Multiple Choice - Deductions and Losses for tax reporting

Agnes is the sole shareholder of Violet, Inc. For 2007, she receives from Violet a salary of $200,000 and dividends of $100,000. Violet's taxable income fro 2007 is $500,000. On audit, the IRS treats $50,000 of Agnes's salary as unreasonable. Which of the followign statements is correct? a. Agnes's gross income will increa ...continues

Tax Issues: Hobby loss rules for the ranch. Martha is a successful orthodontist

After many years as a successful orthodontist, Martha has decided to buy a ranch in the country. Martha has always liked horses and anticipates acquiring several for the ranch. On the weekends, Martha can relax at the ranch and ride her horses. The cost of operating the ranch and owning horses will be substantial so she plans to ...continues

Depreciation on Vehicles to maximize tax benefit

Grace, drops by the office on the Monday after Thanksgiving. She says that over the holiday she was reviewing her books and projecting the remainder of the tax year. She projects that her Schedule C will show a net profit of $300,000 this year. This is substantially higher than in the prior year. She is concerned that she wi ...continues

S-Corporation T-F questions: built-in gain, officer salary, audit risk, year-end, and qualifications for shareholders.

T-F 1. S corporations who chose to be taxable C corporations may have to pay a 35 percent tax on certain built-in gains. 2. Revenue agents who audit S corporations are on the alert for shareholder/employee salaries that are unreasonably low. 3. An S corporation can use any taxable year it wishes. 4. A taxable C c ...continues

Life Insurance Proceeds

Don is the beneficiary of a $50,000 insurance policy on the life of his mother, Anna. To date, Anna paid premiums of $16,000. What amount of gross income must be reported in each of the following cases? a. Anna elects to cancel the policy and receives $20,000, the cash surrender value of the policy. b. Anna dies and Don rece ...continues

Self Help Income

In which of the following situations would the taxpayer realize taxable income? a. A mechanic performs work on his own automobile. The mechanic would have charged a customer $400 for doing the same work. b. A mechanic repairs his neighbor's personal automobile. In exchange, the neighbor, an accountant, agrees to prepare me ...continues

Tax Consequences of Amanda selling her stock: either to another stockholder or to the corporation.

I need help in understanding what would be the tax consequences of the two options to the three sisters, who are active in managing Delray. Amanda, Sue, and Mary each own 100 of the 300 outstanding shares of Delray Corporation stock. Amanda wants to sell her shares, which have a $40,000 basis and a $100,000 FMV. Either Sue ...continues

Travel and Entertainment expenses for Monique: For AGI or from AGI

Monique is a self-employed manufacturer’s representative who solicits business for clients and receives a commission based on sales. She incurs the following expenditures during the current year: Airfare and lodging while away from home overnight $ 4,000 Business meals while traveling at which business is discussed 1,000 Lo ...continues

Tax question

How would you explain the difference in retained earnings and E & P to a client who questions your preparation of a tax return?

Multiple choice in depreciation, cost recovery, amortization and depletion

Hazel purchased a new business asset (five-year property) on November 30, 2007, at a cost of $100,000. This was the only asset acquired by Hazel during 2007. On January 7, 2008, Hazel placed the asset in service. She did not elect to expense any of the asset cost under § 179, nor did she elect straight-line cost recovery. On Oct ...continues