Question

Answers without showing calculations/explanations, will not receive credit. In 2022, US Sys Corporation received $250,000 in death benefits after its CEO (a key employee) died (it included this amount in book income). For book purposes, US Sys also expensed life insurance premiums for other key employees in the amount of $20,000. In addition, for book purposes, it expensed $10,000 of business meals expenditures (all from restaurants). What is the total book-tax difference associated with these items?

Answer 1

The total book-tax difference associated with US Sys Corporation's financial items is $275,000, inclusive of tax-free death benefits, non-deductible life insurance premiums, and partially deductible business meals.

Step-by-step explanation:

The total book-tax difference associated with the death benefits and expenses for US Sys Corporation would include several steps. Life insurance proceeds received due to the death of an employee are generally tax-free for the corporation, so the $250,000 would not be taxable.

However, the $20,000 of life insurance premiums expensed for other key employees would typically not be deductible for tax purposes if the corporation is the beneficiary, creating a book-tax difference. Business meal expenditures are only 50% deductible for tax purposes as of 2022, so only $5,000 of the $10,000 expensed would be deductible, resulting in another book-tax difference.

In summary, the total book-tax difference would be:

• $250,000 (non-taxable life insurance death benefits)
• $20,000 (non-deductible life insurance premiums)
• $5,000 (50% of the non-deductible portion of business meals)

Adding these up would give a total book-tax difference of $275,000.