#44

board of directors increased the president's compensation effective January 1, 2017 with a performance-based compensation program. This program increased the president's compensation by $300,000 in 2017, and it is projected to increase her compensation by approximately $350,000 in 2018. Prepare a letter to Amber's board of directors that identifies the amount of compensation that will be deductible by Amber in 2018 and explains whether any changes should be made to the presidents compensation plan in 2018. Address the letter to the board chairperson, Angela Riddle, whose address is 100 James Tower, Cleveland, OH 44106. 42. LO.3 Henrietta, the owner of a very successful hotel chain in the Southeast, is exploring the possibility of expanding the chain into a city in the Northeast. She incurs $35,000 of expenses associated with this investigation. Based on the regulatory environment for hotels in the city, she decides not to expand. During the year, she also investigates opening a restaurant that will be part of a national restaurant chain. Her expenses for this are $53,000. The restaurant begins operations on September 1. Determine the amount that Henrietta can deduct in the current year for investigating these two businesses 3. LO.3 Terry traveled to a neighboring state to investigate the purchase of two hard- ware stores. His expenses included travel, legal, accounting, and miscella- neous expenses. The total was $52,000. He incurred the expenses in June and July 2018. Under the following circumstances, what can Terry deduct in 2018 a. Terry was in the hardware store business and did not acquire the two hardware b. Terry was in the hardware store business and acquired the two hardware stores c. Terry did not acquire the two hardware stores and was not in the hardware store d. Terry acquired the two hardware stores but was not in the hardware store busi 44. LO.3 Jamari Peters (Social Security number 123-45-6789) conducts a business with stores and began operating them on October 1, 2018 ness when he acquired them. Operations began on October 1, 2018 the following results in 2018 Revenue Depreciation on car Operating expenses of car Rent 3,960 3,100 6,000 Amortization of intangibles Jamari estimates that due to a depressed real estate market, the value of land owned by the business declined by $5,200. a Calculate the effect of Jamaris business on his AGI b. How would your answer in part (a) change if the activity was a hobby? 680 45. LO.3 Alex, who is single, conducts an activity in 2018 that is appropriately classified as a hobby. The activity produces the following revenues and expenses: Revenue Property taxes Materials and supplies Utilities $18,000 3,000 4,500 2,000 5,000 750 4,000 Depreciation