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

For purposes of the AMT, certain itemized deductions are disallowed, but the standard deduction is allowed.

An electronics store sold a home theater system to an employee for $300, even though the retail price was $500. The gross profit percentage is 40%. Such discounts are available to all employees. How much income should be recognized by the employee from these transactions?

SIMPLE retirement plans allow a higher level of employer contributions than do SEP IRAs.

Identify which of the following statements is false.

Chen had the following capital asset transactions during 2018: What is the adjusted net capital gain or loss and the related tax due to the above transactions, assuming Chen ha marginal tax rate?

Ms. Walter, age 70, is thinking about going back to work part- time. She knows that the wages may affect the taxability of her Social Security benefits. What is the maximum percentage of Social Security benefits that could become taxable?

In February of the current year (assume a non- leap year), Ken and Kelsey received their property tax statement for last calendar- year taxes of $1,600, which they paid to the taxing authority on March 1 of the current year. They had purchased their home on May 1 last year. What amount of property tax on this statement may they claim as an itemized deduction this year?

Betty is a single retiree who receives Social Security benefits of $12,000, tax- exempt interest of $4,000 and a taxab pension. Determine the amount of taxable Social Security benefits assuming her annual pension is a. $10,000. b. $20,000. c. $50,000.

Tim earns a salary of $40,000. This year, Tim's employer establishes a cafeteria plan under which Tim signed a salary reduction of $2,500 for which $1,500 is to cover his health insurance premiums and $1,000 is transferred to a flexible spending account to reimburse medical expenses. During the year, he is reimbursed $900 for medical expenses. What is the total taxable to Tim this year?

An uncle gifts a parcel of land to his niece, and he has to pay $25,000 of gift taxes. The land has appreciated substantially since he purchased it 20 year ago. The niece's basis in the land will be the uncle's cost increased by the $25,000 of gift taxes paid by the uncle.

Additional capital may be obtained by a corporation by issuing debt securities or equity securities. What advantages result from issuing debt in the capital structure?

Corner Grocery, Inc., a C corporation with high taxable income, donates some of its inventory to the County Food Bank (a charitable organization) which distributes food to the needy. At the time of the contribution, the FMV of the inventory was $20,000, and Corner Grocery's basis was $12,000. Corner Grocery will be allowed a charitable contribution deduction of

A partnership must generally use the same tax year as that of its principal partners.

The only business entity that pays federal income taxes is the C corporation.

JK Partnership earns $30 million of non- interest ordinary income. The partnership incurs $12 million of interest expense. Jen and Kai are each 50% partners, sharing all partnership items equally. Assume no taxpayer qualifies for the small business exception. The partnership's ordinary income, after taking interest expense into account, will be

A sole proprietor exchanges an office building used in her business for undeveloped land she plans to hold for investment purposes. The exchange will qualify as like- kind.

Benedict serves in the U.S. Congress. In the current year, a lobbyist paid for Benedict to take a one- week vacation to Bermuda. Benedict did not incur any expense for the trip. What income tax issues should Benedict consider?

Daniel purchased qualified small business corporation stock for $200,000. In 2018 he sells the stock for $2,200,000 realizing a $2,000,000 gain. Determine the taxes due under the following independent situations (apply current t but ignore any additional Medicare taxes on investment income): a. Daniel purchased the stock on February 1, 2006. b. Daniel purchased the stock on March 1, 2009. c. Daniel purchased the stock on October 1, 2010.

In 2018, Richard, a single taxpayer, has adjusted gross income of $40,200. His AGI includes $4,000 of qualified dividends. Richard does not itemize deductions. What is his 2018 federal income tax?

Tyne is single and has AGI of $25,000 in 2018. During the year, she contributes $3,000 to her Roth IRA. What is the amount of Tyne's qualified retirement savings contributions credit?