Question: Explain the difference between cost depletion and

> 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.

> a. Identify the different categories of interest expense an individual may incur. How is the classification of the interest determined? b. Are these different categories of interest deductible? If so, how?

> When real estate is sold during a year, why is it necessary that the real estate taxes on the property be apportioned between the buyer and seller?

> What is an ad valorem tax? If a tax that is levied on personal property is not an ad valorem tax, under what circumstances may it still be deductible?

> If Susan overpays her state income tax because of excess withholdings, can she deduct the entire amount in the year withheld? When Susan receives a refund from the state how must she treat that refund for tax purposes?

> The Morriss Corporation is a very successful and profitable manufacturing corporation. The corporation just completed construction of new corporate offices, primarily for its top executives. The president and founder of the corporation, Mr. Timothy Couch

> a. Which taxes are specifically deductible for federal income tax purposes under Sec. 164? b. If a tax is not specifically listed in Sec. 164, under what circumstances may it still be deductible?

> What is the limit placed on medical expense deductions? When can a deduction be taken for medical care? What if the medical care is prepaid?

> In what cases are medical insurance premiums paid by an individual not deductible as qualified medical expenses?

> Bill, a plant manager, is suffering from a serious ulcer. Bill’s doctor recommends that he spend three weeks fishing and hunting in the Colorado Rockies. Can Bill deduct the costs of the trip as a medical expense?

> In 2017, Julie, a single individual, reported the following items of income and deduction: Salary……………………………………………………………………………$166,000 Interest income…………………………………………………………………14,000 Long-term capital gain from sales of stock………………………….22, 000 Short-term

> a. Which types of capital expenditures incurred specifically for medical purposes are deductible? b. What limitations, if any, are imposed on the deductibility of these expenditures?

> What are the rules dealing with the deductibility of the cost of meals and lodging incurred while away from home in order to receive medical treatment as an outpatient?

> a. If a taxpayer must travel away from his or her home in order to obtain medical care, which en route costs, if any, are deductible as medical expenses? b. Are there any limits imposed on the deductibility of these expenses?

> a. What is the definition of cosmetic surgery under the Internal Revenue Code? b. Is the cost of cosmetic surgery deductible as a medical expense? Explain.

> What is the definition of medical care for purposes of the medical care deduction?

> a. For which persons may a taxpayer deduct medical expenses? b. In the case of children of divorced parents, must the parent who is entitled to the dependency exemption pay the medical expenses of the child to ensure that the expenses are deductible? Ex

> In 2015, the Margate Corporation acquired an automobile with a cost of $30,000 for use in its business. Shortly thereafter, Margate Corporation experienced a decline in sales. Several employees were laid off, and the automobile was not immediately needed

> For several years, you have prepared the tax return for Alpha Corporation, a closely held corporation engaged in manufacturing garden tools. On February 20 of the current year, Bill Johnson, the president of Alpha Corporation, delivered to your office th

> Brian Brown, an executive at a manufacturing enterprise, comes to you on December 1 of the current year for tax advice. He has agreed to donate a small tract of land to the Rosepark Community College. The value of the land has been appraised at $58,000.

> On December 1, 2017, Rebecca Ward, a single taxpayer, comes to you for tax advice. At the end of every year, she donates $5,000 to charity. She has no other itemized deductions. This year, she plans to make her charitable donation with stock. She present

> During the current year, Juan, a single individual, has AGI of $124,000 before taking into account any passive activity losses. He also actively participates and owns 100% of activity A, which is a real estate rental activity. For the year, activity A ge

> Dean makes a pledge of $30,000 to a local college. The college is willing to accept either cash or marketable securities in fulfillment of the pledge. Dean owns stock in Ajax Corporation worth $30,000. The stock was purchased five years ago for $10,000.

> Tim and Monica Nelson are married, file a joint return, and are your newest tax clients. They provide you with the following information relating to their 2017 tax return: 1. Tim works as a pediatrician for the county hospital. The W-2 form he received

> John and Ellen Brite (SSN 000-00-1111 and 000-00-2222, respectively) are married and file a joint return. They have no dependents. John owns an unincorporated specialty electrical lighting retail store, Brite-On. Brite-On had the following assets on Janu

> Woburn Corporation uses the calendar year as its tax year. Woburn purchases and places into service $850,000 of depreciable property during 2017: You are working in Woburn’s tax department and are trying to decide how to make the Sec. 1

> Bonnie’s charitable contributions and AGI for the past four years were as follows: What is the amount of the charitable deduction for each year and the order in which the deduction and carryovers are used? 2014 2015 2016 2017 $60,00

> In the current year, Coastal Corporation acquires all of the net assets of Acorn Corporation for $2,000,000. The purchase agreement allocated the following amounts to the individual assets and liabilities: Land and building …………………………………………. $1,400,000 A

> Paula is planning to either purchase or lease a $50,000 automobile. She anticipates that business use of the auto will be 60% for the first two years but will decline to 40% in years three through five. Currently, Paula’s marginal tax rate is 15% but she

> Georgia Corporation acquires a business automobile for $30,000 on December 31 of the current year but does not actually place the automobile into service until January 1 of the following year. What tax issues should Georgia Corporation consider?

> Simon acquires an interest in an oil property for $50,000. Intangible drilling costs (IDCs) in the initial year are $10,000. Cost depletion is $5,000 if the IDCs are expensed and $6,000 if the costs are capitalized. Percentage depletion is $15,000 if the

> In 2016, Mark purchased two separate activities. Information regarding these activities for 2016 and 2017 is as follows: The 2016 losses were suspended losses for that year. During 2017, Mark also reports salary income of $120,000 and interest and divide

> In a business combination, why does the buyer generally prefer to allocate as much of the purchase price to short-lived depreciable assets, ordinary assets such as inventory, and Sec. 197 intangible assets?

> Why do most taxpayers prefer to currently expense research and experimental expenditures?

> In January of the current year, Park Corporation incurs $34,000 of legal costs associated with a patent that was developed internally and has a legal life of 17 years. Park also acquired for cash the net assets of Central Corporation for $1,000,000. The

> What difference does it make for income tax purposes whether an intangible asset is (1) acquired in connection with a business acquisition, (2) acquired by the purchase of an individual asset (e.g., a patent), or (3) created internally? Explain.

> On March 1, 2017, Sarah entered into a three year lease of an automobile used exclusively in her business. The automobile’s FMV was $58,500 at the inception of the lease. Sarah made ten monthly lease payments of $600 each during 2017. Is Sarah able to a

> Circle Corporation, an accrual method taxpayer, manufactures and sells mainframe computers. In January of the current year, Circle Corporation donates a mainframe that was part of its inventory to City College. City College will use the computer for phys

> In recent years, Congress has enacted provisions in the tax law that permitted bonus depreciation for certain assets. a. What types of assets typically qualified for bonus depreciation? b. How does bonus depreciation interface with Sec. 179 first-year

> Your client is a self-employed attorney who is considering the purchase of a $32,000 automobile that will be used 80% of the time for business and a $4,000 personal computer that will be used 100% of the time for business, but is located in his home. a.

> Luby Corporation has maintained an office in a leased building for several years. The corporation has decided to make some significant leasehold improvements to enhance the property. How should Luby Corporation depreciate the lease hold improvements?

> Rudy is considering whether to make the election under Sec. 179 to expense the maximum amount of the acquisition cost related to certain fixed asset additions. What advantages are associated with the Sec. 179 election?

> During the current year, Irene, a married individual who files a joint return, reports the following items of income and loss: Salary…………………………………………………………………………………$130,000 Activity X (passive)……………………………………………………………..….10, 000 Activity Y (rental real e

> Would the straight-line MACRS method (using the ADS) be preferable to the regular MACRS method in the following cases? Explain. a. Ray incurs NOLs in his business for a number of years and has NOL carryovers he would like to use. b. Rhonda’s marginal t

> Jose is considering acquiring a new luxury automobile costing $45,000 that will be used 100% in his business. The salesperson at the automobile dealership states that Jose will be entitled to substantial tax benefits in the initial year (2017) including:

> Is a deduction allowed under the MACRS rules for depreciable real estate (used in a business or held for investment) in the year the property is sold? If so, explain how it is calculated.

> Goodrich Corporation uses the calendar year as its tax year. It acquires and places into service two depreciable assets during 2017: • Asset #1: 7-year property; $950,000 cost; placed into service on January 20. • Asset #2: 5-year property; $400,000 co

> Robert is a sole proprietor who uses the calendar year as his tax year. On July 20, 2017 he acquired and placed in service a business machine, a 7-year asset, for $50,000. No other property was acquired in 2017. Robert elects out of bonus depreciation.

> Daytona Corporation, a manufacturing corporation, acquires the following business assets in the current year: • Furniture • Plumbing fixtures • Land • Goodwill and a trademark acquired in the acquisition of a business • Automobile • Heavy truck •

> During the current year, Melissa reports AGI of $200,000. As part of some estate planning, she donates $30,000 to her alma mater, Middle State University, and $65,000 to a private nonoperating foundation. a. What is the amount of Melissa’s charitable de

> Rita acquired a personal residence two years ago for $120,000. In the current year, she purchases another residence and attempts to sell her former residence. Due to depressed housing conditions in the town where she used to live, Rita is unable to sell

> Rick is a sole proprietor who has a small business currently operating at a loss. He would like to discontinue depreciating the fixed assets of the business for the next few years and to carry the deductions over to a future period. What tax consequences

> Which of the following assets are subject to either amortization, depreciation, or cost recovery? Explain. a. An automobile held for personal use. b. Excess amounts paid in a business combination that are attributable to goodwill. c. Excess amounts pa

> Early in the current year, Keith meets Dan through a business associate. Dan tells Keith that he is directing a business venture that purchases poorly managed restaurants in order to turn them around and make them profitable. Dan mentions that he is curr

> Dan and Cheryl are married, file a joint return, and have no children. Dan, age 45, is a pharmaceutical salesman and Cheryl, age 42, is a nurse at a local hospital. Dan’s SSN is 400-20-1000 and Cheryl’s SSN is 200-40-8000 and they reside at 2033 Palmetto

> Bender Corporation grants a nonqualified stock option to Penny, an employee, on January 1, 2017, that entitled Penny to acquire 1,000 shares of Bender stock at $80 per share. On this date, the stock has a $100 FMV and the option has a readily ascertainab

> Bell Corporation grants an incentive stock option to Peggy, an employee, on January 1, 2017, when the option price and FMV of the Bell stock is $80. The option entitles Peggy to buy 10 shares of Bell stock. Peggy exercises the option and acquires the sto

> Paula is a self-employed doctor and is considering whether to establish a defined contribution H.R. 10 plan. Paula’s only employee is a full-time nurse who has been employed by Paula for seven years. Paula’s net earnings from self-employment (before the

> Jack and Katie have five grandchildren, ages 19, 16, 15, 12, and 10. They have established Coverdell Education Savings Accounts (CESA) for each of the grandchildren and would like to contribute the maximum amount allowable to each CESA for the 2017 taxab

> Chatham Mae is single, age 35, and wants to make a contribution to an IRA for the year ended December 31, 2017. She is an active participant in a qualified retirement plan sponsored by her employer. Her AGI for 2017 is $124,000 before considering any IRA

> Phil, age 30, is married and files a joint return with his spouse. On February 15, 2018, Phil establishes a traditional IRA for himself and a spousal IRA for his spouse with a $11,000 contribution, $5,500 for himself and $5,500 for his wife. Phil’s spous

> During the current year, Helen donates stock worth $50,000 to her local community college. Two years ago the stock cost Helen $40,000. Her AGI for the current year is $100,000. Beginning next year, the bulk of her income will be from tax-exempt municipal

> On February 15, 2018, Jamal, who is single and age 30, establishes a traditional IRA and contributes $5,500 to the account. Jamal’s adjusted gross income is $68,000 in 2017 and $57,000 in 2018. Jamal is an active participant in an employer-sponsored reti

> In 2017, Bear Corporation transfers 100 shares of its stock to its employee Patrick. The stock is valued at $10 per share on the issue date. The stock is subject to the following restrictions: • Patrick cannot transfer the stock by sale or other dispos

> In the current year Clay reports income and losses from the following activities: Activity X………………………. $28,000 Activity Y…………………………….. (10,000) Activity Z……………………………. (20,000) Salary……………………………….100, 000 Activities X, Y, and Z are all passive with respe

> Pat is a participant in a qualified pension plan. She retires on January 1, 2017, at age 63, and receives pension payments beginning in January 2017. Her pension payments, which will be received monthly for life, amount to $1,000 per month. Pat contribut

> Identify whether each of the following plan features is associated with a qualified pension plan, a qualified profit-sharing plan, an employee stock ownership plan, a nonqualifed plan, or none of these plans. a. Annual employer contributions are not req

> Darrell is a self-employed consultant who uses 15% of his home exclusively as an office. Darrell operates completely out of his home office and makes all of his appointments from the office as well as keeping his books and records in the office. Darrell’

> Nancy is a self-employed artist who uses 10% of her residence as a studio. The studio portion is used exclusively for business and is frequented by customers on a regular basis. Nancy also uses her den as an office (10% of the total floor space of her ho

> Anne works for a CPA firm as a secretary/receptionist and earns approximately $27,000 per year. About five years earlier, she had completed 70 credit hours at State U. To increase her career potential, she decided to enroll at the local university to con

> For each of the following independent situations, determine whether any of the expenditures qualify as deductible education expenses in connection with a trade or business (Reg. Sec. 1.162-5). Are the expenditures classified as for AGI or from AGI deduct

> Michael graduates from New York University and on February 1, 2017, accepts a position with a public accounting firm in Chicago. Michael is a resident of New York. In March, Michael travels to Chicago to locate a house and starts to work in June. He incu

> Latrisha is an employee of the Cooper Company and incurs significant employment-related expenses. During the current year, she incurred the following expenses in connection with her job: Travel: Airfare ……………………………... $ 5,850 Lodging ……………………………... 1,80

> Assume the same facts as Problem I:7-54, except that the qualified organization is a private nonoperating foundation. Determine the amount of the charitable contribution for Parts a through e. Problem 7- 54: In each of the following independent cases, d

> Able Corporation is a manufacturer of electrical lighting fixtures. Able is currently negotiating with Ralph Johnson, the owner of an unincorporated business, to acquire his retail electrical lighting sales business. Johnson’s assets in

> In the current year Alice reports $150,000 of salary income, $20,000 of income from activity X, and $35,000 and $15,000 losses from activities Y and Z, respectively. All three activities are passive with respect to Alice and are purchased during the curr

> In preparing the tax return for one of your clients, Jack Johnson, you notice that he has listed a deduction for a large business bad debt. Jack explains that the loan was made to his corporate employer when the corporation was experiencing extreme cash

> a. What is the NOL carryback and carryover period? b. Does a taxpayer have any choice in deciding the years to which the NOL should be carried? c. Explain the circumstances under which a taxpayer might elect not to use the regular carryback or carryove

> List the adjustments to an individual taxpayer’s negative taxable income amount that must be made in computing an NOL for the year. What is the underlying rationale for requiring these adjustments for individuals?

> What is an NOL deduction, and why is it allowed?

> A taxpayer collects a debt that was previously written off as a bad debt. What tax consequences arise if the recovery is received in a subsequent tax year?

> a. What alternatives do individuals have in deducting a loss on a deposit in a qualified financial institution? b. Explain when it might be better to elect one over the other.