1.On Dec. 15, 2020, Julie's Tax Prep, a cash-method taxpayer, prepaid $5,000 worth of deductible interest on a business loan. The interest won't accrue until January 2021.

Julie's Tax Prep will be displaying for the first time at a trade show in July 2021. On Dec. 16, 2020, Julie's prepaid the $7,000 trade show booth rental expense. The payment isn't due until May 2021, and use of the booth will occur in July 2021.

In addition, on Dec. 28, 2020, Ed's Equipment repaired some equipment in Julie's office and billed Julie's $2,000. Julie's received the invoice on Dec. 28, 2020 and paid the $2,000 invoice on Jan. 29, 2021.

How much of the $14,000 in deductible business expenses may Julie's Tax Prep deduct in 2020?

2.In addition to the $14,000 in expenses, in Nov. 2020, Julie's Tax Prep paid two years' worth of office rent ($1,000/month * 24 months = $24,000). The rent covers Nov. 1, 2020 through Oct. 31, 2022. How much of the $24,000 rent can Julie's deduct in 2020?

3.Instead, Julie's Tax Prep only paid five months' worth of office rent ($1,000/month) in Nov. 2020. The rent covers Nov. 1, 2020 through March 31, 2021. How much of the $5,000 rent can Julie's deduct in 2020?

4.On Dec. 15, 2020, Julia's Service Station, an accrual-method taxpayer, prepaid $2,000 worth of deductible interest on a business loan. The interest won't accrue until 2021.

Julia's Service Station will be displaying for the first time at a trade show in July 2021. On Dec. 16, 2020, Julia's prepaid the $8,000 trade show booth rental expense. The payment isn't due until May 2021, and use of the booth will occur in July 2021.

In addition, On Dec. 28, 2020, Ed's Equipment repaired some equipment in Julia's business and billed Julia's $4,000. Julia's received the invoice on Dec. 28, 2020 and paid the $4,000 invoice on Jan. 29, 2021.

How much of the $14,000 in deductible business expenses may Julia's Service Station deduct in 2020?

5.In 2020, Perry, who is not otherwise involved in the gas station business, spends $53,000 investigating the acquisition of a gas station. All costs are ordinary and necessary. Perry decides not to acquire the gas station.

What amount can Perry deduct in 2020 for the expenses incurred in investigating the acquisition of the gas station if Perry makes an election to accelerate his deductions as much as possible?

6.In 2020, Pablo, who is not otherwise involved in the gas station business, spends $53,000 investigating the acquisition of a gas station. All costs are ordinary and necessary. Pablo acquires the gas station and begins business on Nov. 1, 2020.

What amount can Pablo deduct in 2020 for the expenses incurred in investigating the acquisition of the gas station if Pablo makes an election to accelerate his deductions as much as possible?

7.In 2020, Pua, who owns a gas station, spends $52,000 investigating the acquisition of a second gas station a mile down the road from her existing gas station. All costs are ordinary and necessary. Pua acquires the second gas station and begins business on Nov. 1, 2020.

What amount can Pua deduct in 2020 for the expenses incurred in investigating the acquisition of the second gas station?

8.Realizing that bacon toothpaste probably wasn't the best invention, Mr. Bacon's business (Bacon Co.) developed a new product - bacon-scented sunscreen. Bacon Co. spent 6 months (January 2020 - Sept. 2020) and $10,000 developing the sunscreen. The product launched September 1, 2020, and initially it was a huge success. Bacon-scented sunscreen generated over $600,000 in sales in 2020.

Sales tapered off quickly, and the sunscreen only generated sales of $100,000 in 2021. It is anticipated that there will be no bacon-scented sunscreen sales after 2021.

What amount of R&E expenditures can Bacon Co. deduct in 2020 if Bacon Co. prefers to accelerate deductions as much as possible?

9.Same facts as previous question except Bacon Co. believes that tax rates will be higher in future years and thus wants to defer some of its R&E expense deduction until 2021 (but not the entire amount).

What amount of R&E expenditures can Bacon Co. deduct in 2020 if Bacon Co. elects to amortize R&E expenditures over theshortest allowable period of timebeginning on September 1, 2020 (the month Bacon Co. first sells the sunscreen to generate income)? Round your answer to the nearest whole dollar.

10.Red Corp., a C corporation, wants to make a donation to a public charity in2022to generate a tax deduction (i.e. you do not need to apply the special rules for charitable contributions that apply in 2020/2021). Before any charitable contribution deduction, Red Corp will have taxable income of $300,000 (no DRD and no NOL carryovers) in 2022. Red Corp. is deciding between donating one of the following:

• $50,000 cash
• Capital gain property (stock) worth $20,000; AB = $15,000
• Old inventory worth $15,000; AB = $20,000

What would Red Corp.'s2022charitable contribution deduction be if Red Corp. donated the cash?

11.Same facts as previous question.

What would Red Corp.'s 2022 charitable contribution deduction be if Red Corp. donated the stock?

12.Same facts as previous two questions.

What would Red Corp.'s 2022 charitable contribution deduction be if Red Corp. donated the inventory?

13.W Co., a C corporation, owns 51% of Sub Corp. and 85% of Subsidiary Co., both domestic C corporations. W Co. had taxable income of over $100,000,000 this year (before dividends received deduction). W Co. had the following dividend income this year:

• $500,000 dividend income from Subsidiary Co.
• $1,000,000 dividend income from Sub Corp.

What is that amount of W Co.'s dividends received deduction?

14.XYZ Corp., a C corporation, owns 1% of Apple Inc., a domestic C corporation. XYZ Corp. had dividend income of $100,000 from Apple Inc. in 2019. XYZ Corp. had taxable income of over $3,000,000 this year (before DRD).

What is that amount of XYZ Corp.'s dividends received deduction?

15.Star Corp., a publicly traded, accrual-method C corp., incurred the following expenses in 2020 (all of which are ordinary and neccessary unless the facts indicate otherwise):

Office rent:$50,000

CEO compensation: $1,500,000

Salary paid to janitor: $250,000

Business meals: $30,000 (100% of the amount paid)

Client entertainment:$100,000 (100% of the amount paid)

Political contribution/lobbying: $5,000

Advertising: $70,000

Taxes & licenses (state, local & payroll tax; not fed. inc. tax): $30,000

Life insurance policy on CEO - premiums:$12,000

Federal income taxes: $250,000

Average office rents in the area run $50,000-$55,000/year for similar office space. Star Corp.'s janitor is the CEO's sister. Reasonable salary for a janitor with similar experience, job description and work hours is $20,000/year. Star Corp. is the beneficiary on the life insurance policy.

What is Star Corp.'s total deductible business expenses for the year?