Question 1

Sally and Kelly are both enrolled in a graduate accounting course at Deacon University.Discuss how it is possible that Sally can deduct the cost of her tuition as an education expense while Kelly's tuition is not deductible.

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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.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 $178,000. Determine their maximum IRA contribution and deduction for the current year.
b.Elise graduated from Southern University in May of 2012 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 2013, 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. $\begin{array}{lr}
\text { Transportation of household goods } & \$ 2,800 \
\text { Airfare } & 340 \
\text { Temporary living: } \
\quad \text { Lodging } & 430 \
\quad \text { meals } & 120\
\text { House-hunting trip: }\
\text { Transportation } & 330 \
\text { Lodging } & 280 \
\text { Meals } & 110
\end{array}$

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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.Allison is self-employed. She pays the following taxes during the current year: 
$$\begin{array} { l r } 
\text { State income tax } & \$ 1,200 \
\text { Federal income tax } & 4,000 \
\text { Sel f-employment tax } & 3,200 \
\text { Property tax on residence } & 700 \
\text { Tax on business equipment } & 200
\end{array}$$ 
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.

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Question 4

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.

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Question 5

For each of the following situations,determine whether the expenses are deductible as an education expense.Explain.
a.Marvin owns a real estate development firm and his adjusted gross income is $60,000. He enrolls as a part-time student at Northern College. His primary motivation for taking the classes is to obtain a greater understanding of the accounting issues associated with his real estate development business. He also believes that he can save 25% of the amount he pays in accounting expenses. The cost of the 2 courses he enrolls in is $900.
b.Nancy is employed as a computer manager for a data processing company and her adjusted gross income is $90,000. She enrolls in a night course ($225) at the local college. The course is not required by her employer, but does improve her job skills.
c.Janine is a recent graduate of Western University and has been hired by a local accounting firm. The firm expects Janine to pass the CPA exam on her initial attempt. To help her prepare for the CPA exam, she takes the Booker CPA Review Course that costs $1,500.
d.Cam runs a licensed day-care center. To maintain his license he is required to attend a minimum of 30 hours a year of continuing education. During the year, Cam attends 40 hours of continuing education seminars at a cost of $1,500.

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Question 6

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.

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Question 7

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.

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Question 8

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 $73,000.
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 $102,000. 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

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Quiz 6: Business Expenses

Sally and Kelly are both enrolled in a graduate accounting course at Deacon University.Discuss how it is possible that Sally can deduct the cost of her tuition as an education expense while Kelly's tuition is not deductible.

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.