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

Kelly was sent by her employer to work on a special assignment in Paris for six months. Kelly will be able to exclude some of her income earned in Paris.

If a taxpayer's total tax liability is $4,000, taxable income is $20,000, and total economic income is $40,000, then the effective tax rate is 20 percent.

The term "tax law" includes

Empire Corporation has operated as a C corporation for its first three years of existence because one of its shareholders disqualified it from electing S corporation status. That shareholder is now gone, and the remaining shareholders have elected S corporation status effective for the current year. Empire Corporation has one highly appreciated asset that it hopes to sell in the near future. How many years must elapse before the sale in order to avoid the built- in gains tax?

Points paid in connection with the purchase of a principal residence may be deducted in the year paid.

A tax bill introduced in the House of Representatives is then

A calendar- year corporation has a $15,000 current E&P deficit and a $40,000 positive accumulated E&P balance. The shareholders of the corporation have a total basis in outstanding shares of $30,000. A $75,000 distribution is made to the shareholders on the last day of the year. The tax results to the shareholders will be

In 2016 Bonnie, a sole proprietor, loaned her employee, John, $10,000 to help him buy a car. In 2018, before he repaid the $10,000, Bonnie told John that she was "tearing up" the $10,000 note in recognition of his strong job performance. How should John treat the amount forgiven?

The wherewithal- to- pay concept provides that a tax should be collected when the taxpayer has the financial resources to pay the tax.

A fiscal year is a 12- month period that ends on the last day of any month other than December.

Deductions for adjusted gross income include all of the following except

Regulations are

All payments made by an employer to the family of a deceased employee are excluded from the recipient's gross income regardless of the reason for payment.

At the beginning of this year, Thomas and Claire were equal partners in a partnership that uses the calendar year as its tax year. On August 1, this year, Randy and Mike each contributed $50,000 cash for a 1/4 interest in the partnership. The interests of both Thomas and Claire drop to one- fourth. The partnership reports a $30,000 ordinary loss for the current tax year ending December 31. (Use the elective proration method with a monthly convention.) What is the amount of loss allocated to each partner?

Ross works for Houston Corporation, which has a contributory defined contribution pension plan. The employer's monthly contribution to the plan is 8 percent of each participating employee's monthly salary, while the employee contributes only 6 percent. Which of the following statements best describes the benefits of the plan?

All of the following statements regarding self- employment income/tax are true except

Ray is starting a new business and trying to decide between a C corporation, S corporation, and partnership. Which of the following statements regarding his decision is correct?

Owners of pass- through entities may defer income recognition by selecting a different tax year for the business if at least 25% of the business revenues occur during the last two months of the proposed year.

Elise contributes property having a $60,000 FMV and a $25,000 adjusted basis and also renders accounting services valued at $30,000 in exchange for an 80% interest in the capital and profits of the EEE partnership. Evan contributes a building with a $90,000 FMV, an adjusted basis of $55,000, and subject to a mortgage of $70,000 for a 20% interest in the capital and profits of the EEE partnership. The partnership assumes the mortgage. a. What is each partner's respective basis in the partnership? b. What are the income tax consequences of the contributions? c. What is the partnership's basis in the assets transferred in by Elise and Evan?

A corporation generates a net operating loss of $90,000 in 2018. The corporation's 2019 taxable income from 2019 activities is $95,000. The corporation will be able to deduct the $90,000 net operating loss in 2019.