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

Fines and penalties are tax deductible if related to the taxpayer's trade or business.

Payton and Eli form the EP Partnership to provide marketing services. They will be equal partners. Payton is contributing property with a fair market value of $350,000 and a basis of $300,000. Eli is contributing property with a fair market value of $200,000 and a $175,000 basis. He will also provide services to the partnership valued at $150,000. Discuss the issues raised by this arrangement and the likely tax treatment of these issues.

Burton and Kay are married, file a joint return with an AGI of $118,000, and have one dependent child, Tyler, who is a full- time student in a Master of Accountancy program. The following expenses relate to his costs of attendance in 2018: The tuition noted above is the gross amount charged before reduction for his $5,000 tuition scholarship. What is the maximum education credit allowed to Burton and Kay?

A liquidating distribution is treated as a sale or exchange of a partnership interest.

This summer, Rick's home (which has a basis of $80,000) is damaged by a tornado which was declared a federal disaster. An appraisal by a realtor placed the FMV of the home at $120,000 before the tornado and at $85,000 after the tornado. Rick estimates that the insurance company will reimburse him for 60% of the loss. Next year, the insurance company pays Rick $20,000. Rick's current year's AGI is $50,000 and his next year's AGI is $55,000. Rick suffers no other casualty losses in either year. After limitations, Rick may deduct a casualty loss this year of

Greg is the owner and beneficiary of a $100,000 policy on the life of his mother. Greg gives the policy to his brother, Don. Don subsequently pays premiums of $40,000. Upon his mother's death, how much of the insurance proceeds must Don include in income?

Gain is recognized by an S corporation when it distributes appreciated property to its shareholders.

Realto LLC is a tax partnership which has four equal partners. The LLC holds highly appreciated real estate in midtown Manhattan. Trina is about to purchase a 20% ownership interest in the LLC. To minimize her future tax burden as a partner, she should negotiate a Sec. 754 election with the current partners.

Carole owns 75% of Pet Foods, Inc. As CEO, Carole must travel extensively and does so on the company jet. In addition, she also uses the jet to take several personal vacations. Carole reports the value of the personal use of the jet, $40,000, as additional compensation. Which of the following is true in terms of the corporation?

What is an information release?

Dana paid $13,000 of investment interest expense in a year in which she earned $4,500 in dividends, $5,400 in interest income, and had a short- term capital gain of $1,000 and a long- term capital gain of $2,200. The capital gains resulted from the sale of stock held as an investment. She has no other investment- related expenses. What is her maximum deduction for investment interest expense if Dana makes the proper elections to raise her ceiling as high as possible?

Hunter contributes property having a $75,000 FMV and a $65,000 adjusted basis which is subject to a $36,000 mortgage in exchange for a one- fourth interest in the ABC Partnership. The partnership owes no other debts, but does assume this mortgage. Profits and losses are shared equally and each partner has a one- fourth interest in partnership capital. Hunter's basis in the partnership is

Bret carries a $200,000 insurance policy on his life and has paid premiums of $10,000 over the years. Dividends on the policy have totaled $8,500. Each year Bret has left the dividends with the insurance company. In the current year, the insurance company credited $800 of interest on the accumulated dividends to Bret's account. In addition, $600 of dividends was added by the insurance company. In the current year, Bret must report income of

In order for an expense to be ordinary, it must be reasonable in amount and it must bear a reasonable and proximate relationship to the income- producing activity or property.

When property is transferred, the gift tax is based on

On August 1 of the current year, Terry refinances her home and borrows $240,000. Terry is required to pay two points on the loan. The loan is secured by the residence and the charging of points is an established business practice in the area. The term of the loan is 20 years, beginning on August 1 of the current year. How much, if any, of the points may Terry deduct in the current year?

The client is a corporation which uses high- tech equipment to manufacture its product. Because of the high level of wear and tear due to long production runs and frequent technology changes, the client usually replaces the equipment every two years. According to IRS guidance, the MACRS life of the equipment is five years. In order to accelerate depreciation deductions, which tax depreciation option should the client elect?

In February 2018, Pietra acquired a new automobile for $82,000 and used the automobile 80% for business. In 2019 her business use of the auto was 70%. Pietra's depreciation deduction for 2019 will be

Elise, age 20, is a full- time college student with earned income from wages of $4,400 and interest income of $500. Elise's parents provide more than half of her support. Elise's 2018 taxable income is

An investor exchanges an office building located in Niagara Falls, NY, for an office building located in Niagara Falls, Ontario. The exchange does not qualify as like- kind.