Black operates a business. Black is single. The following information is available concerning his business related expenses during 2021:

1. A customer who owed $6,200 on open account filed for bankruptcy during 2021. It was estimated during 2021 that only $1,700 would eventually be collected from the customer during 2022. The account receivable had a basis of $6,200.

2. He incurred costs of $2,500 to appear before the city council to lobby for proposed legislation that had a direct effect upon his business.

3. He paid political contributions of $250 to a candidate for the city council.

4. He traveled to Paris on business for 6 days. The cost of airfare was $1,500. The cost of a hotel room was $250 per day. The cost of meals was $60 per day. Business was conducted on 5 days. He stayed the extra 1 day for a vacation.

5. He incurred entertainment expenses qualified business meals in the amount of $4,500 and entertainment expenses for attending the theater in the amount of $3,500.

6. He incurred costs of $1,900 for the company’s annual family picnic

. 7. He used his car in his business. He drove his car 10,800 miles for business purposes and 7,200 miles for personal purposes. He incurred the following expenses associated with his car: fuel and maintenance of $1,300 and insurance of $600. Depreciation on his car was $2,200. He elected to deduct the standard mileage allowance for the business use of his car.

8. He employed his brother for the month of December at a cost of $3,300. He paid his brother on January 5, 2022. He uses the accrual method for reporting income and deductions for tax purposes; his brother uses the cash method for reporting income and deductions for tax purposes.

9. A delivery truck used in the business was totally destroyed in an accident. The delivery truck had an adjusted basis of $7,100 and a fair market value of $5,600 on the date of the accident. He recovered $3,000 from his insurance company.

Required: 

1. Determine the tax treatment of the above-mentioned items on Black’s 2021 tax return.

2. Assuming that the account receivable in #1 had arisen from a nonbusiness loan instead of from business activities, determine the tax treatment of the debt on Black’s 2021 tax return.

3. Assuming that Black had net income from self-employment during 2020 of $280,000, determine his self-employment tax on his 2021 tax return and the amount that is deductible, if any, as a business expense on his 2021 tax return.

Answer rating: 100% (QA)

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