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

Frisco Inc., a C corporation, placed a building in service in 2002 and deducted straight- line depreciation under the MACRS system in the normal manner. It sold the building this year for a substantial gain. Because straight- line depreciation was used, Frisco will not need to recognize any ordinary gain.

A single taxpayer realizes long- term capital gains in 2018. Her taxable income puts her in the 37% tax bracket. She will enjoy a substantial tax savings due to the 15% preferential tax rate that will apply to her adjusted net capital gain.

Given a choice between a fully- taxable investment and a tax- favored investment, investors will prefer the tax- favored investment, assuming the two investments are equally risky.

The adoption credit based on qualified adoption expenses is generally allowed in the year the adoption is finalized.

An accrual- basis taxpayer may elect to accrue real property taxes ratably over the period to which the taxes relate.

Arnie is negotiating the sale of land to Phil. Arnie's basis in the land is $3,000,000, and it currently has a fair market value of $5,000,000. Phil wants to pay the purchase price over three years. Arnie suggests that Phil pays $2,000,000 at closing, then pay $1,200,000 each of the next three years. Arnie would not require that Phil pay any interest under these terms. Discuss the tax issues that Arnie should consider.

All of the following are self- employment income except

Tessa has planned a five- day trip to Miami with her husband. Before leaving, one of Tessa's partners asks her to take a morning meeting with a client while she is there. Tessa can now deduct the cost of the airfare for the trip.

On September 1, of the current year, Samuel, a cash- basis taxpayer, sells his cottage to Edward, also a cash- basis taxpayer for $100,000. Samuel's basis in the cottage is $65,000. The real property tax year is the calendar year. Real estate taxes on the property for the year are $3,650 and are payable on April 1 of the following year. The sales agreement does not provide for apportionment of real estate taxes between the buyer and seller. Assume Samuel pays all of the real estate taxes prior to the sale. The effects of this sales structure will be

Gifts between spouses are generally exempt from transfer taxes.

The IRS must pay interest on

If property received as a gift has a basis of the fair market value of the property on the date of the gift, the donee's holding period starts on the day after the date of the gift.

Why did Congress establish favorable treatment for 1231 assets?

Stacy, who is married and sole shareholder of ABC Corporation, sold all of her stock in the corporation for $100,000. Stacy had organized the corporation in 2009 by contributing $225,000 and receiving all of the capital stock of the corporation. ABC Corporation is a domestic corporation engaged in the manufacturing of ski boots. The stock in ABC Corporation qualified as Sec. 1244 stock. The sale results in a(n)

Avantra Inc. is a professional firm with the professional employee group generally in the top tax bracket and the support staff generally in the 12% tax bracket. Due to rising costs and administrative burden, the company is considering discontinuing its dental and eye care insurance plan and instead giving all employees a $600 raise. Based on insurance records the average employee incurs about $400 of dental and eye care expense per year. Which of the following statements is correct?

Edward purchased stock last year as follows: In April of this year, Edward sells 80 shares for $250. Edward cannot specifically identify the stock sold. The basi 80 shares sold is

Discuss the rules regarding the holding period for like- kind property received in a nontaxable exchange.

During the current year, the United States files criminal and civil actions against Joe, the CEO of Box Corporation, and Jane, the president of Cable Corporation, for price fixing. Both enter pleas of no contest and appropriate judgments are entered. Subsequent to this action, Square Corporation sues both Box and Cable for treble damages of $6,000,000. In settlement, Box and Cable each pay Square $1,200,000. What is the maximum amount that Box and Cable may each deduct?

Ming, who has been employed by the Frostine Corporation for five years, receives a $400 Amazon.com gift card for his years of hard work. The employee service award is taxable.

All of the following are separately stated items that pass through from the partnership to the partners except