Exam 6: Business Expenses

The Big Easy Company leases a luxury box and purchases 20 tickets to the New Orleans Saints home games. The entire amount is deductible as an entertainment expense as long as all the requirements are met.

Which of the following business expenses is/are subject to a 50% deduction limit for 2018? I.Gifts II.Incidental expenses while traveling ​

The Wondercress Advertising agency rents a skybox at the First Energy Stadium where the Cleveland Browns plays its home games. The cost of the skybox for the season is $60,000 and includes ten tickets to each game. The team plays 8 games a year at the arena. The most expensive non-luxury box seat is $125. After acquiring a new advertising client, the president of the agency invites 9 business associates to watch a game in the company skybox. What amount can Wondercress deduct as entertainment expense?

Sally,a single taxpayer, owns and operates a hardware store as a sole proprietorship. In 2018, the hardware store has net income of $100,000. Sally also has dividend income of $2,000 from her investments. How much may Sally claim as her Qualified Business Income (QBI) deduction in 2018?

For each of the following situations explain why the expenditure is or is not deductible and any limitations that may be placed on the amount of the deduction. a.Ellis is a part-time bookkeeper for Gilmore Company. The owner of Gilmore told Ellis that if he earns an accounting degree and passes the CPA exam, he would hire him as Gilmore's accountant. Ellis spends $5,600 taking classes towards an accounting degree at City College. b.Harry owns Circus City Condiments, a wholesaler of circus food. In 2012, he loaned his friend Joanna $8,000 at 6% annual interest with the balance due in 5 years. Joanna used the loan to open a beauty salon. In December 2017, Joanna tells Harry that she has filed for bankruptcy and that he will be lucky to get $2,000 of his money back. The bankruptcy proceedings had not been completed at the end of 2017. c.Audrey is a self-employed computer consultant. Harvey calls Audrey and asks her for information on installing a new Lan-based workstation system in his business. Audrey meets Harvey at Franco's Chop House. They have dinner while Audrey explains how such a system will work and what it will cost. Audrey pays for the dinner, which costs $100. Harvey calls Audrey the next day and tells her that he has decided that the system costs too much and that he will not need her services.

Carlos is single and has a 7 year-old child. Carlos' adjusted gross income for the year is $101,000. The maximum amount he can contribute to his child's Coverdell Education Savings Account is

Alfred uses his personal automobile in his business of selling party supplies to local businesses. He bought a new car in 2018 and drove it a total of 20,000 miles of which 2,000 miles were for commuting and other personal uses. Actual gas, oil, repairs, licensing, insurance, and depreciation totaled $11,000 for 2018. Actual parking expenses for business were $200. What is the maximum amount Alfred can deduct for 2018?

Kadian purchases a block of 10 tickets to next Saturday's basketball game. The tickets cost $45 each. He keeps two tickets for himself and gives the remaining tickets to 8 business customers. Each customer receives a ticket, and Kadian told all of them he would see them Saturday night. How much can Kadian deduct?

The actual cost method is a more-flexible way to compute the auto expense deduction and often results in a larger tax savings.

Match each statement with the correct term below. -Tax home

Sita loans her next-door neighbor, Ivan, $800 to pay his rent and cover his utilities for last month. Ivan promises Sita he will repay her at the end of next month when he receives his next payroll check. Two weeks after loaning Ivan the money, Sita discovers Ivan had left town. No one knows his whereabouts. Sita is told that Ivan also hasn't paid his rent or utility bills. Discuss whether Sita can deduct the $800. Completely explain your reasoning.

Phong is a life insurance salesman for Swan Insurance and spends 4 days a month in the office. His office is 12 miles from home. He also has a part-time job as a salesman in a clothing store. Typically, he works 2 nights during the week and 1 day on the weekend. The clothing store where he works is 6 miles from his office and 7 miles from his home. What portion(s) of Phong's travel is (are) considered business?

Charlie is single and operates his barber shop as a sole proprietorship. During the current year, Charlie paid $2,200 for his personal health insurance plan and $4,000 for health insurance for his employees. How much of these premiums can be deducted for Charlie's adjusted gross income?

During 2018, Marsha, a self-employed CPA, drove her car 24,000 miles. The detail of the mileage is as follows: ? Personal Use 3,000 miles Transportation between home and office 3,000 miles Transportation to and from clients' offices 18,000 miles Marsha's 2018 records show that her car expenses totaled $14,890. The details of the expenses are as follows: ? Gas, oil, and repairs 9,830 Insurance and licensing 1,500 Depreciation 2,960 Interest on car loan 400 Tolls and parking at clients' offices 200 What is the amount of her deduction for her use of the car?

Chelsea is an employee of Avondale Company. Chelsea's adjusted gross income for the current year is $67,000. Chelsea would like to make the maximum contribution to her individual retirement account this year. Which of the following statements about Chelsea's contribution and deduction amounts is (are) true? I.If Chelsea is single and is covered by a qualified pension plan, she is allowed to contribute $5,500 to her IRA account, but she is allowed a deduction for only $3,300 of the contribution because her adjusted gross income is greater than $63,000. II.If Chelsea is married and covered by a qualified pension plan and her husband does not work, they can contribute and deduct $5,500 to two separate IRA accounts (one for herself and one for her husband). ​

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 that might be placed on the deduction. a. Monica took a client out to dinner to discuss the tax aspects of the client's proposed acquisition of a rival company. After dinner, Monica took the client to see a play. 1. Assume Monica is self-employed 2. Assume Monica is an employee of GHQ Corporation. GHQ does not reimburse its employees for entertaining clients. b. Sergio owes Edward $5,000. During the current year, Sergio files for bankruptcy. Sergio's attorney indicates that due to Sergio's poor financial condition his creditors will be lucky to get $.80 on the dollar for their debts. 1. Assume Sergio is a customer of Edward's (an accrual basis taxpayer) and the $5,000 debt is from an account receivable related to Edward's business. 2. Assume Sergio is a business associate of Edward's. Edward loans Sergio the $5,000 to pay off some gambling debts. Edward owns a meat packing plant. a.Monica took a client out to dinner to discuss the tax aspects of the client's proposed acquisition of a rival company. After dinner, Monica took the client to see a play.

Meal and entertainment expenses that are ordinary and necessary and directly related to the active conduct of an activity for which the taxpayer has a business purpose are fully deductible.

Margaret is single and is a self-employed proprietor of a convenience store near the mall. During the current year, Margaret paid $4,000 for health insurance coverage for herself. She paid another $500 for coverage for her unrelated employee, Corky. How should Margaret deduct the health insurance cost? I.Margaret takes $500 as a business expense. II.Margaret takes the $4,000 as a deduction for AGI.​

The Qualified Business Income (QBI) deduction is not a deduction for adjusted gross income but can be deducted by taxpayers whether they use the standard deduction or the sue itemized deductions.

Match each statement with the correct term below. -Travel expenses