R3 Capital

Question 1

International personal trip

Answer 1

For an international trip, airfare would not be deductible if the trip is primarily personal, as indicated by the word “vacation.” (IRC Section 274) . Note: Where international travel is both personal and business, but not primarily personal, the deductible airfare is pro-rated by deducting (the number of days used for business divided by the total number of days traveled) times the round-trip airfare.

Question 2

International personal trip

Answer 2

Can deduct cost of course plus daily accommodation, travel and other incidental expenses

Question 3

Charitable contributions

Answer 3

Question #101072

Question 4

Passive activity loss

Answer 4

Question #101544

Question 5

Moving costs

Answer 5

Moving household goods and personal effects from the old residence to the new residence, and traveling (including lodging) from the old residence to the new place of residence. Deductible moving expenses do not include meals.

Question 6

IRA withdrawals

Answer 6

Penaly plus marginal tax rate

Question 7

Hobbies

Answer 7

Hobbies are activities that are engaged in primarily for personal enjoyment rather than to produce profit. If an activity is not engaged in for profit, deductions are allowable only to the extent of the gross income of the activity. Therefore, the expenses of $3,000 may only be deducted to the extent of the income of $2,000. Hobbies never generate a loss for tax purposes; however, any gain is taxable. Since expenses incurred for hobby activities are personal expenses rather than business expenses, they are reported on Schedule A as an itemized deduction. Miscellaneous itemized deductions, with few exceptions, are only deductible to the extent that they exceed 2% of the individual’s AGI.

Question 8

misc itemized deduction

Answer 8

miscellaneous itemized deduction is a Schedule A (IRS Form 1040) expense that is more general in nature than deductible expenses from other Schedule A categories. Deductibility is limited in most cases.

Question 9

limitations of misc itemized deductions

Answer 9

There are two types of miscellaneous itemized deductions:
Those that can be deducted without applying the 2%-of-AGI limitation test, including gambling losses (up to gambling income reported on Form 1040, line 21), federal estate taxes paid on income in respect of a decedent (IRD), repayment of amounts included in income in previous years (repayment under a claim or right) if greater than $3,000, impairment-related work expenses of a disabled person, etc.
Those limited to the amount greater than 2% of adjusted gross income (AGI), including tax preparation fees, safe deposit box rental fees, trust management fees, union dues, employee business expenses such as uniform fees if the uniforms are not suitable for wearing outside work, medical exams required, travel, classes required by employer, etc.

Question 10

Moving expenses

Answer 10

Meals and temporary living expenses are not deductible.

Question 11

Stock dividend

Answer 11

Since Tom had the option to receive either cash or the ABC Corp. stock with a fair market value of $1,000, the fair market value of the stock received is included in income by Tom. The Internal Revenue Code states that if a distribution (or series of distributions) results in the receipt of cash or other property by some shareholders in the corporation’s assets or earnings and profits, then stock or stock rights distributed to a shareholder on the common stock of the corporation must be treated as a taxable distribution.

Question 12

Charitable contributions

Answer 12

Transportation expenses to and from an event in which an individual performs charitable services is deductible as a charitable contribution. The fair market value of services performed for a charitable organization is not deductible as a charitable contribution.

Question 13

Passive activity losses

Answer 13

In general, passive activity losses in excess of passive activity income are not allowed. There is an exception to the rule for rental real estate activities; if an individual actively participated in a rental real estate activity, they may be able to deduct up to $25,000 of passive activity loss from nonpassive income. Participation in management decisions such as new tenant approval, rental terms, repairs, and capital expenditures is sufficient to meet the “active participation” definition.
The passive activity rules apply to individuals, estates, trusts, personal service corporations, and closely held C corporations. The passive activity loss rules do not apply to partnerships, widely held C corporations, or S corporations.

Question 14

Ownership and taxability/deductibility

Answer 14

f Mill owned less than 2% of the company, the correct answer would be zero.
Since Mill owns more than 2% of the company, the insurance premiums paid by the S corporation are fully taxable.
Mill received family benefits of $7,200, which are taxable.

Question 15

Medical expenses

Answer 15

Medical expenses means amounts paid for:
the diagnosis, cure, mitigation, treatment, or prevention of disease, or for the purpose of affecting any structure or function of the body,
related transportation,
qualified long-term care, and
health insurance and qualified long-term care health insurance

Question 16

Exceptions to medical expenses

Answer 16

There are some specific exceptions. Cosmetic surgery is a qualified medical expense only if it repairs a congenital abnormality, personal injury, or disfiguring disease. Disability insurance premiums are not deductible because the proceeds from disability insurance are not taxable and expenses relating to tax-exempt income are not deductible.