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

Patrick and Belinda have a twelve- year- old son, Aidan, who is autistic. Patrick and Belinda pay tuition of $20,000 annually for Aidan to attend a school for autistic children. What tax issues should be considered? What additional information would you need?

Steve and Jennifer are in the 32% tax bracket for ordinary income and the 15% bracket for capital gains. They have owned several blocks of stock for many years. They are considering the sale of two blocks of stock. The sale of one would produce a gain of $12,000 while the sale of the other would produce a loss of $18,000. For purposes of this problem, ignore itemized deductions, phase- outs and additional investment taxes. They have n other gains and losses this year. a. How much tax will they save if they sell the block of stock that produces a loss? b. How much additional tax will they pay if they sell the block of stock that produces a gain? c. What will be the impact on their taxes if they sell both blocks of stock?

Discuss whether a C corporation, a partnership, or an S corporation form of organization would be preferred if net operating losses are anticipated in the initial years of operation.

Individuals Jimmy and Ellen form JE Corporation. Ellen transfers land and a building with a $175,000 adjusted b $200,000 FMV in exchange for 50% of the stock of the JE Corporation and a $20,000 note. Jimmy transfers cash of $200,000 for 50% of the stock and a $20,000 note. The transaction meets the terms of Sec. 351. The JE stock has a fa market value of $360,000. What is: a. the amount of Ellen's gain or loss recognized on the transfer? b. the basis of her stock in JE Corporation? c. JE Corporation's basis in the land and building (together) transferred by Ellen?

The uniform capitalization rules (UNICAP) require the capitalization of some overhead costs that are expensed for financial accounting purposes.

Describe the nondeductible penalties imposed upon taxpayers for failure to comply.

Blair, whose tax rate is 24%, sells one tract of land at a gain of $29,000 and another tract of land at a gain of $11,000. Both tracts of land are Sec. 1231 property. She has never had any other Sec. 1231 transactions. How are the gains taxed?

Layla earned $20,000 of general business credits from her sole proprietorship. Her regular tax liability is $45,000, and her tentative minimum tax is $49,000. During the current year Layla will apply general business credits of

If a partner contributes property to a partnership, and that property is subject to a liability, the noncontributing partners increase the basis of their partnership interests by their share of the partnership liabilities that were transferred to the partnership.

If the stock received as a nontaxable stock dividend is not the same type as the stock owned prior to the dividend, the allocation of basis is based on relative fair market values of the stock.

Lily had the following income and losses during the current year: What is Lily's adjusted gross income?

Horizontal equity means that

Octet Corporation placed a small storage building in service in 2002. Octet's original cost for the building is $800,000 and the cost recovery deductions are $300,000. This year the building is sold for $1,100,000. The amount and character of the gain are

Various criteria will disqualify the deduction of a business or investment related expenditure. Which of the following criteria will not disqualify a business or investment expenditure?

All or part of gain realized on an involuntary conversion is deferred but not permanently excluded if qualifying replacement property is acquired within the requisite period of time.

Cooper can invest $10,000 after- tax dollars in a taxable bond either outside or inside a traditional nondeductible IRA. He will hold the investment for ten years. The bond yields 6% before taxes and Cooper's marginal tax rate is 33%. If he invests directly in the bond, he will withdraw an amount of interest each year sufficient to pay taxes and leave the remaining interest in the investment. What are the after- tax accumulations in the bond and in the IRA? Cooper will not be subject to the 10% penalty tax when the IRA withdrawal occurs.

An investment in a growth stock which does not pay dividends is an example of the Exempt Model.

Thomas purchased an annuity for $20,000 that will pay him $500 per month for ten years. What amount should Thomas include in his income each year?

Whaler Corporation makes a liquidating distribution of land with a $70,000 adjusted basis and a $100,000 FMV t shareholder Horton, who surrenders his Whaler stock (adjusted basis $60,000) to the corporation. Alice, another shareholder, receives $100,000 cash for her shares ($115,000 adjusted basis). a. What are the tax consequences to Whaler Corporation? b. What are the tax consequences to both Horton and Alice? c. What is Horton's basis in the land?

Eva and Lisa each retired this year and started receiving distributions from their respective retirement plans. Eva's plan was funded with all pre- tax contributions, whereas Lisa's plan was funded with only after- tax contributions (Roth plan). With respect to the tax treatment of their retirement plan distributions,