Income Tax Ch14 Business Deduction
(Necessary Rental and Similar Payments/DEDUCTION)42. Starr's Estate v. Commissioner <Necessary Rental and Similar Payments>
Fire sprinkler system leased , but considered as a sale; taxpayer can take interest deduction for part of the payment made. <Necessary Rental and Similar Payments continue business can deduct>
(Totally Destroy/business/天災人禍/1231 loss) 61.T has car used exclusively in T's business which was purchased for $40k and, as a result of depreciation deductions, has an AB of $22k. When car was worth $30k, it was totally destroyed in accident and T rec'd $15k or insurance proceeds. (a) What is T's deductible loss under § 165?
(i) AB? $22k (ii) AR as a result of destruction of prop = $15k (iii) 15k-22k= Oridinary loss $7k under Section 1231(a)(4)(c)
(Partial Destroy/business/天災人禍/1231 loss/FM前後 vs A/B選小的)62. (b)What result in (1) if the car had not been totally destroyed but was worth $10k after the accident?
(i) Reg. 1.165-7(b)(1). Amount Deductible (for casualty loss) - In the case of any casualty loss whether or not incurred in a trade or business or in any transaction entered into for profit, the amount of loss to be taken into account for purposes of § 165(a) shall be the lesser of either - (A) The amount which is equal to the FMV of the prop immediately before the casualty reduced by the FMV of the prop immediately after the casualty; or (B) The amount of the AB prescribed in § 1.1011-1 for determining the loss from the sale or other disposition of the prop involved. (ii) [when property is not totally destroyed the amount of the loss should be the lessor of either (the amount equal to the FMV of the property - FMV of property immediately after the casualty) or the (adjusted basis of the property)] (iii) AB = $30 - $10 = $20k (under option (A) above (FMV). Under (B), it would be $22k (AB). Loss is $20k, but AR is $15k (insurance proceeds) = so deductible loss is $5k (-20k+15k) Section 1231 loss
(Fixing/NEW BASE=Adjusted Basis-Insurance Proceeds- Loss+Fix/business/天災人禍/1231 loss)63. (c) In (b), what is T's AB in the car assuming T incurs $17k fixing the car?
(i) This $17k will add to basis of car. Question is what was the basis before he fixed it up? Start w/ AB of $22k. From this deduct insurance proceeds (return of capital) of $15k. Then AB = $7k. What effect should the loss have on the basis? Should be deducted. (§ 1016(a)(1)). Loss is $5 so AB = $2k. Add the $17 that has been put in, AB = $19k **Adjusted Basis-Insurance Proceeds- Loss+Fix = New Adjusted Basis** (A) $22k = AB (B) ($15k) = insurance proceeds (C) ($5k) = loss (loss is deducted from basis - § 1016(a)(1)) (D) $17k = repairs (E) AB = $19k
(195<$50000)19.Example 3: Assume T incurred startup costs of $23,000 on April 1, 2014, and began business on May 1. The entry to record the startup costs for tax purposes is:
. T may deduct $5,000 immediately and the remaining $18,000 of startup costs at the rate of $100 a month ([$23,000 — $5,000] ÷ 180). The entry to record the startup costs for tax purposes is: Startup costs expense $ 5,000 Deferred startup costs $18,000 Cash $23,000 At the end of calendar year 2014, T would record $800 in amortization expense (8 months × $100 per month) for the deferred $18,000 startup costs: Amortization expense— startup costs $800 Deferred startup costs $800 In 2015 and later years until T has fully amortized the startup costs, she records $1,200 (12 months × $100 per month) in amortization expense for the deferred startup costs: Amortization expense¬— startup costs $1,200 Deferred startup costs $1,200
(b-trip<1yr)32. Temporary works for Employer in City, where Temporary and his family live. (a ) Employer has trouble in Branch City Office in another state. She asks Temporary to supervise the Branch City office for 9 months. Temporary's family stays in City and he rents an apartment in Branch City. Are Temporary's expenses in Branch City deductible? <Specific Business Deduction: Travel Away From Home>
Ans: Deduction under Section 162 (a) (2)
(b-reimburse/deduction)52.(e ) What result in (a) , above, if Employer reimburses Employee for the $200 tab(bill)? <Miscellaneous Business Deduction>
Ans: Deduction under Section 274(e)(3) which allows reimbursement of business expenses and up to 50% for meal expense.
(job-related/pilot/clean uniform/deduction)55.Airline Pilot incurs the following expenses in the current year: (2) $30 for dry cleaning the uniform. <Miscellaneous Business Deduction>
Ans: Deduction under § 162 Maintaining the uniform in its useful condition is deductible.
(job related/union due/ deduction) 57. Airline Pilot incurs the following expenses in the current year: (4) $200 in union dues. <Miscellaneous Business Deduction>
Ans: Deduction under § 162. Union due is part of job.
(meals & entertainment/face value/50%)53. Businessperson who is in New York on business meets with two clients and afterward takes them to the Broadway production of Jersey Boys. To what extent is the $600 cost of their tickets deductible if the marked price on the tickets is $100 each, but Businessperson buys them from the hotel concierge for $200 each? <Miscellaneous Business Deduction>
Ans: (i) § 274(l)(1)(A) - Only get deduction on face value (ii) § 274(n)(1)(B) - Only deduct 50% of entertainment expenses. (iii) So, 有3個人 (100 X 3) X 50% ( only deduction 50% of entertainment expense)=150
(partial business)25. Commuter owns a home in Suburb of city and drives to work in City each day, He eats lunch in various restaurant in City. (b) Same as (a), above, but Commuter is an attorney and often must travel between his office and the City court House to file papers, try cases, etc. May Commuter deduct all or any of his costs of transportation and meals? <Specific Business Deduction: Travel Away From Home>
Ans: *Transportation - Deduction. B/C Section 162(a)(2) and it is travel from work to another location. *Meal - No Deduction B/C the meals would have been purchased anyway. Meals are Deduction ONLY if your business trip is overnight or long enough to require that you stop for sleep or rest.
(overnight meal deduction) 26.Commuter owns a home in Suburb of city and drives to work in City each day, He eats lunch in various restaurant in City. (C) Commuter resides and works in City, but occasionally must fly to Other City on business for his employer. He eats lunch in Other City and returns home in the late afternoon or early evening. May he deduct all or a part of his costs? <Specific Business Deduction: Travel Away From Home>
Ans: *Transportation- Deduction B/C 162 (a) (2) He is traveling away from home in the pursuit of a trade or business. *Meals - No Deduction B/C your business trip must be overnight or long enough to require that you stop for sleep or rest.
(daily commute)24. Commuter owns a home in Suburb of city and drives to work in City each day, He eats lunch in various restaurant in City. (a) May Commuter deduct his costs of transportation and/ or meals? See Reg Section 1.162-2(e) <Specific Business Deduction: Travel Away From Home>
Ans: *Transportation- No Deduction § 1.162-2 Traveling expenses (e) Commuters' fares are not considered as business expenses and are not deductible *Meal - No Deduction. B/C personal meal is a personal expense
(b-trip/maintain apt)28. Taxpayer lives with her husband and children in City and works there. (b) Same as (a), above, except that she works three days and spends two nights each week in Metro and maintains an apartment there. <Specific Business Deduction: Travel Away From Home>
Ans: 1)we have the apartment of employee in metro is major and minor places of duty 2)Major place of duty: major post of duty being one's primary place of business. Minor place of duty: minor post of duty 3)Deduction Must be: Temporary and minor post of duty
(job-related/pilot/uniform/deduction) 54.Airline Pilot incurs the following expenses in the current year: (1) $250 for the cost of a new uniform. <Miscellaneous Business Deduction>
Ans: Uniform- Deductible under § 162 B/C this is a job requirement. Suit - No Deduction B/C this is a personal item.
(b-education deduction/same business/meeting requirement of employer)44.Alice, Barbara, Cathy, and Denise were college roommates who after graduating went on to become a doctor, a dentist, an account (C.P.A), and a lawyer, respectively. In the current year, after some time in practice as an orthopedic surgeon, Alice, who was often called upon to give medical testimony in malpractice suit, decided to go to law school so as to better understand this aspect of her medical practice. Barbara enrolled in a course of postgraduate study in orthodontics, intending to restrict her dental practice to that specialty in the future. Cathy enrolled part time in law school (with eventual prospects of attaining degree) so as better to perform her accounting duties in areas in which law and accounting tend to overlap. And Denise took a leave of absence from her firm to enroll in an LL.M course in taxation, intending to practice exclusively in the tax area. Which if any, is incurring deductible expenses of education? <Specific Business Deduction: Expense for Education>
Ans: Alice-Doctor-Law :No Deduction Barbrar-Dentist-Orthodonis: Deduction Cathy-CPA-Law :No Deduction Denise-Lawyer-Taxation :Deduction * Account-CPA: No deduction B/C 1.162-5(b) The general rule is that expenditures for education must be 1)"maintain or improve skills "required by the individual in his employment or other trade or business. 2)Meet requirement of employment. Enter new business is NO Deduction. Minimum education requirement is NO Deduction.
(overnight b-trip) 27. Taxpayer lives with her husband and children in City and works there. (a) If her employer sends her to Metro in business for two days and one night each week and if Taxpayer is not reimbursed for her expenses, what may she deduct? See Section 274 (n) (1) <Specific Business Deduction: Travel Away From Home>
Ans: Everything under Section 162- Deduction, except 50% of the meals. B/C Section 274 (n) (1) limits the deduction for meals and entertainment to 50 %
(b-trip/maintain apt /back visiting family)29.Taxpayer lives with her husband and children in City and works there. ( c ) Taxpayer and Husband own a home in City and Husband works there. Taxpayer works in Metro, maintaining and apartment there., and travels to City each weekend to visit her husband and family. What may she deduct? See Robert A. Coerver, 36 T.C 252 (1961), affirmed per curiam 297 F. 2d 837 (3d Cir. 1962), and Virginia Foote, 67 T.C. 1 (1976) <Specific Business Deduction: Travel Away From Home>
Ans: No Deduction. B/C these are all personal expenses under Section 262.
(B-trip/ personal > business/機票不能deduction)37.(c) What result in (a), above, if Traveler stays in Florida until Sunday afternoon? <Specific Business Deduction: Travel Away From Home>
Ans: (1,2,3),4,5,6,7 $315, The plane is no deduction B/C Section 1.162-(2)(b)(ii) disallows travel expense for business trip becomes "primarily for personal business." *4days business trip > 3days business trip, this is primarily personal trip.
(Foreign B-trip /> 7days/ personal >25%/Allocation) 40. (f)What result in (e), above, if Traveler went to Mexico City on Thursday and conducted business on Thursday, Friday, Monday, and Tuesday, and returned to New York on the succeeding Friday night? See Reg 1.274-4(d)(2)(v) <Specific Business Deduction: Travel Away From Home>
Ans: (4,5,6,7,1,2),3,4,5 6/9 days business: DEDUCTION 3/9 days personal: 33%>25% of time in this trip. NO DEDUCTION
(Domestic B-trip)35.Traveler flies from her personal and tax home in New York to a business meeting in Florida on Monday. The meeting ends late Wednesday and she flies home on Friday afternoon after two days in the sunshine. (Plane$500, Hotel$100/night, Meals$10/day) (a) To what extent are Traveler's transportation, meals, and lodging deductible? See Reg Section 1.162-2 (a) and (b) <Specific Business Deduction: Travel Away From Home>
Ans: 1,2,3 ,4 ,5 Deduction: Plane$500, Hotel$300, Meals$15 under 274(n) (1) -Total $815
(disposition before amortization close)12. Determine the deductibility under section 162 and 195 of expense incurred in the following situations.(d) The fact are the same as in (c) , above, and Tycoon purchases a sport team. However, after two years Tycoon's fortunes turn sour and she sells the team at loss. What happens to the deferred investigation expense? <business deduction: Carry on >
Ans: DEDUCTION. B/c Start-up expense is deductible up to $5000. Rest will be amortize. Disposition before the close of amortization period-DEDUCT by section 165
(same business)10. Determine the deductibility under section 162 and 195 of expense incurred in the following situations.(b) The facts are the same as in (a), above, except that Tycoon, rather than having been a doctor, was a successful developer of residential and shopping center properties. <business deduction: Carry on >
Ans: DEDUCTION. B/c same business
(different business)16. Law school student's spouse completed secretarial school just prior to student entering law school. Consider whether Spouse's employment agency fees are deductible in the following circumstances: (d) Same as (a) and (b), above, except that Spouse previously worked as a secretary in Old Town and seeks employment in New Town where student attend law school <business deduction: Carry on >
Ans: DEDUCTION. B/c she is already in business.
(就業保證班/baseball case)15. Law school student's spouse completed secretarial school just prior to student entering law school. Consider whether Spouse's employment agency fees are deductible in the following circumstances: (c) Same as (b), above, except that Agency 's fee was contingent upon its securing employment for spouse and the payment will not become due until Spouse has begun working. <business deduction: Carry on >
Ans: DEDUCTION. Baseball case. Tax court earlier sensibly made an exception in a situation where services were rendered to one who was to become the employee of a third party prior to the commencement of his employment, but payment for those services was contingent(附帶) upon his becoming employed. securing employment (the probability that an individual will keep his job . A job with a high level of job security is such a person with the job would have a small chance of being unemployed.)
(meals & entertainment) 48.Employee spends $200 taking 3 business clients to lunch at a local restaurant to discuss a particular business matter. The $200 cost includes $10 tax and $30 for a trip. They each have two martinis before lunch. (a) To what extent are Employee's expenses deductible? <Miscellaneous Business Deduction>
Ans: Deduction 200*50%=100 B/C Section 162 allows for the business deduction and Section 274(n) limit meal deduct up to 50%.
(Foreign B-trip)39. (e) What result in (a), above, if Traveler's trip is to Mexico City rather than Florida? Section 274(c) <Specific Business Deduction: Travel Away From Home>
Ans: Deduction. <Domestic B-trip>1) allocation required if business+personal.2) compare time. 3)If personal >business, only business part can deduct. <Foreign B-trip>1) allocation required if business+personal.2)<7 days (business+personal) 3) personal <25%. * If you meet one of <7days/personal <25%, ENTIRE business trip. If you don't meet at least one of & personal >25%. 蒐集2個叉叉You have to allocate.
(Inside North America/ convention, seminar, or similar meeting/deduction) 41. (g) What result in (e ), above, if Traveler's trip to Mexico City is to attend a business convention? See Section 274(h) <Specific Business Deduction: Travel Away From Home>
Ans: Deduction. B/C Mexico City is in North America <Business convention> Outside North America no deduction, b/c irs doesn't want ppl deduct vacation. Unless you have a very good reason and relate to business outside North America.
(advertising)7.Landlord incurs the following expenses during the current year on a ten-unit apartment complex. Is each expenditure a currently deductible repair or a capital expenditure?(e) $100 for advertising for a tenant to occupy an empty apartment. <business deduction: Expense paid or incurred>
Ans: Deduction. B/C it is an ordinary and necessary.
(repair/maintenance)3. Landlord incurs the following expenses during the current year on a ten-unit apartment complex. Is each expenditure a currently deductible repair or a capital expenditure? (a) $500 for painting 3 rooms of one of the apartments. <business deduction: Expense paid or incurred>
Ans: Deduction. It is a repair.
(transportation to restaurant/deduction) 51.(d)What result in (a), above, if, in addition, Employee incurs a $20 Uber fare to transport the clients to lunch? <Miscellaneous Business Deduction>
Ans: Deduction. This is a business transportation. *This is a business expense not a meal limited to 50%.
(facilitate future benefit)8.Suppose the taxpayer in INDOPCO had performed some of the services in connection with the takeover transaction itself" in house." Would the regulations require those expenses to be capitalize? See Reg.1.263(a)-5(d)(1) and (2). Compare that situation with the taxpayer who pays an employee in connection with the construction of a new building. Is the difference in the result justified? <business deduction: Expense paid or incurred>
Ans: Facilitate future benefir/ INTNAGIBALE ASSET: Outside Counsel- NO DUDECTION Inside Employee Salary - DEDUCTION
(big holder)21. Employee is the majority shareholder (248 of 250 outstanding shares) and president of Corporation, shortly after Corporation was incorporated, its Directors adopted a resolution establishing a contingent compensation contract for Employee, The plan provided for Corporation to pay Employee a nominal salary plus an annual bonus based on a percentage of Corporation's net income. In the early years of the plan, payments to Employee averaged $50000 annually. In recent years, Corporation's profits have increased substantially and as a consequence, Employee has received payment averaging more than $200000 per year. (a) What are Corporation's possible alternative tax treatments for the payment <Specific Business Deduction: Reasonable Salary>
Ans: Generally, a salary must be a free bargain if a salary is not a free bargain it must be reasonable to be deductible by employer.
(small holder)23. Employee is the majority shareholder (248 of 250 outstanding shares) and president of Corporation, shortly after Corporation was incorporated, its Directors adopted a resolution establishing a contingent compensation contract for Employee, The plan provided for Corporation to pay Employee a nominal salary plus an annual bonus based on a percentage of Corporation's net income. In the early years of the plan, payments to Employee averaged $50000 annually. In recent years, Corporation's profits have increased substantially and as a consequence, Employee has received payment averaging more than $200000 per year. (c) The problem assumes Employee always owned 248 if the corporation's 250 shares. Might it be important to learn that the compensation contract was made at a time when Employee held only 10 out of the 250 outstanding shares? <Specific Business Deduction: Reasonable Salary>
Ans: If employee only owned a small percentage of the shares, it is very likely his salary is based on a "free bargain"
(B-trip-water travel)38.(d) What result in (a), above, if Traveler takes a cruise ship leaving Florida on Wednesday night and arriving in New York on Friday? Section 274(m)(1) <Specific Business Deduction: Travel Away From Home>
Ans: It depends on how much is cruise, No deduction shall be allowed under Section 274(m) (1) for expenses incurred for transportation by water to the extent such expenses exceed twice the aggregate for per diem amounts for days of such transportation. Per diem: 美國本土出差的每日津貼
(1st job)13. Law school student's spouse completed secretarial school just prior to student entering law school. Consider whether Spouse's employment agency fees are deductible in the following circumstances: (a) Agency is unsuccessful in finding Spouse a job. <business deduction: Carry on >
Ans: NO DEDUCTION. B/c 1st job
(1st job)14. Law school student's spouse completed secretarial school just prior to student entering law school. Consider whether Spouse's employment agency fees are deductible in the following circumstances: (b) Agency is successful in finding Spouse a job <business deduction: Carry on >
Ans: NO DEDUCTION. B/c 1st job
(different business)9. Determine the deductibility under section 162 and 195 of expense incurred in the following situations.(a) Tycoon, a doctor, unexpectedly inherited a sizeable amount of money from an eccentric millionaire. Tycoon decided to invest a part of her fortune in the development of industrial properties and she incurred expense in making a preliminary investigation <business deduction: Carry on >
Ans: NO DEDUCTON. B/c not in the business.
(different business)17. Law school student's spouse completed secretarial school just prior to student entering law school. Consider whether Spouse's employment agency fees are deductible in the following circumstances: (e) Same as (d), above, except that Agency is successful in finding Spouse a job in New Town as a bank teller. <business deduction: Carry on >
Ans: NOT DEDUCTION. B/c Different business.
(different business)11. Determine the deductibility under section 162 and 195 of expense incurred in the following situations.(c) The facts are the same as in (b), above, except that Tycoon, desiring to diversify her investment, incurs expense in investigating the possibility of purchasing a professional sport team. <business deduction: Carry on >
Ans: NOT DEDUCTION. B/c not in same business. 原本是 developer of residential & shopping center現在要sport team
(job related/political influence legislation/no deduction) 58.Airline Pilot incurs the following expenses in the current year: (5) $50 in political contributions to his local legislator who he hopes will push legislation beneficial to airline pilots. <Miscellaneous Business Deduction>
Ans: No Deduction under Section 162 (e) (1) No deduction:/influencing legislation/ participate campaign/ attempt to influence general public/ direct communication with official
(obvious personal trip)47.Dentist attends a five days dental seminar at a ski resort. All of the seminar proceedings are taped and Dentist skis on clear days and watches all of the tapes on snowy days or in other off-the slopes time prior to his return home. Are Dentist's travel, meals and lodging deductible? <Specific Business Deduction: Expense for Education>
Ans: No Deduction under Section 262. These are personal expenses.
(travel as a form of education) 46.Carl earned a bachelor's degree in education and he teaches would history in a junior high school. In the current year, he contemplates a summer European tour doing things that will be beneficial to his teaching efforts. He wishes to know if he may deduct his expense. What do you advise? See IRC 274 (m) (2) <Specific Business Deduction: Expense for Education>
Ans: No Deduction under Section 274 (m) (2) disallow travel expenses as a form of education.
(repair/maintenance)5.Landlord incurs the following expenses during the current year on a ten-unit apartment complex. Is each expenditure a currently deductible repair or a capital expenditure?(c) $1000 for patching the entire asphalt parking lot area. <business deduction: Expense paid or incurred>
Ans: No Deduction. Repair - Deduction. New one - Capital
(job related/pilot/gym/no deduction) 59. Airline Pilot incurs the following expenses in the current year: (6) $500 in fees to a local gym to keep in physical shape for flying. <Miscellaneous Business Deduction>
Ans: No Deduction. B/C Personal benefit > business under Section 262
(no file voucher)2. Employee incurred ordinary and necessary expense on a business trip for which she was entitled to reimbursement upon filing a voucher. However, Employee did not file a voucher and was not reimbursed but, instead, deducted her costs on her income tax return. Is Employee entitled to a section 162 deduction? See Heidt v. Commissioner. 274 F.2d 25 (7th Cir. 1959) <business deduction:Ordinary & Necessary>
Ans: No Deduction. B/C refuse is not ordinary and necessary.
(family move here/no duplicate expense) 34.Temporary works for Employer in City, where Temporary and his family live. ( c) What result in (a) , above, if Temporary and his family had lived in a furnished apartment in City and he and family gave the apartment up and moved to Branch City where they lived in a furnished apartment for the 9 months? Compare J. B. Stewart, 30 T.C.M. 1316 (1971), with Alvin L. Goldman, 32 T.C.M. 574 (1973) <Specific Business Deduction: Travel Away From Home>
Ans: No Deduction. B/C there is no duplicate expense.
(add new)6.Landlord incurs the following expenses during the current year on a ten-unit apartment complex. Is each expenditure a currently deductible repair or a capital expenditure?(d) $3000 for adding a carport to an apartment <business deduction: Expense paid or incurred>
Ans: No Deduction. It adds new one
(job-related/chasing different business/no deduction)56.Airline Pilot incurs the following expenses in the current year: (3) $100 in newspaper ads to acquire a new job as a property manager in his spare time. <Miscellaneous Business Deduction>
Ans: No Deduction. under § 162. Expenses of entering into a new business are not deductible. These are preparatory.
(B-trip w/ spouse)36.(b)May Traveler deduct any of her spouse's expenses if he joins her on the trip? Section 274(m)(3) <Specific Business Deduction: Travel Away From Home>
Ans: No deduction for spouse under 174(m)(3)
(no one show up no deduction) 50.(c)What result if Employee merely sends the three clients to lunch without going herself but picks up their $150 tab? <Miscellaneous Business Deduction>
Ans: No deduction. B/C Section 274k requires that taxpayer or an employer or an employee or the taxpayer is present at the furnishing of food or beverages.
(2 places w/o ask)30.Burly is a professional football player for the City Stompers. He and his wife own a home in Metro where they reside during the 7 month" off season". (a ) If Burly's only source of income is his salary from the Stompers, may Burly deduct any of his City living expense which he incurs during the football season? See Ronals L. Garden, 64 T.C 1079 (1975) <Specific Business Deduction: Travel Away From Home>
Ans: No deduction. B/C employer did not require him to have two places. This makes a personal expense under section 262.
(b-trip>1yr)33.Temporary works for Employer in City, where Temporary and his family live. (b )What result in (a), above, if the time period is expected to be nine months, but after eight month it is extended to 15 months? See Rev. Rul 93-86, 1993-2 C.B. 71 <Specific Business Deduction: Travel Away From Home>
Ans: No deduction. B/C it exceeds 1 year.
(repair/maintenance)4. Landlord incurs the following expenses during the current year on a ten-unit apartment complex. Is each expenditure a currently deductible repair or a capital expenditure?(b) $4000 for replacing the roof over one of the apartments. The roof had suffered termite damage. <business deduction: Expense paid or incurred>
Ans: Part roof- Repair -Deduction Entire roof- Improvement- No Deduction
(b-education/same business) 45.Assume Denise's expenses in problem 1, above, are deductible. If she is a practitioner in Seattle, Washington, who travels to Gainesville, Florida for a year to participate in their LL.M. program, what expense, in addition to tuition and books, may she deduct? See Reg 1.162-5(e) and IRC 274(n) <Specific Business Deduction: Expense for Education>
Ans: Travel -Deduction Lodging -Deduction Meal -50% Deduction. <Education Expense Deduction> must be 1)"maintain or improve skills "required by the individual in his employment or other trade or business. 2)Meet requirement of employment. Enter new business is NO Deduction. Minimum education requirement is NO Deduction.
(save company's life)1. Taxpayer is a businessman, local politician who is also an officer director of a savings and loan association of which he was a founder. When, partially due to his mismanagement, the savings and loan began to go under, he voluntarily donated nearly one half a million dollars to help bail it out. Is the payment deducible under section 162? See Elmer W. Conti, 31 T.C.M. 348 (1972) <business deduction:Ordinary & Necessary>
Ans: YES, deduction 1) In this problem, the debts are still outstanding and the taxpayer is trying to save the business. 2) Welch del with debt that had been discharged through bankruptcy 3) In Welch the business was already gone, and Welch was simply trying to save the reputation of the business
(second job/second home)31.Burly is a professional football player for the City Stompers. He and his wife own a home in Metro where they reside during the 7 month" off season" ( b)Would there be any difference in result in (a), above, if during the 7 month "off" season" Burly worked as an insurance salesman in Metro? <Specific Business Deduction: Travel Away From Home>
Ans: Yes, if major post of duty is changed.
(independent invest test )22. Employee is the majority shareholder (248 of 250 outstanding shares) and president of Corporation, shortly after Corporation was incorporated, its Directors adopted a resolution establishing a contingent compensation contract for Employee, The plan provided for Corporation to pay Employee a nominal salary plus an annual bonus based on a percentage of Corporation's net income. In the early years of the plan, payments to Employee averaged $50000 annually. In recent years, Corporation's profits have increased substantially and as a consequence, Employee has received payment averaging more than $200000 per year. (b) What factors should be considered in determining the proper tax treatment for the payments? <Specific Business Deduction: Reasonable Salary>
Ans: independent invest test can apply to "free bargain"
60. What is the total of pilot's deductible Section 162 expense? <Miscellaneous Business Deduction>
Ans:$450
(Transfer to son/rental deduction) 43. A doctor would transfer her office and equipment to her Child who would then lease the property to Doctor for its fair rental value. As rent was paid it would be paid and taxed to Child and Doctor would claim a Section 162(a)(3)deduction. the matter would look like this: Before: Doctor Income $100000. Rent to Child:20000 <Necessary Rental and Similar Payments>
Before: Doctor Income $100000 After: Doctor Child Income $100000 Rent -$20000 Rent $20000 Income taxed $80000 Income Taxed $20000
(195>$50000)18.Example 2: The startup costs for XYZ Corp. are $52,000. The entry to record the startup costs for tax purposes is:
Startup costs expense $ 3,000 Deferred startup costs $49,000 Cash $52,000 XYZ may deduct $3,000 ($5,000 — [$52,000 — $50,000]) of these costs currently. XYZ amortizes the remaining $49,000 ($52,000 — $3,000) of startup costs over 180 months, beginning in the month it begins the active conduct of its business (Sec. 195(b)(1)(B)).
(195 Loss on startup cost)20.Example 4: After recording 40 months of amortization of the deferred startup costs, T sold the business.
T may deduct $14,000 ($18,000 — [40 × $100]) as a loss. The entry to record this loss for tax purposes is: Loss on deferred startup costs $14,000 Deferred startup costs $14,000
(touch base no deduction) 49.(b)To what extent are the meals deductible if the lunch is merely to touch base with the clients? <Miscellaneous Business Deduction>
Touch base: talk to someone at short time Ans: No deduction. Section 274 (a) networking and building good will does not constitute active business deduction.
