5, If an employee takes a customer to lunch and discusses business, can the empl

Question

5, If an employee takes a customer to lunch and discusses business, can the employee deduct 50% of the meal for both the customer and him/herself? Explain.

6,Will an individual taxpayer ever have to recognize Section 1250 ordinary income on the sale of a building used for business and placed in service after 1986? Explain.

7,Justin and Louise have two children, ages 12 and 10. Their modified AGI is $120,500. What is their child tax credit?

8,Missy’s business purchased 2 assets during 2014. It placed in service computer equipment (5-year property) on January 20, 2014 with a basis of $15,000 and machinery (7-year property) on October 1 with a basis of $15,000. Calculate the maximum depreciation expense, rounded to a whole number (ignoring §179 and bonus depreciation).

9,On June 1, 2011, Xerox Corporation purchased and placed in service 7-year MACRS tangible property costing $100,000. On November 10, 2014, Xerox sold the property for $102,000 after having taken MACRS $47,525 in depreciation deductions. What is the amount and character (i.e., ordinary income vs. 1231 gain) of Xerox’s gain?

10,

Violet, an individual, began business 4 years ago and has never sold a §1231 asset. Violet owned each of the assets for several years. In the current year, she sold the following business assets:

Accumulated

Depreciation

Assuming Violet’s marginal ordinary income tax rate is 30%, what is the amount and character of Violet’s gain? What is her tax liability?

Asset Original Cost

Accumulated

Depreciation

Gain/Loss Machinery $12,000 $7,000 $6,000 Furniture 10,000 2,000 3,000 Building 90,000 20,000 (5,000)

Explanation / Answer

First, any entertaining done must be directly related to the active conduct of the business or associated with a directly related discussion that preceded or followed the meal or entertainment. So if an employee takes a customer to lunch and they don't discuss tax planning strategies, sales projections or problems with the general ledger, and instead only talk about 10-year-old's blooming soccer career, then the employee won't be able to write off the lunch.

If the party is for clients, potential clients and independent contractors who work with the company, then employee may deduct only 50% of the cost. If there is a mix of employees and spouses along with clients and potential clients, company may allocate part of the cost as a 100% write-off and the remainder as a 50% write-off based on the number of guests in each category.

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