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Exam 23: Business Expenses and Deferred Compensation

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Question 41

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Charles is a self-employed CPA who maintains a qualifying office in his home.Charles has $110,000 gross income from his practice and incurs $88,000 in salaries,supplies,computer services,etc.Charles's mortgage interest and real estate taxes allocable to the office total $10,000.Other expenses total $14,000 and consist of depreciation,utilities,insurance,and maintenance.What is Charles' total home office expense deduction?

A) $10,000
B) $14,000
C) $22,000
D) $24,000

E) B) and C)
F) All of the above

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Question 42

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There are several different types of qualified retirement plans.One common criteria across qualified retirement plans is that employers deduct the contributions and employees include the contributions in taxable income in the same period.

A) True
B) False

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Question 43

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Martin Corporation granted a nonqualified stock option to employee Caroline on January 1,2015.The option price was $150,and the FMV of the Martin stock was also $150 on the grant date.The option allowed Caroline to purchase 1,000 shares of Martin stock.The option itself does not have a readily ascertainable FMV.Caroline exercised the option on August 1,2019,when the stock's FMV was $250.Caroline sells the stock on September 5,2020,for $300 per share.Martin Corporation will be allowed a deduction of

All of the following characteristics are true of an incentive stock option with the exception of

Which of the following statements is incorrect regarding unfunded deferred compensation plans?

The following individuals maintained offices in their home: (1) Dr.Austin is a self-employed surgeon who performs surgery at four hospitals.He uses his home for administrative duties as he does not have an office in any of the hospitals. (2) June,who is a self-employed plumber,earns her living in her customers' homes.She maintains an office at home where she bills clients and does other paperwork related to her plumbing business. (3) Cassie is an employed as a sales representative of Montgomery Products,an out-of-town company which does not have a local office.She uses an extra room in her home to plan her sales calls,write up orders and store inventory.The use of this room in her home is a required part of the job.,and this work is the only use of this room. Who is entitled to a home office deduction?

Which of the following statements regarding Health Savings Accounts is incorrect?

If a self-employed individual is not "away from home," expenses related to local transportation are never deductible.

Tucker (age 52) and Elizabeth (age 48) are a married couple.Tucker is covered under a qualified retirement plan at his job and earned $90,000 in 2019.Elizabeth is employed as a lab technician and earned $30,000 but is not covered under a qualified retirement plan.They file a joint return; have interest and dividend income of $25,000.What is the maximum amount of tax deductible contributions that may be made to a traditional IRA?

Camellia,an accountant,accepts a new job located 1,000 miles away from her current job location.She has to pay a moving company plus the transportation costs for herself to move to the new location.The new employer does not pay moving costs.Camellia will be allowed a deduction for the work-related move.

Gwen,an independent consultant,traveled to New York City on a business trip.Gwen spent 4 days in business meetings and conferences and then spent 2 days sightseeing in the area.Gwen's plane fare for the trip was $250.Meals cost $160 per day.Hotels and other incidental expenses amounted to $250 per day.Gwen may deduct

In order to simplify recordkeeping,a self-employer taxpayer elects to use the federal per diem rate for business travel expenses.This election eliminates the requirement of maintaining documentation of time,place and business purpose of the travel.

A partnership plans to set up a retirement plan to benefit the partners and the employees.All of the following retirement plans are appropriate except

Feng,a single 40-year-old lawyer,is covered by a qualified retirement plan at work.His salary is $115,000,and his total AGI is $128,000.The maximum contribution he can make to a Roth IRA in 2019 is

Angie starts a new job on July 1 and becomes covered under the employer's health insurance plan which has an annual deductible of $2,400.Angie contributes the maximum amount into a Health Savings Account.Which of the following statements regarding Angie's Health Savings Account is correct?

Chelsea,who is self-employed,drove her automobile a total of 20,000 business miles in 2019.This represents about 75% of the auto's use.She has receipts as follows: $\begin{array} {| l | r |} \hline \text { Parking (business only) } & \$ 500 \\\hline \text { Tolls (business only) } & 200 \\\hline \text { Repairs } & \$ 1,000 \\\hline\end{array}$ Chelsea uses the standard mileage rate method.She can deduct

Corporations issuing incentive stock options receive a tax deduction for compensation expense.

The key distinguishing factor for classifying a worker as either an employee or self-employed includes the right to control and direct the worker with respect to both the end result and the means to accomplish that end result.

If the standard mileage rate is used in the first year,the actual expense method may not be used in future years.

Rui,the sole proprietor of a CPA firm,is responsible for a large client base.She often drives to meetings at two different clients' offices in a single day.Rui can deduct the transportation costs of driving to the various client meetings.