rul. 2006- 8, 2006- 1 C.B. 541" refers to

If t₀ is the tax rate in Year 0, t_n is the tax rate in Year n, and ATA is after- tax accumulation, then which one of the following does not hold true?