Trip Garage, Inc. (459 Ellis Avenue, Harrisburg, PA 17111), is an accrual basis taxpayer that repairs automobiles. In late December 2019, the company repaired Samuel Mosley’s car and charged him $1,000. Samuel did not think the problem had been fixed and refused to pay; thus, Trip refused to release the automobile. In early January 2020, Trip made a few adjustments and convinced Samuel that the automobile was working properly. At that time, Samuel agreed to pay only $900 because he did not have the use of the car for a week. Trip said “fine,” accepted the $900, and released the automobile to Samuel. An IRS agent thinks Trip, as an accrual basis taxpayer, should report $1,000 of income in 2019, when the work was done, and then deduct a $100 loss in 2020. Prepare a memo to Susan Apple, the treasurer of Trip, with the recommended treatment for the disputed income.
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Chapter 4 Solutions
Individual Income Taxes
- Rodney, a resident taxpayer is employed by subiaco function center as a marketing manager. during the 2023 income year, Rodney used his private car for wpork related travel to meetings. he maintained fuel receipts amounting to $4000 and noted that he had travelled a total of 6000n work related kilometers during the year. rodney has not maintained a logbook. From the above information, calculate the maximum deduction available to Rodney for car expenses in respect of the 2023 income year. a)$3900 b) $4000 c) $4680 d) $0arrow_forwardodney, a resident taxpayer, is employed by Subiaco Function Centre as a marketing manager. During the 2023 income year, Rodney used his private car for work related travel to meetings. He maintained fuel receipts amounting to $4,000 and noted that he had travelled a total of 6,000 work related kilometres during the year. Rodney has not maintained a logbook. From the above information, calculate the maximum deduction available to Rodney for car expenses in respect of the 2023 income year Question 23Select one: $ 3,900 $ 4,000 $ 4, 680 $ 0arrow_forwardRiley operates a delivery business . In 2021 , the van he used was totally destroyed in a traffic accident . The van was origin for $ 20,000 and had an adjusted basis of $ ,680 at the time Although the van was worth $ 8,000 at the time of accident , only paid Riley $1,200 for the loss. Assume Riley did not rep the amount of Riley's gain or loss recognized in 2021 due to indicate amount of gain or loss, if any - and make sure you in amount is a gain or loss)? * with complete explanation step by step.arrow_forward
- Keith is an employee of a real estate company. He has negotiated car benefits with his employer. Keith was provided with the car for the period 1 April 2021 to 31 March 2022. The leased car value was $36,000 on 1 April 2021, and the car had only been leased for a year at that time. Keith is required to pay for any petrol and other maintenance costs, which he has determined to be $1,600 for the period. Advise Keith's employer as to the FBT consequences (using statutory formula method) arising out of the use of the car.arrow_forwardOn November 5, 2021, MILES TRUCK RENTAL Co. was in an accident with an automatic driven by MORALES. MILES received notice on January 12, 2022 of a lawsuit for P700,000 damages for personal injuries suffered by Jayson. MILES's counsel believes it is probable that MORALES will be awarded an estimated amount in the range of P250,000 and P450,000 and that P300,000 is the best estimate of potential liability. MILES's accounting year ends on December 31 and 2021 financial statement were issued on March 2, 2022. How much loss should Miles accrue on December 31, 2021? a. NIL b. 250,000 c. 300,000 d. 350,000arrow_forwardMr. O’s employer requires him to use his own vehicle for work and pay all of the vehicle’s operating costs. Mr. O. is not paid commissions. Mr. O. purchased a vehicle on July 1, 2020 for $37,290 including HST. Mr. O. drove this vehicle 25,000 kilometers, of which 15,000 were for work. The capital cost allowance for 2020 is $15,255. During the 6 months he owned vehicle he paid: bank loan interest $1,950 gas and oil 1,840 maintenance 300 insurance 1,400 licence plates 100 Calculate the amount Mr. O. can deduct from employment income. Show all calculations.arrow_forward
- T uses frequent flyer miles to take his family on a vacation. T received the miles duringbusiness travel paid for by his employer. The normal airfare for his vacation wouldhave cost $7,000.a. T must realize and recognize $7,000 as income.b. Although T has realized income, he will not be required to recognize it becausethe IRS has chosen, as a matter of administrative convenience, not to requiretaxpayers to recognize the value of frequent flyer tickets earned duringemployer-paid travel.c. Had T earned the frequent flyer miles during travel he had paid for himself, theissue of income realization and recognition would not arise.d. Both (a) and (c) are correct.e. Both (b) and (c) are correct. T buys a parcel of real estate for $100,000, which he finances by giving the seller a nonrecoursemortgage for the full purchase price. The debt is due in one balloon payment inYear 5. When the debt becomes due in Year 5, T decides to give the property back to theseller in satisfaction of the debt…arrow_forwardPeter Marwick, an accountant and accrual basis taxpayer, performed accounting services in Year One for Ellie Vader. Peter gave Ellie a bill for $30,000 in Year One. Ellie paid Peter $5,000 in Year One, but Ellie disputes that she owes the other $25,000 because she thinks his work is shoddy. Ellie agreed to put $25,000 in escrow until she and Peter could resolve their legal dispute over Peter's fees. In Year Three after litigation, the dispute is resolved in Peter's favor and he gets the money out of escrow. How much income does Peter have and when? Question 9 options: Peter has $30,000 income in Year 1 because he is on the accrual method. Peter has no income in Year 1 because there is a contested liability. Ellie has $25,000 in cancellation of indebtedness income in Year 1. Peter has $5,000 income in Year 1 and $25,000 in Year 3 under the Claim of Right Doctrine.arrow_forwardDuring the summer of 2019, college student Jason worked for his uncle, a painting contractor, for two weeks, and was paid $1,600 cash for his help painting a house for one of his uncle’s customers. At the end of 2019, his uncle filed a Form 1099MISC indicating he had paid non-employee compensation of $1,600 to Jason (copies of the form were sent to Jason and the IRS). When it came time to file his 2019 income tax return, the tax software indicated he had to pay self-employment tax (in addition to income tax) on the $1,600 payment received from his uncle. You did some research online and found one primary authority (only one), a Tax Court case (John A. and Mary L. Batok vs. Commissioner) that seemed to indicate a one-time job was not considered regular or continuous and thus did not rise to the level of a trade or business subject to self-employment tax. Contacting the IRS to ask how to handle this issue is not an option. Should Jason pay self-employment tax on the $1,600? Is there a…arrow_forward
- In 2020, Susan (who files as single) had silverware worth $10,000 (basis $6,000) stolen from her home due to a federal declared disaster area. Her insurance company told her that her policy did not cover the theft. In 2020, Susan’s other itemized deductions were $2,000, and she had AGI of $40,000. In February 2021, Susan’s insurance company decided that Sarah’s policy did cover the theft of the silverware and they paid Susan $4,000. Determine the tax treatment of the $4,000 received by Susan during 2021. a. None of the $4,000 should be included in gross income. b. $2,000 should be included in gross income. c. $4,000 should be included in gross income. d. Last year’s return should be amended to include the $4,000.arrow_forwardIn January of year 0, Justin paid $9,400 for an insurance policy that covers his business property for accidents and casualties. Justin is a calendar-year taxpayer who uses the cash method of accounting. What amount of the insurance premium may Justin deduct in year 0 in each of the following alternative scenarios? Note: Leave no answers blank. Enter zero if applicable. a. The policy covers the business property from April 1 of year 0 through March 31 of year 1. b. The policy begins on February 1 of year 1 and extends through January 31 of year 2. c. Justin pays $10,600 for a 24-month policy that covers the business from April 1, year 0, through March 31, year 2. Note: Do not round intermediate calculations. d. Instead of paying an insurance premium, Justin pays $9,400 to rent his business property from April 1 of year 0 through March 31 of year 1.arrow_forwardSimon rents his cottage when he and his family are not using it. It qualifies as a vacation home rental. In 2021, he had rental income of $5,200. His deductible expenses were: Advertising $350 Commissions $775 Depreciation (rental portion) $1,500 Maintenance (rental portion) $750 Mortgage interest (rental portion) $1,250 Pest control (rental portion) $300 Prior-year carryover $500 Real estate tax $800 What amount of unallowed expense will Simon carry forward to next year? $0 $500 $1,025 $1,500arrow_forward
- Individual Income TaxesAccountingISBN:9780357109731Author:HoffmanPublisher:CENGAGE LEARNING - CONSIGNMENT