ACCT-4021EL Chapter Notes - Chapter 3: Liability Insurance

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plumbee368

29 Sep 2018

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Individual employees who are involved with the selling of property or the negotiating of contracts are permitted to deduct all expenses that can be considered necessary to the performance of their duties. In order to be eligible to deduct salesperson"s expenses, all the following conditions must be met: person must be required to pay their own expenses, and the employer must sign form. Items that can be deducted under ita 8(1)(f) include: Meals with clients (we will assume that, subject to the 50% limitation, the full cost of meals with clients would be deductible) Motor vehicle costs (other than cca and interest) Except in the case of an automobile or aircraft, an employee who is a salesperson cannot deduct. Cca or interest on funds borrowed to acquire capital assets. All of the travel and motor vehicle costs that a salesperson could deduct under ita 8(1)(h) and (h. 1) could also be deducted using ita 8(1)(f).

Related Questions

Facts:

Larry and Marcia Ricci are a married couple living in Californiawho file a joint tax return. For the past

several years, Larry worked full time as a CPA. This year, Larryspent 2,250 hours working in his CPA

position.

In addition to being a homemaker, Marcia worked part-time as areal estate agent at Brokerage Firm.

Although Marcia was licensed as a real estate agent applicablestate law; she was not a licensed as a

broker. Marcia worked for Brokerage under a contract statingthat she was an independent contractor,

not an employee of the brokerage firm. Consistent with Marciaâsindependent contractor status, the

Brokerage issued a Form 1099 to her. Brokerage did not pay her asalary; rather, she received

commissions. The contract also required Marcia to sell,exchange, lease, or rent properties and solicit

additional listings, clients, and customers diligently and withher best efforts. Marcia spent a total of

1,000 hours selling real estate this year.

During this year, Larry and Marcia owned two apartment rentalproperties. In addition to his

employment as a CPA, Larry spent approximately 80 hours managingProperty 1. Property 1 had a

resident who assisted Larry and the resident spent 100 hoursthis year managing it.

Marcia spent approximately 430 hours managing the Property 2during this year. She was the only

person who managed this property.

This year, Larryâs CPA salary is $300,000. Marcia will have realestate commissions from Brokerage of

$80,000 and related expenses of $25,000. Her Schedule C for herreal estate agent activity will, thus,

show net income of $55,000.

Property 1 collected $60,000 of rental income, but had $80,000of expense, for a net $20,000 loss.

Property 2 collected $75,000 of rental income, but had $90,000of expense for a net $15,000 loss.

The Riccis are concerned about whether the passive activity lossrules of Code section 469 may apply to

limit their ability to deduct losses related to theProperties.

Issues:

1) To what extent, if any, are the losses related to theProperties deductible this year?

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Income

11. A receipt can be seen asâincomeâ in one of two ways. What are they?

12. What is âordinaryincomeâ?

What is âstatutory incomeâ?

What is the relationship between assessable income, ordinaryincome and statutory income?

What is the role of Div. 10?

What is the effect of s 15-2?

What is the effect of s 15-15?

What is meant by âincome must be derivedâ?

When is income âderivedâ?

Define a âwindfall gainâ.

Briefly explain what âmutual paymentsâ are and how they aretaxed.

A sporting club receives income from membership subscriptions,hire of its facilities and bar takings in its clubhouse. To whatextent are these receipts taxable?

Briefly explain when gambling winnings will be taxable.

Briefly explain when gifts will be taxable.

A plays club football in the North Queensland League. Last yearhe was named as the Leagueâs Best and Fairest player and received a$5,000 prize donated by a local television station. Explain whetherhe is taxable on his prize.

In what circumstances will a compensation payment be regarded astaxable income?

B received $1,000,000 for heroin he had illegally imported intoAustralia. The heroin had cost him $200,000. To what extent, if atall, is he liable for tax on his âprofitâ?

If B is taxable on that profit can he claim the bribes he paidvarious overseas customs officials as deductions?

As part of her salary package, C receives the use of a companycar. She estimates that the value to her of the company car is$5,000 per year. To what extent, if at all, is she assessable onthat value?

To what extent, if at all, is her employer assessable to taxbecause it provides her with the car?

How are loan premiums and discounts treated for income taxpurposes?

How are premiums that tenants pay their landlords assessed inthe landlordâs hands under the income provisions of the Income TaxAssessment Acts?

A farmer subdivides his farm into housing blocks and sells themat a substantial profit. To what extent, if at all, are theproceeds of those sales assessable income in his hands? Why?

Trading Stock

How are purchases and sales of trading stock treated fortaxation purposes?

What impact does a change in trading stock levels between thestart and end of an income year have on your taxable income?

What are your options in valuing closing stock for taxationpurposes?

Can you change your valuation mechanism for closing stock fromyear to year?

What is the relationship between opening stockin tax year 1 and opening stock in tax year 2?

What is the relationship between closing stockin tax year 1 and opening stock in tax year 2?

General Deductibility

The ITAA 97 contains two principal provisions governingdeductibility. What are they?

What are the two (2) positive limbs of s.8-1?

What is the difference between the situations in which the firstpositive limb applies and the situations in which the secondpositive limb applies?

What are the four (4) negative limbs of s.8-1?

Explain when each of the four negative limbs will operate todeny deductibility?

If you are looking for a provision denying deductibility to anoutgoing (under the 4^th negative limb) where would youlook for it?

In general terms it can be said that there are three (3)âclassesâ of provision in the ITAA that deal with the question ofdeductibility. What are they?

What is the role of Div 12?

Briefly explain the âessential character testâ forclassification of outgoings.

What other tests are used to classify losses and outgoings aseither deductible or not deductible? How do those testsoperate?

A competition body builder is placed on a high protein andcarbohydrate diet by his coach. To what extent, if at all, are thecosts of his dietary requirements deductible against his income asa professional bodybuilder?

Deductibility of Specific Expenses

To what extent, if at all, are the following expenses deductibleagainst assessable income:

(a) travel expensesbetween home and work;

(b) travel expenses between twoplaces of employment;

(d) self educationexpenses;

(e) home officeexpenses;

(f) work relatedclothing;

(g) fines and penalties;

(h) prepaid expenses.

To what extent, if at all, is HECS deductible?

What is the practical effect of s 82A of the ITAA1936?

G spends $200 entertaining potential clients at dinner. To whatextent, if at all, is this amount deductible?

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1. If a taxpayer works for two separateemployers, how much in FUTA taxes is each employer responsible toremit in the name of the taxpayer? (Points : 1) Only the first employer isrequired to remit FUTA taxes on the wages earned from the firstjob.
Both employers must remit FUTAtaxes on the first $7,000 in wages they pay to the taxpayer.
The first employer remits 5.4%on the first $7,000 in wages while the second employer remits only.8% on the first $7,000 in wages to equal the 6.2% rate.
The first employer remits FUTAtax on the first $7,000 in wages and the second employer remitsFUTA tax on the next $7,000 in wages.

2. Sandra is single and her son Julius is 12years old. If her AGI is $79,000, what amount of child tax creditcan Sandra claim? (Points : 1)

$0.
$500.
$800.
$1,000.

3. Regarding a full or partial rollover ofassets from one retirement plan to another retirement plan: (Points: 1)

Rollovers are normally taxableto the beneficiary.
Rollovers are permitted only inunusual circumstances.
A tax-free rollover can be madefrom a traditional IRA to another traditional IRA.
A tax-free rollover can be madefrom a traditional IRA to a Roth IRA.

4. Regarding a Coverdell Education SavingsAccount: (Points : 1)

Distributions are tax-free tothe beneficiary if they are used for his or her qualified educationexpenses.
Qualified education expensesinclude required tuition, fees, books, supplies, and equipment atan eligible educational institution.
Qualified expenses must bereduced by scholarships or other tax-free income.
All of the above.

5. Kobe is a single dad with two dependentchildren, Lizzie, age 7 and Leslie, age 3. He has AGI of $51,000and paid $6,300 to a qualified day care center. What amount ofcredit can Kobe receive for the child and dependent care credit?(Points : 1)

$600.
$1,200.
$1,260.
$6,300.

6. In order to obtain and retain qualifiedstatus, a pension or profit-sharing plan must not discriminate infavor of highly compensated employees which include: (Points :1)

Employees who own more than 5%of the corporation's stock.
Employees who received over$85,000 compensation in the previous year.
Employees who were in the top25% of employees based on compensation.
None of the above.

7. DJ and Nicolette paid $1,600 in qualifyingexpenses for their daughter Nicole to attend the University ofNevada. Nicole is a sophomore. DJ and Nicolette's AGI is $95,000.What is their maximum allowable Hope credit after the creditphase-out based on AGI is taken into account? (Points : 1)

$0.
$1,400.
$1,600.
$1,650.