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

Explain when the cost of living in an institution other than a hospital may be deductible.

Courtney sells a cottage at the lake that the family had used for their summer vacations. The purchaser paid Courtney $100,000 and assumed the mortgage which had a principal balance of $50,000. Courtney had purchased the cottage five years ago for $170,000. Courtney will recognize

If a corporation's charitable contributions exceed the deduction limitation in a particular year, the excess

Identify which of the following statements is false.

A taxpayer must use the same accounting method on the personal tax return that the taxpayer uses in the taxpayer's trade or business.

Nick and Nicole are both 68 years old and file a joint return. They have AGI of $15,000 and receive nontaxable Social Security payments of $4,200 during the current year. What is the amount of the tax credit for the elderly?

Blue Corporation distributes land and building having a $70,000 adjusted basis and a $200,000 FMV to its sole shareholder, Marina. Blue has current and accumulated E&P exceeding $200,000. The property is subject to a $120,000 mortgage, which Marina assumes. What is the amount of the taxable dividend received by Marina?

Risa exchanges an office building with a $600,000 adjusted basis for an apartment building with a $1,000,000 FMV and $200,000 of marketable securities. The other party indicates he had paid $175,000 for the securities a year earlier. What is Risa's basis for the securities?

Martin Corporation granted an incentive stock option to employee Caroline on January 1, 2012. The option price was $150, and the FMV of the Martin stock was also $150 on the grant date. The option allowed Caroline to purchase 160 shares of Martin stock. Caroline exercised the option on August 1, 2016, when the stock's FMV was $250. Unless otherwise stated, assume Caroline is a qualifying employee. If Caroline sells the stock on September 5, 2018, for $350 per share, she must recognize (ignore alternative minimum tax)

Joy purchased 200 shares of HiLo Mutual Fund on July 15, 2014, for $10,500, and has been reinvesting dividends December 15, 2018, she sells 100 shares. What is the basis for the shares sold assuming (1) FIFO and (2) average cost method?

Which of the following items will result in an increase in gross income?

This year, Jason sold some qualified small business stock that he acquired in 2008. His basis in the stock was $100,000 and he sold it for a $300,000 gain. How much of Jason's gain is taxable?

Investment interest expense which is disallowed because it exceeds the taxpayer's net investment income may be carried over and treated as incurred in subsequent years.

Normally, a security dealer reports ordinary income on the sale of securities unless it is specifically identified as a security being held for investment.

When are points paid on a loan deductible as interest expense?

Sec. 1245 can increase the amount of gain recognized on an asset.

Capital expenditures incurred for medical purposes which permanently improve or better the taxpayer's property are deductible, but only to the extent the cost exceeds the increase in fair market value to the property attributable to the capital expenditure.

Linda had a swimming pool constructed at her house. Her physician advised and prescribed to her that the pool would slow the effects of her degenerative disease. The pool was not suitable for recreational use. Prior to the construction of the pool, the fair market value of her house was $172,000. After the construction of the pool, the appraised fair market value of the house was $181,000. The cost of the pool was $13,000. What is the amount of Linda's qualified medical expense (before considering limits based on AGI)?

Under the MACRS system, the same convention that applies in the year of acquisition (e.g., half- year, mid- quarter, or mid- month) also applies in the year of disposition.

Meals may be excluded from an employee's gross income provided they are furnished on the employer's business premises and are for the convenience of the employee.