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Income Tax Fundamentals 2012 Chapter 3 Group 1 And 2 Solutions

1440 words - 6 pages

CHAPTER 3

BUSINESS INCOME AND EXPENSES, PART I

Group 1 - Multiple Choice Questions

1. C (LO 3.1) 7. C (LO 3.4) 13. E (LO 3.7) 19. E (LO 3.11)
2. C (LO 3.1) 8. D (LO 3.4) 14. E (LO 3.8) 20. C (LO 3.12)
3. E (LO 3.1) 9. B (LO 3.4) 15. B (LO 3.9) 21. C (LO 3.12)
4. D (LO 3.2) 10. C (LO 3.4) 16. C (LO 3.10) 22. E (LO 3.13)
5. B (LO 3.2) 11. D (LO 3.5) 17. C (LO 3.11)
6. D (LO 3.3) 12. A (LO 3.6) 18. C (LO 3.11)

Group 2 - Problems

1. Assigned for credit.

3. Gross income $50,000
Expenses:
Travel $ 1,000
Transportation
3,188 miles x $.51 + 3,188 miles x $.555 $ 3,395
Entertainment in total $4,000 x 50% $ ...view middle of the document...

2)

8. (a) Business miles: 95% x 22,650 miles. 10,759 x $0.51 = $5,487
10,759 x $0.555 = 5,971
$11,458

(b) Actual automobile costs $8,300
Business percentage x 95%
$7,885

(c) Since the standard mileage method yields the larger deduction, Teresa should use the standard mileage method to determine her deduction. (LO 3.3)

9. $7,500 (15,000 miles / 20,000 miles x $10,000 = $7,500) LO 3.3

10. The business expense is $2,130 (2,000 miles c $0.555 plus 2,000 miles x $0.51). The expense should be decucted on Martha’s Schedule C. (LO 3.3)

11. Airfare to San Diego $ 575
Hotel charges while on business 340
Meals while on business ($210 x 50%) 105
Car rental while on business 120
Total travel expense deduction $1,140 (LO 3.4)

12. Per diem rates are subject to change. It is necessary to go online to get current rates from IRS
Publication 1542. (LO 3.4)

13. Bob may deduct 100% of the course fees and travel expense and 50% of the meals, or $1,630.
(LO 3.4, 3.6)

14. $3,000. Grace may deduct 50% of $6,000 ($5,000 + $500 + $500). The Country Club dues are nondeductible. Since Grace is self-employed, the deduction is claimed on Schedule C. (LO 3.5)

15. a. Business meals at the country club $ 850
Business meals at various restaurants 2,250
Total entertainment deduction
before the 50% limitation $3,100
x 50%
Deductible Expense $1,550

b. The dues to the clubs are not deductible. The tennis fees are a personal expense and are not deductible. (LO 3.5)

16. a. No. Law school prepares him to enter a new profession.
b. Yes. The course is designed to improve her skills in her current job and does not prepare her to enter a new profession.
c. No. The educational expense is not paid to meet the requirements of law or regulation for keeping the taxpayer’s current job. The course would prepare her to enter a new profession. (LO 3.6) In some cases, these taxpayers may qualify for the deduction for higher education expenses (not a miscellaneous deduction) discussed in LO 5.8, or the lifetime learning credit discussed in LO 6.4.

17. Legal journal subscription 170
Legal reference service 1,500
Total deduction (LO 3.7) $1,670

18. Cooper’s uniforms $400
Laundry for Cooper’s uniforms 75
Alterations for Cooper’s uniforms 65
Brandy’s safety glasses and shoes 95
...

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