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

Charles is a self- employed CPA who maintains a qualifying office in his home. Charles has $110,000 gross income from his practice and incurs $88,000 in salaries, supplies, computer services, etc. Charles's mortgage interest and real estate taxes allocable to the office total $10,000. Other expenses total $14,000 and consist of depreciation, utilities, insurance, and maintenance. What is Charles' total home office expense deduction?

An office building owned by Abby and used in her business was destroyed in a fire. Abby's adjusted basis in the building was $145,000 and its FMV was $180,000. Abby filed an insurance claim and she was reimbursed $160,00 same year, Abby invested $150,000 of the insurance proceeds in another business building. a. Assume Abby made the proper election with regard to the involuntary conversion. What is the amount of ga be recognized by Abby? b. What is Abby's basis in the new building?

Atomic Corporation is enjoying a very profitable year. The board of directors is considering paying either a bonus to the president of the corporation or an extra dividend to the shareholder. Shinil is both the president and the 100% shareholder. Which of the following statements is generally correct with respect to closely held corporations in Atomic's position?

Ruby Corporation grants stock options to Iris on February 1, 2017. The options do not have a readily ascertainable value. The option price is $100, and the FMV of the Ruby stock is also $100 on the grant date. The option allows Iris to purchase 200 shares of Ruby stock. Iris exercises the option on August 1, 2018, when the stock's FMV is $150. Iris sells the stock on December 5, 2019 for $400. Determine the amount and character (i.e., ordinary, LTCG or STCG) of income recognized by Iris and the deduction allowed Ruby Corporation in 2017, 20 2019 under the following assumptions: a. The stock option is an incentive stock option. b. The stock option is a nonqualified stock option.

When an S corporation shareholder sells her stock, she must first recognize ordinary gain to the extent of her share of the unrealized receivables and appreciation on inventory held by the S corporation, with the balance of the gain treated as capital gain.

The standard deduction may not be claimed by one married taxpayer filing a separate return if the other spouse itemizes deductions.

When preparing a tax return for a short period, the taxpayer should annualize the income if the short period return

Realized gain or loss must be recognized unless a specific Code section provides for nonrecognition treatment.

Generally, Section 267 requires that the deduction of unpaid (accrued) expenses be deferred until the year in which the related payee recognizes the amount as income.

If a principal residence is sold before satisfying the ownership and use tests, part of the gain may be excluded if the sale is due to a change in employment, health, or unforeseen circumstances.

The basis of an asset must be reduced by the depreciation allowable.

The regular standard deduction is available to which one of the following taxpayers?

On December 1, 2018, Delilah borrows $2,000 from her credit union to use in her business. Under the terms of th contract, Delilah actually receives $1,940 but is required to repay $2,000 in three months. a. What amount may Delilah deduct as interest expense in 2018 and in 2019 if she is a cash- basis taxpayer? b. What amount may Delilah deduct as interest expense in 2018 and in 2019 if she is an accrual- basis taxpayer?

The Senate equivalent of the House Ways and Means Committee is the Senate

Which of the following is not a taxpaying entity?

Mr. and Mrs. Kusra are in the top tax bracket. They have just had a baby. The Kusras plan to gift a corporate bond they currently own to the baby. The bond pays $2,100 of interest income per year. The Kusra family overall will save taxes if the bond is transferred to the child.

Which of the following statements regarding UNICAP is incorrect?

Eric dies in the current year and has a gross estate valued at $16,500,000. The estate incurs funeral and administrative expenses of $100,000 and also pays off Eric's debts which amount to $250,000. Eric bequeaths $600,000 to his wife. Eric made no taxable transfers during his life. Eric's taxable estate will be

Which of the following best describes the weight of a revenue ruling?

A partnership's liabilities have increased by year- end. As a result, partners' bases in their partnership interests will increase.