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

Which of the following factors is not used to determine whether an activity is a hobby or a business?

If a taxpayer's method of accounting does not clearly reflect income, the IRS may specify a different accounting method which must be used by the taxpayer.

The limitation on the deductibility of business interest expense does not apply to taxpayers whose average gross receipts for the three preceding years is less than $25 million.

A corporation generates a net operating loss in 2018. Which of the following statements is correct regarding the corporation's ability to deduct the NOL?

Antonio is single and has taxable income of $170,000 without considering the sale of a capital asset (land held for investment) in September of 2018 for $25,000. That asset was purchased six years earlier and has a tax basis of $5,000. The tax liability applicable to only the capital gain (without consideration of any additional Medicare tax) is

All of the following may deduct education expenses except:

A married couple separates in late 2018, but the related legal documents are not drafted and finalized until 2019. The alimony payments will be taxable to the recipient and deductible by the payor, but the property settlement and child support will have no tax impact.

Brad suffers from congestive heart failure and has been admitted to a nursing home where he is expected to spend the remainder of his life. His doctor has certified him as chronically ill. In 2018, Brad receives $320 per day from his life insurance policy for 100 days ($32,000) as accelerated death benefits. Brad's nursing home care costs $300 per day ($30,000 for the 100 days of care). Brad will be allowed to exclude

Jeffery died in 2018 leaving a $16,000,000 gross estate. Six months after his death, the gross assets are valued at $16,100,000. In years prior to 2018 (but after 1976), Jeffery had made taxable gifts of $300,000. Of the $16,000,000 gross estate, estate assets valued at $3 million were transferred to his wife and $100,000 was used to pay administrative and funeral expenses. Jeffery had debts of $200,000, and the remainder of the estate was transferr to his children. a. What is the amount of Jeffery's taxable estate? b. What is the tax base for computing Jeffery's estate? c. What is the amount of estate tax owed if the unified credit is $4,417,800? d. Alternatively, if six months after his death, the gross assets in Jeffery's estate declined in value to $15,000,000 administrator of Jeffery's estate elect the alternate valuation date?

Erin, a single taxpayer, has 1,000 shares of 1244 stock she purchased directly from AAA Corporation for $120,000 five years ago. The stock has a FMV of $30,000, and Erin is thinking of selling the stock. She has no other capital gains or losses for the year. Discuss the tax consequences and planning opportunities relating to selling the stock.

A taxpayer can deduct a reasonable amount for small out- of- pocket (i.e., cash) donations.

Montrose Corporation is classified as a personal holding company. It is almost year- end. The company's taxable income and regular federal income tax liability are expected to be $100,000 and $21,000, respectively. The company will claim a $20,000 dividends- received deduction and earlier in the year paid $25,000 of dividends to its shareholders. How much in additional dividends must be paid to shareholders in order to avoid the personal holding company tax?

A corporation generates a $200,000 net operating loss in 2018. In 2019 its taxable income from 2019 activities is $220,000. The corporation will be allowed an NOL deduction of

Sean and Martha are both over age 65 and Martha is considered blind by tax law standards. Their total income in 2018 from part- time jobs and interest income from a bank savings account is $80,000. Their itemized deductio $25,000. Required: Compute their taxable income.

The total worthlessness of a security generally results in an ordinary loss.

Why would a taxpayer elect to use the alternative depreciation system rather than the MACRS rules?

A bona fide debtor- creditor relationship can never exist in the case of related parties.

Cameron is the owner and beneficiary of a $300,000 policy on the life of his mother. Cameron sells the policy to his brother, Parker, for $100,000. Parker subsequently pays premiums of $55,000. Upon his mother's death, how much of the insurance proceeds must Parker include in income?

What is the difference between a taxpayer- requested letter ruling and a technical advice memorandum issued as a letter ruling?

Many exclusions exist due to the benevolence of Congress or as a result of the government's attempts to encourage particular social behavior.