Tax Ch.9 – Flashcard

For tax purposes "travel" is a broader classification than "transportation."

Amy lives and works in St. Louis. In the morning she flies to Boston, has a three-hour business meeting, and returns to St. Louis that evening. For tax purposes, Amy was away from home.

Eileen lives and works in Mobile. She travels to Rome for an eight-day business meeting, after which she spends two days touring Italy. All of Eileen's airfare is deductible.

In May 2014, after 11 months on a new job, Ken is fired after he assaults a customer. Ken must include in his gross income for 2014 any deduction for moving expenses he may have claimed on his 2013 tax return.

Qualified moving expenses of an employee that are not reimbursed are a deduction for AGI.

Lloyd, a practicing CPA, pays tuition to attend law school. Since a law degree involves education leading to a new trade or business, the tuition is not deductible.

Mallard Corporation pays for a trip to Aruba for its two top salespersons. This expense is subject to the cutback adjustment.

On their birthdays, Lily sends gift certificates (each valued at $25) to Caden (a key client) and to each of Caden's two minor children. Lily can deduct only $25 as to these gifts.

In the case of an office in the home deduction, the exclusive business use test does not apply when the home is used as a daycare center.

A taxpayer who claims the standard deduction will not be able to claim an office in the home deduction.

Allowing for the cutback adjustment (50% reduction for meals and entertainment), which of the following trips, if any, will qualify for the travel expense deduction? a. Paul, a romance language high school teacher, spends summer break in France, Portugal, and Spain improving his language skills. b. Dr. Brown, a surgeon, attends a two-day seminar on financial planning. c. Myrna went on a two-week vacation in Boston. While there, she visited her employer's home office to have lunch with former co-workers. d. All of these choices are correct. e. Dr. Jones, a general dentist, attends a two-day seminar on developing a dental practice.

In terms of meeting the distance test for purposes of deducting moving expenses, which of the following statements is correct? a. None of these choices are correct. b. The taxpayer's new residence must be at least 50 miles away from the new job. c. The taxpayer's new residence must be at least 50 miles away from the old residence. d. The taxpayer's new job location must be at least 50 miles away from the old job. e. The taxpayer's new job location must be at least 50 miles farther from the old residence than the old residence was to the old job.

As to meeting the time test for purposes of deducting moving expenses, which of the following statements is correct? a. Work at the new location must involve a full-time job—part-time job will not suffice. b. The moving expense deduction cannot be claimed if the taxpayer has not yet met the time test. c. The taxpayer has two years in which to satisfy the 39- weeks or 78-weeks requirement. d. None of these choices are correct. e. The time test is waived for persons whose move follows retirement.

Rachel is single and has a college degree in finance. She is employed as a loan officer at a bank; her yearly AGI approximates $50,000. During the year, she enrolled in a weekend MBA program and incurred the following nonreimbursed expenses: $4,100 (tuition), $300 (books), $200 (other school supplies), and $200 (transportation to and from campus). Disregarding the 2%-of-AGI limitation, as to the MBA program, Rachel has a: a. Deduction for AGI of $4,100 and deduction from AGI of $700. b. Deduction for AGI of $4,000 and deduction from AGI of $800. c. Deduction for and deduction from AGI of $0. d. None of these choices are correct. e. Deduction for AGI of $4,000 and deduction from AGI of $700.

Tracy, the regional sales director for a manufacturer of exercise equipment, pays $2,500 to rent a skybox for a visiting performance of the Harlem Globetrotters. The skybox holds 10 seats, and Tracy invites 7 clients to the event. Nonluxury seats range in price from $80 to $120. The refreshments provided during the event cost $600. If Tracy meets all of the requirements for deductibility (i.e., business discussion, substantiation), she may deduct: a. $1,100. b. $900. c. $1,260. d. $1,550. e. $1,500.

Which of the following expenses, if any, qualify as deductible? a. Contributions to a qualified tuition program (§ 529 plan). b. Job hunting expense of FBI agent who applies for the job of city manager of Beaumont (TX). c. Contributions to a Coverdell Education Savings Account (CESA). d. None of these choices are correct. e. Contribution to a traditional IRA.

Which, if any, of the following expenses is subject to the 2%-of-AGI floor? a. Qualified tuition expenses under § 222. b. Cost of a CPA exam review course—taxpayer just began employment with an accounting firm. c. Contribution to traditional IRA. d. None of these choices are correct. e. Office in the home deduction for a self-employed taxpayer.

Which, if any, of the following expenses is subject to the 2%-of-AGI floor? a. Union dues of self-employed machinist. b. None of these choices are correct. c. Moving expenses (not reimbursed by employer). d. Gambling losses (to the extent of gambling gains). e. Teaching supplies (in excess of $250) purchased by a fifth grade teacher.

Which, if any, of the following expenses are not subject to the 2%-of-AGI floor? a. None of these choices are correct. b. Tax return preparation fee paid by a non-employed retiree. c. Reimbursed employee expenses. Taxpayer-employee renders an adequate accounting to the employer. d. Unreimbursed employee expenses. e. Safety shoes purchased by an employed plumber.

One of the tax advantages of being self-employed (rather than being an employee) is: a. The self-employment tax is lower than the Social Security tax. b. Job-related expenses are deductions for AGI. c. The cutback adjustment does not apply. d. The actual cost method for deducting the business use of an automobile can be selected. e. A deduction for an office in the home is available.