Question 1

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

Under the Tax Cuts and Jobs Act of 2017, businesses can no longer deduct expenses related to entertainment, amusement, or recreation. However, the cost of business meals may still be partially deductible if certain requirements are met.

Question 2

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 not deductible as a miscellaneous itemized deduction. However, it is subtracted from gross income to arrive at adjusted gross income.

Question 3

Danielle graduated from State University in 2015.She paid $2,100 of interest during 2016 on her qualified educational loan.The full amount is deductible.

Accepted Answer

According to IRS Publication 970, if an individual paid interest on a qualified educational loan during the tax year, they may be able to deduct up to $2,500 of the interest paid. In this case, Danielle paid $2,100 in interest on her qualified educational loan during 2016, which is under the $2,500 limit and therefore fully deductible.

Question 4

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

For an accountable plan, fully reimbursed expenses are not required to be reported by the employee.

Question 5

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

Accepted Answer

This is true. A taxpayer can choose to use either the actual cost method (which involves keeping track of actual expenses such as gas, repairs, and insurance) or the standard mileage rate (which is a set rate per mile driven) for deducting auto expenses on their tax return.

Question 6

In 2016,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 2016,a husband and wife who are...

Question 7

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 taxpayers to deduct the actual expenses incurred for operating a vehicle for business purposes, including gas, oil, repairs, insurance, and depreciation. This method may result in a larger tax deduction than the standard mileage rate method.

Question 8

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 for 10 games is $80,000. Therefore, the cost per game is $8,000 ($80,000/10). Since the most expensive non-luxury box seat is $200, the value of the skybox must not exceed $2,000 ($200 x 8).

The cost of food and drinks ($800) is included in the total cost of the skybox rental and cannot be deducted separately. However, Crown Howe can deduct 50% of the cost of the skybox rental as a meal and entertainment expense.

50% of $80,000 is $40,000.

Therefore, the total amount that Crown Howe can deduct as a meal and entertainment expense is $40,000.

However, since the Managing partner invited 5 business associates, the deduction must be reduced by the cost of the additional tickets.

5 additional tickets at $200 each is $1,000.

Therefore, the final amount that Crown Howe can deduct as a meal and entertainment expense is $39,000 ($40,000 - $1,000).

The best choice is B.

Question 9

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 tax, which is $15+$5= $20. So the total cost of the dinner without the tip and tax is $94-$20=$74. Adding the cab fare of $20 gives us a total of $94 spent on the business outing. Therefore, Beth can deduct $74 as a business expense (the cost of the dinner without the tip and tax) and the $20 cab fare, for a total of $74 + $20 = $94.

Question 10

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

Under IRS regulations, a taxpayer can deduct gifts up to $25 per customer per year. This means that if a taxpayer gives multiple gifts to the same customer, the total value of those gifts cannot exceed $25 for the taxpayer to claim a deduction.

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

The Wondercress Advertising agency rents a skybox at the Metrodome where the Minnesota Vikings 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

The cost of the skybox is a non-deductible capital expense. The cost of the food and drinks is a deductible meal and entertainment expense. The cost of the tickets is not deductible because they are used for business entertainment. The total deductible expense is $900.

Question 13

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 allowed under the cash-basis accounting method, which allows for the deduction of expenses in the year they are paid, regardless of when the services are actually rendered or the coverage is in effect.

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

To be deductible, meals and entertainment must meet both the ordinary and necessary business expense requirement and be directly related to or associated with the active conduct of a business activity.

Question 15

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 16

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 purposes, such as consulting with an attorney about setting up a business or defending against a lawsuit related to the business, are generally deductible. However, legal expenses incurred for personal reasons, such as divorce or criminal charges unrelated to the business, are generally not deductible.

Question 17

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

Accepted Answer

Employee compensation can only be deducted if the employee provided an actual service and the amount paid is considered reasonable for that service. If the compensation is excessive or unrelated to services performed, it may not be deductible.

Question 18

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 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

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

This is the requirement for the distance test to be met and for moving expenses to be deductible.

Quiz 6: Business Expenses