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

Ten years ago Finn Corporation formed a new 100 percent owned subsidiary, Wing Corporation, with a $500,000 investment. Wing Corporation is completely liquidated this year, with all assets distributed to Finn Corporation. As of the liquidation date, Wing has a basis in its assets of $350,000, and the assets are valued at $550,000. What is the gain or loss recognized by Finn Corporation due to the liquidating distribution, and what is Finn Corporation's basis in the assets received from Wing Corporation?

Steven is a representative for a textbook publishing company. Steven attends a convention which will also be att by many potential customers. During the week of the convention, Steven incurs the following costs in attending conference and taking potential customers to lunch and dinner to discuss book sales. Having recently been to a company seminar on tax laws, Steven makes sure that business is discussed at the various meals. Steven is reimbursed $2,000 by his employer under an accountable plan. Steven's AGI for 2018 is $50,000, and he does itemize deductions. For tax purposes, how will Steven treat the $2,000 partial reimbursement and the $2,500 of unreimbursed expenses?

Tom and Heidi, husband and wife, file separate returns. Tom and Heidi live in a common law state. Tom's salary is $82,000 and Heidi's salary is $80,000. Heidi receives dividend income of $7,000 from stock inherited from her parents. Tom receives interest income of $5,000 from bonds purchased with his salary after marriage. Tom and Heidi receive $12,000 dividend income from stock they purchased jointly. Tom's income would be

Because a partnership is a pass- through entity rather than a taxable entity, partnerships need not file tax returns.

Jack purchases land which he plans on developing as a golf course. The land costs $20,000,000 and the cost of clearing the land, earthmoving, constructing hazards, bunkers and greens, and installing irrigation systems will cost an additional $6,000,000. What tax issues should Jack consider?

If an individual with a taxable income of $15,000 has a long- term capital gain, it is taxed at

Leigh inherited $65,000 of City of New York bonds in January 2018. In March 2018, she received $4,000 of interest on the bonds. In July 2018, she sold the bonds at a $10,000 gain. Leigh also redeemed Series E U.S. Savings bonds in October 2018 that she had purchased several years ago and received accumulated interest of $2,600. In December 2018, she received $800 of interest on City of Paris, France, bonds. What amount, if any, of gross income must Leigh report?

What are the purposes of citations in tax research?

During the current year, Tony purchased new car wash equipment for use in his service station business. Tony's connection with the new equipment this year were as follows: What is Tony's basis in the car wash equipment?

State and local government obligations such as municipal bonds are classic examples of which model?

A contribution of services to a partnership will result in recognition of compensation to the contributing partner equal to the fair market value of the services as well as an increase in partnership basis to the extent of the income recognized.

In accounting for research and experimental expenditures incurred in 2018, all of the following alternatives are available with the exception of

Cassie owns equipment ($45,000 basis and $30,000 FMV) and a building ($152,000 basis and $158,000 FMV), which are used in Cassie's business. Cassie has used straight- line depreciation for both assets, which were acquired two years ago. Both the equipment and the building are destroyed in a fire, and Cassie collects insurance proceeds equal to the assets' FMV. The tax result to Cassie for this transaction is a

Tax planning is not an integral part of open- fact situations.

Tax returns from individual and C corporate taxpayers are due on the 15th day of the third month following the close of the tax year.

Rondo Construction, a calendar- year taxpayer, starts a new long- term construction project in December that is expected to last about 18 months. The project is a mall. Because of some contingencies, it is difficult to estimate total costs this early in the project. Rondo can elect to defer income recognition under the modified percentage of completion method if costs completed by year- end are less than

A corporation is owned 70% by Jones and 30% by Smith. Jones owns 70 shares with a cost of $100 each. Smith owns 30 shares with a cost of $100 per share. Smith and Jones are not related. The company redeems Smith's 30 shares at a redemption price of $400 per share. No stock is redeemed from Jones. This is not a redemption to pay death taxes, and it is not a partial liquidation. Smith will recognize

Yulia has some funds that she wishes to invest, but is concerned that she is at risk for AMT. Yulia should avoid investing in all municipal bonds.

On January 1, 1998, Erika Greene purchased a single premium annuity for $15,000 that will pay her $5,000 every year for life beginning on January 1, 2018. Based on actuarial tables published by the IRS, her life expectancy mu is 10. a. What is the amount to be excluded in Erika's income for 2018? b. What is the amount to be excluded in Erika's income for the year 2028?

In order to be recognized and deducted on a tax return, a loss must first be realized.