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

A three- day investment conference is held in Las Vegas. Dr. Singh, a dentist, travels from Ohio to attend to improve his taxable investment portfolio performance. Ms. Gondin, a financial planner, travels from Seattle to attend the same conference to improve her skills in managing her clients' investment portfolios. The same standards of deductibility will apply to both attendees.

Contracts for services including accounting, legal and architectural services do not qualify for long- term contract treatment.

Faye is a marketing manager for Healthy Corp. She earns a salary of $100,000 and has received the following ben • Healthy pays 75% of all employees' health and accident insurance coverage. Healthy paid $6,000 towards the c Faye's health insurance during the year. • Faye participates in the cafeteria plan and had elected to have $2,000 withheld from her pay to cover the remai cost of the health insurance premiums and an additional $1,500 to cover dental and other health care costs not pa insurance (i.e., funding a flexible spending account). The full $1,500 was used to pay for various qualifying medi • Healthy pays the cost of disability insurance coverage for all employees. The insurance will pay 75% of salary i employees are out of work for a significant period. The cost of Faye's premiums was $600. • Healthy pays for the cost of veterinary insurance for all employees. The cost of coverage for Faye's dog was $4 • Healthy pays for the cost of daycare for its employees' children. The cost for Faye's two children was $8,000. • All employees receive a 20% discount on Healthy's products. The typical markup on their products is 25%. Fay enjoyed $1,200 of savings through the discount program. • Faye won the manager of the year award earlier in the year and received an all- expense paid week at a desert valued at $3,500. • Healthy pays Faye's annual membership dues of $500 to the American Marketing Association. • Healthy paid for the full $2,500 cost of Faye's attendance at the American Marketing Association's annual conf Orlando. How much income must Faye recognize from her employment?

Claire accepts a new job. She will have access to health insurance coverage through her employer. The employer's policy meets the criteria for affordable minimum essential coverage. Claire prefers to purchase her own insurance policy through the state or federal exchange so she can retain access to her doctor. Assuming Claire's income is within the parameters specified, she will be eligible for the health insurance premium assistance credit.

Marissa sold stock of a non- publicly traded corporation with an adjusted basis of $36,000 for $48,000. Marissa re a down payment of $12,000 with the balance due in equal payments over the next two years. a. What is the amount of gross profit to be recognized in the year of sale? b. Assume that the buyer defaulted on the final payment. Marissa sued and was able to repossess the stock. Th market value of the stock on the date of repossession is $36,000; legal fees were $1,500. What is the gain or loss o the repossession?

Norah's Music Lessons Inc. is a calendar- year taxpayer using the accrual method of accounting. On October 1 of this year, the corporation received $1,200 for a one- year contract beginning on that date to provide 10 lessons. The company provided 6 lessons this year under the contract. How much should the corporation include in income this year with respect to this contract?

Elise contributes $1,000 to a deductible IRA. Her investment will earn 10% annually before taxes, and she will withdraw the accumulated amounts from the IRA after 20 years. She expects her tax rate to be 25% at that time and will not be subject to the 10% on early distributions. What is Elise's after- tax accumulation in the IRA?

Which of the following statements is false?

Suri, age 8, is a dependent of her parents and has unearned income of $6,000. She must file her own tax return.

Once an activity has been classified as passive, it is considered passive with regard to that taxpayer until it is sold.

Harley's tentative minimum tax is computed by multiplying the AMT tax rates by her

Which of the following dependent relatives does not have to live in the same household as the taxpayer who is claiming head of household filing status?

Quattro Enterprises, a calendar- year taxpayer, leases the twentieth floor of a building downtown. Due to employment expansion, it renovated the entire office space layout without changing the overall size of the office, spending $600,000 on these leasehold improvements. The office renovation was completed in May. Quattro also spent $1,000,000 on new computer systems and office furniture and fixtures in May on which the business used its entire Sec. 179 allowance for 2018. What is the maximum depreciation deduction available in 2018 for the leasehold improvements?

In addition to Social Security benefits of $8,000, Mr. and Mrs. Wells have adjusted gross income of $32,000 and tax- exempt interest of $1,000. They will file a joint return. The taxable portion of their Social Security benefits will be

Installment sales of depreciable property which result in recaptured income under Secs. 1245 or 1250 require that the recaptured income be recognized in the year of sale.

The child credit is for taxpayers with dependent children under the age of

Shaquille buys new cars for five of his friends. Each car cost $70,000. What is the amount of Shaquille's taxable gifts?

If a partner contributes inventory to the partnership in exchange for a partnership interest, the holding period for the partnership interest begins on the date the inventory was acquired by the transferor partner.

Marlena contributes property having a $30,000 FMV and a $27,000 adjusted basis and also renders accounting services valued at $15,000 in exchange for a 30% interest in the capital and profits of the BBB partnership. LeBron contributes a building with a $100,000 FMV, an adjusted basis of $88,000, and subject to a mortgage of $80,000 for a 40% interest in the capital and profits of the BBB partnership. The partnership assumes the mortgag Ty contributes cash of $60,000 for a 30% interest in the capital and profits of the BBB partnership. a. What is each partner's respective basis in the partnership? b. What are the current income tax consequences to each partner? c. What is the partnership's basis in the assets transferred in by the partners?

Stephanie's building, which was used in her business, was destroyed in a fire. Stephanie's adjusted basis in the building was $175,000, and its FMV was $210,000. Stephanie filed an insurance claim and was reimbursed $200,000. In that same year, Stephanie invested $180,000 of the insurance proceeds in another business building. Assuming the proper election is made to defer gain, Stephanie's basis in the new building will be