Question 1

Walter is a cash basis taxpayer with a drapery cleaning business. In the current year he determines he will never receive payment from Davis for cleaning services provided to Davis. Can Walter record a deduction for the bad debt? Explain.

Accepted Answer

The answer of Walter is a cash basis taxpayer with...

Question 2

For each of the following situations, determine whether the item is deductible, how it would be deducted on the taxpayer's return (if there are alternatives possible, discuss the conditions that would determine the treatment) and any limitations, which might be placed on the deduction.
a.Allison is self-employed. She pays the following taxes during the current year:$$\begin{array} { l r } 
\text { State income tax } & \$ 1,200 \
\text { Federal income tax } & 4,000 \
\text { Self-employment tax } & 3,200 \
\text { Property tax on residence } & 700 \
\text { Tax on business equipment } & 200
\end{array}$$ 
b.A customer who owed Leon $5,000 declared bankruptcy last year. At that time, the customer's accountant estimated that only 40% of the customer's debts would be paid. In the current year, Leon receives $1,000 from the bankruptcy court as final payment on the $5,000 debt.

Accepted Answer

The answer of For each of the following situations, determine...

Question 3

For each of the following situations, determine whether the item is deductible, how it would be deducted on the taxpayer's return (if there are alternatives possible, discuss the conditions that would determine the treatment) and any limitations, which might be placed on the deduction.
a.Tony and Rika are married and file a joint return. Only Tony is covered by an employee-sponsored pension plan and their adjusted gross income is $189,000. Determine their maximum IRA contribution and deduction for the current year.
b.Elise graduated from Southern University in May of 2017 and immediately started working as a financial analyst for Simone Financial Group. To finance her college education, she borrowed $30,000 from a local bank. In January of 2018, she begins paying back her student loans and pays $2,400 of interest expense during the year. Her adjusted gross income for the year is $63,000.
c.During the current year, Rowland accepts a job as a computer programmer with Davenport Industries. He incurs the following expenses in moving from East Brunswick, New Jersey to Durham, North Carolina. Davenport Industries reimburses him $4,000 for his move.

Accepted Answer

The answer of For each of the following situations, determine...

Question 4

Sita loans her next-door neighbor, Ivan, $800 to pay his rent and cover his utilities for last month. Ivan promises Sita he will repay her at the end of next month when he receives his next payroll check. Two weeks after loaning Ivan the money, Sita discovers Ivan had left town. No one knows his whereabouts. Sita is told that Ivan also hasn't paid his rent or utility bills. Discuss whether Sita can deduct the $800. Completely explain your reasoning.

Accepted Answer

The answer of Sita loans her next-door neighbor, Ivan, $800...

Question 5

For each of the following IRA situations, determine the amount the taxpayer can deduct. Discuss any limitations, which might be placed, on the deduction.
a.Marissa is single and is an active participant in a qualified employee pension plan. Determine the maximum Roth IRA contribution that she can make if her adjusted gross income for the year is $135,000.
b.David and Donna are married and file a joint return. Each is covered by an employee-sponsored pension plan, and their adjusted gross income is $106,000. Determine their maximum IRA contribution and deduction for the current year.
c.Pedro and Roxanne are married and have two children, ages 8 and 4. Their adjusted gross income for the year is $196,000. What is maximum amount they can contribute to each child's Coverdell Education Savings Account (CESA) for the year??

Accepted Answer

The answer of For each of the following IRA situations,...

Question 6

Amanda is the president and 60% owner of ANR, a closely held corporation. During the year, she is paid a salary of $650,000. Her salary is 40% higher than that for executives of comparably sized companies in the industry. ANR has experienced 4 straight years of increased sales growth, at 3% per year, while other companies in the industry have experienced decreasing or level sales. Discuss what factors are used to determine whether Amanda's salary represents reasonable compensation.

Accepted Answer

The answer of Amanda is the president and 60% owner...

Quiz 6: Business Expenses

Walter is a cash basis taxpayer with a drapery cleaning business. In the current year he determines he will never receive payment from Davis for cleaning services provided to Davis. Can Walter record a deduction for the bad debt? Explain.