Business Deductions Flashcards
During the year, Mr. Bank, an independent contractor, incurred the following unreimbursed business expenses for which he has adequate proof for the amounts and purpose:
Business meals $2,000
Business entertainment 1,000
Business gifts (10 gifts at $30 each to 10 different people) 300
Amount Bank can deduct?
Business meals subject to a 50% limitation.
business gifts are deductible up to the amount of $25 per donee per year.
Business Meals: 1,000
Business Gifts: (10*25)=250
Total deducted: 1250
Properly substantiated qualifying business meal expenses are deductible by
50% of the meal expense incurred. Since the employees are fully reimbursed for these expenses,
Entertainment expenses are (deductable)?
no longer deductible.
Meals incurred at entertainment events are eligible for deduction if separately billed.
tickets Purchased to three theater performances and two sporting events.
Each event includes a meal during the event.
total of 10 tickets, each separately stating the cost of the performance/event and the meal.
Tickets given to customers
Sally did not go with these customers to the event or performance. Sally can claim
Sally may only claim the tickets as a business gift expense.
No business meal deduction is allowed since Sally did not attend.
Bobby, a self-employed taxpayer, spends $2,000 on baseball tickets in 2023 to take a client to a game, where they will discuss business.
The tickets are all-inclusive, meaning they include food and beverages. While at the game, Bobby estimates that they receive food and beverages with a value of $500. How much of these expenses can Bobby deduct on his 2023 tax return?
In general, 50% of meal expenses are deductible.
The IRS has indicated in Notice 2018-76 that meal expenses that are not separately billed (i.e., included as part of the cost of entertainment) will be treated as nondeductible entertainment expenses.
Total deductable = 0
Bob is a sole proprietor. During the year, he incurred the following expenses:
Rental payments for January and February of the next year $3,000
Country club dues 7,500
Meal expenses incurred while meeting with clients 1,500
What is the amount of Bob’s expenses that are deductible for the year?
deduction from gross income is allowed for meal expenses, up to 50% of the actual expense.
entertainment expenses -non-deductible,
advance rental payments may be deducted by the lessee only during the tax periods to which the payments apply (Publication 463). Accordingly, Bob is entitled to a deduction in the current year of $750=50*1500
Julio pays club dues of $5,000 a year for which he is not reimbursed. He uses the club 75% for his business, 50% for directly related entertainment, and 25% for associated entertainment. How much of the club dues may Julio deduct?
No deduction is allowed for amounts paid or incurred for dues and fees paid to social, athletic, sporting, or country clubs (Publication 463).
A taxpayer may, however, deduct out-of-pocket expenses for the business use of those facilities that are ordinary and necessary meals with customers at the facilities. For example, purchasing a meal for the client at the club will qualify for a deduction.
David is an interstate truck driver subject to Department of Transportation hours of service, but he is not an employee. In 2023, he is allowed to deduct what percent of his meals he had while working as an interstate truck driver?
80% bc he is a truck driver
Five elements must be proven with respect to business meal expenses.
Two of the elements are the amount and business purpose of the expense. Which of the following is NOT one of the other three elements?
The duration of the meal.
Bethany and Michael (wife and husband) are itemizing their Schedule A expenses on their 2023 return. Michael, an employee, traveled to Japan for his employer but was not reimbursed. His meal expenses totaled $500. How much can Michael deduct for meals?
The amount deductible for meal expenses is 50% of the actual expense.
The limit also applies to the taxpayer’s own meals. The expense must be ordinary and necessary for the business. However, the unreimbursed expenses of employees are nondeductible. Thus, Michael’s deduction is zero.
The 50% limit on deductibility of business-related expenses applies to
Meals while traveling away from home on business and meals provided to customers at your place of business.
During the year, Sally Sales purchased tickets to three theater performances and two sporting events. Each event includes a meal during the event. She purchased two tickets for each event for a total of 10 tickets, each separately stating the cost of the performance/event and the meal. Sally gave these tickets away to legitimate business customers and has records to prove it. Sally did not go with these customers to the event or performance. Sally can claim
The tickets as a business gift expense.
During July-December of 2023, Ted, a self-employed taxpayer, drives his car 5,000 miles to visit clients, 10,000 miles to get to his office, and 500 miles to attend business-related seminars. He also spent $300 for airfare to another business (1-day) seminar and $200 for parking at his office. Using $.655 per mile, what is his deductible transportation expense?
In 2023, Cooper started a new business that requires him to use his car extensively for business purposes.
Cooper has not claimed any depreciation on his car in the past. Cooper’s records reflect that he incurred the following expenses for 2023:
Gasoline and oil $2,480
Repairs on auto 680
Business parking and tolls 120
Depreciation – business portion 1,760
Insurance 636
Licenses, tags, etc. 80
Total $5,756
Total miles driven (incurred ratably throughout the year) 30,000
Business miles 24,000
What is the maximum deduction that Cooper is allowed for the business use of his car in 2023?
Mileage 24,000*.655=15720
Busines Parking & tolls = 120
Total 15,840
Thomas loaned a friend, Susan, $10,000 for a down payment on a home. Thomas and Susan signed a note in which Susan agreed to pay $100 a month with an interest rate of 4% until the loan was completely paid. Susan lost both her job and her home in 2022. In 2023, Susan filed bankruptcy and went to live with her mother. Thomas sued Susan in court for nonpayment in August 2023, but the court ruled the debt unenforceable because it had been discharged in bankruptcy. When Susan defaulted, the outstanding balance due on the note was $7,000. If Thomas had only wage income reportable during the year, how much would his deductible bad debt be in 2023, assuming that Thomas elected to treat the loss as a nonbusiness ordinary loss arising from a transaction entered into for profit?
A nonbusiness bad debt is a debt other than one incurred or acquired in connection with the taxpayer’s trade or business.
A completely worthless nonbusiness bad debt is treated as a short-term capital loss.
A short-term capital loss is subject to a $3,000 annual limit.
The remaining $4,000 may be carried forward.
