,ACCESS Test Bank for McGraw Hill's Taxation of Business Entities 2023 Editio
x x x x x x x x x x x
n 14th Edition Spilker
x x x
SolutionsxManual—TaxationxofxBusinessxEntities,xbyxSpilkerxetxal.
Chapter 1 Busi x x
ness Income, Deductions, and Accounting Methods
x x x x x
SOLUTIONS MANUAL x
Discussion Questions x
1. [LOx1]xWhatxisxanx“ordinaryxandxnecessary”xbusinessxexpenditure?
“Ordinary”xandx“necessary”ximplyxthatxanxexpensexmustxbexcustomaryxandxhelpful,xrespecti
vely.xBecausexthesextermsxarexsubjective,xthextestsxarexambiguous.xHowever,xordinaryxisxinter
pretedxbyxthexcourtsxasxincludingxexpensesxwhichxmayxbexunusualxforxaxspecificxtaxpayerx(butx
notxunusualxforxthatxtypexofxbusiness)xandxnecessaryxisxnotxinterpretedxasxonlyxessentialxexpen
ses.xThesexlimitsxcanxbexcontrastedxwithxthexreasonablexlimitxonxamountsxandxthexbonaxfidexre
quirementxforxprofitxmotivation.
2. [LOx1]xExplainxhowxcostxofxgoodsxisxtreatedxwhenxaxbusinessxsellsxinventory.
Underxthexreturnxofxcapitalxprinciple,xcostxofxgoodsxsoldxrepresentsxaxreductionxinxgrossxinco
mexratherxthanxaxbusinessxexpense.xForxexample,xifxaxtaxpayerxsellsxinventoryxfor
$100,000xandxreportsxaxcostxofxgoodsxsoldxofx$40,000,xthexbusiness’sxgrossxincomexis
$60,000x($100,000x–x40,000)xnotx$100,000.
3. [LOx1]xWhetherxaxbusinessxexpensexisx“reasonablexinxamount”xisxoftenxaxdifficultxquestion.x
Explainxwhyxdeterminingxreasonablenessxisxdifficultxandxdescribexaxcircumstancexwherexrea
sonablenessxisxlikelyxtoxbexquestionedxbyxthexIRS.
Reasonablenessxisxanxissuexofxfactxandxcircumstance,xandxextravagancexisxdifficultxtoxdetermi
nexbecausexofxthexsubjectivityxandxmultitudexofxfactorsxinvolvedxinxdeterminingxprice.xReason
ablenessxisxmostxlikelyxtoxbexanxissuexwhenxaxpaymentxisxmadextoxaxrelatedxindividualxorxthexta
xpayerxenjoysxsomexpersonalxbenefitxincidentalxtoxthexexpenditure.
4. [LOx1]xJakexisxaxprofessionalxdogxtrainerxwhoxpurchasesxandxtrainsxdogsxforxusexbyxlawxenf
orcementxagencies.xLastxyearxJakexpurchasedx500xbagsxofxdogxfoodxfromxaxlargexpetxfoodxc
ompanyxatxanxaveragexcostxofx$30xperxbag.xThisxyear,xhowever,xJakexpurchasedx500xbagsxofx
dogxfoodxfromxaxlocalxpetxfoodxcompanyxatxanxaveragexcostxofx$45xperxbag.xUnderxwhatxcirc
umstancesxwouldxthexIRSxlikelyxchallengexthexcostxofxJake’sxdogxfoodxasxunreasonable?
Axcommonxtestxforxreasonablenessxisxwhetherxthexexpenditurexisxcomparablextoxanxarm'sxleng
thxamountx–
xaxpricexchargedxbyxobjectivex(unrelated)xindividualsxwhoxdoxnotxreceivexanyxincidentalxperso
nalxbenefits.xHence,xthexIRSxisxmostxlikelyxtoxchallengexthexcostxofxthexdogxfoodxifxJake’sxrelati
vesxcontrolxorxownxthexlocalxpetxfoodxcompanyxandxwasxbenefitingxfromxthexincreasedxprice.
©xMcGrawxHillxLLC.xAllxrightsxreserved.xNoxreproductionxorxdistributionxwithoutxthexpriorxwrittenxconsentxofxMcGrawxHillxLLC. 1
mynursytest.store
,ACCESS Test Bank for McGraw Hill's Taxation of Business Entities 2023 Editio
x x x x x x x x x x x
n 14th Edition Spilker
x x x
SolutionsxManual—TaxationxofxBusinessxEntities,xbyxSpilkerxetxal.
5. [LOx2]xWhatxkindsxofxdeductionsxarexprohibitedxasxaxmatterxofxpublicxpolicy? xWhyxmightxC
ongressxdeemxitximportantxtoxdisallowxdeductionsxforxexpendituresxthatxarexagainstxpublicxpo
licy?
ThexCodexlistsxbribes,xkickbacks,xandx“other”xillegalxpaymentsxasxnondeductible.xCongressxd
idn’txwantxthextaxxbenefitsxassociatedxwithxdeductionsxtoxbenefitxorxsubsidizexwrongdoing.xOfx
course,xthisxrationalexdoesn’txreallyxexplainxthexprohibitionxagainstxdeductingxpoliticalxcontr
ibutionsxwhichxisxprobablyxbetterxexplainedxbyxthexpotentialxperceptionxthatxpoliticalxeffortsxa
rexbeingxsubsidizedxbyxtaxpayers.
6. [LOx2]xProvidexanxexamplexofxanxexpensexassociatedxwithxthexproductionxofxtax-
exemptxincome,xandxexplainxwhatxmightxhappenxifxCongressxrepealedxthexprohibitionxaga
instxdeductingxexpensesxincurredxtoxproducextax-exemptxincome.
Twoxcommonxexamplesxarexinterestxexpensexassociatedxwithxdebtxusedxtoxpurchasexmunicipa
lxbondsxandxlifexinsurancexpremiumsxpaidxonxkeyxmanxinsurance.xIfxthisxprohibitionxwerexrep
ealed,xthenxtaxpayersxwouldxhavexanxincentivextoxborrowxtoxinvestxinxmunicipalxbondsxorxbor
rowxtoxinvestxinxemployeexlifexinsurance.xThisxformerxpracticexwouldxleadxtoxhigherxdemandxf
orxmunicipalxbondsx(lessxyield)xandxlessxrevenuexforxthexgovernment.xThexlatterxpracticexwou
ldxleadxtoxhigherxdemandxforxinsurancex(higherxpremiums?)xandxlessxrevenuexforxthexgovern
ment.xBothxpracticesxcouldxleadxtoxaxperceptionxofxinequityxbetweenxthosextaxpayersxablextox
utilizexthextaxxarbitragextoxreducextaxesxandxthosexwhoxcouldxnotxusexthexpractice.
7. [LOx2]x{Research}xPeggyxisxaxrodeoxclown,xandxthisxyearxshexexpendedx$1,000xonxspecialx“
funny”xclothesxandxoutfits.xPeggyxwouldxlikextoxdeductxthexcostxofxthesexclothesxasxwork-
xrelatedxbecausexshexrefusesxtoxwearxthexclothesxunlessxshexisxworking.xUnderxwhatxcircums
tancesxcanxPeggyxdeductxthexcostxofxherxclownxclothes?
Taxpayersxmayxdeductxthexcostxofxuniformsxorxspecialxclothingxtheyxusexinxtheirxbusinessxwhe
nxthexclothingxisxnotxappropriatextoxwearxasxordinaryxclothingxoutsidexthexplacexofxbusiness.xI
nxPeggy’sxcase,xthexclownxclothesxarexanalogousxtoxspecialxuniformsxorxprotectivexgarmentsx
andxcouldxbexdeductible.xSeexD.xTechner,xTCxMemox1997-
498.xErhardxSeminarxTraining,xTCxMemox1986-
526xprovidesxanxexamplexofxclothesxthatxwerexnotxdeductiblexbecausextheyxwerexappropriatexf
orxnormalxwear.xHowever,xthexcostxofxclothingxwouldxnotxlikelyxbexdeductiblexifxthexclothesxwe
rexunacceptablexsolelyxbecausexofxthextaxpayer’sxsensexofxfashion.
8. [LOx2]xJimmyxisxaxsolexproprietorxofxaxsmallxdry-
cleaningxbusiness.xThisxmonthxJimmyxpaidxforxhisxgroceriesxbyxwritingxchecksxfromxthexc
heckingxaccountxdedicatedxtoxthexdry-
xcleaningxbusiness.xWhyxdoxyouxsupposexJimmyxisxusingxhisxbusinessxcheckingxaccountxra
therxthanxhisxpersonalxcheckingxaccountxtoxpayxforxpersonalxexpenditures?
Jimmyxmightxbextryingxtoxreducexhisxbankxchargesxbyxusingxonexaccountxforxbothxpersonalxan
dxbusinessxexpenditures,xbutxhexcouldxalsoxbextryingxtoxdisguisexpersonalxexpendituresxas
©xMcGrawxHillxLLC.xAllxrightsxreserved.xNoxreproductionxorxdistributionxwithoutxthexpriorxwrittenxconsentxofxMcGrawxHillxLLC. 2
mynursytest.store
, ACCESS Test Bank for McGraw Hill's Taxation of Business Entities 2023 Editio
x x x x x x x x x x x
n 14th Edition Spilker x x x
SolutionsxManual—TaxationxofxBusinessxEntities,xbyxSpilkerxetxal.
businessxexpenses.xByxcomminglingxbusinessxandxpersonalxexpenditures,xJimmyxwillxneedxtox
separatexpersonalxandxbusinessxexpendituresxbeforexclaimingxanyxbusinessxdeductions.
9. [LOx2]xTroyxoperatesxanxeditorialxservicexthatxoftenxentertainsxprospectivexauthorsxtoxencour
agexthemxtoxusexTroy'sxservice.xThisxyearxTroyxpaidx$3,000xforxthexcostxofxmealsxand
$6,200xforxthexcostxofxentertainingxauthors.xDescribexthexconditionsxunderxwhichxTroyxcanxde
ductxaxportionxofxthexcostxofxthexmealsxasxaxbusinessxexpense.
Toxdeductx100xpercentxofxthexcostxofxmealsxasxaxbusinessxexpense,xthexmealsxmustxbexordinaryx
andxnecessaryxtoxTroy’sxbusiness,xprovidedxbyxaxrestaurant,xandxthexamountxmustxbexreasona
blexunderxthexcircumstances.xInxaddition,xTroyxorxanxemployeexmustxbexpresentxwhenxthexmea
lxisxfurnished,xandxthexmealxmustxbexfurnishedxtoxanxactualxorxpotentialxbusinessxassociate.xFi
nally,xthexcostxofxthexmealsxmustxbexseparatelyxstatedx(byxinvoice)xfromxthexcostxofxthexentertai
nmentx(thexcostxofxthexentertainmentxisxnotxdeductible).xIfxthexmealsxandxbeveragesxarexnotxpr
ovidedxbyxaxrestaurant,xthenxonlyx50xpercentxisxdeductiblex(assumingxallxofxthexotherxrequire
mentsxarexmet).
10. [LOx2]xSusmitaxpurchasedxaxcarxthisxyearxandxusesxitxforxbothxbusinessxandxpersonalxpurp
oses.xSusmitaxdrovexthexcarx11,000xmilesxonxbusinessxtripsxandx9,000xmilesxforxpersonalxt
ransportation.xDescribexhowxSusmitaxwillxdeterminexthexamountxofxdeductiblexexpensesx
associatedxwithxthexauto.
Becausexonlyxthexexpensexrelatingxtoxbusinessxusexisxdeductible,xthextaxpayerxmustxallocatexth
exexpensesxbetweenxthexbusinessxandxpersonalxusexportions.xAxcommonxmethodxofxallocationxi
sxrelativexuse.xInxthisxinstance,xSusmitaxwouldxcalculatexthexbusinessxportionxbasedxuponxthexr
atioxofxbusinessxmilesxtoxtotalxmilesx(11/20xorx55xpercent).xShexwouldxthenxdeductxthexcostsxofx
operatingxthexvehiclexforxbusinessxpurposesxplusxdepreciationxonxthexbusinessxportionx(55xper
cent)xofxthexvehicle’sxtaxxbasis.xAlternatively,xinxlieuxofxdeductingxthesexcosts,xSusmitaxmayxel
ectxtoxdeductxaxstandardxamountxforxeachxbusinessxmilexshexdrives.xThexstandardxmileagexrate
x(58.5xcentsxperxmilexforxthexfirstxsixxmonthsxofx2022xandx62.6xcentsxforxthexfinalxsixxmonths)xre
presentsxthexper-
milexcostxofxoperatingxanxautomobilex(includingxdepreciationxorxleasexpayments).xOncexSusm
itaxhasxmadexthisxelection,xshexmustxcontinuextoxusexitxthroughoutxthexlifexofxthexauto.
11. [LOx1,xLOx2]xWhatxexpensesxarexdeductiblexwhenxaxtaxpayerxcombinesxbothxbusinessxandxp
ersonalxactivitiesxonxaxtrip?xHowxdoxthexrulesxforxinternationalxtravelxdifferxfromxthexrulesxfo
rxdomesticxtravel?
Ifxthextaxpayerxhasxbothxbusinessxandxpersonalxmotivesxforxaxtrip,xbutxthexprimaryxorxdomina
ntxmotivexisxbusiness,xthextaxpayerxmayxdeductxthextransportationxcostsxtoxgetxtoxthexplacexofxb
usiness,xbutxshexmayxdeductxonlyxmealsx(50%xorx100%xifxprovidedxbyxaxrestaurant),xlodging,x
transportationxonxsite,xandxincidentalxexpendituresxforxthexbusinessxportionxofxthextravel.xIfxth
extaxpayer’sxprimaryxpurposexforxthextripxisxpersonal,xthextaxpayerxmayxnotxdeductxtransport
ationxcostsxtoxtravelxtoxandxfromxthexlocation,xbutxthextaxpayerxmayxdeductxmealsx(50%xorx10
0%xifxprovidedxbyxaxrestaurant),xlodging,xtransportation,xandxincidentalxexpendituresxforxthe
xbusinessxportionxofxthextrip.xFor
©xMcGrawxHillxLLC.xAllxrightsxreserved.xNoxreproductionxorxdistributionxwithoutxthexpriorxwrittenxconsentxofxMcGrawxHillxLLC. 3
mynursytest.store
x x x x x x x x x x x
n 14th Edition Spilker
x x x
SolutionsxManual—TaxationxofxBusinessxEntities,xbyxSpilkerxetxal.
Chapter 1 Busi x x
ness Income, Deductions, and Accounting Methods
x x x x x
SOLUTIONS MANUAL x
Discussion Questions x
1. [LOx1]xWhatxisxanx“ordinaryxandxnecessary”xbusinessxexpenditure?
“Ordinary”xandx“necessary”ximplyxthatxanxexpensexmustxbexcustomaryxandxhelpful,xrespecti
vely.xBecausexthesextermsxarexsubjective,xthextestsxarexambiguous.xHowever,xordinaryxisxinter
pretedxbyxthexcourtsxasxincludingxexpensesxwhichxmayxbexunusualxforxaxspecificxtaxpayerx(butx
notxunusualxforxthatxtypexofxbusiness)xandxnecessaryxisxnotxinterpretedxasxonlyxessentialxexpen
ses.xThesexlimitsxcanxbexcontrastedxwithxthexreasonablexlimitxonxamountsxandxthexbonaxfidexre
quirementxforxprofitxmotivation.
2. [LOx1]xExplainxhowxcostxofxgoodsxisxtreatedxwhenxaxbusinessxsellsxinventory.
Underxthexreturnxofxcapitalxprinciple,xcostxofxgoodsxsoldxrepresentsxaxreductionxinxgrossxinco
mexratherxthanxaxbusinessxexpense.xForxexample,xifxaxtaxpayerxsellsxinventoryxfor
$100,000xandxreportsxaxcostxofxgoodsxsoldxofx$40,000,xthexbusiness’sxgrossxincomexis
$60,000x($100,000x–x40,000)xnotx$100,000.
3. [LOx1]xWhetherxaxbusinessxexpensexisx“reasonablexinxamount”xisxoftenxaxdifficultxquestion.x
Explainxwhyxdeterminingxreasonablenessxisxdifficultxandxdescribexaxcircumstancexwherexrea
sonablenessxisxlikelyxtoxbexquestionedxbyxthexIRS.
Reasonablenessxisxanxissuexofxfactxandxcircumstance,xandxextravagancexisxdifficultxtoxdetermi
nexbecausexofxthexsubjectivityxandxmultitudexofxfactorsxinvolvedxinxdeterminingxprice.xReason
ablenessxisxmostxlikelyxtoxbexanxissuexwhenxaxpaymentxisxmadextoxaxrelatedxindividualxorxthexta
xpayerxenjoysxsomexpersonalxbenefitxincidentalxtoxthexexpenditure.
4. [LOx1]xJakexisxaxprofessionalxdogxtrainerxwhoxpurchasesxandxtrainsxdogsxforxusexbyxlawxenf
orcementxagencies.xLastxyearxJakexpurchasedx500xbagsxofxdogxfoodxfromxaxlargexpetxfoodxc
ompanyxatxanxaveragexcostxofx$30xperxbag.xThisxyear,xhowever,xJakexpurchasedx500xbagsxofx
dogxfoodxfromxaxlocalxpetxfoodxcompanyxatxanxaveragexcostxofx$45xperxbag.xUnderxwhatxcirc
umstancesxwouldxthexIRSxlikelyxchallengexthexcostxofxJake’sxdogxfoodxasxunreasonable?
Axcommonxtestxforxreasonablenessxisxwhetherxthexexpenditurexisxcomparablextoxanxarm'sxleng
thxamountx–
xaxpricexchargedxbyxobjectivex(unrelated)xindividualsxwhoxdoxnotxreceivexanyxincidentalxperso
nalxbenefits.xHence,xthexIRSxisxmostxlikelyxtoxchallengexthexcostxofxthexdogxfoodxifxJake’sxrelati
vesxcontrolxorxownxthexlocalxpetxfoodxcompanyxandxwasxbenefitingxfromxthexincreasedxprice.
©xMcGrawxHillxLLC.xAllxrightsxreserved.xNoxreproductionxorxdistributionxwithoutxthexpriorxwrittenxconsentxofxMcGrawxHillxLLC. 1
mynursytest.store
,ACCESS Test Bank for McGraw Hill's Taxation of Business Entities 2023 Editio
x x x x x x x x x x x
n 14th Edition Spilker
x x x
SolutionsxManual—TaxationxofxBusinessxEntities,xbyxSpilkerxetxal.
5. [LOx2]xWhatxkindsxofxdeductionsxarexprohibitedxasxaxmatterxofxpublicxpolicy? xWhyxmightxC
ongressxdeemxitximportantxtoxdisallowxdeductionsxforxexpendituresxthatxarexagainstxpublicxpo
licy?
ThexCodexlistsxbribes,xkickbacks,xandx“other”xillegalxpaymentsxasxnondeductible.xCongressxd
idn’txwantxthextaxxbenefitsxassociatedxwithxdeductionsxtoxbenefitxorxsubsidizexwrongdoing.xOfx
course,xthisxrationalexdoesn’txreallyxexplainxthexprohibitionxagainstxdeductingxpoliticalxcontr
ibutionsxwhichxisxprobablyxbetterxexplainedxbyxthexpotentialxperceptionxthatxpoliticalxeffortsxa
rexbeingxsubsidizedxbyxtaxpayers.
6. [LOx2]xProvidexanxexamplexofxanxexpensexassociatedxwithxthexproductionxofxtax-
exemptxincome,xandxexplainxwhatxmightxhappenxifxCongressxrepealedxthexprohibitionxaga
instxdeductingxexpensesxincurredxtoxproducextax-exemptxincome.
Twoxcommonxexamplesxarexinterestxexpensexassociatedxwithxdebtxusedxtoxpurchasexmunicipa
lxbondsxandxlifexinsurancexpremiumsxpaidxonxkeyxmanxinsurance.xIfxthisxprohibitionxwerexrep
ealed,xthenxtaxpayersxwouldxhavexanxincentivextoxborrowxtoxinvestxinxmunicipalxbondsxorxbor
rowxtoxinvestxinxemployeexlifexinsurance.xThisxformerxpracticexwouldxleadxtoxhigherxdemandxf
orxmunicipalxbondsx(lessxyield)xandxlessxrevenuexforxthexgovernment.xThexlatterxpracticexwou
ldxleadxtoxhigherxdemandxforxinsurancex(higherxpremiums?)xandxlessxrevenuexforxthexgovern
ment.xBothxpracticesxcouldxleadxtoxaxperceptionxofxinequityxbetweenxthosextaxpayersxablextox
utilizexthextaxxarbitragextoxreducextaxesxandxthosexwhoxcouldxnotxusexthexpractice.
7. [LOx2]x{Research}xPeggyxisxaxrodeoxclown,xandxthisxyearxshexexpendedx$1,000xonxspecialx“
funny”xclothesxandxoutfits.xPeggyxwouldxlikextoxdeductxthexcostxofxthesexclothesxasxwork-
xrelatedxbecausexshexrefusesxtoxwearxthexclothesxunlessxshexisxworking.xUnderxwhatxcircums
tancesxcanxPeggyxdeductxthexcostxofxherxclownxclothes?
Taxpayersxmayxdeductxthexcostxofxuniformsxorxspecialxclothingxtheyxusexinxtheirxbusinessxwhe
nxthexclothingxisxnotxappropriatextoxwearxasxordinaryxclothingxoutsidexthexplacexofxbusiness.xI
nxPeggy’sxcase,xthexclownxclothesxarexanalogousxtoxspecialxuniformsxorxprotectivexgarmentsx
andxcouldxbexdeductible.xSeexD.xTechner,xTCxMemox1997-
498.xErhardxSeminarxTraining,xTCxMemox1986-
526xprovidesxanxexamplexofxclothesxthatxwerexnotxdeductiblexbecausextheyxwerexappropriatexf
orxnormalxwear.xHowever,xthexcostxofxclothingxwouldxnotxlikelyxbexdeductiblexifxthexclothesxwe
rexunacceptablexsolelyxbecausexofxthextaxpayer’sxsensexofxfashion.
8. [LOx2]xJimmyxisxaxsolexproprietorxofxaxsmallxdry-
cleaningxbusiness.xThisxmonthxJimmyxpaidxforxhisxgroceriesxbyxwritingxchecksxfromxthexc
heckingxaccountxdedicatedxtoxthexdry-
xcleaningxbusiness.xWhyxdoxyouxsupposexJimmyxisxusingxhisxbusinessxcheckingxaccountxra
therxthanxhisxpersonalxcheckingxaccountxtoxpayxforxpersonalxexpenditures?
Jimmyxmightxbextryingxtoxreducexhisxbankxchargesxbyxusingxonexaccountxforxbothxpersonalxan
dxbusinessxexpenditures,xbutxhexcouldxalsoxbextryingxtoxdisguisexpersonalxexpendituresxas
©xMcGrawxHillxLLC.xAllxrightsxreserved.xNoxreproductionxorxdistributionxwithoutxthexpriorxwrittenxconsentxofxMcGrawxHillxLLC. 2
mynursytest.store
, ACCESS Test Bank for McGraw Hill's Taxation of Business Entities 2023 Editio
x x x x x x x x x x x
n 14th Edition Spilker x x x
SolutionsxManual—TaxationxofxBusinessxEntities,xbyxSpilkerxetxal.
businessxexpenses.xByxcomminglingxbusinessxandxpersonalxexpenditures,xJimmyxwillxneedxtox
separatexpersonalxandxbusinessxexpendituresxbeforexclaimingxanyxbusinessxdeductions.
9. [LOx2]xTroyxoperatesxanxeditorialxservicexthatxoftenxentertainsxprospectivexauthorsxtoxencour
agexthemxtoxusexTroy'sxservice.xThisxyearxTroyxpaidx$3,000xforxthexcostxofxmealsxand
$6,200xforxthexcostxofxentertainingxauthors.xDescribexthexconditionsxunderxwhichxTroyxcanxde
ductxaxportionxofxthexcostxofxthexmealsxasxaxbusinessxexpense.
Toxdeductx100xpercentxofxthexcostxofxmealsxasxaxbusinessxexpense,xthexmealsxmustxbexordinaryx
andxnecessaryxtoxTroy’sxbusiness,xprovidedxbyxaxrestaurant,xandxthexamountxmustxbexreasona
blexunderxthexcircumstances.xInxaddition,xTroyxorxanxemployeexmustxbexpresentxwhenxthexmea
lxisxfurnished,xandxthexmealxmustxbexfurnishedxtoxanxactualxorxpotentialxbusinessxassociate.xFi
nally,xthexcostxofxthexmealsxmustxbexseparatelyxstatedx(byxinvoice)xfromxthexcostxofxthexentertai
nmentx(thexcostxofxthexentertainmentxisxnotxdeductible).xIfxthexmealsxandxbeveragesxarexnotxpr
ovidedxbyxaxrestaurant,xthenxonlyx50xpercentxisxdeductiblex(assumingxallxofxthexotherxrequire
mentsxarexmet).
10. [LOx2]xSusmitaxpurchasedxaxcarxthisxyearxandxusesxitxforxbothxbusinessxandxpersonalxpurp
oses.xSusmitaxdrovexthexcarx11,000xmilesxonxbusinessxtripsxandx9,000xmilesxforxpersonalxt
ransportation.xDescribexhowxSusmitaxwillxdeterminexthexamountxofxdeductiblexexpensesx
associatedxwithxthexauto.
Becausexonlyxthexexpensexrelatingxtoxbusinessxusexisxdeductible,xthextaxpayerxmustxallocatexth
exexpensesxbetweenxthexbusinessxandxpersonalxusexportions.xAxcommonxmethodxofxallocationxi
sxrelativexuse.xInxthisxinstance,xSusmitaxwouldxcalculatexthexbusinessxportionxbasedxuponxthexr
atioxofxbusinessxmilesxtoxtotalxmilesx(11/20xorx55xpercent).xShexwouldxthenxdeductxthexcostsxofx
operatingxthexvehiclexforxbusinessxpurposesxplusxdepreciationxonxthexbusinessxportionx(55xper
cent)xofxthexvehicle’sxtaxxbasis.xAlternatively,xinxlieuxofxdeductingxthesexcosts,xSusmitaxmayxel
ectxtoxdeductxaxstandardxamountxforxeachxbusinessxmilexshexdrives.xThexstandardxmileagexrate
x(58.5xcentsxperxmilexforxthexfirstxsixxmonthsxofx2022xandx62.6xcentsxforxthexfinalxsixxmonths)xre
presentsxthexper-
milexcostxofxoperatingxanxautomobilex(includingxdepreciationxorxleasexpayments).xOncexSusm
itaxhasxmadexthisxelection,xshexmustxcontinuextoxusexitxthroughoutxthexlifexofxthexauto.
11. [LOx1,xLOx2]xWhatxexpensesxarexdeductiblexwhenxaxtaxpayerxcombinesxbothxbusinessxandxp
ersonalxactivitiesxonxaxtrip?xHowxdoxthexrulesxforxinternationalxtravelxdifferxfromxthexrulesxfo
rxdomesticxtravel?
Ifxthextaxpayerxhasxbothxbusinessxandxpersonalxmotivesxforxaxtrip,xbutxthexprimaryxorxdomina
ntxmotivexisxbusiness,xthextaxpayerxmayxdeductxthextransportationxcostsxtoxgetxtoxthexplacexofxb
usiness,xbutxshexmayxdeductxonlyxmealsx(50%xorx100%xifxprovidedxbyxaxrestaurant),xlodging,x
transportationxonxsite,xandxincidentalxexpendituresxforxthexbusinessxportionxofxthextravel.xIfxth
extaxpayer’sxprimaryxpurposexforxthextripxisxpersonal,xthextaxpayerxmayxnotxdeductxtransport
ationxcostsxtoxtravelxtoxandxfromxthexlocation,xbutxthextaxpayerxmayxdeductxmealsx(50%xorx10
0%xifxprovidedxbyxaxrestaurant),xlodging,xtransportation,xandxincidentalxexpendituresxforxthe
xbusinessxportionxofxthextrip.xFor
©xMcGrawxHillxLLC.xAllxrightsxreserved.xNoxreproductionxorxdistributionxwithoutxthexpriorxwrittenxconsentxofxMcGrawxHillxLLC. 3
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