Tax chapt 9 – Flashcards

19 Indicate the amount (if any) that Josh can deduct as ordinary and necessary business deductions in each of the following expenditures and explain your solution. Josh borrowed $50,000 from the First State Bank using his business assets as collateral. He used the money to buy City of Blanksville bonds. Over the course of a year, Josh paid interest of $4,200 on the borrowed funds, but he received $3,500 of interest on the bonds.

20 Josh purchased a piece of land for $45,000 in order to get a location to expand his business. He also paid $3,200 to construct a new driveway for access to the property.

21 This year Josh paid $15,000 to employ the mayor's son in the business. Josh would typically pay an employee with these responsibilities about $10,000 but the mayor assured Josh that after his son was hired, some city business would be coming his way.

22 Josh paid his brother, a mechanic, $3,000 to install a robotic machine for Josh's business. The amount he paid to his brother is comparable to what he would have paid to an unrelated party to do the same work. Once the installation was completed by his brother, Josh began calibrating the machine for operation. However, by the end of the year, he had not started using the machine in his business.

32 Ralph invited a potential client to dinner and the theater. Ralph paid $250 for the dinner and $220 for the theater tickets in advance. They first went to dinner and then they went to the theater. What amount can Ralph deduct if, prior to the dinner, he met with the potential client to discuss future business prospects?

33 Ralph invited a potential client to dinner and the theater. Ralph paid $250 for the dinner and $220 for the theater tickets in advance. They first went to dinner and then they went to the theater.What amount can Ralph deduct if he and the client only discussed business during the course of the dinner?

34 Ralph invited a potential client to dinner and the theater. Ralph paid $250 for the dinner and $220 for the theater tickets in advance. They first went to dinner and then they went to the theater.What amount can Ralph deduct if he and the potential client tried to discuss business during the course of the theater performance but did not discuss business at any other time?

35 Ralph invited a potential client to dinner and the theater. Ralph paid $250 for the dinner and $220 for the theater tickets in advance. They first went to dinner and then they went to the theater.What amount can Ralph deduct if the potential client declined Ralph's invitation, so Ralph took his accountant to dinner and the theater to reward his accountant for a hard day at work? At dinner, they discussed the accountant's workload and upcoming assignments.

40 This year R drove 12,000 miles in his personal auto, of which 3,000 miles were for business. Total costs to operate his car were:What amount can R deduct if he is self-employed?What amount can R deduct if he is an employee?SEE PIC

52-53 Melissa recently paid $400 for round-trip airfare to San Francisco to attend a business conference for three days. Melissa also paid the following expenses: $250 fee to register for the conference, $300 per night for three night's lodging, $200 for meals, and $150 for cab fare.What amount of the travel costs can Melissa deduct as business expenses?

54 Suppose that while Melissa was on the coast, she also spent two days sightseeing the national parks in the area. To do the sightseeing, she paid $1,000 for transportation, $800 for lodging, and $450 for meals during this part of her trip, which she considers personal in nature. What amount of the travel costs can Melissa deduct as business expenses?

55 Melissa recently paid $400 for round-trip airfare to San Francisco to attend a business conference for three days. Melissa also paid the following expenses: $250 fee to register for the conference, $300 per night for three night's lodging, $200 for meals, and $150 for cab fare. Suppose that Melissa made the trip to San Francisco primarily to visit the national parks and only attended the business conference as an incidental benefit of being present on the coast at that time. What amount of the airfare can Melissa deduct as a business expense?

56 Suppose that Melissa's permanent residence and business was located in San Francisco. She attended the conference in San Francisco and paid $250 for the registration fee. She drove 100 miles over the course of three days and paid $90 for parking at the conference hotel. In addition, she spent $150 for breakfast and dinner over the three days of the conference. She bought breakfast on the way to the conference hotel and she bought dinner on her way home each night from the conference. What amount of these costs can Melissa deduct as business expenses?

58 Kimberly is a self-employed taxpayer. She recently spent $1,000 for airfare to travel to Italy. What amount of the airfare is deductible in each of the following alternative scenarios? Her trip was entirely for personal purposes.

59 Kimberly is a self-employed taxpayer. She recently spent $1,000 for airfare to travel to Italy. What amount of the airfare is deductible in each of the following alternative scenarios?On the trip, she spent eight days on personal activities and two days on business activities.

60 Kimberly is a self-employed taxpayer. She recently spent $1,000 for airfare to travel to Italy. What amount of the airfare is deductible in each of the following alternative scenarios?On the trip, she spent seven days on business activities and three days on personal activities.

61 Kimberly is a self-employed taxpayer. She recently spent $1,000 for airfare to travel to Italy. What amount of the airfare is deductible in each of the following alternative scenarios?Her trip was entirely for business purposes.

64 J receives $100,000 of revenue from a qualified domestic production activity which has $55,000 of related expenses and $12,000 of wages. J has modified AGI of $47,000.

65 Andrew is considering starting a business of constructing and selling prefabricated greenhouses. There are three very different methods to constructing these greenhouses, and each method results in different revenue and cost projections. Below, Andrew has projected the qualifying revenue and costs for each method. The selling price includes qualifying receipts. The allocable expenses include wages and allocable expenses are included in total costs.SEE PIC 66a. Estimate the tax benefit from the domestic production activities deduction for each construction technique. You may assume that Andrew has sufficient AGI to utilize the deduction and that his marginal tax rate is 30 percent.b. Which construction technique should Andrew use if his marginal tax rate is 30 percent?

74 B's gross income is $50,000, composed of business income of $19,000 and nonbusiness income of $31,000. His deductions amount to $59,000, composed of business deductions of $31,000 and nonbusiness deductions of $28,000. His NOL is computed as follows:

75 T's gross income is $50,000, composed of business income of $34,000 and nonbusiness income of $16,000. His deductions amount to $59,000, composed of business deductions of $28,000 and nonbusiness deductions of $31,000. His NOL is computed as follows:

82 A tornado demolishes the roof of an office building owned by SPG. The value of the building before the tornado was $500,000 and after the tornado was $400,000. SPG's basis in the building was $350,000 and it received $80,000 of insurance reimbursement. SPG also suffered a loss from the theft of a delivery truck. The value of the truck before the theft was $40,000. SPG's basis in the truck was $50,000 and it received $35,000 of insurance reimbursement.

96 BBL, an accrual method taxpayer, signs a binding contract for PDP to provide repair services. BBL pays $1,500 and agrees to pay an additional $6,000 on the contract when the repairs are completed. The repairs will start in the fall of next year.When can BBL claim the deduction for the repair services?

97 During November and December of the current year, XYZ provides installation services to ABC for an agreed price of $50,000. At the end of the year, XYZ has not yet billed for the services. Both ABC and XYZ are accrual method taxpayers. When can XYZ claim a deduction for the cost of the installation services provided?

98 Same facts. When can ABC claim a deduction for the installation services received?

99 On December 1, 20x1, ABC enters into a $100,000 snow removal contract with Snow Movers Co. The contract provides that the snow removal service will begin January 1, 20x2 and end March 15, 20x2. Both ABC and Snow Movers are accrual method taxpayers. When can ABC claim a deduction for the snow removal services if it pays on December 15, 20x1?

101 In January of year 0, Justin paid $4,800 for an insurance policy that covers his business property for accidents and casualties. Justin is a calendar-year taxpayer who uses the cash method of accounting. What amount of the insurance premium may Justin deduct in year 0 in each of the following alternative scenarios?The policy covers the business property from April 1 of year 0 through March 31 of year 1.

102 In January of year 0, Justin paid $4,800 for an insurance policy that covers his business property for accidents and casualties. Justin is a calendar-year taxpayer who uses the cash method of accounting. What amount of the insurance premium may Justin deduct in year 0 in each of the following alternative scenarios?The policy begins on February 1 of year 1 and extends through January 31 of year 2.

103 In January of year 0, Justin paid $4,800 for an insurance policy that covers his business property for accidents and casualties. Justin is a calendar-year taxpayer who uses the cash method of accounting. What amount of the insurance premium may Justin deduct in year 0 in each of the following alternative scenarios?Assume Justin paid $6,000 for a 24-month policy that covers from April 1, year 0 through March 31, year 2.

104 In January of year 0, Justin paid $4,800 for an insurance policy that covers his business property for accidents and casualties. Justin is a calendar-year taxpayer who uses the cash method of accounting. What amount of the insurance premium may Justin deduct in year 0 in each of the following alternative scenarios?Assume that instead of paying an insurance premium, Justin paid $4,800 to rent his business property from April 1 of year 0 through March 31 of year 1.

105 Circuit Corporation (CC) is a calendar-year, accrual-method taxpayer. CC manufactures and sells electronic circuitry. On November 15, year 0, CC enters into a contract with Equip Corp (EC) that provides CC with exclusive use of EC's specialized manufacturing equipment for the five-year period beginning on January 1 of year 1. Pursuant to the contract, CC pays EC $100,000 on December 30, year 0. How much of this expenditure is CC allowed to deduct in year 0 and in year 1?

108 This year (year 0) Elizabeth agreed to a three-year service contract with an engineering consulting firm to improve efficiency in her factory. The contract requires Elizabeth to pay the consulting firm $1,500 for each instance that Elizabeth requests its assistance. The contract also provides that Elizabeth only pays the consultants if their advice increases efficiency as measured 12 months from the date of service. This year Elizabeth requested advice on three occasions and she has not yet made any payments to the consultants.How much should Elizabeth deduct in year 0 under this service contract if she uses the accrual method of accounting?

109 This year (year 0) Elizabeth agreed to a three-year service contract with an engineering consulting firm to improve efficiency in her factory. The contract requires Elizabeth to pay the consulting firm $1,500 for each instance that Elizabeth requests its assistance. The contract also provides that Elizabeth only pays the consultants if their advice increases efficiency as measured 12 months from the date of service. This year Elizabeth requested advice on three occasions and she has not yet made any payments to the consultants.How much should Elizabeth deduct in year 0 under this service contract if she uses the cash method of accounting?

117 XYZ estimates that about $1,000 of the receivables from its plumbing services will be uncollectible this year. Included in that estimate is a $300 amount owned by client P whose account is uncollectible.What amount of bad debt expense may XYZ deduct for the year: if it is on the cash method? if it is on the accrual method?

117 XYZ estimates that about $1,000 of the receivables from its plumbing services will be uncollectible this year. Included in that estimate is a $300 amount owned by client P whose account is uncollectible.What amount of bad debt expense may XYZ deduct for the year: if it is on the cash method? if it is on the accrual method?

117 XYZ estimates that about $1,000 of the receivables from its plumbing services will be uncollectible this year. Included in that estimate is a $300 amount owned by client P whose account is uncollectible.What amount of bad debt expense may XYZ deduct for the year: if it is on the cash method? if it is on the accrual method?