Question 1

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.

Accepted Answer

Personal property taxes on a hot air balloon operated as a hobby are not deductible as they are not related to a trade or business. However, interest paid on the mortgage note on a business warehouse is deductible as it is an expense incurred for the purpose of generating business income.

Question 2

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.

Accepted Answer

Membership dues to an environmental lobbying group are generally not deductible as they are considered lobbying expenses. The cost of acquiring a new business automobile is capitalized and depreciated over time rather than being immediately deductible as an expense.

Question 3

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

Accepted Answer

The answer of During 2013,Myca sells her car for $5,000.She...

Question 4

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

Accepted Answer

The cost of purchasing a new automobile for business purposes is considered a capital expenditure, meaning it is a long-term asset that will benefit the business for several years. Therefore, the cost cannot be deducted in the current year, but may be depreciated over the useful life of the vehicle.

Question 5

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.

Accepted Answer

An ordinary expense is an expense commonly incurred in an income-producing activity, but it does not necessarily provide future benefits to the activity.

Question 6

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.

Accepted Answer

C) $15,000 fee paid to a TV station to advertise a new product is a currently deductible trade or business expense because it is a direct cost associated with promoting the business's products, which is considered an ordinary and necessary business expense.

Question 7

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.

Accepted Answer

The three requirements to deduct a trade or business expense are that it must be ordinary and necessary, directly related to the business, and adequately documented. Deductible trade or business expenses cannot be a capital expenditure (which is an investment in a long-term asset), but they must be reasonable in amount and cannot be a payment that frustrates public policy. Additionally, expenses related to tax-exempt income are not deductible because they did not generate taxable income in the first place. Therefore, statements I, III, and IV are correct, making option E the best choice.

Question 8

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

Accepted Answer

The answer of Charlotte traveled to Annapolis to attend a...

Question 9

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.

Accepted Answer

GAAP (Generally Accepted Accounting Principles) approval is not a requirement for the deduction of a business expense. The other options listed (ordinary, necessary, business purpose, and reasonable in amount) are all required tests for the deduction of a business expense.

Question 10

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.

Accepted Answer

The answer of Shaheen owns 2 rental properties.She hires her...

Question 11

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.

Accepted Answer

The expense of paying Sidney a higher wage than the other interns is not considered reasonable and therefore, the full amount of his hourly wages cannot be deducted as a business expense.

Question 12

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

Accepted Answer

To calculate the operating costs that can be deducted, we need to first calculate the annual depreciation expense of the car.

We know that the car costs $16,000, and Paul expects to use it for 5 years in his business. Therefore, the annual depreciation expense is: 
$16,000 / 5 years = $3,200 per year

Next, we can calculate the total operating expenses that can be deducted for the year by adding the depreciation expense to the other operating expenses: 
$3,200 + $4,700 = $7,900

However, we also know that the car is only used 60% for business. Therefore, we can only deduct 60% of the total operating expenses:

0.6 x $7,900 = $4,740

Therefore, the amount of operating costs that Paul can deduct is $2,820 ($4,740 x 0.6). The correct answer is C.

Question 13

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.

Accepted Answer

Currently, neither of the payments described are deductible. The first payment would have been deductible prior to the Tax Cuts and Jobs Act of 2017, but is no longer deductible. The second payment is considered a miscellaneous itemized deduction, which were eliminated under the same tax reform.

Question 14

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.

Accepted Answer

Statement II is correct because Bonnie leased the building to Diane without any written agreement and without immediate payment, indicating a gift-like quality.
Statement IV is correct because property tax expenses related to a rental property are deductible.
Statement I is incorrect because expenditures related to the building would be classified as rental property expenses, not production of income expenses.
Statement III is not applicable as it is not a statement but rather a classification, and also because it is not relevant or necessary to the scenario.

Question 15

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.

Accepted Answer

Statement I is correct because when Pedro sells the rental properties at a gain, the profit will be taxed as a capital gain, which is subject to capital gains tax rates.

Statement II is incorrect because when Pedro sells the rental properties at a loss, the loss is considered a capital loss and will be treated as such on his tax return. It is not an ordinary loss.

Question 16

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.

Accepted Answer

The answer of Marian,a schoolteacher in Duluth,Minnesota,owns a rental house...

Question 17

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.

Accepted Answer

The answer of Which of the following is not deductible?
A)Expenses...

Question 18

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.

Accepted Answer

Both statements are correct. An ordinary business expense is an expense that is common, accepted, and expected within the business community. It is also an expense that is commonly incurred in an income-producing activity. However, what constitutes an ordinary expense can vary by industry or business type.

Question 19

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.

Accepted Answer

Only statement I is correct because tuition paid for education that maintains or improves skills required in the taxpayer's current job is deductible. In statement II, the tuition payment for Karl's son is not deductible because it is not related to the company's business and only benefits Karl's family.

Question 20

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.

Accepted Answer

For a business or investment expense to be deductible, it does not have to be recurring. The key requirements include being ordinary and necessary, reasonable in amount, and the taxpayer's own expense.

Quiz 5: Introduction to Business Expenses

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.

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.

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?

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

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.

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

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.

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

Which of the following is not deductible?

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.

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.

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