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

Gena exchanges land held as an investment with a $60,000 basis for other land with a $80,000 FMV and a motorcycle with a $10,000 FMV. The acquired land is to be held for investment and the motorcycle is for personal use. What is the amount of recognized gain?

Nolan earns a salary of $80,000 and has a flat tax rate of 28%. The amount of after- tax dollars he has to invest is

In year 1 a contractor agrees to build a building for $2,500,000 by the end of year 2. The builder's cost is estimated to be $1,800,000. The actual costs year 1 are $900,000 and year 2's actual costs are $1,100,000. Under the percentage of completion method year 2's gross profit is

Enrico is a self- employed electrician. In May of the current year, Enrico acquired a used van (5- year property) for $12,000. He used the van 30% for business. Bonus depreciation is not applied. The maximum depreciation deduction for the van is

Lafayette Corporation distributes $80,000 in cash along with land having a $40,000 adjusted basis and a $70,000 its shareholder, Gus. The corporation has accumulated substantial earnings and profits. a. What are the tax consequences to Lafayette Corporation? b. What are the tax consequences to the shareholder? c. What is the shareholder's basis in the land?

Which of the following is not generally classified as a passive activity?

Discuss the options available regarding treatment of an amount paid in excess of the FMV of an acquired company's net assets in a business combination.

Bridget owns 200 shares of common stock of Jones Corporation. During the current year, Jones gives its shareholders the choice of receiving cash of $2 per share or one additional share of Jones common stock for each 5 shares of stock owned. The stock has a fair market value of $10 per share. Bridget chooses to take the additional shares of stock. How much income does Bridget have from the stock dividend?

Echo Corporation plans to sell a small building to Nate, its 65% shareholder. The building was placed in service five years ago. An independent appraisal will be obtained to set the selling price at an appropriate market price, and a $50,000 gain is expected to result. The only asset previously sold by Echo was a stock investment five years ago which resulted in a $40,000 loss. If the sale of the building closes before year- end, the gain on the building will allow recognition of the capital loss carryover before it expires.

A taxpayer acquired an office building to be used in her business this year. For AMT purposes, depreciation must be recalculated using the straight- line method over 40 years.

If a nontaxable stock dividend is received and is not the same type of stock as that owned before the dividend, the original stock's basis is allocated to all shares

An unincorporated business sold two warehouses during the current year. The straight- line depreciation metho was used for Building No. 1 and the accelerated method (ACRS) was used for Building No. 2. Information about buildings is presented below. How much gain from these sales should be reported as Sec. 1231 gain and ordinary income due to depreciation recapture?

The $250,000/$500,000 exclusion for gain on the sale of a personal residence is only available to taxpayers who are age 55 or older.

Martha is self- employed in 2018. Her self employment income is $140,000. What is her self- employment tax?

If an employee has more than one employer during the year, all employers must withhold federal income taxes but only one employer must withhold FICA tax.

Bart owns 100% of the stock of Octo Corporation, which uses the accrual method. Bart's sister Samantha, a cash- method taxpayer, did some advertising work for Octo in November 2018. In December, Octo received a billing statement from Samantha for $5,000 and paid Samantha the $5,000 in January 2019. Samantha is a calendar- year taxpayer. When may Octo deduct the $5,000?

In the Current Model, investment earnings are taxed as they are earned.

Which of the following is secondary authority?

Claudia refinances her home mortgage on June 1 of the current year. She obtains a 30- year mortgage at 5%. As part of the refinancing, she pays points of $3,600 (a customary practice in her location). What amount, if any, of the points are deductible?

Which entities may elect a fiscal year? Discuss how certain tax entities may circumvent the requirement of using a calendar year.