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Taxation: Key employee insurance, depreciation, gain on sale

Which of the following is an explanation for why insurance premiums on a key employee are not deductible?
A. The insurance deduction would offset taxable income without the potential for the proceeds generating taxable income.
B. The federal government does not want to subsidize insurance companies.
C. Congress presumes that all expenses are not deductible unless specifically allowed in the Internal Revenue Code.
D. This rule was grandfathered from a time when the IRC disallowed all insurance premiums deductions.

How is the recovery period of an asset determined?
A. Treasury regulation
B. Revenue Procedure 87-56
C. Revenue Ruling 87-56
D. None of the above

Beth's business purchased only one asset during the current year. It placed in service machinery (7-year property) on December 1 with a basis of $50,000. Calculate the maximum depreciation expense (ignoring section 179 and bonus expensing):
A. $1,785
B. $2,500
C. $10,000
D. None of the above

One primary difference between corporate and U.S. Treasury bonds is:
A. Treasury bonds always pay interest periodically
B. Interest from Treasury bonds is exempt from federal taxation
C. Interest from corporate bonds is exempt from state taxation
D. None of the above

Ethan (single) purchased his home on July 1, 2003. On July 1, 2010 he moved out of the home. He rented the home until July 1, 2012 when he moved back into the home. On July 1, 2013 he sold the home and realized a $210,000 gain. What amount of the gain is Ethan allowed to exclude from his 2013 gross income?
A. $0
B. $168,000
C. $200,000

Solution Preview

Which of the following is an explanation for why insurance premiums on a key employee are not deductible?
A. The insurance deduction would offset taxable income without the potential for the proceeds generating taxable income

How is the recovery period of an asset determined?
A. Treasury regulation

Life insurance proceeds, by definition, are not taxable upon receipt and therefore premiums paid on such policies are not deductible expenses.

The present MACRS system was adopted as part of the Tax Reform Act of 1986. The regulation involved is ...

Solution Summary

The solution responds to each question with explanations and answers.

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