Question 1

50% of the self-employment tax is deductible as a miscellaneous itemized deduction from adjusted gross income.

Accepted Answer

50% of the self-employment tax is deductible as an adjustment to income, not as a miscellaneous itemized deduction.

Question 2

The Crown Howe Accounting firm rents a skybox at Lucas Oil Field where the Indianapolis Colts play their home games.The cost of the skybox for the season is $80,000 and includes 8 tickets to each game.The team plays 10 games a year at the arena.The most expensive non-luxury box seat is $200.After acquiring a new accounting client,the Managing partner invites 5 business associates to watch a game in the firm skybox.Food and drinks cost $800.What amount can Crown Howe deduct as meal and entertainment expense?

Accepted Answer

The cost of the skybox is not deductible as a meal and entertainment expense because it is considered a leasehold improvement. The cost of food and drinks for the five business associates is deductible, but it is subject to the 50% limitation on meal and entertainment expenses. The total cost of food and drinks is $800, and the deductible amount is $400 (50% of $800). Therefore, the total amount that can be deducted as a meal and entertainment expense is $400 * 10 games = $4,000. However, the cost of the skybox is not included in this amount, so the correct answer is $4,000 + $80,000 = $81,200, which is closest to option B.

Question 3

The Wondercress Advertising agency rents a skybox at the First Energy Stadium where the Cleveland Browns plays its home games.The cost of the skybox for the season is $60,000 and includes ten tickets to each game.The team plays 8 games a year at the arena.The most expensive non-luxury box seat is $125.After acquiring a new advertising client,the president of the agency invites 9 business associates to watch a game in the company skybox.Food and drinks cost $900.What amount can Wondercress deduct as meal and entertainment expense?

Accepted Answer

Wondercress can deduct the cost of the skybox for the season as a business expense, which is $60,000. The cost of food and drinks for the game is also deductible as a meal and entertainment expense. However, the cost of the tickets cannot be deducted as they are for personal use.

The total cost of the 10 tickets for the game is 10 x $125 = $1,250. Since Wondercress cannot deduct this amount, the total deductible amount is $900 for food and drinks.

Therefore, the total amount that Wondercress can deduct as a meal and entertainment expense is $900.

Question 4

The Big Easy Company leases a luxury box and purchases 20 tickets to the New Orleans Saints home games.The entire amount is deductible as an entertainment expense as long as all the requirements are met.

Accepted Answer

Only 50% of entertainment expenses are deductible, including the cost of leasing a luxury box and purchasing tickets to a sporting event. Therefore, only 50% of the total amount paid by the Big Easy Company would be deductible as an entertainment expense.

Question 5

Donald had a party to publicize the opening of his new accounting office.He invited community and business leaders to his office where food and beverage of $4,000 was served along with $1,000 of entertainment.How much of the total cost can Donald deduct?

Accepted Answer

The answer of Donald had a party to publicize the...

Question 6

To be away overnight requires the taxpayer to be away from their tax home for more than 24 hours.

Accepted Answer

The requirement for being away overnight for tax purposes is not strictly defined by being away for more than 24 hours; it is based on the necessity to stop for sleep or rest to properly perform one's duties, not on a specific number of hours.

Question 7

If an employer reimbursement plan is an accountable plan,for an expense that is fully reimbursed the employee does not have to report either the expense or the reimbursement .

Accepted Answer

Under an accountable reimbursement plan, if the expense is fully reimbursed by the employer, the employee does not have to report the expense or the reimbursement as taxable income. This is because the reimbursement is not considered income, but rather a return of the employee's own expenses.

Question 8

In 2017,a husband and wife who are less than 50 and qualify may contribute $12,000 to two separate IRA accounts as long as their total income exceeds $12,000.The total amount contributed to each account cannot exceed $6,000.

Accepted Answer

The answer of In 2017,a husband and wife who are...

Question 9

Discovery,Inc. ,a cash-basis consulting firm,can deduct a twelve-month insurance premium in the year the premium is paid even though the policy remains in effect into the following year.

Accepted Answer

This is because cash-basis accounting recognizes expenses when they are paid, regardless of when the benefit of the expense is received.

Question 10

A taxpayer may use either the actual cost method or the standard mileage rate for deducting auto expenses.

Accepted Answer

This statement is true. A taxpayer has the option to use either the actual cost method or the standard mileage rate when deducting auto expenses on their tax return. They should choose the method that results in the greater deduction for their specific situation.

Question 11

Larry is a self-employed insurance salesperson.He decides to take his best customer to a Pacers basketball game.Larry is able to buy two floor seat tickets for $500 each.The face amount of the tickets is $200 each.How much of the total cost can Larry deduct?

Accepted Answer

The answer of Larry is a self-employed insurance salesperson.He decides...

Question 12

To be deductible,employee compensation must be for services actually performed by the employee and the amount must be reasonable.

Accepted Answer

This is a requirement for employee compensation to be deductible according to the IRS. The compensation must be for actual services performed by the employee and the amount must be reasonable.

Question 13

Legal expenses are generally deductible if they have a business purpose;they are generally not deductible if they originate from a personal transaction.

Accepted Answer

Legal expenses incurred for business purpose such as consultations with a business attorney, drafting contracts, defending against a lawsuit related to the business are generally deductible. However, legal expenses related to personal transactions such as divorce, adoption, and criminal cases are not deductible as they are not related to earning income.

Question 14

To be deductible,meals and entertainment must be both an ordinary and necessary business expense and must be either directly related to or associated with the active conduct of an activity for which the taxpayer has a business purpose.

Accepted Answer

This is a correct statement regarding the IRS requirements for deducting meals and entertainment expenses. The expenses must meet both the "ordinary and necessary" test and be "directly related to" or "associated with" the active conduct of a business activity.

Question 15

Danielle graduated from State University in 2016.She paid $2,100 of interest during 2017 on her qualified educational loan.The full amount is deductible.

Accepted Answer

The interest paid on a qualified educational loan is deductible up to $2,500 per year, and there is no income limit to claim this deduction. Therefore, as Danielle paid a total of $2,100 of interest on her qualified educational loan during 2017, the full amount is deductible.

Question 16

After negotiating a new supply contract with Jim,Beth takes him to dinner at the Magnolia Cafe.The dinner costs $94.The amount includes tip ($15)and sales tax ($5).Cab fare to and from the restaurant is $20.How much can Beth deduct for the evening's expenditures?

Accepted Answer

Beth can deduct the cost of the dinner, which is $94, minus the tip and sales tax, which total $20. Therefore, she can deduct $74 for the dinner. In addition, she can deduct the $20 cab fare. The total deduction is $74 + $20 = $94. However, she cannot deduct the entire cost of the dinner because it included the tip and tax.

Question 17

For moving expenses to be deductible the distance test must be met,which requires that the commuting distance from the old residence to the new job must be 50 miles further than the commuting distance was to the old job.

Accepted Answer

The distance test for deducting moving expenses does require that the commuting distance from the old residence to the new job must be 50 miles further than it was to the old job.

Question 18

A taxpayer can deduct multiple gifts to a single customer as long as the total value of all gifts to that customer does not exceed $25.

Accepted Answer

This is true according to current IRS regulations. A taxpayer can deduct up to $25 per recipient for business gifts.

Question 19

Business and nonbusiness bad debts are both deductible as a short-term capital loss.

Accepted Answer

Business bad debts are deductible against ordinary income, while nonbusiness bad debts are deductible as short-term capital losses.

Question 20

The actual cost method is a more-flexible way to compute the auto expense deduction and often results in a larger tax savings.

Accepted Answer

The actual cost method allows for more expenses to be included in the deduction, such as depreciation and repairs, which can result in a larger tax savings compared to the standard mileage rate method.

Quiz 6: Business Expenses