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

As a result of a divorce agreement executed in 2018, Michael pays Judy $75,000 in year one and $25,000 per year in subsequent years. How much of the $75,000 in year one is properly characterized as alimony and will not be recaptured later?

Ellen is a single taxpayer with qualified dividend income of $5,000, and itemized deductions of $13,000. Required: Determine Ellen's taxable income and tax liability in 2018, assuming the following salaries a. $40,000. b. $100,000.

An S corporation recognizes gain or loss if it distributes property other than money to its shareholders.

In March of the current year, Marcus began investigating the possibility of opening a specialty clothing store. From March through June, he spent $2,300 on a market survey, $2,700 in consulting fees to find the best location and $3,600 in professional fees setting up an accounting and inventory system. Although he had never run his own business before, on August 1 he opened his doors for business. What is the maximum amount of deduction for the current year attributable to these expenditures?

This year, Hamilton, a local manufacturer of off- shore drilling platforms, entered into a contract to construct a drilling platform that will be placed in the North Atlantic Ocean. The total contract price is $5,000,000, and Hamilton estimates the total construction cost at $3,000,000. Actual costs incurred this year are $600,000. If Hamilton uses the percentage of completion method, the gross profit for this year is

Sharisma suffered a serious stroke and was admitted to a nursing home for 140 days. Nursing home charges, including physician fees and other related expenses were $63,000. Under Sharisma's long- term care insurance contract, she received reimbursements of $56,000. How much of the $56,000 reimbursement must be included in Sharisma's gross income in 2018?

Jose dies in the current year and has a gross estate valued at $13,000,000 in 2018. Over the past ten years, Jose had made taxable gifts of $400,000. The estate incurs funeral and administrative expenses of $100,000 and also pays off Jose's debts which amount to $300,000. Jose bequeaths $500,000 to his wife. What is the amount of Jose's tax base, the amount on which the estate tax is computed?

A taxpayer is able to change his filing status from married filing jointly to married filing separately by filing an amended return.

Amelida expects to earn $145,000 of AGI and $125,000 of taxable income this year. She is concerned about underpayment penalties. Because of a substantial bonus, her prior year AGI was $155,000 and her taxable income was $135,000. Based on her fact pattern, which of the following scenarios will not allow her to avoid underpayment penalties?

One requirement of a personal holding company is that more than 50% of the value of the outstanding stock must be owned by five or fewer individuals at some time during the last 6 months of the tax year.

Connor owes $4 million and has assets of only $1 million. He declares and files personal and business bankruptcy and his creditors approve a payment plan of $.25 per dollar. Connor has a net operating loss carryover of $2 million. The remaining 75 percent of his debt will be canceled. Connor must recognize income of

You have the following citation: Joel Munro, 92 T.C. 71 (1989). Which of the following statements is true?

Clarissa is a very successful self- employed real estate attorney. She spends $5,000 per year taking her clients out to dinner upon completion of a sale. Unfortunately, Clarissa is not a good recordkeeper and does not maintain receipts. However, such meals are standard practice in her field, and trade journals indicate that $5,000 is a reasonable amount for a successful high- end attorney. Clarissa will be allowed to deduct $2,500.

Adam Smith's canons of taxation are equity, certainty, convenience, and economy.

Which of the following steps, related to a tax bill, occurs first?

Frank is a self- employed CPA whose 2018 net earnings from his trade or business (before the H.R. 10 plan contribution but after the deduction for one- half of self- employment taxes) is $240,000. What is the maximum contribution that Frank can make on his behalf to his H.R. 10 (Keogh) plan in 2018?

Appeals from the Court of Appeals go to the Supreme Court under a writ of certiorari. The Supreme Court decides whether or not they will hear the case.

Under what circumstances might a taxpayer elect the alternative depreciation system for new equipment acquired this year?

All of the following transactions are exempt from rules regarding imputed interest with the exception of

Mitchell and Debbie Dixon, a married couple, sell their personal residence to Sophie. Sophie pays $225,000 and assumes their $70,000 mortgage. To make the sale, the Dixons pay $4,000 in commissions and $1,000 in legal costs. The couple has owned and lived in the house for seven years and their tax basis is $125,000. What is the amount of gain recognized on the sale?