Rachel’s mother gives her $5,000 in cash for her birthday in February of Year 1. What tax consequences to Rachel under current law if she uses the cash to:
a. take a trip to Paris?
b. purchase shares of corporate stock worth $5,000, which she then sells for $7,000 in August of Year 2? Is this result consistent with the role that basis usually plays? Why or why not?
Rachel pays her office nurse a salary of $50,000, pays rent for her medical office premises of $20,000, pays rent for her personal apartment of $15,000, pays $10,000 for food, and purchases a new patient examining table for $10,000. Describe Rachel’s tax consequences under current law for each of these outlays. (Do not worry about figuring out actual depreciation deductions, if any, to which she is entitled. Just note whether or not she would be entitled to take any.)