PR 10-1
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 Amount
Airfare and lodging while away from home overnight $ 4,000
Business meals while traveling at whichis discussed
1,000
Local transportation costs for automobile, parking, tolls, etc. (business related)
2,000
Commuting expenses 1,000
Local entertainment of customers 2,000
Total 10,000
Required: Solutions
a. Which of the expenditures listed above (if any) are deductible by Monique?
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?
PR 10-2
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 Amount
Gas and oil $ 9,000
Repairs 1,400
Depreciation 4,700
Insurance and license fees 1,300
Parking and tolls (business related) 100
Total $ 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?
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?
PR 10-3
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 Amount
Automobile expense en route (1,000 miles at 16.5 cents per mile – standard mileage rate)
$ 165
Cost of meals en route 100
Househunting trip travel expenses 1,400
Moving van expenses 3,970
Commission on the sale of Michael’s New York condominium
3,500
Points paid to acquire a mortgage on Michael’s new residence in Chicago
1,000
Temporary living expenses for on week in Chicago (hotel and $100 in meals)
400
Expenses incurred in decorating the new residence 500
Total expenses $ 11,035
Required: Solutions
a. What is Michael’s moving expense deduction?
b. How are the deductible expenses classified on Michael’s tax return?
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 $11,035
PR 10-4
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 self-employed 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.
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.
PR 10-5
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 Amount
Real estate taxes $ 4,000
Mortgage interest 8,000
Insurance 1,000
Depreciation 4,000
Repairs and utilities 1,000
Total $ 18,000
Required: Solutions
a. Which of the above expenditures (if any) are deductible? Are they for AGI or from AGI deductions?
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?