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

S status can be elected if shareholders holding the majority of the stock consent to the S corporation election on the date of the S corporation election.

Explain why interest expense on investments is limited to net investment income.

Corporations may deduct 65% of dividends received from a domestic corporation if the recipient corporation owns 20% or more and less than 80% of the voting power and value of the stock of the issuing corporation.

In- home office expenses are deductible if the office is used exclusively on a regular basis as the principal place of business for any trade or business of the taxpayer.

All of the following characteristics are true of an incentive stock option with the exception of:

Jennifer made interest- free gift loans to each of her four children as follows: (1) John borrowed $9,500 to purchase an automobile. His net investment income is $1,500. (2) Rick borrowed $50,000 to purchase a trailer. His net investment income is $900. (3) Bert borrowed $25,000 to purchase stock. His net investment income is $1,200. (4) Elizabeth borrowed $110,000 to purchase a home. Her net investment income is $800. Assuming a 5% interest rate, on which loans must interest be imputed?

Brandon, a single taxpayer, had a loss of $48,000 from a rental real estate activity in which he actively participated. He also had $27,000 of income from another rental real estate activity in which he actively participated. He acquired both investments in the current year. If Brandon has no other passive income or losses and has adjusted gross income of $84,000 before considering passive activities, how much loss from rental activities can he use to offset his nonpassive income?

Which of the following statements is incorrect regarding the SEP IRA?

Are letter rulings of precedential value to third parties?

Charades Corporation is a publicly held company listed on the New York Stock Exchange. During the current year, its chief executive officer, Samantha Chen, receives the following compensation from the corporation: salary, $1,500,000; commissions based on sales generated by Samantha, $200,000; payments to a qualified pension plan, $30,000; and tax- free fringe benefits, $20,000. What is the total amount taxable to Samantha?

Under the cash method of accounting, all expenses are deductible when paid.

Current year foreign taxes paid exceed the ceiling based on U.S. tax attributable to foreign source income. These excess foreign tax credits

The recipient of a taxable stock dividend includes the value of the stock received in gross income and that amount becomes the basis for the stock received.

Purchase of a bond at a significant discount will result in the investor recognizing a capital gain when the bond matures.

Nonrefundable tax credits

Carol contributes a painting to a local museum for display. Her AGI is $60,000. Carol paid $22,000 for the painting in 2006, but its market value at the date of the contribution is $25,000. With no special elections, Carol's deductible contribution this year is

Beth and Bob are married entrepreneurs. Beth has a start- up sole proprietorship in which she works long hours. This year the business generated $500,000 of revenues and $800,000 of deductible business expenses. Bob is a partner in a new partnership, also working long hours. His share of the partnership loss for the year is $275,000. Fortunately, they both have trust funds so they are receiving $700,000 of taxable interest income and dividends. Due to this year's results, Beth and Bob will have an NOL carryover of

Explain the difference between expenses of organizing a partnership and expenses of syndicating a partnership.

Amy, a single individual and sole shareholder of Brown Corporation, sold all of the Brown stock for $30,000. Amy's stock basis was $150,000. She had owned the stock for 3 years. Brown Corporation meets the Section 1244 requirements. Amy has

A partnership sells an asset for a gain. The asset had been transferred to the partnership two years ago by Partner J in exchange for a partnership interest. The asset was worth substantially more than its cost as of the transfer date. The partnership gain will be allocated to all of the partners in accordance with their profit and loss sharing ratios.