1. Auto Expenses (LO. 2)

Cassandra owns her own business and drives her van 15,000 miles a year for business and 5,000 miles a year for commuting and personal use. She purchases a new van in 2018 and wants to claim the largest tax deduction possible for business use. Cassandra's total auto expenses for 2018 are as follows:

Gas, oil, and maintenance	$6,560
Insurance	775
Interest on car loan	1,200
Depreciation	3,160
License	180
Parking fees and tolls (all business)	240

Determine Cassandra's 2018 deduction for business use of the van. (Note: The standard mileage rate for 2018 is 54.5 cents per mile.)

Round all amounts to the nearest dollar.

Cassandra can maximize her deduction by using the standard mileage deduction. Via this method, she can deduct $_________ for her van. Her other allocable expenses amount to $__________.

2. Travel Expenses (LO. 3)

Olga has to travel to Philadelphia for 2 days on business. She enjoys history and is planning to visit the Liberty Bell and other historic sites in the city. If time permits, she would like to make a side trip to nearby Gettysburg. A friend of Olgas tells her, The best part of traveling on business is that once the business is over, you can sightsee all you want and the cost is tax-deductible. Olga, who is self-employed, has scheduled her trip for the Labor Day weekend so that she can spend 3 days sightseeing. Complete the letter to Olga which outlines the tax travel expense rules.

Dear Olga,

I am writing to outline the rules surrounding the deductibility of business travel expenses. First, based on your activities, one must determine if the trip is predominately business or pleasure. To determine this, first determine the percentage spent on business activities. The percentage is calculated by taking the 2 days of business and dividing by the total trip days, or %___________.

Based on your business activity percentage, your transportation will not be

deductible. Your other expenses would be deducted as follows:

Lodging: allocated for business percentage only

Meals: 50% of the allocated for business only

Incidentals: allocated for business percentage only

3. Compensation of Employees (LO. 4)

Cory is the fourth-highest-paid officer of the Mast Corporation, a publicly traded corporation. The company pays Cory a salary of $1,100,000. What amount can it deduct as salary expense?

$___________

Would your answer change if Mast is a closely held corporation and the payments are typical of other companies of similar size in the industry? Yes

4. Meals and Entertainment, Business Gifts (LO. 1, 4)

Jan owns the Mews Bar and Grill. Every year at Christmas, he has a party for his 20 employees and their families. This year's party cost $1,600. At the party, Jan presented each employee with a $50 gift certificate redeemable for merchandise at a local department store.

a. If the gift certificates are deemed de minimis fringe, how much can Jan deduct for business and gift expenses? $____________.

b. Assume that the party is attended by 10 employees and 10 of the Mews's major suppliers. At the party each receives a holiday cheese basket that cost $30.

How much can Jan deduct? $____________.