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:
Item
Airfare and lodging while away from home overnight
Business meals while traveling at which business is discussed
Amount
$ 4,000
1,000
Local transportation costs for automobile, parking, tolls, etc.
(business related)
Commuting expenses
Local entertainment of customers
Total
2,000
1,000
2,000
10,000
Required:
Solutions
List each deductible expenditure at its
net amount after any required adjustments
but before the 2% of AGI Limitation.
a. Which of the expenditures listed above (if any) are deductible by Monique?
Total deductible expenses
$
List the expenses that are not deductible
and why in this box.
b. Are each of these items classified as for AGI or from AGI deductions?
c. How would your answers to Parts a and b change if Monique were an
employee rather than self-employed and none of the expenses were reimbursed
by her employer?
Solution PR 10-1
Michelle is an employee who must use her personal automobile for
employment-related business trips. During the current year, Michelle
drives her car 60% for business use and incurs the following total
expenses (100% use of car):
Item
Gas and oil
Repairs
Depreciation
Insurance and license fees
Parking and tolls (business related)
Total
Amount
$ 9,000
1,400
4,700
1,300
100
$ 16,500
Michelle drives 24,000 business miles during the current year and receives
a reimbursement of 40 cents per mile from her employer. Assume that an
adequate accounting is made to Michelle's employer.
Required:
Solutions
a. What amount is deductible (before the 2% nondeductible floor) if Michelle
elects to use the standard mileage method? Use the 2013 mileage rate.
b. What amount is deductible (before the 2% nondeductible floor) if Michelle
uses the actual cost method?
Can taxpayers switch back and forth between the mileage and actual methods
each year?
Solution PR 10-2
Michael graduates from New York University and on February 1st of the current year,
accepts a position with a public accounting firm in Chicago. Michael is a resident of
New York. In March, Michael travels to Chicago to locate a house and starts to work
in June. He incurs the following expenses, none of which are reimbursed by the
public accounting firm.
Item
Automobile expense en route (1,000 miles
at 24 cents per mile - standard mileage
Cost of meals en route
Househunting trip travel expenses
Moving van expenses
Commission on the sale of Michael's New
York condominium
Points paid to acquire a mortgage on
Michael's new residence in Chicago
Temporary living expenses for on week in
Chicago (hotel and $100 in meals)
Expenses incurred in decorating the new
Total expenses
Amount
$
240
100
1,400
3,970
3,500
1,000
400
500
$ 11,110
Required:
Solutions
a. What is Michael's moving expense deduction?
List the expenses that are deductible and
the amount of his deduction.
List the expenses that are not deductible and
why.
b. How are the deductible moving expenses classified on Michael's tax return?
For or From AGI?
c. How would your answer to Part a change if all of Michael's expenses were
reimbursed by his employer and he received a check for $11,110?
Solution PR 10-3
For each of the following independent situations, determine whether any
of the expenditures qualify as deductible education expenses in
connection with a trade or business (Reg. Sec. 1.162-5). Are the
expenditures classified as for AGI or from AGI deductions?
Required:
Solutions
a. Law school tuition and books for an IRS agent who is pursuing a law degree:
$2,000.
b. Continuing professional accounting education expenses of $1,900 for a selfemployed CPA: travel, $1,000 (including $200 meals); registration fees, $800;
books, $100.
c. MBA education expenses totaling $5,000 for a business executive of a major
corporation: tuition, $4,000; transportation, $800; and books, $200. Assume he
is an employee.
d. Tuition and books acquired for graduate education courses required under
state law for a schoolteacher in order to renew a provisional certificate: $1,000.
e. Bar review courses for a recent law school graduate: $1,000.
Solution PR 10-4
Darrell is a self-employed consultant who uses 15% of his home
exclusively as an office. Darrell operates completely out of his home office
and makes all of his appointments from the office as well as keeping his
books and records in the office. Darrell's gross income from his
consulting business is $60,000 in the current year. He incurs $6,000 of
expenses that are directly related to his business, such as computer and
office supplies. Below are expenses that relate to Darrell's residence for
the current year:
Item
Real estate taxes
Mortgage interest
Insurance
Depreciation
Repairs and utilities
Total
Amount
$ 4,000
8,000
1,000
4,000
1,000
$ 18,000
Required:
Solutions
a. Which of the above expenditures (if any) are deductible? Are they for AGI or
from AGI deductions?
His total deductions for the current year are:
Directly-related expenses
Indirect expenses
Total
$0
Why are his expenses deductible?
Are they for or from AGI?
b. How would your answer change if Darrell was an employee of a consulting
company and maintained an office at home in order to take work home with him
so he did not have to spend so many hours at his consulting company office?
What expenses, if any, would be deductible?
Solution PR 10-5
Purchase answer to see full
attachment