Deck 5: Introduction to Business Expenses

Question 1

Match each statement with the correct term below.
a.Specifically disallowed.
b.Appropriate and helpful.
c.Considered a trade or business.
d.Not considered a trade or business.
e.Problems with this generally arise with related parties.
f.This is met when services or property are provided to the taxpayer.
g.Normal, common, and accepted but not necessarily regularly recurring.
h.This is met when the existence and the amount of a liability have been established.
Ordinary Expense

Answer 1

G

Question 2

Match the proper deduction method with the correct expenditures.
a.Capitalized and amortized over a number of accounting periods
b.Expensed in the period incurred
c.Not deductible
d.Can be capitalized and amortized or deductible depending on the amount of the expenditure
Start-up costs over $5,000.

Answer 2

D

Question 3

Match the proper deduction method with the correct expenditures.
a.Capitalized and amortized over a number of accounting periods
b.Expensed in the period incurred
c.Not deductible
d.Can be capitalized and amortized or deductible depending on the amount of the expenditure
Premiums the insured taxpayer pays for life insurance

Answer 3

C

Question 4

Match each statement with the correct term below.
a.Specifically disallowed.
b.Appropriate and helpful.
c.Considered a trade or business.
d.Not considered a trade or business.
e.Problems with this generally arise with related parties.
f.This is met when services or property are provided to the taxpayer.
g.Normal, common, and accepted but not necessarily regularly recurring.
h.This is met when the existence and the amount of a liability have been established.
Active Trader

Question 5

Match each statement with the correct term below.
a.Specifically disallowed.
b.Appropriate and helpful.
c.Considered a trade or business.
d.Not considered a trade or business.
e.Problems with this generally arise with related parties.
f.This is met when services or property are provided to the taxpayer.
g.Normal, common, and accepted but not necessarily regularly recurring.
h.This is met when the existence and the amount of a liability have been established.
Necessary Expense

Question 6

Match the proper deduction method with the correct expenditures.
a.Capitalized and amortized over a number of accounting periods
b.Expensed in the period incurred
c.Not deductible
d.Can be capitalized and amortized or deductible depending on the amount of the expenditure
Investment expenditures related to earning interest from municipal bonds

Question 7

Match each statement with the correct term below.
a.Specifically disallowed.
b.Appropriate and helpful.
c.Considered a trade or business.
d.Not considered a trade or business.
e.Problems with this generally arise with related parties.
f.This is met when services or property are provided to the taxpayer.
g.Normal, common, and accepted but not necessarily regularly recurring.
h.This is met when the existence and the amount of a liability have been established.
Reasonable Expense

Question 8

Match the proper deduction method with the correct expenditures.
a.Capitalized and amortized over a number of accounting periods
b.Expensed in the period incurred
c.Not deductible
d.Can be capitalized and amortized or deductible depending on the amount of the expenditure
Organization costs

Question 9

Match the proper deduction method with the correct expenditures.
a.Capitalized and amortized over a number of accounting periods
b.Expensed in the period incurred
c.Not deductible
d.Can be capitalized and amortized or deductible depending on the amount of the expenditure
Betterment

Question 10

Match the proper deduction method with the correct expenditures.
a.Capitalized and amortized over a number of accounting periods
b.Expensed in the period incurred
c.Not deductible
d.Can be capitalized and amortized or deductible depending on the amount of the expenditure
Illegal gambling operation expenses

Question 11

Match each statement with the correct term below.
a.Specifically disallowed.
b.Appropriate and helpful.
c.Considered a trade or business.
d.Not considered a trade or business.
e.Problems with this generally arise with related parties.
f.This is met when services or property are provided to the taxpayer.
g.Normal, common, and accepted but not necessarily regularly recurring.
h.This is met when the existence and the amount of a liability have been established.
All-events Test

Question 12

Match each statement with the correct term below.
a.Specifically disallowed.
b.Appropriate and helpful.
c.Considered a trade or business.
d.Not considered a trade or business.
e.Problems with this generally arise with related parties.
f.This is met when services or property are provided to the taxpayer.
g.Normal, common, and accepted but not necessarily regularly recurring.
h.This is met when the existence and the amount of a liability have been established.
Economic Performance

Question 13

Match the proper deduction method with the correct expenditures.
a.Capitalized and amortized over a number of accounting periods
b.Expensed in the period incurred
c.Not deductible
d.Can be capitalized and amortized or deductible depending on the amount of the expenditure
Federal lobbying expenditures

Question 14

Match each statement with the correct term below.
a.Specifically disallowed.
b.Appropriate and helpful.
c.Considered a trade or business.
d.Not considered a trade or business.
e.Problems with this generally arise with related parties.
f.This is met when services or property are provided to the taxpayer.
g.Normal, common, and accepted but not necessarily regularly recurring.
h.This is met when the existence and the amount of a liability have been established.
Active Investor

Question 15

Match each statement with the correct term below.
a.Specifically disallowed.
b.Appropriate and helpful.
c.Considered a trade or business.
d.Not considered a trade or business.
e.Problems with this generally arise with related parties.
f.This is met when services or property are provided to the taxpayer.
g.Normal, common, and accepted but not necessarily regularly recurring.
h.This is met when the existence and the amount of a liability have been established.
Personal Expense

Question 16

Match the proper deduction method with the correct expenditures.
a.Capitalized and amortized over a number of accounting periods
b.Expensed in the period incurred
c.Not deductible
d.Can be capitalized and amortized or deductible depending on the amount of the expenditure
Covenant not to compete for 4 years

Question 17

Match the proper deduction method with the correct expenditures.
a.Capitalized and amortized over a number of accounting periods
b.Expensed in the period incurred
c.Not deductible
d.Can be capitalized and amortized or deductible depending on the amount of the expenditure
Repair-and-maintenance expenditures

Question 18

Match the proper deduction method with the correct expenditures.
a.Capitalized and amortized over a number of accounting periods
b.Expensed in the period incurred
c.Not deductible
d.Can be capitalized and amortized or deductible depending on the amount of the expenditure
Fire and casualty insurance premium on business warehouse

Question 19

Match the proper deduction method with the correct expenditures.
a.Capitalized and amortized over a number of accounting periods
b.Expensed in the period incurred
c.Not deductible
d.Can be capitalized and amortized or deductible depending on the amount of the expenditure
Hobby loss

Question 20

Match the proper deduction method with the correct expenditures.
a.Capitalized and amortized over a number of accounting periods
b.Expensed in the period incurred
c.Not deductible
d.Can be capitalized and amortized or deductible depending on the amount of the expenditure
Political contributions

Question 21

Match each statement with the correct term below.
a.Automobile used 75% for business.
b.Investment expenses on municipal bonds.
c.Cost of investigating a new trade or business that the taxpayer enters.
d.Can be separated into two classifications.
e.Safety-deposit box for taxable investments.
f.Expenditure to influence legislation.
g.Cost of a new roof for office building.
h.Relates to an income producing activity mainly carried on for recreation or personal enjoyment.
i.Deductibility depends on income and amount of personal and rental use.j.Deductibility depends on whether the area is used exclusively for trade or business activities.
Hobby expense

Question 22

Evelyn can avoid the 2 percent limitation on her investment expenses by having her partnership pay them.

Question 23

In order for a taxpayer to reduce taxable income with a deduction,the tax law must allow it,and it must meet all statutory requirements.

Question 24

Match each statement with the correct term below.
a.Automobile used 75% for business.
b.Investment expenses on municipal bonds.
c.Cost of investigating a new trade or business that the taxpayer enters.
d.Can be separated into two classifications.
e.Safety-deposit box for taxable investments.
f.Expenditure to influence legislation.
g.Cost of a new roof for office building.
h.Relates to an income producing activity mainly carried on for recreation or personal enjoyment.
i.Deductibility depends on income and amount of personal and rental use.j.Deductibility depends on whether the area is used exclusively for trade or business activities.
Home office deduction

Question 25

Match each statement with the correct term below.
a.Automobile used 75% for business.
b.Investment expenses on municipal bonds.
c.Cost of investigating a new trade or business that the taxpayer enters.
d.Can be separated into two classifications.
e.Safety-deposit box for taxable investments.
f.Expenditure to influence legislation.
g.Cost of a new roof for office building.
h.Relates to an income producing activity mainly carried on for recreation or personal enjoyment.
i.Deductibility depends on income and amount of personal and rental use.j.Deductibility depends on whether the area is used exclusively for trade or business activities.
Non-deductible expense

Question 26

A necessary expense is one that is appropriate and helpful to the taxpayer's income activity.

Question 27

Pamela owns the building where her plumbing supply business is located.This year she put on vinyl siding to replace the weathered wood siding on her building.The cost of the new siding can be expensed in the current year.

Question 28

Match each statement with the correct term below.
a.Automobile used 75% for business.
b.Investment expenses on municipal bonds.
c.Cost of investigating a new trade or business that the taxpayer enters.
d.Can be separated into two classifications.
e.Safety-deposit box for taxable investments.
f.Expenditure to influence legislation.
g.Cost of a new roof for office building.
h.Relates to an income producing activity mainly carried on for recreation or personal enjoyment.
i.Deductibility depends on income and amount of personal and rental use.j.Deductibility depends on whether the area is used exclusively for trade or business activities.
Profit motivated business expenses

Question 29

Match each statement with the correct term below.
a.Automobile used 75% for business.
b.Investment expenses on municipal bonds.
c.Cost of investigating a new trade or business that the taxpayer enters.
d.Can be separated into two classifications.
e.Safety-deposit box for taxable investments.
f.Expenditure to influence legislation.
g.Cost of a new roof for office building.
h.Relates to an income producing activity mainly carried on for recreation or personal enjoyment.
i.Deductibility depends on income and amount of personal and rental use.j.Deductibility depends on whether the area is used exclusively for trade or business activities.
Amortizable or deductible expense

Question 30

An individual is indifferent whether an expense is deducted for or deducted from adjusted gross income.

Question 31

Match each statement with the correct term below.
a.Automobile used 75% for business.
b.Investment expenses on municipal bonds.
c.Cost of investigating a new trade or business that the taxpayer enters.
d.Can be separated into two classifications.
e.Safety-deposit box for taxable investments.
f.Expenditure to influence legislation.
g.Cost of a new roof for office building.
h.Relates to an income producing activity mainly carried on for recreation or personal enjoyment.
i.Deductibility depends on income and amount of personal and rental use.j.Deductibility depends on whether the area is used exclusively for trade or business activities.
Lobbying expense

Question 32

An expense that is incurred for the production of rent will be deducted for adjusted gross income.

Question 33

Bowen is planning to quit his job as a plumber and open a paint store.He has incurred expenses of $8,000 dealing with the opening of the store and will be able to deduct all of these expenses.

Question 34

Match each statement with the correct term below.
a.Automobile used 75% for business.
b.Investment expenses on municipal bonds.
c.Cost of investigating a new trade or business that the taxpayer enters.
d.Can be separated into two classifications.
e.Safety-deposit box for taxable investments.
f.Expenditure to influence legislation.
g.Cost of a new roof for office building.
h.Relates to an income producing activity mainly carried on for recreation or personal enjoyment.
i.Deductibility depends on income and amount of personal and rental use.j.Deductibility depends on whether the area is used exclusively for trade or business activities.
Vacation home expense

Question 35

For a taxpayer to be engaged in a trade or business,the activity must meet all of the following tests: it must produce a profit every year; must be continuous and regular activity; and must be the taxpayer's livelihood not their hobby.

Question 36

Match each statement with the correct term below.
a.Automobile used 75% for business.
b.Investment expenses on municipal bonds.
c.Cost of investigating a new trade or business that the taxpayer enters.
d.Can be separated into two classifications.
e.Safety-deposit box for taxable investments.
f.Expenditure to influence legislation.
g.Cost of a new roof for office building.
h.Relates to an income producing activity mainly carried on for recreation or personal enjoyment.
i.Deductibility depends on income and amount of personal and rental use.j.Deductibility depends on whether the area is used exclusively for trade or business activities.
Mixed-use asset

Question 37

In order to take a business deduction,the taxpayer engaged in a business must be able to establish a business purpose for each expenditure.

Question 38

Morgan,a banker,is an amateur photographer who takes pictures at weddings and parties.He earned $1,000 but incurred $1,200 in related expenses.Since he takes a standard deduction,he will have to include the $1,000 in income but will not get any benefit from the expenses.

Question 39

Match each statement with the correct term below.
a.Automobile used 75% for business.
b.Investment expenses on municipal bonds.
c.Cost of investigating a new trade or business that the taxpayer enters.
d.Can be separated into two classifications.
e.Safety-deposit box for taxable investments.
f.Expenditure to influence legislation.
g.Cost of a new roof for office building.
h.Relates to an income producing activity mainly carried on for recreation or personal enjoyment.
i.Deductibility depends on income and amount of personal and rental use.j.Deductibility depends on whether the area is used exclusively for trade or business activities.
Capital expenditure

Question 40

Match each statement with the correct term below.
a.Automobile used 75% for business.
b.Investment expenses on municipal bonds.
c.Cost of investigating a new trade or business that the taxpayer enters.
d.Can be separated into two classifications.
e.Safety-deposit box for taxable investments.
f.Expenditure to influence legislation.
g.Cost of a new roof for office building.
h.Relates to an income producing activity mainly carried on for recreation or personal enjoyment.
i.Deductibility depends on income and amount of personal and rental use.j.Deductibility depends on whether the area is used exclusively for trade or business activities.
Production-of-income expense

Question 41

Sheila extensively buys and sells securities.The IRS has determined upon examination that she is not in a trade or business concerning the securities' transactions and therefore,Shelia must be

A)a broker.
B)an active trader.
C)an active investor.
D)a securities' dealer.

Question 42

The legislative grace concept dictates that deductible business expenses be grouped into certain categories that include
I)Personal expenses.
II)Trade or business expenses.
III)Expenses for the production of income.

A)Statements I and II are correct.
B)Statements I and III are correct.
C)Statements I, II, and III are correct.
D)Statements II and III is correct.

Question 43

Which of the following is/are trade or business expenses?
I)Solly incurs legal expenses related to real estate he leases to Bucko Burger Hamburger Haven for a parking lot.Solly does little but negotiate the lease every year..
II)Susan owns several rental apartments.She negotiates new rental contracts,arranges for repairs and maintenance,and handles all leasing activities.

A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.

Question 44

Which of the following people are currently engaged in a trade or business?
I)Willie devotes 45 hours per week to betting on horse races.Although he intends to win large sums,he has failed to win the big one.He considers his betting activities his job and relies on his meager winnings to support his family.
II)Daryl owns 214 home sites in and around Orlando,Florida.He bought these vacant lots several years ago in hoping that they would appreciate in value so he could sell them at a profit.Because of the recreational activities in the area,the building lots are worth several times his original cost.He is getting the lots ready to sell this year.

A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.

Question 45

John decides rather than work late in the office,he does all of his work in an office at home.His employer approves of this arrangement.Since John uses his home office on a regular and exclusive basis,he will be eligible to take a home office deduction even though it was not required as a condition of employment.

Question 46

The Business Purpose Concept means
I)that the economic purpose of the transaction must exceed the tax avoidance motive.
II)that the taxpayer's dominant motive for an expenditure is to reduce taxation.

A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.

Question 47

Which of the following is/are trade or business expenses?
I)Mahlon incurs expenses related to investing in stocks and bonds.Mahlon is a Sociology professor at State University but spends 10-15 hours per week on his investments.Almost 2/3 of Mahlon's annual income comes from his investments as dividends and interest.
II)Shaheen has expenses related to managing her portfolio of securities.The short-term trading of her securities generates most of her annual income.She has no other job.

A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.

Question 48

A taxpayer can take a deduction for a portion of his phone bill if he is eligible for the home office deduction.

Question 49

Which of the following people is currently engaged in a trade or business?
I)Barry spends 4 hours a day 5 days a week managing his investment portfolio.He watches the market and buys and sells securities when he thinks the market is right.His investment strategy is to realize income from dividends and long-term gains from holding investments for appreciation in value.
II)Jennifer is a full-time realtor,and she owns a house that she rents to Barry and his family for $900 a month.Jennifer provides for the repairs and maintenance of the house,and she stops by monthly to collect the rent and visit with Barry and his family.

A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.

Question 50

Teresa,Terri,and Tricia operate Sassy Solutions,an exclusive boutique.Based on advice from Teresa's sister,a CPA,the three form a partnership.Teresa owns 50% and Terri and Tricia each own 25%.For the year,Sassy Solutions reports the following:
$\begin{array}{lr}\text { Sales revenues } & \$ 600,000 \\\text { Business expenses } & (320,000) \\\text { Investment expenses } & (4,000) \\\text { Short-term capital gains } & 26,000 \\\text { Long-term capital losses } & (14,000) \\\text { Taxable income } & \$ 288,000\end{array}$
For tax purposes,what amount will Sassy Solutions report to Teresa as her ordinary income from the partnership?

A)$144,000
B)$146,000
C)$148,000
D)$138,000
E)$140,000

Question 51

Which of the following is an example of a business purpose as dominant motive?
I)Darren is a full-time plumber and a part-time Amway salesman.He is taking his family to Disney World and plans to take his Amway products with him so that he may deduct most of his cost of the trip.
II)Larry is a full-time plumber.He is taking his family with him to a convention in Orlando featuring the latest in plumbing products and techniques.He plans to deduct most of his cost of the trip.

A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.

Question 52

Ona is a professional musician.She prepared her music teacher's tax return in exchange for music lessons.Since she is a cash basis taxpayer,she cannot take a deduction for the music lessons.

Question 53

Tom,Dick,and Harry operate Quality Stores.Based on advice from Tom's sister,a CPA,the three form a partnership.Tom owns 50%; Dick and Harry each own 25%.For the year,Quality Stores reports the following:
$\begin{array}{lr}\text { Sales revenues } & \$ 800,000 \\\text { Business expenses } & (440,000) \\\text { Investment expenses } & (4,000) \\\text { Short-term capital gains } & 26,000 \\\text { Long-term capital losses } & (14,000) \\\text { Taxable income } & \$ 368,000\end{array}$
By how much will Tom's adjusted gross income increase because of the above?

A)$178,000
B)$180,000
C)$183,000
D)$184,000
E)$186,000

Question 54

Which of the following individuals is involved in a trade or business?
I)Lil owns a farm near Lafayette,Indiana.She leases the property to Cal,who operates the farm for himself.Lil receives 10% of Cal's net income as part of the lease agreement but has no responsibilities for the farming operation.
II)Lorraine owns a warehouse located in Brooklyn NY.She paid $250,000 for the real estate several years ago.It is now appraised at over $1,000,000,but she still uses the building only to store her painting collection.

A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.

Question 55

Business expenses include
I)expenditures that have a business purpose
II)expenditures that are incurred for the production of income.

A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.

Question 56

Devery,Inc.sells high tech machine parts that are fully warranted against defects.Based on prior years experience they can expect to incur $20,000 of warranty expense on current sales.They are on the accrual basis,and the warranty expense is based on a reasonable estimate,so Devery can deduct the $20,000.

Question 57

Sarah extensively buys and sells securities .The IRS has determined upon examination that she is in a trade or business concerning the securities' transactions and therefore,Sarah is

A)a day trader.
B)an active trader.
C)an active investor.
D)a securities' dealer.

Question 58

To be deductible,the dominant motive for incurring an expense must be

A)the relationship to a business activity.
B)to reduce income taxes.
C)tax avoidance.
D)the intent to earn a profit.
E)personal.

Question 59

Andy lives in New York and rents his house for two weeks during the U.S.Open Tennis tournament for $3,500.He must include the rent in his income.

Question 60

A business expense includes
I)an expenditure that satisfies the dominant profit-motive requirement.
II)an expenditure that is incurred in a trade or business activity.

A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.

Question 61

All of the following are a required test for the deduction of a business expense except?

A)GAAP approved.
B)Ordinary.
C)Necessary.
D)Business purpose.
E)Reasonable in amount.

Question 62

Which of the following is/are currently deductible trade or business expenses?
I)Personal property taxes on a hot air balloon operated as a hobby.
II)Interest paid on the mortgage note on a business warehouse.

A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.

Question 63

Three requirements must be met in order to deduct a trade or business expense.Also,deductible trade or business expenses may not be which of the following:
I)a capital expenditure.
II)reasonable in amount.
III)a payment that frustrates public policy.
IV)an expense related to tax-exempt income.

A)Only statement I is correct.
B)Only statement II is correct.
C)Statements III and IV are correct.
D)Statements I, II, and III are correct.
E)Statements I, III, and IV are correct.

Question 64

An ordinary expense
I)is an expense commonly incurred in an income-producing activity.
II)is an expenditure that provides future benefits to an income-producing activity.

A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.

Question 65

Pedro owns 5 rental properties.He contracts with East Lake Properties,Inc.,to manage the real estate.East Lake obtains tenants,negotiates leases,makes necessary repairs,pays expenses related to the properties,and remits monthly net receipts to Pedro.
I)Pedro's sale of the properties at a gain will result in a capital gain.
II)Pedro's sale of the properties at a loss results in an ordinary loss on his tax return.

A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.

Question 66

Charlotte traveled to Annapolis to attend a three-day business conference.After her meetings concluded,she stays 2 additional days sightseeing.Charlotte's airfare is $400 and pays $110 per night for lodging,$60 a day for meals,and $20 a day for incidentals.How much of Charlotte's costs can be deducted as a business expense?

A)$ - 0 -
B)$ 400
C)$ 880
D)$ 970
E)$1,200

Question 67

An ordinary expense
I)is normal,common,and accepted under the circumstances of the business community.
II)is an expense commonly incurred in an income-producing activity.

A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.

Question 68

Bonnie's sister,Diane,wants to open a restaurant.Because Diane is short of funds,Bonnie purchases the building and leases it to Diane.No agreement is signed,and Bonnie tells Diane not to worry about paying rent until the cash flow can support it.Also,Bonnie promises not to sell the property to anyone other than Diane.
I)Any expenditures Bonnie makes regarding the building would be classified as production of income expenses.
II)The building rental has the characteristics of a gift.
III)The dominant motive in acquiring the building is to earn an economic benefit (profit).
IV)Bonnie's property tax expenses related to the property are deductible.

A)Only statement II is correct.
B)Only statement III is correct.
C)Statements I, II, and IV are correct.
D)Statements II and IV are correct.
E)Statements I, II, III, and IV are correct.

Question 69

In the current year,Paul acquires a car for $16,000.He uses the car in his advertising business and for personal purposes.His records indicate the car is used 60% for business and that the total operating expenses,including depreciation,are $4,700.Paul expects to use the car for 5 years in his business.What amount can Paul deduct as the operating costs of the car?

A)$ - 0 -
B)$ 2,400
C)$ 2,820
D)$ 4,700
E)$12,000

Question 70

Portia,a CPA,operates a financial and tax planning service.During the months of February,March,and April of every year,she hires graduate tax students from The University of Chicago as interns.This year she hires 4 interns.One is her brother,Sidney.She pays all interns except Sidney $20 per hour for help with tax return preparation and tax research.Sidney receives $25 an hour.She cannot deduct the full amount of Sidney's hourly wages because the expense is not

A)appropriate.
B)ordinary.
C)necessary.
D)reasonable.

Question 71

Which of the following is not deductible?

A)Expenses related to earning dividends on a portfolio of "blue chip" stocks.
B)Expenses related to interest income from municipal bonds.
C)Legal expenses related to rental real estate property.
D)Medical expenses of the taxpayer's dependent child.

Question 72

Which of the following payments are currently deductible?
I)Sweeney Corporation pays tuition to an MBA program for Phyllis,the controller.
II)Amber's Construction Company pays the tuition for Karl's son.Karl is a local building inspector and has no other relationship with the company.

A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.

Question 73

Shaheen owns 2 rental properties.She hires her 21 year old son,who is a junior at State College,to obtain tenants,negotiate leases,make arrangements for repairs,and pay expenses related to the properties.
I)Shaheen's sale of the properties will result in a capital gain or loss.
II)Shaheen's sale of the properties at a loss results in a current-year loss deduction of no more than $3,000.

A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.

Question 74

Which of the following is/are currently deductible trade or business expenses?
I)Membership dues to an environmental lobbying group.
II)Cost of acquiring a new business automobile.

A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.

Question 75

Which of the following is a currently deductible trade or business expense.

A)$ 5,000 trustee fees paid to a bank to manage tax-exempt securities.
B)$ 12,000 fee paid to a marketing firm for a market analysis for a new business.
C)$15,000 fee paid to a TV station to advertise a new product.
D)$20,000 to an attorney to defend title to a new patent.
E)All of the above are currently deductible expenses.

Question 76

Kelly buys a new Lexus for $48,750 in the current year to use in her commercial real estate business.Kelly cannot deduct the cost of the automobile in the current year,because

A)it is unreasonable in amount.
B)it is not a regularly recurring item.
C)it is a capital expenditure.
D)it is not necessary

Question 77

Marian,a schoolteacher in Duluth,Minnesota,owns a rental house in Scottsdale,Arizona.She travels to Arizona during spring break to inspect her property and discuss property improvements with the tenant and property manager.Marian's brother,Brian,lives in Scottsdale.She stays at his house during her week in Arizona and borrows his car to travel across town for her day of meetings.Her trip accomplishes several objectives: a visit with her brother,a trip away from Wisconsin's winter weather,and a review of her investment property.The expenses of traveling to Scottsdale
I)have a dominant business purpose.
II)are deductible as expenses for the production of income.

A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.

Question 78

Which of the following payments are currently deductible?
I)Steve is a self-employed attorney.He pays another attorney $14,000 to represent him in a lawsuit that alleged that he was liable in a personal auto accident.
II)Connie has an investment portfolio in excess of $600,000.She pays Chris $1,000 to do an analysis of her investments and make recommendations on restructuring the portfolio.

A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.

Question 79

Which of the following requirements does not have to be met for a business or investment expense to be deductible:

A)Be ordinary and necessary.
B)Be reasonable in amount.
C)Be recurring.
D)Be the taxpayer's own expense.
E)All of the above must be met.

Question 80

During 2013,Myca sells her car for $5,000.She acquired the car in 2009 for $11,000 and has used it 60% for business and 40% for personal use.She deducted $5,280 in depreciation.What is the taxable gain or loss from the sale of the car attributable to her business use?

A)$3,680 gain
B)$ 432 gain
C)$ 720 loss
D)$2,280 loss
E)$1,680 gain