tax chapter 8
Jasmine purchased a factory building on November 15, 2001, for $5,000,000. She sells the factory building on February 2, 2021. The cost recovery deduction for the year of the sale would be:
$16025 0.02564 * 5000000 * 1.5/12
In 2020, Gail had a § 179 deduction carryover of $10,000. In 2021, she elected § 179 for an asset acquired at a cost of $21,000. Gail's § 179 business income limitation for 2021 is $25,000. Gail's § 179 deduction for 2021 would be:
$25000 10000/21000 limited to 25000
Audrey, age 39, and Bobby, age 40, who have been married for seven years, are both active participants in qualified retirement plans. Their total AGI for 2021 is $126,000. Each is employed and earns a salary of $67,000. What are their combined deductible contributions to traditional IRAs?
0
On June 15, 2021, Louise purchased the rights to a gravel interest for $1,500,000. At that time, it was estimated that the recoverable units would be 100,000. During the year, 20,000 units were mined and 10,000 units were sold for $200,000. Louise incurred expenses during 2021 of $50,000. Louise's depletion deduction for 2021 using the percentage depletion method would be:
10000 200000*.05=10000 200000-50000 * .50= 175000
Jamison uses the following in her business: an automobile valued at $5,000, a home office laptop valued at $3,000, and a motorcycle valued at $6,000. What is the total value of the listed property used in her business?
11000 5000+6000
Jillian is employed as a systems analyst. For the calendar year 2021, she had AGI of $120,000 and paid the following medical expenses: Medical insurance premiums$3,900 Doctor and dentist bills for Carl and Penny (Jillian's parents)8,250 Doctor and dentist bills for Jillian6,750 Prescribed medicines for Jillian300 Nonprescribed insulin for Jillian825 Carl and Penny would qualify as Jillian's dependents except that they file a joint return. Jillian's medical insurance policy does not cover them. Jillian filed a claim for $3,150 of her own expenses with her insurance company in December 2021 and received the reimbursement in January 2022. What is Jillian's maximum allowable medical expense deduction for 2021?
11025 3900+8250+6750+300+825=20025 20025-9000= 11025 120000*.075=9000
On June 1, 2021, Mako Corporation purchased an existing business. With respect to the acquired assets of the business, Mako allocated $300,000 of the purchase price to a patent. The patent will expire in 20 years. The total amount that Mako may amortize for 2021 for the patent would be:
11667 300000*7/180
Carl earned $45,000 in 2021 as an independent contractor. What is Carl's self-employment tax liability?
12.4%*45000+2.9%*45000= 6885
Carl earned $45,000 in 2021. What is the difference between his Social Security/Medicare tax versus self-employment tax?
12.4%*45000+2.9%*45000= 6885 6.2%*45000+1.45%*45000= 3442.50 6885-3442.50= 3442.50
George is single and has an AGI of $137,000. How much can he contribute to his Roth IRA?
1200 1-12000/15000= 1-.8=20% 20%*6000= 1200
Maple Company acquires a new machine (7-year property) on January 10, 2021, at a cost of $125,000. Maple makes the election to expense the maximum amount under § 179. No election is made to use the straight-line method. Maple does not take additional first-year depreciation. What is the total deduction in calculating taxable income related to the machine for 2021 assuming Maple has taxable income of $800,000?
125000
On June 15, 2021, Louise purchased the rights to a gravel interest for $1,500,000. At that time, it was estimated that the recoverable units would be 100,000. During the year, 20,000 units were mined and 10,000 units were sold for $200,000. Louise incurred expenses during 2021 of $50,000. Louise's depletion deduction for 2021 using the cost depletion method would be:
150000 1500000/1000=15 15*10000= 150000
On January 15, 2021, Dillon purchased the rights to a mineral interest for $3,500,000. At that time, it was estimated that the recoverable units would be 500,000. During the year, 40,000 units were mined and 25,000 units were sold for $800,000. Dillon incurred expenses during 2021 of $500,000. The percentage depletion rate is 22%. Dillon's depletion deduction for 2021 would be:
175000 3500000/500000= 7 25000*7=175000 22% x 800000= 176000 800000-500000 * 50%= 150000
During 2021, Bradley, a self-employed individual, paid the following amounts: State income tax$1,400 State sales taxes1,950 State occupational license fee250 Personal property tax on value of his automobile200 What amount can Bradley claim as taxes in itemizing deductions from AGI?
2150 1950+200=2150
In Adelaide County, the real property tax year is the calendar year. The real property tax becomes a personal liability of the owner of real property on January 1 in the current real property tax year, 2021. The tax is payable on June 1, 2021. On April 30, 2021, Julio sells his house to Victoria for $230,000. On June 1, 2021, Victoria pays the entire real estate tax of $7,300 for the year ending December 31, 2021. How much of the property taxes may Julio deduct?
2380 119/365*7300
Jaman drove his car a total of 25,000 miles in 2021, of which 17,500 were for business and 7,500 were personal use. He incurred $5,000 in lease payments, $2,500 in fuel, $2,000 in insurance, and $150 for license and registration of his vehicle. What is his actual cost method deduction for his vehicle use?
2500+2000+5000+150*.7= 6755
Indigo Corporation begins business on April 2, 2021. The corporation has startup expenditures of $54,000. If Indigo Corporation elects § 195, the total amount that Indigo may deduct in 2021 would be:
3650 5000-54000-50000=1000 54000-1000/180*9=2650 2650+1000= 3650
In the current year, Celeste travels from Boston to Houston primarily for business. She spends five days conducting business and three days sightseeing and attending shows. Her plane and taxi fares amount to $1,500. Her meals amount to $150 per day, and lodging and incidental expenses are $400 per day. Her total deductible expenses are:
3875 5*150*.5= 375 400*5 1500+375+2000
During the year, Michael, self-employed, went from Raleigh to San Diego on business. Preceding a five-day business meeting, he spent four days vacationing at the beach. Excluding the vacation costs, his expenses for the trip are as follows: Airfare $3,200 Lodging 900 Meals 800 Entertainment 600 Michael's deductible expenses total:
4800 3200+900+700 [50%(800+600)]
Jack purchased a new factory building on September 2, 2020, for $2,000,000. He elected the alternative depreciation system (ADS). The cost recovery deduction for 2021 would be:
50000 2000000*.025
A taxpayer is not entitled to an immediate expensing of startup expenditures if he or she exceeds which of the following amounts?
55000 deduction
Carl earned $45,000 in 2021 as an employee. What is Carl's Social Security tax liability?
6.2%*45000
David is single and has an AGI of $138,500. How much can he contribute to his Roth IRA?
600 13500/15000=.09 1-.09=.10% 6000*10%
Mackenzie Corporation begins business on July 1, 2021. The corporation incurs startup expenditures of $35,000. If Mackenzie elects amortization under § 195, the total startup expenditures deductible in 2021 are:
6000 5000+ 35000-5000/180*6= 6000
Jaman drove his car a total of 25,000 miles in 2021, of which 17,500 were for business and 7,500 were personal use. He incurred $5,000 in lease payments, $2,500 in fuel, $2,000 in insurance, and $150 for license and registration of his vehicle. What is the business use percentage for his vehicle?
70% 17500/25000
Mariah is an elementary school teacher who worked 950 hours during the school year and spent $200 on supplies in January, $600 on supplies in March, and $700 on supplies in both July and August 2021. What is Mariah's deduction for educator expenses?
A 250 for AGI deduction educator expense
As a part of a taxpayer's tax planning strategies, which of the following is not a prudent consideration for minimizing the tax liability?
Deciding not to take any cost recovery deductions of any assets under any conditions
Which of the following miscellaneous itemized deductions is not subject to the 2%-of-AGI floor?
Gambling losses to the extend of gambling winnings
Which of the following expenses is nondeductible?
Parking fines
In contrasting the reporting procedures of employees and self-employed persons regarding job-related transactions, which of the following items involves self-employed persons?
Schedule C of form 1040
Which of the following individuals is most likely to benefit from the actual cost method as opposed to the automatic mileage method when calculating automobile expenses?
Someone who drives an SUV for a small number of miles
When considering tax planning ideas related to employment status, which of the following factors is a reason to favor classifying workers as independent contractors?
The company can avoid payroll taxes and circumvent a myriad of state and local laws
Section 179 expensing is subject to which of the following limitations?
The property placed in service maximum is $2,620,000 for 2021.
The amortization election for startup expenditures allows the taxpayer to deduct the smaller of which of the following?
The startup expenditures related to the trade or business or $5,000
A participant who is at least age 59½ can make a tax-free qualified withdrawal from a Roth IRA after a five-year holding period.
True
Benjamin performs services for Gabriella. If Benjamin provides his own helper and tools, this is indicative of independent contractor (rather than employee) status.
True
Fees are not deductible unless incurred as a business expense or as an expense in the production of income.
True
Roth IRAs possess the advantage of tax-free accumulation of income within the plan.
True
Shelly has an office in her home, which qualifies as her principal place of business, so travel to her clients is deductible.
True
Which of the following factors is not a consideration of the § 530 relief regarding the employment taxes that should have been paid by the employer?
Workplace finge benefits are not available
Which of the following factors is not a consideration of the § 530 relief regarding the employment taxes that should have been paid by the employer?
Workplace fringe benefits are not available.
Taxpayers recover the cost of intangible assets through which of the following types of deduction?
amortization
Which of the following statements best describes the nature of a piece of property such as a dump truck?
business use for personalty
Which of the following is usually the most advantageous way to handle intangible drilling and development costs (IDCs)?
charge them off as the expense
Which of the following statements best describes the nature of a piece of common clothing the taxpayer can wear for everyday use?
clothing is personalty for persoanl use
A nonaccountable plan is where an adequate accounting or return of excess amounts, or both, is not required. All expense reimbursements are not included as wages.
false
ADS depreciation is always computed using the straight-line method.
false
After graduating from college, Frank obtains a job as a sales representative. Frank's job search expenses qualify as deductions.
false
An individual, age 40, who is not subject to the phaseout provision may contribute a nondeductible amount to a Roth IRA up to $7,000 per year in 2021.
false
Any elected § 179 expense is taken after additional first-year depreciation is computed.
false
CPA exam review course fees are deductible.
false
Commuting between home and one's place of employment is deductible.
false
Cost depletion enables the taxpayer to recover more than the cost of an asset.
false
Every year, ABC Corporation gives each employee a fruit basket and a box of chocolate at Christmas. These gifts are subject to the 50% rule.
false
If an automobile has mixed use (i.e., both personal and business), maintaining a record of business miles driven is not necessary.
false
Intangible drilling costs must be capitalized and written off through depletion.
false
Land may be depreciated, but buildings cannot be depreciated.
false
Self-created goodwill has a 15-year amortization period regardless of the actual useful life of the goodwill.
false
Sole proprietors, engaged in a business, that deduct depreciation on the Schedule C that accompanies Form 1040 do not need to complete Form 4562, Depreciation and Amortization.
false
Taxpayers may not elect straight-line depreciation under ADS.
false
The basis of cost recovery property must be reduced by the lesser of cost recovery allowed or allowable.
false
The cost recovery basis for property converted from personal use to business use is always the fair market value of the property at the time of the conversion.
false
The key date for calculating cost recovery is the date the asset is purchased.
false
The § 179 expensing election is a semiannual election that applies to the acquisition cost of property placed in service that year.
false
Unrecovered investment in an annuity will be subject to the 2%-of-AGI floor limitation.
false
Unreimbursed employee business expenses are deductible as a miscellaneous itemized deduction.
false
Record-keeping requirements are not required of self-employed taxpayers.
falses
Section 179 expensing is also known as:
immediate expense election
Which of the following types of miscellaneous itemized deductions is not subject to the 2%-of-AGI floor?
impairment-related work expenses of individuals with a disability
Another word for a self-employed individual is:
independent contractor
Costs incurred in making a property ready for drilling, such as the cost of labor in clearing the property, erecting derricks, and drilling the hole, are examples of:
intangible drilling and development costs
All of the following are subject to depletion, except:
land
Proper substantiation by adequate records includes all of the following for an accountable plan, except:
no records of expenses
Which of the following statements best describes the nature of property?
property includes both real and personal property
Which of the following Code Sections covers the topic of amortization?
section 197
Section 179 expensing is subject to which of the following limitations?
the ceiling cannot exceed $1,050,000 for 2021
All eligible real estate under MACRS is permitted one-half month of cost recovery in the month of disposition.
true
Allowable itemized deductions are deductible from AGI in arriving at taxable income.
true
An accountable plan is a plan where an adequate accounting or return of excess amounts, or both, is not required.
true
Automobile title and registration fees are deductible as itemized deductions.
true
By itself, a credit card receipt will not constitute adequate substantiation for travel expenses.
true
Cash basis taxpayers are entitled to deduct state income taxes in the year payment is made.
true
Congress enacts laws that provide tax incentives for education.
true
Depletion reported by a sole proprietor is reported on Schedule C.
true
Distributions from a Roth IRA that are subject to taxation are treated first as from contributions and last as from earnings.
true
Employers may reimburse employees with a per diem allowance, a flat dollar amount per day of business travel.
true
For 2021, the maximum annual contribution to a traditional IRA for an unmarried taxpayer who is age 35 is the smaller of $6,000 or the individual's compensation for the year.
true
Gary makes his living as a driver for Uber. For tax purposes, his car is not considered a passenger automobile.
true
If a taxpayer uses regular MACRS for 15- and 20-year class property, an alternative minimum tax adjustment is not necessary with respect to the depreciation on that property.
true
In choosing between the actual cost method and the automatic mileage method, a taxpayer should consider the cost of insurance on the automobile.
true
Land improvements generally are eligible for cost recovery.
true
Landon resides in a nursing home primarily for medical reasons rather than personal reasons. Costs for meals and lodging can be included in determining his deductible medical expenses.
true
Medical expenses need not relate to a particular ailment in order to be deductible. The cost of a periodic physical exam is deductible even though it relates to the taxpayer's general state of health.
true
Most personal expenses like medical expenses, certain taxes, mortgage interest, and charitable contributions are deductible from AGI.
true
The alternative depreciation system is used to calculate the portion of depreciation treated as an alternative minimum tax (AMT) adjustment for purposes of the individual AMT.
true
The cost of a covenant not to compete for 20 years incurred in connection with the acquisition of a business is amortized over 15 years.
true
The cost of listed property that was initially not predominantly used for business must always be recovered via the straight-line method even if the property becomes predominantly used for business at some later date.
true
Tired of her 60-mile daily commute, Lilly purchases a condo that is only five miles from her job. Lilly's moving expenses to her new condo are disallowed and cannot be claimed by her as a deduction.
true
Travel expenses include transportation expenses, meals, lodging, and incidental expenses while working away from home.
true
When a business is being purchased, goodwill and covenants not to compete are both subject to a statutory amortization period of 15 years. The cost of equipment is depreciated over a seven-year recovery period.
true
