Exam 6: Business Expenses

Peter, proprietor of Peter's Easy Loan Company, loaned Jessie $4,000 on December 1, 2016. The loan is to be repaid on December 1, 2017, along with $600 interest. On July 10, 2017, Peter learns that Jessie has filed for personal bankruptcy and that non-secured creditors will receive only $0.60 on the dollar. Peter actually receives nothing until February 24, 2018. On that date, Peter receives a check for $1,000 from Jessie's bankruptcy proceedings in final settlement of the loan. How should Peter account for the loan to Jessie?

Walter is a cash basis taxpayer with a drapery cleaning business. In the current year he determines he will never receive payment from Davis for cleaning services provided to Davis. Can Walter record a deduction for the bad debt? Explain.

Francine operates an advertising agency. To show her appreciation to her 10 best customers, she sends a box of fancy chocolate, costing $75 a box, to each of them. How much of the cost of the chocolates can Francine deduct as a business gift?

Victor is single and graduated from Wabash College in May of 2017. In January of 2018, he begins to repay his student loans. During the year he pays $1,500 of interest on the loans. His adjusted gross income for the year is $65,000. Victor can deduct student loan interest of

Victor is a sales representative for Valley Winery. Victor receives a monthly travel allowance from Valley to cover his travel costs (transportation, food, lodging, etc.). If Victor is required to account to Valley for the use of the travel advance and to return any excess travel advance i.To the extent Victor is reimbursed for less than his costs, part of his expenses are deducted for AGI and part are deducted from AGI.II.Victor must include the travel allowance in his gross income. His actual costs are deductible from AGI, subject to all applicable limits on such deductions. ​

Larry is a self-employed insurance salesperson. He decides to take his best customer to a Pacers basketball game. Larry is able to buy two floor seat tickets for $500 each. The face amount of the tickets is $200 each. How much of the total cost can Larry deduct?

The Crown Howe Accounting firm rents a skybox at Lucas Oil Field where the Indianapolis Colts play their home games. The cost of the skybox for the season is $80,000 and includes 8 tickets to each game. The team plays 10 games a year at the arena. The most expensive non-luxury box seat is $200. After acquiring a new accounting client, the Managing partner invites 5 business associates to watch a game in the firm skybox. What amount can Crown Howe deduct as entertainment expense?

During 2017, Virginia, an architect, made a bona fide $7,500 loan to her friend Joe when he was in a time of need. Joe died in 2018. Virginia has been informed by Joe's estate that he was insolvent. Virginia should record the nonpayment of the loan as

For each of the following situations, determine whether the item is deductible, how it would be deducted on the taxpayer's return (if there are alternatives possible, discuss the conditions which would determine the treatment) and any limitations which might be placed on the deduction. a.Cassie sells insurance and other financial products for Bison Assurance Company. During the current year, she gives each client who has been with her for three years 2 tickets to a Willie Nelson concert. The tickets have a face value of $75 each, but Cassie has to pay $100 per ticket to obtain a block of 100 tickets. Cassie was out of town and did not attend the concert. b.Randolph was the CEO and chairman of the board of directors of Vison Inc., until his retirement 5 years ago. Although he still owns 5% of Vison's stock, he has no other active involvement in the company. While playing golf one day he learns that 4 of the company's biggest customers are coming to town to close a big deal. Randolph had been responsible for bringing 3 of the customers to the business 30 years earlier when he started working for the company. Because he has developed a solid business relationship with them through the years and to help the company out, he holds a reception for the 4 customers and top executives of the company at his country club. The cost of the reception is $2,000. Randolph did not ask for, nor did Vison offer, a reimbursement for the reception. c.Ai-leng is an engineer employed by Boiler Corporation. While having lunch with one of Boiler's clients, she learns of a new relaxation technique that the client felt had greatly reduced his job-related stress. Ai-leng enrolls in a night course at the local community college to learn the new relaxation technique. The cost of the course is $200.

Laura and Jason are married and have 3 children ages 2, 6, and 8. Their adjusted gross income for the year is $95,000. The maximum they can contribute to their children's Coverdell Education Savings Accounts is

Match each statement with the correct term below. -Business meals

Winslow owns a residential rental property with an adjusted basis of $200,000 at the beginning of the current year. The county treasurer sends Winslow a tax bill payable by December 31. The bill is for real estate property taxes of $1,200 for the current calendar year and for a $6,000 special assessment for a new sewer line. On November 1, Winslow sells the property to Edwin for $225,000. As part of the sale contract, Winslow will pay the special assessment at closing and Edwin agrees to pay the realty taxes on the due date. What is Winslow's gain on the sale?

Fred and Flossie are married and their adjusted gross income is $200,000. Both Fred and Flossie are active participants in their company's qualified pension plan and have never established an Individual Retirement Account. What is the maximum combined amount they can contribute to Roth IRAs?

50% of the self-employment tax is deductible as an itemized deduction from adjusted gross income.

Arturo and Josephina are married with salaries of $47,000 and $48,000, respectively. Their combined AGI is $104,000. Josephina is an active participant in her company's qualified pension plan while Arturo is not. Determine Arturo and Josephina's combined IRA contribution and deduction amounts? ? Maximum Maximum Contribution Deduction A) \ 5,500 \ 2,750 B) \ 11,000 \ 2,750 C) \ 11,000 \ 5,500 D) \ 11,000 \ 10,175 E) \ 11,000 \ 11,000 Contribution Deduction

Jay, a single taxpayer, operated a hardware store as a sole proprietorship during 2018. He has the following information: ? Net Sales from the hardware store \ 300,000 Operating Expenses of the hardware store 200,000 Dividend Income 5,000 Taxable income before the Qualified Business Income (QBI) deduction 90,000 What is Jay's Qualified Business Income (QBI) deduction?

During 2017, Wendy, a biologist, made a bona fide $10,000 loan to her friend Ben when he was in a time of need. Ben dies in 2018. Wendy has been informed by Ben's estate that creditors can expect to receive 40% of amounts owed to them. No payments to creditors are made from Ben's estate in 2018. Wendy's maximum deduction in 2018 is

Auto, travel, and gift expenses are subject to strict documentation requirements. Taxpayers are required to keep records that show I.The business purpose of the event. II.The time and place of the event. ​

Drew incurs the following expenses in his grocery store business. Drew can deduct the following as business expenses in the current year I.$3,750 for advertising on the web. II.$2,000 of interest expense related to the purchase of a new delivery truck. ​

Richard is a sales person for Publix Company. Every month Richard fills out an expense account report, documenting all his expenses and submits it for reimbursement. During the current year, Richard submitted documentation and receives $12,500 of reimbursements. All his claims are reimbursed. How will these expenses and reimbursements affect Richard's income tax calculation? i.Expense amounts are deductible from AGI.II.Reimbursed amounts are excluded from gross income. ​