Exam 18: Employee Expenses and Deferred Compensation

Fiona is about to graduate college with a management degree.She has been offered a job as a sales representative for a pharmaceutical company.The job will require significant travel and entertainment expenses for which she will be given a salary supplement.What tax issues should Fiona consider in her decision?

Martin Corporation granted a nonqualified stock option to employee Caroline on January 1,2012.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 1,2015 when the stock's FMV was $250.If Caroline sells the stock on September 5,2016 for $300 per share,she must recognize

Rui is a CPA is employed by a firm with offices downtown.She is assigned to an audit client in the suburbs for a few weeks.On most days,she drives straight to the client's location,works there all day,and then drives home at night.Rui's transportation costs driving between home and the client's location are deductible as unreimbursed employee business expenses.

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?

In a contributory defined contribution pension plan,all of the following are true with the exception of

Deductible moving expenses include the cost of moving household goods and personal effects as well as temporary living expenses.

Transportation expenses incurred to travel from one job to another are deductible if a taxpayer has more than one job.

Ruby Corporation grants stock options to Iris on February 1,2014.The options do not have a readily ascertainable value.The option price is $100,and the FMV of the Ruby stock is also $100 on the grant date.The option allows Iris to purchase 200 shares of Ruby stock.Iris exercises the option on August 1,2015,when the stock's FMV is $150.Iris sells the stock on December 5,2016 for $400.Determine the amount and character (i.e.ordinary,LTCG or STCG)of income recognized by Iris and the deduction allowed Ruby Corporation in 2014,2015 and 2016 under the following assumptions: a.The stock option is an incentive stock option. b.The stock option is a nonqualified stock option.

SIMPLE retirement plans allow a higher level of employer contributions than do SEP IRAs.

Generally,50% of the cost of business gifts is deductible up to $25 per donee per year.

Incremental expenses of an additional night's lodging and additional day's meals that are incurred to obtain "excursion" air fare rates with respect to employees whose business travel extends over Saturday night are not deductible business expenses.

All of the following statements regarding tax treatment of education expenses except

Kim currently lives in Buffalo and works in Rochester,a 60-mile commute each way.Kim accepts a new job in a town outside of Rochester,and the new commute is 75-miles each way.Kim decides the commute for the new job is too long,and she moves to Rochester.Kim is eligible to deduct her moving expenses.

Rita,a single employee with AGI of $100,000 before consideration of the items below,incurred the following expenses during the year,all of which were unreimbursed unless otherwise indicated: In addition,Rita paid $300 for dues to her professional business association.The company reimbursed her after she submitted the appropriate documentation for the dues.What is Rita's net miscellaneous itemized deduction for the year after application of all relevant limitations?

Pat is a sales representative for a publishing company.He entertains customers as part of his job.During the current year he spends $10,000 on business entertainment.The company reimburses him $5,000.Before consideration of the entertainment costs and the reimbursement,Pat earns AGI of $100,000,and he has itemized deductions of $12,000 due to mortgage interest and taxes.Pat is single,with no dependents.What is Pat's taxable income a.assuming the employer maintains an accountable plan? b.assuming the employer does not maintain an accountable plan?

All of the following may deduct education expenses except:

Raul and Jenna are married and are both working.They are both over age 50.Jenna participates in her employer's Sec.401(k)plan and makes the maximum contribution and enjoys a company matching contribution.Raul's employer does not maintain a retirement plan so he would like to save as much as possible in a tax-advantaged manner for retirement.They expect to report $187,000 of AGI for 2015. a.What is the maximum amount that Raul can contribute to a traditional IRA and how much can he deduct? b.What is the maximum amount that Raul can contribute to a Roth IRA and how much can he deduct? c.How could Raul contribute to both the traditional IRA and Roth IRA to maximize current and future tax savings?

Gayle,a doctor with significant investments in the stock market,traveled on a cruise ship to Bermuda.Investment specialists provided daily seminars which Gayle attended.The cost of the cruise for four days is $2,500.Gayle can deduct (before application of any floors)

Under a qualified pension plan,the employer's deduction is usually deferred until the employee recognizes income.

If an individual is not "away from home," expenses related to local transportation are never deductible.