Question: a. What is a passive activity? b.

> Why are strict recordkeeping requirements required for the deduction of entertainment expenses?

> Len incurs $5000 of deductible moving expenses in the current year and is fully reimbursed by his employer in the same year. a. How are the expense deduction and the reimbursement reported on Len’s tax return if he uses the standard deduction? b. What

> In a rage because of personal difficulties, Evan drove recklessly and crashed his automobile, doing $8,000 worth of damage. Fortunately, no one was injured. Since Evan received two speeding tickets during the past year, he is concerned about losing his i

> Does it matter whether a moving expense is incurred by an employee, a self-employed individual, or an unemployed person?

> What are the two basic requirements that must be met to permit a deduction for moving expenses?

> Discuss the reporting procedures that should be followed by an employee to report employment related expenses on his or her tax return under the following conditions: a. Expenses are less than reimbursements, and no accounting is made to the employer.

> If an employee or self-employed individual uses the actual method of deducting automobile expenses and claims depreciation for the first two years of business use, can the individual switch to the standard mileage rate method for the third year and beyon

> During 2017, Doug incurs the following deductible expenses: $2,300 in state income taxes, $3,000 in local property taxes, $800 in medical expenses, and $2,000 in charitable contributions. Doug is 33, single, has no dependents, and has $35,000 AGI for the

> If an employee (or self-employed individual) uses the standard mileage rate method for the year in which an automobile is acquired, may the actual expense method be used in a subsequent year? If so, what restrictions are imposed (if any) on depreciation

> If an employee receives a reimbursement of 40 cents a mile from her employer for employment related transportation expenses, is the employee permitted to deduct the difference between the standard mileage rate and the reimbursement rate as an unreimburse

> If an employee receives a specific monthly amount from his or her employer as a reimbursement for employment-related entertainment, travel, and transportation expenses, why is it necessary to allocate a portion of the total reimbursement to each expense

> Louie is a full-time employee for a large corporation and also an investor in the stock market in his spare time. In the current year, Louie incurs $2,500 of travel expenses and $1,000 in registration fees related to attending investment seminars. He ded

> Latoya, a college professor, takes a nine-month leave of absence from her employment at a college in Ohio and accepts a visiting professorship (temporary assignment) at a college in Texas. Latoya leaves her husband and children in Ohio and incurs the fol

> Five years ago, Cora incorporated Gold, Inc., by contributing $80,000 and receiving 100% of the Gold common stock. Gold, Inc. is engaged in a retail business. Cora is single. Gold experienced financial difficulties. On December 22 of the current year, Co

> Kelly is an employee who incurs $2,200 of business meal expenses in connection with business entertainment and travel, none of which are reimbursed by her employer. $500 of the business meal costs are considered to be lavish or extravagant. How much can

> In each of the following cases involving travel expenses, indicate how each item is reported on the taxpayer’s tax return. Include any limitations that might affect its deductibility. a. Marilyn lives in Houston and owns several rental properties in Den

> Which of the following deduction items are subject to the 2% nondeductible floor applicable to miscellaneous itemized deductions? a. Investment counseling fees b. Fees for tax return preparation c. Unreimbursed professional dues for an employee d. Ga

> Determine whether the following expenses are either deductible for AGI or from AGI or nondeductible on an employee’s return. Indicate whether the expenses are subject to the 2% nondeductible floor for miscellaneous itemized deductions. a. Automobile exp

> Why is it important to distinguish whether an individual is an employee or an independent contractor (self-employed)?

> On April 1 of the current year, Henry borrows $12,000 from the bank for a year. Because the note is discounted for the interest charge and Henry receives proceeds of $10,200, he is required to repay the face amount of the loan ($12,000) in four equal qua

> Jim had $100,000 in deposits in a savings account at a bank in Page, Arizona. The bank collapsed and Jim did not receive anything for his deposits. The bank was chartered by the state of Arizona and was not insured by federal law. Jim is not sure what hi

> On November 15, Alex and Deanna Kent come to you for tax advice. The Kents, a married couple that files a joint tax return, own a rental home in Southern California. From January to November 1 of the current year, they rented out the home for 210 days. S

> Jace Seaton is a single taxpayer living in Eugene, Oregon. From 2013 to 2016, he worked as the CEO of Wengren & Jeffers, a local architectural firm. In 2017, he left the firm to start his own company as well as spend more time golfing and travelling. On

> In 2014, Annie Cook and several family members formed Treehouse Rentals, Inc., in Denver, Colorado. Treehouse is a closely held C corporation engaged in the rental real estate business. Treehouse properly classifies its activities as passive. In 2014, 20

> On January 12 of the current year, Barney Corporation, a publicly held corporation, files for bankruptcy. During the bankruptcy proceedings it is determined that creditors will only receive 10% of what they are owed and that the shareholders will receive

> During 2017, Karen, a single taxpayer, reports the following income and expense items relating to her interior design business: Revenues………………………………….$52,000 Cost of goods sold……………………….41,000 Advertising………………………………….3,300 Office supplies……………………………...

> Assume the same facts as in Problem I:8-56, except that the interest on their personal residence is $12,100 and they also have a $4,500 deductible casualty loss on personal property (after limitations). a. What is Michelle and Mark’s taxable income or lo

> Assume the same facts as in Problem I:8-56, except in addition to the other itemized deductions Michelle and Mark suffer a $4,500 deductible personal casualty loss (after limitations). a. What is Michelle and Mark’s taxable income or loss for the year?

> Michelle and Mark are married and file a joint return. Michelle owns an unincorporated dental practice. Mark works part-time as a high school math teacher, and spends the remainder of his time caring for their daughter. During 2017, they report the follo

> Assume the same facts as in Problem I:8-54, except that Becky and Ken are not related and that under the terms of the loan Ken agrees to repay Becky the $5,000 plus interest (at a reasonable stated rate) over a five-year period. What is Becky’s bad debt

> During 2016, Becky loans her brother Ken $5,000, which he intends to use to establish a small business. Because Ken has no other assets and needs cash to establish the business, the agreement provides that Ken will repay the debt if (and when) sufficient

> Can a casualty loss on a personal-use asset create or increase an NOL? Explain.

> Much has been written about abusive practices concerning the valuation of noncash property donated to qualified charities. under sec. 170, both corporations and individuals may deduct the fMv of property contributed to charitable organizations. of course

> Is the $100 floor on personal-use casualty losses imposed on each individual loss item if more than one item of property is destroyed in a single casualty? Is the floor imposed before or after the casualty gains are netted against the casualty losses?

> For individuals, how are casualty losses on personaluse property reported on the tax return? How are casualty losses on business property reported?

> Under what circumstances a loss arising from a casualty or theft may be deducted in a year other than the year in which the loss occurs?

> Compare and contrast the computational rules for deducting casualty losses on personal-use property with casualty losses incurred on business or investment property.

> During the current year, Rulon’s toilet overflowed because of a mechanical problem. Rulon was outside playing croquet, and by the time he returned, the water had flooded the basement, causing damage to the carpet, walls, and ceiling. The cost of repairin

> Explain how a taxable gain on property can be realized because of a casualty event such as a fire or theft. How are these gains treated?

> What tests must be met to qualify a loss as deductible under the casualty loss provisions? Discuss the application of each of these tests.

> Are the losses suspended under the passive loss rules lost forever? Explain.

> a. What requirements must be met in order for a taxpayer to deduct up to $25,000 of passive losses from rental real estate activities against active and portfolio income? b. What requirements must be met in order for a real estate rental activity to be

> Explain the difference between materially participating and actively participating in an activity. When is the active participation test used?

> Elaine is a physician who uses the cash method of accounting for tax purposes. During the current year, Elaine bills Ralph $1,200 for office visits and outpatient surgery. Unfortunately, unknown to Elaine, Ralph moves away leaving no payment and no forwa

> A client comes to you with an idea to treat a loan that he made to one of his children two years ago as a bad debt. The loan is evidenced by a properly executed note with stated interest and payment dates. However, the client has not collected any loan p

> Which of the following activities are considered passive for the year? Explain. Consider each situation independently. a. Laura owns a rental unit that she rents out to students. The rental unit is Laura’s only business and she spends approximately 875

> a. If a taxpayer is involved in several different business operations during the year, how is the determination made as to how many activities these operations constitute for purposes of the passive activity loss rules? b. Can a business operation and a

> Why it is important to identify exactly what constitutes an activity for purposes of the passive activity rules?

> a. F or purposes of the passive loss rules, what is a closely held C corporation? b. In what way do the passive loss rules differ from the regular passive loss rules when applied to closely held C corporations?

> Describe a situation where a loss on the sale of business or investment property is not currently deductible, and explain why.

> What tax treatment applies to gains and losses on Sec. 1244 stock?

> What requirements must be met for stock to be considered Sec. 1244 stock?

> What two general requirements must be met for a transaction to result in a capital loss?

> During 2017, Pam incurred the following casualty losses: All of the items were destroyed in the same casualty. Before considering the casualty items, Pam reports business income of $80,000, qualified residential interest of $6,000 property taxes on her p

> Under what circumstances will a loss that is realized on a worthless security not be treated as a capital loss?

> Charley Long is a truck driver, the 18-wheeler variety. He works for Fishy Co., a seafood company in Mobile, Alabama, and drives a company truck. Charley’s job entails leaving Mobile at 4:00 PM each day (five days per week) and delivering fresh fish to r

> Describe the usual tax consequences that apply to a worthless security.

> When property is disposed of, what factors influence the amount of the deductible loss?

> What is the closed transaction doctrine, and why does it exist for purposes of recognizing a loss realized on holding property?

> Several years ago, Magdelena purchased a new residence for $300,000. Currently, the outstanding mortgage on the residence is $260,000. The current fair market value of the home is $330,000. Magdelena wants to borrow a sizable sum of money to pay for the

> During the current year, Tina purchases a beachfront condominium for $600,000, paying $150,000 down and taking out a $450,000 mortgage, secured by the property. At the time of the purchase, the outstanding mortgage on her principal residence is $700,000.

> During the current year, Travis takes out a $40,000 loan, using stock he owns as collateral. He uses $10,000 to purchase a car, which he uses 100% for personal use. He uses the remaining funds to purchase stocks and bonds. He pays $3,200 interest on the

> On January 1 of the current year, Scott borrows $80,000, pledging the assets of his business as collateral. He immediately deposits the money in an interest-bearing checking account. Scott already had $20,000 in this account. On April 1, Scott invests $7

> On May 1 of the current year, Tara sells a building to Janet for $500,000. Tara’s basis in the building is $300,000. The county in which the building is located has a real property tax year that ends on June 30. The taxes are payable by September 1 of th

> In the current year Ned completely destroys his personal automobile (purchased two years earlier for $28,000) in a traffic accident. Fortunately none of the occupants are injured. The FMV of the car before the accident is $18,000; after the accident it i

> If an NOL is carried back to a prior year, what adjustments must be made to the prior year’s taxable income? What are the possible results of the adjustments?

> Dawn, a single, cash-method taxpayer, paid the following taxes in the current year: Dawn’s employer withheld $5,400 for federal income taxes, $2,000 for state income taxes, and $3,800 for FICA from her paychecks. Dawn purchased a new car and paid $600 in

> Assume the same facts as Problem I: 7-40, but change the amount of Joyce’s mortgage interest to $3,000. a. What is her taxable income for 2017? b. What is her AGI for 2018? Problem 7-40: Joyce is a single, cash-method taxpayer. On April 11, 2016, Joyc

> Steve is part owner and manager of a small manufacturing company that makes keypads for alarm systems. The keypads are sold to several different alarm companies throughout the country. Steve must travel to several cities each year to meet with current c

> Joyce is a single, cash-method taxpayer. On April 11, 2016, Joyce paid $120 in state income taxes with her 2015 state income tax return. During 2016, Joyce had $1,600 in state income taxes withheld. On April 13, 2017, Joyce paid $200 with her 2016 state

> In 2017, Charla, a single taxpayer with no dependents, was severely hurt in a farm accident. Charla is 38 years old. The accident left Charla’s legs 85% paralyzed. After incurring $14,000 of medical expenses at the hospital, the doctor recommended that C

> Chad is divorced and has custody of Brett, his 14-year-old son. Chad’s ex-wife has custody of their daughter, Sara. During the year, Chad incurs $3,000 for orthodontic work for Sara to correct a severe overbite and $2,000 in unreimbursed medical expenses

> Dan lives in Duncan, a small town in Arizona. Because of a rare blood disease, Dan is required to take special medical treatments once a month. The closest place these treatments are available to Dan is in Phoenix, 200 miles away. The treatments are prov

> Assume the same facts as in Problem I: 7-35. In addition, assume that in 2018, Angela receives an additional $7,000 in a settlement of a lawsuit arising because of the snow-skiing accident. $4,000 of the settlement is to pay Angela’s medical bills, and $

> During 2017, Angela sustains serious injuries from a snowskiing accident. She incurs the following expenses: Item……………………………………………………Amount Doctor bills………………………………………………..$11,700 Hospital bills…………………………………………………9,400 Legal fees in suit against ski res

> During the current year, Bob has AGI of $100,000. He also donated some stock to his church. He purchased the stock two years ago for $55,000. The FMV of the stock at the time of the contribution is $60,000. Bob has $5,000 of unused excess contributions f

> Jerry sprayed all of the landscaping around his house with a pesticide in June 2017. Shortly thereafter, all of the trees and shrubs unaccountably died. The FMV and the adjusted basis of the plants were $15,000. Later that year, the pesticide manufacture

> During the current year, George made contributions totaling $40,000 to an organization called the National Endowment for the Preservation of Liberty (NEPL). Later during the year, the NEPL started giving money to a political candidate to help with his ca

> This year, Chuck took out a loan to purchase some raw land for investment. He paid $40,000 for the land, and he expects that within 5 years the land will be worth at least $75,000. Chuck is married, and his AGI for the year is $230,000. Chuck paid $4,300

> Wayne and Maria file a joint tax return on which they itemize their deductions and report AGI of $50,000. During the year they incurred $1,500 of medical expenses when Maria broke her leg. Furthermore, their dentist informed them that their daughter, Ali

> Ajax Corporation is a young high-growth company engaged in the manufacture and distribution of automotive parts. Its common stock has doubled in value since the company was listed on the NASDAQ exchange about two years ago. Ajax currently has a high debt

> Other than the 10% limitation placed on medical expenses, the 10% reduction for casualty losses on personal property, the 2% reduction applied to certain miscellaneous itemized deductions, and the fact that itemized deductions are only deductible if they

> List some of the more common miscellaneous itemized deductions and identify any limitations that are imposed on the deductibility of these items.

> How are charitable contribution deductions reported on the tax return for individuals? What reporting requirements must be met for the contribution of property?

> If a taxpayer’s charitable contributions for any tax year exceed the deduction limitations, may the excess contributions be deducted in another year? If so, in which years may they be deducted?

> For individuals, what is the overall deduction limitation on charitable contributions? What is the limitation for corporations?

> May an individual who is married and files a joint return deduct any charitable contributions if the itemized deductions total $7,000 (of which $3,000 are qualified charitable contributions)?

> On December 17 of the current year, Kelly’s business office safe is burglarized. The theft is discovered a few days after the burglary. $3,000 cash from the cash registers is stolen. A diamond necklace and a ring that Kelly frequently wore are also stole

> How is the amount of a charitable contribution of capital gain property determined if it is donated to a private nonoperating foundation? How does this determination differ if capital gain property is donated to a public charity?

> a. For purposes of the charitable contribution deduction, what is capital gain property? Ordinary income property? b. What is the significance of classifying property as either capital gain property or ordinary income property?

> When is interest generally deductible for cash method taxpayers? Explain if the general rule applies to prepaid interest, interest paid with loan proceeds, discounted notes, and personal interest. If the general rule does not apply, explain when these in

> Why is interest expense disallowed if it is incurred to purchase or hold tax-exempt obligations?

> Paul Price is the president and majority stockholder of Lightmore Communications, Inc. Lightmore is a C corporation and has been extremely successful over the past 20 years. Paul travels extensively in connection with the business to meet with existing a

> Explain what a qualified residence is for purposes of qualified residence interest.

> Explain what acquisition indebtedness and home equity indebtedness are with respect to a qualified residence of a taxpayer. Identify any limitations on the deductibility of interest expense on this indebtedness.

> a. What is the amount of the annual limitation placed on the deductibility of investment interest expense? b. Explain how net investment income is calculated. c. Is any disallowed interest expense for the year allowable as a deduction in another year?

> Why does Sec. 267 impose a restriction on the deductibility of expenses accrued and payable by an accrual method taxpayer to a related cash method taxpayer?

> In which year or years are points (representing prepaid interest on a loan) deductible?

> Tony is a carpenter who owns his own furniture manufacturing business. During the current year, vandals broke into the workshop, damaged several pieces of equipment, stole his delivery truck, and also stole his personal automobile, which he often kept in

> At times, the term points is used to refer to different types of charges. Define the term and describe when points are deductible.