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

Your client wants to deduct commuting expenses on his tax return. You explain to the client that there is no legal authority allowing this deduction. The client, however, continues to insist on this action. What guidance do the Statements on Standards for Tax Services provide in this dilemma?

Adam purchased stock in 2006 for $100,000. He is considering selling it in 2018. It is currently worth $2,100,000 s would realize a $2,000,000 gain. Adam is in the top tax bracket. Determine the taxes due under the following independent situations (ignore any additional Medicare taxes on investment income): a. Adam sells the stock, and no special circumstances apply. b. The stock is qualified small business corporation stock. c. The stock is qualified small business corporation stock. Within 60 days Adam invests $2,500,000 in new qualify business corporation stock. d. The stock is qualified small business corporation stock. Within 60 days Adam invests $2,000,000 in new qualif small business corporation stock.

Which of the following characteristics can disqualify a corporation from S corporation status?

Which of the following is not required for an accrual method taxpayer to currently deduct the cost of services received?

Emily, whose tax rate is 32%, owns an office building which she purchased for $900,000 on March 18 of last year. The building is sold for $950,000 on February 20 of this year when the adjusted basis of the building was $876,000. The tax results to Emily are

Homer Corporation's office building was destroyed by fire. Homer collected insurance of $250,000, which equaled the building's basis, and $150,000 for profits lost during the time the company was rebuilding the office building. What is the amount taxable this year?

Kuda exchanges property with a FMV of $630,000 and an adjusted basis of $450,000 in exchange for a one- third interest in a partnership. The property is subject to a mortgage with a principal balance of $300,000 which the partnership assumes. As a result of Kuda joining the partnership, Alejandro, a pre- existing partner, now has a one- third interest in the partnership. Alejandro will adjust his basis to

A self- employed consultant takes a client to a major league football game to propose a new consulting engagement. Assuming appropriate documentation is maintained, the individual will receive a deduction for AGI for 50% of the ticket cost.

Marcia, who is single, finished graduate school this year and began repaying her student loan. The proceeds of the loan were used to pay her qualified higher education expenses. She has not received any type of educational assistance or scholarships. The amount of interest paid during the year amounted to $3,000. What is the amount and classification of her student loan interest deduction if her AGI is $68,000?

Nonresident aliens are allowed a full standard deduction.

Securities held by a taxpayer became worthless during the year. The taxpayer plans to take a deduction for the loss. He will claim the deduction on page 1 of his Form 1040.

Trista, a taxpayer in the 32% marginal tax bracket sold the following capital assets this year: What is the amount of and nature of (LT or ST) capital gain or loss? Be specific as to the rates at which gains, if a taxed.

Nonrefundable personal tax credits can only offset an individual's regular tax, not AMT.

All of the following statements are true regarding the Lifetime Learning Credit except which one?

Under UNICAP, all of the following overhead costs are included in inventory except

Marta purchased residential rental property for $600,000 on January 1, 1985. Total ACRS deductions for 1985 through the date of sale amounted to $600,000. If the straight- line method of depreciation had been used, depreciation would have been $600,000. The property is sold for $750,000 on January 1 of the current year. The amount and character of the gain is

Acquisition indebtedness for a personal residence includes debt incurred to substantially improve the residence.

A sole proprietor has met the requirements to deduct the costs of a home office. The deduction will be calculated on Schedule C.

Mara owns an activity with suspended passive losses from prior years of $13,000. In the current year, Mara becomes a material participant in the activity. This year the activity generates $6,000 of income. The net effect of this activity on Mara's current year AGI is

Evan owns 45% of Yolo Corporation and 40% of Xeqz Corporation. Farra owns 37% of Yolo Corporation and 48% of Xeqz Corporation. Gao owns 5% of Yolo Corporation but does not own any stock in Xeqz. Each corporation has only one class of stock. Yolo and Xeqz Corporations form a(an)