Deduction, Losses & Passive Activities Flashcards
(30 cards)
Samantha, who is single and has MAGI of $59,400, was recently employed by an accounting firm. During the year, she spends $3,450 for a CPA exam review course and begins working on a law degree in night school. Her law school expenses were $4,860 for tuition and $405 for books (which are not a requirement for enrollment in the course).
Assuming no reimbursement, how much of these expenses can Samantha deduct?
$0
The CPA review course is not an educational requirement.
In 2021, Robert takes four key clients and their spouses out to dinner at a local restaurant. Business discussions occurred over dinner. Expenses were $560 (drinks and dinner) and $112 (tips to servers).
If Robert is self-employed, how much can he deduct for this event?
Promotional meals & entertainment are 100% deductible. Therefore, Robert can deduct $672 for this event.
$560 + 112 = $672
Jayda, who is self-employed, maintains an office in her home that comprises 26% (290 square feet) of total floor space. Gross income for her business is $53,150, and her residence expenses are as follows:
$3,324 Real property taxes
5,540 Interest on mortgage
2,770 Operating expenses
4,595 Depreciation (based on 26% business use)
What is Jayda’s office in the home deduction based on the regular method?
($3,324 x 26%) + (5,540 x 26%) + (2,770 x 26%) + (4,595 x 26%)
=$7,620 home office deduction
Jayda, who is self-employed, maintains an office in her home that comprises 26% (290 square feet) of total floor space. Gross income for her business is $53,150, and her residence expenses are as follows:
$3,324 Real property taxes
5,540 Interest on mortgage
2,770 Operating expenses
4,595 Depreciation (based on 26% business use)
What is Jayda’s office in the home deduction based on the simplified method?
The standard home office deduction is $5 per square foot (max. 300 sqft.). Therefore:
$5 x 290 sqft. = $1,450 simplified home office deduction
In June 2021, Enrique and Denisse Espinosa traveled to Denver to attend a three-day conference sponsored by the American Society of Implant Dentistry. Denisse, a self-employed practicing oral surgeon, participated in scheduled technical sessions dealing with the latest developments in surgical procedures. On two days, Enrique attended group meetings where various aspects of family tax planning were discussed. On the other day, he went sightseeing. Enrique does not work for his wife, but he prepares their tax returns and handles the family investments. Expenses incurred in connection with the conference are summarized below.
$2,600 Airfare (two tickets)
765 Lodging (single and double occupancy are the same rate-$255 each day)
840 Meals at local restaurants ($280 x 3 days)*
820 Conference registration fee (includes $120 for Family Tax Planning sessions)
325 Car rental
*Split equally between Enrique and Denisse Espinosa
How much, if any, of these expenses can the Espinosas deduct?
Enrique’s activities __ constitute a trade or business. Therefore, he can deduct $__ of his expenses.
Enrique’s activities do not constitute a trade or business. Therefore, he can deduct none of his expenses.
In June 2021, Enrique and Denisse Espinosa traveled to Denver to attend a three-day conference sponsored by the American Society of Implant Dentistry. Denisse, a self-employed practicing oral surgeon, participated in scheduled technical sessions dealing with the latest developments in surgical procedures. On two days, Enrique attended group meetings where various aspects of family tax planning were discussed. On the other day, he went sightseeing. Enrique does not work for his wife, but he prepares their tax returns and handles the family investments. Expenses incurred in connection with the conference are summarized below.
$2,600 Airfare (two tickets)
765 Lodging (single and double occupancy are the same rate-$255 each day)
840 Meals at local restaurants ($280 x 3 days)*
820 Conference registration fee (includes $120 for Family Tax Planning sessions)
325 Car rental
*Split equally between Enrique and Denisse Espinosa
Denisse's deductible expenses are: Airfare (one ticket) Lodging Meals Registration fee Car rental Total
Denisse’s deductible expenses are:
Airfare (one ticket) $1,300 Lodging $765 Meals $420 (=840/2) Registration fee $700 (=820-120 family tax planning for Enrique) Car rental $325 Total: $3,510
Barbara incurred the following expenses during 2021: $2,355 dues at a health club she joined at the suggestion of her physician to improve her general physical condition, $530 for multiple vitamins and antioxidant vitamins, $2,750 for a smoking cessation program, $500 for nonprescription nicotine gum, $2,100 for insulin, and $11,245 for funeral expenses for her mother who passed away in June. Barbara’s AGI for 2021 is $43,900.
Is the following expense included in computing the medical expense deduction?
$2,355 dues at a health club she joined at the suggestion of her physician to improve her general physical condition
Not included
Barbara incurred the following expenses during 2021: $2,355 dues at a health club she joined at the suggestion of her physician to improve her general physical condition, $530 for multiple vitamins and antioxidant vitamins, $2,750 for a smoking cessation program, $500 for nonprescription nicotine gum, $2,100 for insulin, and $11,245 for funeral expenses for her mother who passed away in June. Barbara’s AGI for 2021 is $43,900.
Is the following expense included in computing the medical expense deduction?
$530 for multiple vitamins and antioxidant vitamins
Not included
Barbara incurred the following expenses during 2021: $2,355 dues at a health club she joined at the suggestion of her physician to improve her general physical condition, $530 for multiple vitamins and antioxidant vitamins, $2,750 for a smoking cessation program, $500 for nonprescription nicotine gum, $2,100 for insulin, and $11,245 for funeral expenses for her mother who passed away in June. Barbara’s AGI for 2021 is $43,900.
Is the following expense included in computing the medical expense deduction?
$2,750 for a smoking cessation program
Included
Barbara incurred the following expenses during 2021: $2,355 dues at a health club she joined at the suggestion of her physician to improve her general physical condition, $530 for multiple vitamins and antioxidant vitamins, $2,750 for a smoking cessation program, $500 for nonprescription nicotine gum, $2,100 for insulin, and $11,245 for funeral expenses for her mother who passed away in June. Barbara’s AGI for 2021 is $43,900.
Is the following expense included in computing the medical expense deduction?
$500 for nonprescription nicotine gum
Not included
Barbara incurred the following expenses during 2021: $2,355 dues at a health club she joined at the suggestion of her physician to improve her general physical condition, $530 for multiple vitamins and antioxidant vitamins, $2,750 for a smoking cessation program, $500 for nonprescription nicotine gum, $2,100 for insulin, and $11,245 for funeral expenses for her mother who passed away in June. Barbara’s AGI for 2021 is $43,900.
Is the following expense included in computing the medical expense deduction?
$2,100 for insulin
Included
Barbara incurred the following expenses during 2021: $2,355 dues at a health club she joined at the suggestion of her physician to improve her general physical condition, $530 for multiple vitamins and antioxidant vitamins, $2,750 for a smoking cessation program, $500 for nonprescription nicotine gum, $2,100 for insulin, and $11,245 for funeral expenses for her mother who passed away in June. Barbara’s AGI for 2021 is $43,900.
Is the following expense included in computing the medical expense deduction?
$11,245 for funeral expenses
Not included
Barbara incurred the following expenses during 2021: $2,355 dues at a health club she joined at the suggestion of her physician to improve her general physical condition, $530 for multiple vitamins and antioxidant vitamins, $2,750 for a smoking cessation program, $500 for nonprescription nicotine gum, $2,100 for insulin, and $11,245 for funeral expenses for her mother who passed away in June. Barbara’s AGI for 2021 is $43,900.
What is Barbara’s medical expense deduction for 2021?
$2,750 smoking cessation program + 2,100 insulin = $4,850
AGI floor = $43,900 AGI x 7.5% = $3,293
Medical deduction = $4,850 - 3,293 = $1,557
Pierre, a cash basis, unmarried taxpayer, had $3,020 of state income tax withheld during 2021. Also in 2021, Pierre paid $755 that was due when he filed his 2020 state income tax return and made estimated payments of $2,114 towards his 2021 state income tax liability. When Pierre files his 2021 Federal income tax return in April 2022, he elects to itemize deductions, which amount to $13,950, including the state income tax payments and withholdings, all of which reduce his taxable income.
What is Pierre’s 2021 state income tax deduction?
$3,020 withheld income tax + 755 tax payment + 2,114 estimated tax payments = $5,889 state income tax deduction
Pierre, a cash basis, unmarried taxpayer, had $3,020 of state income tax withheld during 2021. Also in 2021, Pierre paid $755 that was due when he filed his 2020 state income tax return and made estimated payments of $2,114 towards his 2021 state income tax liability. When Pierre files his 2021 Federal income tax return in April 2022, he elects to itemize deductions, which amount to $13,950, including the state income tax payments and withholdings, all of which reduce his taxable income.
As a result of overpaying his 2021 state income tax, Pierre receives a refund of $1,208 early in 2022. The standard deduction for single taxpayers for 2021 was $12,550. How much of the $1,208 will Pierre include in his 2022 gross income?
$1,208
Donna donates stock in Chipper Corporation to the American Red Cross on September 10, 2021. She purchased the stock for $24,500 on December 28, 2020, and it had a fair market value of $35,000 when she made the donation.
What is Donna’s charitable contribution deduction? The stock is treated as __ property and Donna’s charitable contribution deduction is $__ for tax purposes.
Normally, when FMV > Book value, a capital gain is recognized but because this is a charitable donation it is treated as ordinary income for tax purposes. However the deduction is limited to the property basis (book value) of $24,500.
Donna donates stock in Chipper Corporation to the American Red Cross on September 10, 2021. She purchased the stock for $24,500 on December 28, 2020, and it had a fair market value of $35,000 when she made the donation.
Assume instead that the stock had a fair market value of $21,000 (rather than $35,000) when it was donated to the American Red Cross. What is Donna’s charitable contribution deduction?
As a result of FMV < Book Value, the charitable contribution deduction will be the FMV of $21,000.
For calendar year 2021, Stuart and Pamela Gibson file a joint return reflecting AGI of $348,600. Their itemized deductions are as follows: Note: All expenses are before any applicable limitations, unless otherwise noted.
$46,000 Casualty loss in a Federally declared disaster area (not covered by insurance; before the 10%-of-AGI limitation but after the $100 floor)
18,400 Home mortgage interest (loan qualified as acquisition indebtedness)
920 Credit card interest
13,800 Property taxes on home
25,300 Charitable contributions
16,100 State income tax
1,380 Tax return preparation fees
Calculate the amount of itemized deductions the Gibsons may claim for the year.
Casualty loss deduction = $46,000 - (348,600 AGI x 10%) = $39,000 + 18,400 home mortgage interest + 25,300 charitable contributions + 10,000 maximum property tax deduction = $64,840 itemized deduction amount
*The maximum property tax deduction is $10,000. Since the Gibson’s property taxes exceeded this amount, they are limited to this threshold.
Rose dies with passive activity property having an adjusted basis of $70,000, suspended losses of $22,400, and a fair market value at the date of her death of $98,000. Of the $22,400 suspended loss existing at the time of Rose’s death, how much is deductible on her final return or by the beneficiary?
The basis for the property is __ to $__; therefore, __ of the $22,400 suspended loss is deductible on Rose’s final return or by the beneficiary.
The basis for the property is stepped up to $98,000; therefore, none of the $22,400 suspended loss is deductible on Rose’s final return or by the beneficiary.
Troy’s financial records for the year reflect the following:
$1,960 Interest income from bank savings account
3,920 Taxable annuity receipts
294 City ad valorem property tax on investments
6,860 Investment interest expense
Calculate Troy’s net investment income and his current investment interest deduction. How is a deduction for any potential excess investment interest treated?
Troy’s net investment income is $__ and his investment interest deduction is $__. Any potential excess investment interest expense not deducted this year is __.
$1,960 interest income on bank savings + 3,920 taxable annuity receipts - 294 city d valorem property tax on investments = $5,586
Troy’s net investment income is $5,586 and his investment interest deduction is $5,586. Any potential excess investment interest expense not deducted this year is carried forward.
Cristiano performs services for Ryan. Which of the following factors, if any, indicates that Cristiano is an independent contractor rather than an employee?
a. Cristiano follows a specific set of instructions from Ryan to complete tasks.
b. Ryan sets the work schedule.
c. Crisitano is paid based on tasks performed.
d. Ryan provides the tools used.
C
Which of the following would constitute an employer-employee relationship?
a. A physician who hires a nurse to help her with patient screening and preliminary tests in the office.
b. A CPA who prepares a client’s tax return
c. A gardener who takes care of individual lawns for a monthly fee
d. A plumber who comes to your home to fix a leking faucet.
A
When using the automatic mileage method, which of the following expenses, if any, also can be claimed?
a. MACRS depreciation
b. Enging tune-up
c. Interest on auto loan
d. Parking
D
Ralph made the following business gifts during the year.
$50 to Robert (a key client) at christmaas
20 to Angel (Robert’s 8-year old daughter) on her birthday
30 to Art (Ralph’s secretary) on his birthday ($3 was for gift wrapping)
40 to Paige (Ralph’s boss) at Christmas
Presuming proper substantiation, Ralph’s deduction is:
a. $78
b. $0
c. $53
d. $73
50% of promotional gift to client - $50 x 50% = $25
100% of promotional gift to secretary less gift wrapping - $30 - 3 = $27
