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

Bob owns 100 shares of ACT Corporation common stock with a basis of $3,500 and a FMV of $12,000. Bob receives 10 stock rights as a nontaxable distribution, and no basis is allocated to the stock rights. With each stock right, Bob may acquire one share of stock for $25. Bob exercises all 10 stock rights. The total basis of the newly acquired stock is

Everest Corp. acquires a machine (seven- year property) on January 10, 2018 at a cost of $2,512,000. Everest make the election to expense the maximum amount under Sec. 179, and bonus depreciation is not claimed. a. Assume that the taxable income from trade or business is $1,500,000. (1) What is the amount of the Sec. 179 expensing deduction for the current year? (2) What is the amount of the Sec. 179 carryover to the next tax year? (3) What is the amount of depreciation allowed? b. Assume instead that the taxable income from trade or business is $800,000. (1) What is the amount of the Sec. 179 expensing deduction for the current year? (2) What is the amount of the Sec. 179 carryover to the next tax year? (3) What is the amount of depreciation allowed this year?

When business property involved in a casualty is totally destroyed, the amount of the loss is limited to the lesser of the taxpayer's adjusted basis in the property or the reduction in FMV.

Compare the characteristics of the Current and Deferred Models.

In 2018, Charlton and Cindy have alternative minimum taxable income of $230,000 and file a joint return. For purposes of computing the alternative minimum tax, their exemption is

A corporation has a tax year ending December 31, 2015. When is the due date for the corporate income tax return (with no extensions)?

Ron, a single taxpayer, receives $750,000 of taxable income from the family trust fund. In addition, he has a 50% interest in a partnership in which he is a material participant. The partnership incurs a $600,000 loss, 50% of which is allocated to Ron. Ron's basis in his partnership interest before adjustment for the loss is $800,000. Ron will be able to deduct his full $300,000 share of the partnership loss.

Deferred compensation refers to methods of compensating employees based upon their current service where the benefits are deferred until future periods.

Jeffery and Cassie, who are married with modified AGI of $90,000, are sending their son to his first year of college. Their total tuition and related payments during 2018 amounted to $5,500. They have not taken advantage of any other type of tax benefit related to educational expenses. Their American Opportunity Tax Credit for 2018 is

Small Corporation, a new start- up small business corporation, is owned by Samantha and Dave. Additional funding is needed from the two shareholders, and they are weighing equity versus debt financing. One consideration is the tax consequences to the owners if the company fails and goes through bankruptcy, with both the stock and debt becoming worthless. In such case, the owners would be able to deduct the losses, and achieve tax savings, sooner if the company finances through additional equity.

Property settlements made incident to a divorce have no immediate tax consequences; that is, the transfer from one spouse to another is not taxable.

Gina owns 100 shares of XYZ common stock with a $12,000 basis and a $25,000 FMV. She receives 100 stock righ total FMV of $15,000. Answer the following: a. What is the basis of the 100 shares of stock? b. What is the basis of the 100 stock rights?

In common law states, all income is split evenly between the two spouses.

A partnership sells equipment and recognizes depreciation recapture under Sec. 1245. In reporting its results for the year, the partnership will separately state the Sec. 1245 depreciation recapture.

In- home office expenses for an office used by the taxpayer for administrative or management activities of the taxpayer's trade or business are never deductible.

On April 1, 2018, Martha, age 67, begins receiving payments of $3,000 monthly from her employer's qualified retirement plan. She had contributed $90,000 to the plan in after- tax dollars. The anticipated number of payments is 210. Using the simplified method, how much of the payments are taxable in 2018?

Kevin sold property with an adjusted basis of $58,000. The buyer assumed Kevin's existing mortgage of $40,000 and agreed to pay an additional $60,000 consisting of a cash down payment of $40,000, and payments of $4,000, plus interest, per year for the next 5 years. Kevin paid selling expenses totaling $2,000. What is Kevin's gross profit percentage?

Larry and Ally are married and file a joint return. They are considering purchasing a personal residence that will generate two deductions: $10,000 in home mortgage interest and $8,000 in real estate taxes. Their marginal tax rate is 24%. What is the total tax savings if Larry and Ally purchase the residence?

Which of the following is not one of Adam Smith's canons of taxation?

If partners having a majority interest in the partnership do not have the same tax year, the partnership uses the same tax year as all of its principal partners. Principal partners are those with 10% or greater interest in the partnership.