Question 1

Which of the following are deductions for AGI?

Accepted Answer

Mortgage interest on a building used in a business is a deduction for AGI. Option A is a deduction from taxable income, not AGI. Option B is an itemized deduction from taxable income. Option D is not deductible at all.

Question 2

Which of the following is incorrect?

Accepted Answer

The answer of Which of the following is incorrect?
...

Question 3

Which of the following is correct?

Accepted Answer

Option A is correct, as personal casualty losses are classified as a deduction from AGI. Option B is also correct, as real estate taxes on a taxpayer's personal residence are classified as deductions from AGI. However, option C is incorrect because expenses associated with rental property are classified as deductions for AGI. Therefore, only options A and B are correct.

Question 4

Benita incurred a business expense on December 10,2012,which she charged on her bank credit card.She paid the credit card statement which included the charge on January 5,2013.Which of the following is correct?

Accepted Answer

The answer of Benita incurred a business expense on December...

Question 5

Rex,a cash basis calendar year taxpayer,runs a bingo operation which is illegal under state law.During 2012,a bill designated H.R.9 is introduced into the state legislature which,if enacted,would legitimize bingo games.In 2012,Rex had the following expenses:  Of these expenditures,Rex may deduct:

Accepted Answer

The answer of Rex,a cash basis calendar year taxpayer,runs a...

Question 6

Vera is the CEO of Brunettes,a publicly held corporation.For the year,she receives a salary of $800,000,a bonus of $400,000,and contributions to her retirement plan of $45,000.The bonus was awarded at the December board meeting based on Vera's threat to accept a better paying job with a competitor.What amount may Brunettes deduct?

Accepted Answer

Brunettes may deduct Vera's salary of $800,000 and retirement plan contributions of $45,000, as these are considered reasonable compensation. The bonus of $400,000 may also be deducted as it was awarded to prevent Vera from leaving for a competitor, which is a valid business expense. Therefore, the total amount Brunettes may deduct is $1,045,000.

Question 7

Which of the following is not a "trade or business" expense?

Accepted Answer

While interest on business indebtedness, property taxes on business property, and depreciation on business property are all expenses related to operating a trade or business, a parking ticket paid on a business auto is not a necessary or ordinary expense of carrying out a trade or business. Therefore, it is not a "trade or business" expense.

Question 8

Paula is the sole shareholder of Violet,Inc.For 2012,she receives from Violet a salary of $300,000 and dividends of $100,000.Violet's taxable income for 2012 is $500,000.On audit,the IRS treats $100,000 of Paula's salary as unreasonable.Which of the following statements is correct?

Accepted Answer

The answer of Paula is the sole shareholder of Violet,Inc.For...

Question 9

Which of the following statements is correct in connection with the investigation of a business?

Accepted Answer

If a taxpayer acquires a business that is similar to their current trade or business, they may be able to immediately deduct the expenses related to the investigation of that business. This is known as the "same line of business" exception to the capitalization rule. Option A is not entirely correct because the expenses would only be deductible if the project is abandoned and the taxpayer subsequently enters the same or a similar line of business. Option C is incorrect as certain expenses may be deductible even if the businesses are not related. Option D is incorrect because the same line of business exception may apply.

Question 10

Which of the following is a deduction from AGI (itemized deduction)?

Accepted Answer

The answer of Which of the following is a deduction...

Question 11

Tom operates an illegal drug-running operation and incurred the following expenses:  Which of the above amounts reduces his taxable income?

Accepted Answer

The answer of Tom operates an illegal drug-running operation and...

Question 12

Andrew,who operates a laundry business,incurred the following expenses during the year.  What amount can Andrew deduct for these expenses?

Accepted Answer

The answer of Andrew,who operates a laundry business,incurred the following...

Question 13

Terry and Jim are both involved in operating illegal businesses.Terry operates a gambling business and Jim operates a drug running business.Both businesses have gross revenues of $500,000.The businesses incur the following expenses.  Which of the following statements is correct?

Accepted Answer

The answer of Terry and Jim are both involved in...

Question 14

Which of the following cannot be deducted as a § 162 business expense?

Accepted Answer

Expenses of investing in rental property are generally considered a § 212 expense and therefore are not deductible as a § 162 business expense. Charitable contributions made by a sole proprietorship are allowable as a § 162 business expense. Fines and penalties are explicitly disallowed as a § 162 business expense. Therefore, options a, b, and c cannot be deducted as § 162 business expenses.

Question 15

Payments by a cash basis taxpayer of capital expenditures:

Accepted Answer

The answer of Payments by a cash basis taxpayer of...

Question 16

Which of the following is deductible as a trade or business expense?

Accepted Answer

The answer of Which of the following is deductible as...

Question 17

Tommy,an automobile mechanic employed by an auto dealership,is considering opening a fast food franchise.If Tommy decides not to acquire the fast food franchise,any investigation expenses are:

Accepted Answer

Investigation expenses related to a potential business or investment are generally not deductible. Therefore, the expenses incurred by Tommy in investigating the fast food franchise would not be deductible.

Question 18

Iris,a calendar year cash basis taxpayer,owns and operates several TV rental outlets in Florida,and wants to expand to other states.During 2012,she spends $14,000 to investigate TV rental stores in South Carolina and $9,000 to investigate TV rental stores in Georgia.She acquires the South Carolina operations,but not the outlets in Georgia.As to these expenses,Iris should:

Accepted Answer

The answer of Iris,a calendar year cash basis taxpayer,owns and...

Question 19

Petal,Inc.is an accrual basis taxpayer.Petal uses the aging approach to calculate the reserve for bad debts.During 2012,the following occur associated with bad debts.  The amount of the deduction for bad debt expense for Petal for 2012 is:

Accepted Answer

To calculate the deduction for bad debt expense, we need to use the aging approach, which uses percentages based on the age of the accounts receivable to estimate the amount of bad debt. 
For Petal, the calculation for 2012 is as follows: 
- Accounts receivable at year end (12/31/12): $280,000 
- Estimated percentage of bad debts: 
1-30 days: 2% 
31-60 days: 5% 
61-90 days: 20% 
Over 90 days: 50% 
- Calculation: 
(2% x $40,000) + (5% x $50,000) + (20% x $60,000) + (50% x $130,000) = $14,000 
Therefore, the amount of the deduction for bad debt expense for Petal for 2012 is $14,000.

Question 20

Which of the following expenses associated with the illegal sale of whiskey (i.e.,bootlegging)can be deducted?

Accepted Answer

The answer of Which of the following expenses associated with...

Quiz 6: Deductions and Losses: in General

Which of the following are deductions for AGI?

Which of the following is incorrect?

Which of the following is correct?

Benita incurred a business expense on December 10,2012,which she charged on her bank credit card.She paid the credit card statement which included the charge on January 5,2013.Which of the following is correct?

Rex,a cash basis calendar year taxpayer,runs a bingo operation which is illegal under state law.During 2012,a bill designated H.R.9 is introduced into the state legislature which,if enacted,would legitimize bingo games.In 2012,Rex had the following expenses: Of these expenditures,Rex may deduct:

Which of the following is not a "trade or business" expense?

Paula is the sole shareholder of Violet,Inc.For 2012,she receives from Violet a salary of $300,000 and dividends of $100,000.Violet's taxable income for 2012 is $500,000.On audit,the IRS treats $100,000 of Paula's salary as unreasonable.Which of the following statements is correct?

Which of the following statements is correct in connection with the investigation of a business?

Which of the following is a deduction from AGI (itemized deduction) ?

Tom operates an illegal drug-running operation and incurred the following expenses: Which of the above amounts reduces his taxable income?

Andrew,who operates a laundry business,incurred the following expenses during the year. What amount can Andrew deduct for these expenses?

Terry and Jim are both involved in operating illegal businesses.Terry operates a gambling business and Jim operates a drug running business.Both businesses have gross revenues of $500,000.The businesses incur the following expenses. Which of the following statements is correct?

Which of the following cannot be deducted as a § 162 business expense?

Payments by a cash basis taxpayer of capital expenditures:

Which of the following is deductible as a trade or business expense?

Tommy,an automobile mechanic employed by an auto dealership,is considering opening a fast food franchise.If Tommy decides not to acquire the fast food franchise,any investigation expenses are:

Petal,Inc.is an accrual basis taxpayer.Petal uses the aging approach to calculate the reserve for bad debts.During 2012,the following occur associated with bad debts. The amount of the deduction for bad debt expense for Petal for 2012 is:

Which of the following expenses associated with the illegal sale of whiskey (i.e.,bootlegging) can be deducted?