Reference no: EM13985699

1. Determine the gross income of the beneficiaries in the following cases:

a. Ben's employer was downsizing and offered employees an amount equal to one year's salary if the employee would voluntarily retire.

b. Beverly drove drunk, was in a single car accident, and was unable to work for six months. Because of her dire circumstances, her employer paid her one-half of her regular salary while she was away from work.

c. Binnings Corporation collected $2 million on a key person life insurance policy when its CEO died. The corporation had paid the premiums on the policy of $89,000, which were not deductible by the corporation.

d. Leon collected $80,000 on a life insurance policy when his wife, Tess, died in 2014. The insurance policy was provided by Tess's employer, and the premiums were excluded from Tess's gross income as group term life insurance. In 2015, Leon collected the $4,500 accrued salary owed to Tess at the time of her death.

2. Tripp owns a business, a fitness center called, "Get Ripped." He comes to you, his CPA, to have his personal income tax return prepared. He reveals the following information during the appointment.

a. Get Ripped took in $125,000 in membership fees during 2015. That includes about $20,000 of prepaid fees for 2016. Tripp wants to know if all $125,000 should be included as income for 2015.

b. Get Ripped paid employees hourly wages plus commissions for selling memberships. Is this all deductible as a business expense for Get Ripped? Are the commissions taxable income to the employees?

c. Tripp goes to the salon next door to get hair removal wax treatments and spray tan. Tripp considers this an ordinary and necessary business expense because he has to look fit and healthy as a fitness center owner. Do you agree with Tripp? Explain.

d. If you advise Tripp that he can not deduct the cost of his salon visits as a business expense (Item c), can he deduct them as a personal expense?

e. Tripp uses an experimental treatment, not yet approved by the FDA, to help his body respond to weight training and build muscle. This protocol is similar to anabolic steroids, but theoretically without the health risks.

He is using this product to decide if he wants to offer it as a retail product available to his customers at Get Ripped. Obviously he wants to deduct the cost of his use of this product because he is studying it for future sales. In discussing the situation with you, he says, "I want to sell it once it's legal." You ask more questions along this line, but it never becomes clear whether the product is sold through legal channels. Give Tripp some tax advice about this situation.

f. Tripp's niece, Sarah, plays soccer on a youth team. Tripp's sister, Mona, has asked Get Ripped to purchase uniforms for the team. How would you recommend that Tripp accomplish this and make it a legitimate, deductible business expense?