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This post addresses several topics in taxation.

1. Larry Bounds has won the gold bat award for hitting the longest home run in major league baseball this year. The bat is worth almost $35,000. Under what conditions can Larry exclude the award from his gross income? Explain.
2. Compare and contrast start-up costs and organizational expenditures. Describe how the tax treatment of these expenditures differs from the treatment for financial accounting purposes.
3. Congress has tried to subsidize the cost of higher education through the federal income tax system. Compare and contrast the operation of the deduction for qualified educational costs and the operation of the deduction for interest on qualified educational loans.
4. What is an ordinary and necessary business expenditure?

Solution Preview

1. Larry Bounds has won the gold bat award for hitting the longest home run in major league baseball this year. The bat is worth almost $35,000. Under what conditions can Larry exclude the award from his gross income? Explain.

Larry will have to include the bat unless he is able to claim an exclusion, which is rare. The first exclusion would apply if the award is for a scientific or charitable cause and the recipient immediately gives the award to a charity, such as a church, research center, etc. The second exclusion would be if Larry received the award from his employer as an award for years of service to the employer. Both of these exclusions would allow Larry to exclude the first $400 from the gross amount of the award, and he would then pay taxes on the remainder. Because this award does not qualify under either exclusion, Larry must include the full amount of the award as gross income.

2. Compare and contrast start-up costs and organizational expenditures. Describe how the tax treatment of these expenditures differs from the treatment for financial accounting purposes. ...

Solution Summary

The solution addresses awards as taxable income, expenditures, qualified education costs, and ordinary and necessary business expenditures. All questions are addressed.

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