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

A taxpayer uses an allowance method (i.e., aging method) of calculating bad debt expense for purposes of the business' financial statements. For income tax purposes, she will also use the allowance method to calculate the bad debt deduction.

Max and Alexandra are married and incur $5,500 of qualifying expenses to care for their two children, ages 2 and 5. Max's earned income is $35,000 and Alexandra's earnings from a part- time job are $5,000. What is the amount of the qualifying expenses for purposes of computing the child and dependent care credit?

The term "principal place of business" includes a home office used by a taxpayer for administrative or management activities of the business if no fixed location exists where the taxpayer conducts these activities.

Limited liability companies may elect to be taxed as corporations.

In general, a change in accounting method must be approved by the IRS.

Duo Partnership reports the following items for the year: In addition to reporting separately stated items on the Form 1065, Duo will report ordinary income of

Pamela was an officer in Green Restaurant which subsequently went bankrupt. Pamela started a new restaurant and, to establish goodwill, paid off the debts of $100,000 of Green Restaurant. She was under no obligation to do so. The $100,000 is

Although exclusions are usually not reported on an individual's income tax return, interest income on state and local government bonds must be reported on the tax return.

Clark and Lois formed an equal partnership three years ago. Clark contributed cash of $160,000 while Lois contributed land with a $90,000 adjusted basis and a $160,000 FMV. Three years later the land is sold for $210,000. The tax results to Clark and Lois are

Which of the following taxes is progressive?

Artco Inc. is a C corporation. This year it earned $50,000 of taxable income and paid a $10,000 distribution (dividend) to Lily, its sole shareholder. Lily has a marginal tax rate of 24%. Due to the corporation's results and the distribution paid, the IRS will receive total taxes of

An individual buys 200 shares of General Electric Corporation stock. In lieu of receiving quarterly dividends, the individual signs an agreement to have dividends reinvested by GE into additional shares of stock. The individual does not receive dividend checks so he need not recognize the quarterly dividends for tax purposes.

Generally, deductions for adjusted gross income on an individual's tax return include all the following types of expenses except those

Amanda, whose tax rate is 32%, has NSTCL of $25,000, a $30,000 LTCG from sale of a rare coin held 15 months and a $18,000 LTCG from the sale of stock held for three years. By what amount will Amanda's tax liability increase?

During the current year, Yvonne, a single individual, paid the following amounts: How much can Deborah deduct in taxes as itemized deductions?

Although a partner's distributive share of income, deductions, losses, and credits is generally determined by partnership agreement, special allocation provisions restrict the partners' freedom to shift some tax benefits among partners.

Raina owns 100% of Tribo Inc., an S corporation. She started the business this year with a $100,000 capital contribution. In addition, the business borrowed $50,000 from the bank which she had to guarantee. Tribo incurred a first year operating loss of $170,000. Raina will deduct an ordinary loss this year of

James and Colleen have reached an agreement with Kelsey in which she will give birth to a baby and then give the baby to James and Colleen. In return, James and Colleen will pay Kelsey $40,000 cash and pay for her medical expenses. What tax issues should Kelsey consider?

The marginal tax rate is useful in tax planning because it measures the tax effect of a proposed transaction.

Corporations that are members of a parent- subsidiary affiliated group may file a consolidated return if the proper election is made.