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Exam 16: Tax Deductions and Travel Expenses for Employees and Self-Employed Individuals

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Question 401

Multiple Choice

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Chana made a $75,000 interest- free loan to her son, Trey, who used the money to retire a mortgage on his personal residence. Trey's only source of income was salary of $50,000 and $940 interest income on a savings account. The relevant Federal interest rate was 5% and the loan was outstanding all year long. What amount must Chana include as interest income as a result of this transaction?

A) $2,810
B) $0
C) $3,750
D) $940

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Question 402

Multiple Choice

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In 2018, Sela traveled from her home in Flagstaff to San Francisco to seek specialized medical care. Because she w unable to travel alone, her father accompanied her. Total expenses included: The total medical expenses deductible before the 7.5% limitation are

A) $2,680.
B) $2,500.
C) $2,080.
D) $1,600.

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Question 403

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The excess business loss limitations apply at the partner, not partnership, level.

The general business credits are refundable credits.

If a capital asset held for one year or more is sold at a gain, the gain is classified as long- term capital gain.

An accrual- basis taxpayer receives advance payment for services to be provided over three future years. The taxpayer can recognize the income over the three- year period as services are provided, consistent with its financial statements.

Sari transferred an office building with a $500,000 FMV and a $300,000 adjusted basis to the Oak Partnership in exchange for a one- quarter ownership interest. Sari had acquired the building three years earlier and had used it in her sole proprietorship. Sari's holding period for her partnership interest

When a spouse dies, the surviving spouse for the year of death

Ron transfers assets with a $100,000 FMV (basis $60,000) and $70,000 of business- related liabilities to a corporation in exchange for 100% of the corporation's stock with a FMV of $30,000. The corporation assumes the $70,000 mortgage. The transfer qualifies under Sec. 351. What is the adjusted basis of the stock received?

Hui pays self- employment tax on her sole proprietorship income, supplemental Medicare surtaxes on excess wages and self- employment income (the .09% tax) , and supplemental Medicare taxes on investment income (the 3.8% tax) . Which of the following statements is correct regarding the deductibility of these taxes?

John has $55,000 of self- employment earnings from a sole proprietorship. John is also employed part- time by a major corporation and is paid $25,000. John's self- employment tax for 2018 is

Sarah receives a $15,000 scholarship from City University. The university specifies that $8,000 is for tuition, books, supplies, and equipment for classes. The other $7,000 is for room and board. Sarah works ten hours per week as a grader, for which she is paid $7,500 for the year. Of the total amount received, Sarah must include the following amount in gross income

Ronna is a professional golfer. In order to correct her vision, Ronna has eye surgery. The costs of the surgery and subsequent medical care are not covered by insurance. What tax issues should Ronna consider?

Taxpayers are entitled to a depletion deduction if they have an economic interest in the natural resource property.

On January 1 of the current year, Dentux Corp. purchases a patent from another corporation for $600,000. The patent has a remaining life of 10 years. The patent is the only asset purchased from that corporation. Also on January 1, Dentux purchases all of the assets of Fenton Corp. Included in the Fenton assets acquired is a patent worth $300,000 that has a 10- year remaining life. What is the allowable amortization deduction on the two patents?

When a taxpayer leases an automobile for 100% business purposes, the entire lease payment is deductible.

In the current year, Marcus reports the following casualty gains and losses on personal- use property. Assets X and Y are destroyed in the first casualty while Z is destroyed in a second casualty.Both casualties were the result of federal disasters. As a result of these losses and insurance recoveries, Marcus must report

Small case procedures of the U.S. Tax Court requires that the amount in dispute not exceed

Investigation of a tax problem that involves a closed- fact situation means that

Under a qualified pension plan, the employer's deduction is usually deferred until the employee recognizes income.