Category: Writing

On March 1, 2019, Sarah entered into a three – year lease of
an automobile used exclusively in her business. The automobile’s FMV was
$58,500 at the inception of the lease. Sarah made ten monthly lease payments of
$600 each during 2019 . Is Sarah able to avoid the luxury automobile
restrictions on deprecia – tion by leasing instead of purchas ing the auto –
mobile? Explain. (The lease inclusion amount for Sarah ‘s automobile is found
in Table 13 of Appendix C .)

Nonbusiness Bad Debt . During 2018, Becky loans her brother
Ken $5,000, which he intends to use to establish a small business. Because Ken
has no other assets and needs cash to establish the business, the agreement
provides that Ken will repay the debt if (and when) sufficient funds are
generated from the business. Becky and Ken do nor establish an interest race.
The business is unsuccessful, and Ken is forced co file for bankruptcy in 2019.
By the end of 2019, it is estimated char the creditors will receive only 20% of
the amount owed. In 2020 the bankruptcy proceedings are closed, and the
creditors receive 10% of the amount due on the debt. What is Becky’s bad debt
deduction for 2019? For 2020?

Your client is a self-employed attorney who is considering
the purchase of a $65,000 automo – bile chat will be used 80% for business.
a. What depreciation method and recovery period are used
under MACRS for the automobile?
b. How would your answer to Parr a change if your client
were an employee and the automobile was nor required as a condition of
employment?
c. What tax consequences occur in Parr a if the business use
of the automob ile decreases to 50 % or less in a succeeding year? Explain.

Business Bad Debt. Elaine is a physician who uses the cash
method of accounting for tax purposes. During the current year, Elaine bills
Ralph $1,200 for office visits and outpatient surgery. Unfortunately, unknown
to Elaine, Ralph moves away leaving no payment and no forwarding address. What
is the amount of Elaine’s bad debt deduction with respect to Ralph’s debt?