Question 1

Eugene, a hardware store owner in Detroit, incurs $7,000 in an attempt to influence the Detroit City Council on the matter of a new tax assessment on hardware stores in Detroit. Explain what amount Eugene can deduct.

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Question 2

Discuss when expenses are deductible under the accrual method of accounting.

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Question 3

Why can business investigation expenditures be deducted currently by a taxpayer who is engaged in a line of business similar to the one being investigated, while the same costs must be capitalized and amortized to be deductible by a taxpayer who is not engaged in a similar business?

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Question 4

Explain the rules for determining whether a home is considered a rental property or a vacation home and the tax consequences of this classification.

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Question 5

Discuss tax planning considerations which a taxpayer may use to possibly avoid classification of an activity as a hobby.

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Question 6

Anita has decided to sell her stock in TOM, Inc. She purchased the stock 5 years ago for $1,000. The current fair market value is $600. Anita's sister, Kathy, is interested in buying the stock as is Anita's friend, Marcia. What tax issues should Anita consider when deciding to whom the stock should be sold?

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Question 7

During the current year, Jack personally uses his summer home for 25 days. He also rented his summer home to a group of vacationers for 12 days for $600 per day. How much income does Jack report from the rental of his summer home?

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Question 8

What must a taxpayer do to properly document a deductible travel or entertainment expense?

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Question 9

Diane, a successful accountant with an annual income of $150,000, also enjoys raising and training race horses, an activity in which she spends about 10 hours per week. Over the past five years her winnings from races have amounted to $20,000. She employs neighborhood children to feed the horses but has a professional trainer who works with the horses about 5 hours per week. Discuss some of the factors that might enter into the determination of whether or not this activity is a hobby or a trade/business.

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Question 10

During the current year, Charlene borrows $10,000 to purchase Kansas City bonds. Charlene incurs $800 of interest on her outstanding loan. How much interest expense may Charlene deduct in the current year?

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Quiz 6: Deductions and Losses