Question 1

John and his family were living in New Jersey when he accepted a full-time job in Philadelphia. During the week, John lives in a rental apartment in Philadelphia that is within walking distance of his office; on weekends he drives home to be with his family in New Jersey where he also does a few hours of consulting work. Where is John's tax home?

Accepted Answer

Philadelphia is his tax home, where he works his primary job.

Question 2

Stephanie, a taxpayer in the 28% marginal tax bracket, borrows $100,000 at 7% interest to invest in 6% tax-exempt municipal bonds (annual loan interest expense is $7,000). What is Stephanie's interest expense deduction?

Accepted Answer

Expenses incurred to invest in tax-exempt securities are not deductible.

Question 3

Carlos, a self-employed construction contractor, contributed $5,000 to the re-election campaign of the local mayor in the hopes that his planned construction project will be approved. How much is Carlos's deduction for this political contribution?

Accepted Answer

Political contributions are not tax-deductible for individual taxpayers, regardless of whether they are self-employed or not. Therefore, Carlos's deduction for this contribution is $0.

Question 4

Cleo spent $4,000 on organization costs for her business and $13,000 training staff. If the business is a calendar-year cash-basis business that starts operations on June 1, what is the current year's deduction for these expenses?

Accepted Answer

[(7/180 x $8,000) + $4,000 + $5,000]

Question 5

Which of the following taxes cannot be deducted by a business?

Accepted Answer

The answer of Which of the following taxes cannot be...

Question 6

Matthew, a car dealer in Atlanta, wants to open a restaurant in Miami. He spends $8,000 investigating the location and feasibility of opening the restaurant in 2017, Matthew opens the restaurant in Miami in November and spends an additional $7,000 in start-up costs. In 2017 Matthew can:

Accepted Answer

Matthew is not in same business; he can only expense $5,000 and amortize the balance.

Question 7

In April 2017, Tobias was assigned to a job in the next county for the day. He drove 75 miles each way for the job, paid $4 in tolls, $7 for parking and $9 for lunch. What is his allowable business expense deduction?

Accepted Answer

[(150 x .535) + $4 + $7] = $91.25; Lunch is not deductible.

Question 8

Which of the following may qualify as a deductible business expense?

Accepted Answer

Membership in the local Chamber of Commerce is a deductible business expense as it can be viewed as a way to network and promote the business. The other options (B, C, D) are not directly related to the operation of the business and therefore do not qualify as deductible expenses.

Question 9

On October 1, 2017, Fine Brands Corporation (a cash-basis, calendar-year taxpayer) borrowed $200,000 from the bank at 9% annual interest. On December 30, 2017, Fine Brands paid $18,000 to the bank for the first year's interest on the loan. How much can Garcia deduct in 2017 for interest expense?

Accepted Answer

[($18,000/12) x 3 months = $4,500

Question 10

Attendance at a hockey game with a client would be deductible if:

Accepted Answer

Business was discussed at dinner before the game, indicating that the primary purpose of the meeting was business-related. A "substantial and bona fide" discussion must occur before or after the entertainment event for it to be considered a deductible business expense. Discussing business on the phone or in the restroom is not enough to make the event deductible. While securing goodwill can be a legitimate business purpose, it must be done in the context of an actual business purpose for the expense to be deductible.

Question 11

A taxpayer may deduct a fine for illegal parking if:

Accepted Answer

Fines are not deductible according to the IRS.

Question 12

Attendance at business-related seminars or meetings would be deductible for all of the following except:

Accepted Answer

Attendance at political conventions is not considered a legitimate business expense and therefore is not deductible. The other options listed (Trade shows, Continuing education, and Research seminars) are all legitimate business expenses and would be deductible.

Question 13

To deduct a bad debt expense for tax purposes, the taxpayer must use:

Accepted Answer

To deduct a bad debt expense for tax purposes, the specific charge-off method must be used. This method requires the taxpayer to identify the specific accounts receivable that are considered uncollectible and charge them off as bad debt expenses. This method is considered the most accurate for tax purposes as it reflects the true losses incurred by the business. The aging of receivables method and the reserve method are both methods used for financial accounting purposes and do not meet the specific requirements for tax purposes. Any other method permitted for financial accounting may not meet the requirements for tax purposes, and therefore may not be deductible.

Question 14

Claudia went to the West Coast to attend several business meetings with prospective clients. She flew out on Wednesday afternoon, spent all day Thursday, Friday, Monday and Tuesday attending meetings, and then spent the rest of the week touring the area, returning home on Saturday. She spent $800 on airfare, $1,600 on hotels (10 nights at $160 per night), $400 for a rental car ($40 per day from Wednesday night through Saturday of the following week), and $300 for meals ($30 per day from Thursday through the following Friday and $15 on each of her travel days). What is her allowable deduction for travel away from home?

Accepted Answer

$800 + (7 x $160) + (7 x $40) + .5(6 x $30) + .5(2 x $15) = $2,305

Question 15

John, a rental car dealer on Miami Beach, is considering opening a beauty salon in San Francisco. After spending $8,000 investigating such possibilities in San Francisco, John decides not to open the salon. As a consequence, the $8,000 is:

Accepted Answer

The $8,000 spent investigating the possibility of opening a salon in San Francisco is not deductible because it is considered a capital expense related to the investigation of a potential business opportunity, rather than a current expenses related to an existing business.

Question 16

Perez Corporation paid the following expenses: $14,000 country club dues and $8,000 business meals at the country club. How much can Perez deduct for these expenses?

Accepted Answer

$8,000 x .5 = $4,000; club dues are not deductible.

Question 17

On November 1, 2017, Hernandez Corporation (a cash-basis, calendar-year taxpayer) signed a 36-month lease with Taylor Realty Corporation for rental office space. The market rental rate for this office space is $2,000 per month but Hernandez was able to rent it for $1,900 per month by agreeing to prepay the rent for the entire 36-month period. How much can Hernandez deduct in 2017 rent expense?

Accepted Answer

2 x $1,900 = $3,800.

Question 18

Which of the following expenditures would not be deductible as a business expense?

Accepted Answer

Paying the interest on a loan for the owner's grandfather is a personal expense and not related to the business, therefore it cannot be deducted as a business expense. The other options (A, B, and D) are all expenses directly related to the business and could potentially be deductible.

Question 19

Travel away from home on business is defined as being away from home for:

Accepted Answer

Travel away from home on business typically involves being away for a period that is long enough to require rest or sleep, making option B the correct choice. This definition is used for tax purposes to determine eligibility for travel expense deductions. It does not necessarily require a minimum number of hours, nor does it specify that the trip must last more than one day and night.

Question 20

Chico Corporation, a calendar-year accrual-basis corporation, paid $3,000 on April 1 for a property insurance policy for the next three years, prepaid six months interest of $450 on November 1, and paid $2,000 rent for December and January on December 1. What is his deduction in the current year for these expenses?

Accepted Answer

[(9 x $3,000/36) + (2/6 x $450) + (1/2 x $2,000)]

Quiz 6: Business Expenses

Stephanie, a taxpayer in the 28% marginal tax bracket, borrows $100,000 at 7% interest to invest in 6% tax-exempt municipal bonds (annual loan interest expense is $7,000) . What is Stephanie's interest expense deduction?