Question 1

Which of the following taxes paid by the Sill Engineering Company can be deducted during 2018?
I.Federal taxes withheld from employees.
II.Sill Engineering's share of employee's Social Security taxes.
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Accepted Answer

Only the employer's share of Social Security taxes (statement II) can be deducted by a business. Federal taxes withheld from employees' wages are a trust fund tax that the employer holds and pays on behalf of the employee and cannot be deducted as a business expense.

Question 2

Deductions for adjusted gross income include
I.Contribution to a Roth IRA.
II.Contribution to conventional IRA
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Accepted Answer

Contributions to a conventional IRA may be deductible, depending on the taxpayer's income, filing status, and whether they or their spouse are covered by a retirement plan at work. Contributions to a Roth IRA are not deductible.

Question 3

Which of the following taxes paid by Woodhaven Inc. can be deducted during 2018?
I.Special real estate tax assessment for upgrading the sewer.
II.State income taxes paid in 2018 when filing Woodhaven's 2017 corporate return tax return.
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Accepted Answer

Statement I refers to a special assessment tax for upgrading the sewer, which is not deductible as a business expense. However, statement II refers to state income taxes paid in 2018 while filing Woodhaven's 2017 corporate tax return, which can be deducted as a business expense in 2018. Therefore, only statement II is correct.

Question 4

Elizabeth operates an accounting firm as a sole proprietorship. She is single, the accounting business has net income of $120,000 and she has taxable income of $130,000. Which of the following is true regarding her Qualified Business Income (QBI) deduction?
I.The QBI deduction is a deduction for adjusted gross income
II.The QBI deduction is an itemized deduction
III
She is not allowed a QBI deduction because she operates a specified service business.
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Accepted Answer

The QBI deduction is a deduction from adjusted gross income, not for adjusted gross income, and it is not an itemized deduction. Elizabeth is allowed a QBI deduction even though she operates a specified service business, as her taxable income is below the threshold for phase-out.

Question 5

Which of the following taxes paid by Trevor Products, Inc. can be deducted during 2018?
I.Real estate taxes.
II.Sales tax on purchase of new equipment.
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Accepted Answer

Only statement I is correct. Real estate taxes are deductible expenses for businesses. Sales tax on the purchase of new equipment is not deductible as a regular expense, but can be added to the cost basis of the equipment and depreciated over its useful life.

Question 6

Winslow owns a residential rental property with an adjusted basis of $200,000 at the beginning of the current year. The county treasurer sends Winslow a tax bill payable by December 31. The bill is for real estate property taxes of $1,200 for the current calendar year and for a $6,000 special assessment for a new sewer line. On November 1, Winslow sells the property to Edwin for $225,000. As part of the sale contract, Winslow will pay the special assessment at closing and Edwin agrees to pay the realty taxes on the due date. What is Winslow's gain on the sale?

Accepted Answer

Winslow's gain on the sale is calculated as the selling price minus the adjusted basis and any expenses related to the sale. The selling price is $225,000, the adjusted basis is $200,000, and Winslow pays the $6,000 special assessment. Therefore, the gain is $225,000 - $200,000 - $6,000 = $19,000.

Question 7

Milroy Company earnings before interest, taxes, depreciation, depletion and amortization is $2,000,000 in 2018. Milroy's gross receipts have always exceeded $40,000,000. Milroy's interest expense is $800,000. Which of the follow is correct?

Accepted Answer

Under the Tax Cuts and Jobs Act (TCJA), businesses with gross receipts exceeding $25 million are limited in their interest expense deductions to 30% of their adjusted taxable income (in this case, EBITDA until 2022, when it changes to EBIT). For Milroy Company, 30% of $2,000,000 is $600,000, which is the deductible amount. The remaining $200,000 can be carried forward indefinitely under the TCJA provisions.

Question 8

Walter recently received a notice of an income tax deficiency of $21,000 from the IRS. He hires an attorney to handle his IRS problems. Walter's legal expenses are $4,000. Can Walter deduct the legal expenses?
I.He can deduct the full amount if the tax deficiency relates to his business.
II.He can deduct the full amount if the tax deficiency relates to rental income other than business income.
III.He can deduct the legal fees if the income tax deficiency is personal in nature.
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Accepted Answer

Legal expenses incurred for business or rental income purposes are generally deductible. However, legal fees related to personal income tax issues are not deductible.

Question 9

Which of the following legal expenses paid by the Kerr Corporation can be deducted in the current year?
I.Legal fees to resolve a tax dispute with the Internal Revenue Service.
II.Legal fees to purchase land that will be used to expand its warehouse.
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Accepted Answer

Only legal fees paid to resolve a tax dispute with the IRS are deductible in the current year as they are considered to be directly related to the production of income. Legal fees paid to purchase land are considered a capital expense and must be capitalized and depreciated over time.

Question 10

Drew incurs the following expenses in his grocery store business. Drew can deduct the following as business expenses in the current year
I.$3,750 for advertising on the web.
II.$2,000 of interest expense related to the purchase of a new delivery truck.
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Accepted Answer

Both statements are correct. Drew can deduct the $3,750 advertising expense as a business expense for the current year. He can also deduct the $2,000 interest expense on the loan he took out to finance the purchase of his new delivery truck.

Question 11

Which of the following taxes paid by the Fowlers Company can be deducted during 2018?
I.State sales tax on utilities.
II.Federal income tax paid in 2018 when filing Fowlers' 2017 corporate tax return.
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Accepted Answer

State sales tax on utilities is generally deductible as a business expense. However, federal income taxes are not deductible for corporations.

Question 12

On May 1, 2018, Linda sells her rental property for $125,000. Her basis in the property at the beginning of the year is $75,000. As part of the sales contract, the buyer agrees to pay the real property taxes of $1,500 for the current year when they come due on December 31, 2018.
I.Linda has a gain on the sale of the rental property of $50,000.
II.Linda can deduct $500 in real estate taxes.
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Accepted Answer

The answer of On May 1, 2018, Linda sells her...

Question 13

Raisor Corporation pays an annual premium of $12,000 on the whole life insurance policy on the life of Wilson, the founder and CEO of the corporation. The corporation is the beneficiary of the multi-million dollar policy.
I.The corporation can deduct the premiums.
II.If Wilson dies, the corporation will receive the policy proceeds tax-free.
III.If Wilson's wife is the beneficiary instead of the corporation, the amount of the premiums paid is a tax-free fringe benefit for Wilson.
IV.If Wilson's wife is the beneficiary instead of the corporation, the corporation can deduct the amount of premiums paid as compensation.
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Accepted Answer

Explanation:I. Incorrect because premiums paid on a life insurance policy where the payer is the beneficiary are not deductible as a business expense.II. Correct because life insurance proceeds received by the beneficiary upon the death of the insured are generally tax-free.III. Incorrect because the premiums paid on a life insurance policy for the benefit of an employee's spouse are not considered a tax-free fringe benefit for the employee.IV. Correct because if the corporation designates the premiums as compensation to Wilson (and thus indirectly to his wife as the beneficiary), and includes them in Wilson's taxable income, then the corporation can deduct the premiums as a compensation expense.

Question 14

Sidney owns a residential rental property with an adjusted basis of $200,000 at the beginning of the current year. The county treasurer sends Sidney a tax bill payable by December 31. The bill is for real estate property taxes of $1,200 for the current calendar year and for a $6,000 special assessment for a new sewer line. On November 1, Sidney sells the property to Donald for $225,000. As part of the sale contract, Sidney will pay the real estate taxes of $1,200 at closing and Donald agrees to pay the special assessment of $6,000 on the due date. What is Sidney's gain on the sale?

Accepted Answer

The answer of Sidney owns a residential rental property with...

Question 15

Gary, a sole proprietor, incurs the following expenses in his record store business. Gary can deduct the following as business expenses in the current year
I.$3,000 in legal fees to acquire a competing record store.
II.$500 to the local police chief to not write parking tickets to his customers whose time ran-out on parking meters in front of his store.
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Accepted Answer

Legal fees to acquire a business are capital expenses, not deductible as current business expenses. Payments to a police chief to avoid tickets are illegal and not deductible.

Question 16

Melissa is a corporate sales representative for Computer City. Melissa receives a monthly travel allowance from Computer City to cover her travel costs (transportation, food, lodging, etc.). If Melissa is required to account to Computer City for the use of the travel advance and to return any excess travel advance
I.Melissa will not have to show any aspect of the travel reimbursement or expenses incurred if she spends all of the reimbursement on valid travel expenses.
II.Melissa will have gross income to the extent her travel allowance used for travel expenses reimbursed.
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Accepted Answer

If Melissa spends all of the reimbursement on valid travel expenses and accounts for them, she does not have to report the reimbursement as income.

Question 17

Deductions for adjusted gross income include
I.Student loan interest.
II.Unreimbursed employee business expenses for a nonaccountable plan.
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Accepted Answer

Student loan interest is deductible for adjusted gross income, while unreimbursed employee business expenses for a nonaccountable plan are not deductible for adjusted gross income following tax law changes effective from 2018.

Question 18

Which of the following legal expenses paid by the Sutton Corporation can be deducted in the current year?
I.Legal fees to initiate a lawsuit against a competitor who is using its patent.
II.Legal fees to settle a lawsuit filed by a delivery person who slipped on the ice delivering a package to Sutton's office.
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Accepted Answer

Both legal expenses are deductible. Legal fees to protect or defend a business's legal rights, such as a patent, are deductible. Similarly, legal fees related to business operations, like settling a lawsuit from a delivery person's injury on the premises, are also deductible.

Question 19

Which of the following expenses is not deductible for AGI?

Accepted Answer

Interest expense related to an investment is deductible only as an itemized deduction on Schedule A, and is not deductible for AGI. The other expenses listed are deductible for AGI.

Question 20

During the current year, Hope Corporation paid a $3,250 premium for a life insurance policy on the life of the chief executive officer, Joel. Determine the deductibility of the $3,250.
I.Hope could deduct the premium as compensation if Joel's daughter is the stated beneficiary of the policy.
II.The premium is not deductible if Hope Corporation is the beneficiary.
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Accepted Answer

Life insurance premiums paid by a corporation on the life of an officer where the corporation is the beneficiary are not deductible. However, if the premiums are considered compensation (such as when the officer's family is the beneficiary), they may be deductible as a business expense.

Quiz 6: Business Expenses

Which of the following taxes paid by the Sill Engineering Company can be deducted during 2018? I.Federal taxes withheld from employees. II.Sill Engineering's share of employee's Social Security taxes. ​

Deductions for adjusted gross income include I.Contribution to a Roth IRA. II.Contribution to conventional IRA ​

Which of the following taxes paid by Woodhaven Inc. can be deducted during 2018? I.Special real estate tax assessment for upgrading the sewer. II.State income taxes paid in 2018 when filing Woodhaven's 2017 corporate return tax return. ​

Which of the following taxes paid by Trevor Products, Inc. can be deducted during 2018? I.Real estate taxes. II.Sales tax on purchase of new equipment. ​

Milroy Company earnings before interest, taxes, depreciation, depletion and amortization is $2,000,000 in 2018. Milroy's gross receipts have always exceeded $40,000,000. Milroy's interest expense is $800,000. Which of the follow is correct?

Which of the following legal expenses paid by the Kerr Corporation can be deducted in the current year? I.Legal fees to resolve a tax dispute with the Internal Revenue Service. II.Legal fees to purchase land that will be used to expand its warehouse. ​

Drew incurs the following expenses in his grocery store business. Drew can deduct the following as business expenses in the current year I.$3,750 for advertising on the web. II.$2,000 of interest expense related to the purchase of a new delivery truck. ​

Which of the following taxes paid by the Fowlers Company can be deducted during 2018? I.State sales tax on utilities. II.Federal income tax paid in 2018 when filing Fowlers' 2017 corporate tax return. ​

Deductions for adjusted gross income include I.Student loan interest. II.Unreimbursed employee business expenses for a nonaccountable plan. ​

Which of the following expenses is not deductible for AGI?

Which of the following taxes paid by the Sill Engineering Company can be deducted during 2018? I.Federal taxes withheld from employees. II.Sill Engineering's share of employee's Social Security taxes.

Deductions for adjusted gross income include I.Contribution to a Roth IRA. II.Contribution to conventional IRA

Which of the following taxes paid by Woodhaven Inc. can be deducted during 2018? I.Special real estate tax assessment for upgrading the sewer. II.State income taxes paid in 2018 when filing Woodhaven's 2017 corporate return tax return.

Which of the following taxes paid by Trevor Products, Inc. can be deducted during 2018? I.Real estate taxes. II.Sales tax on purchase of new equipment.

Which of the following legal expenses paid by the Kerr Corporation can be deducted in the current year? I.Legal fees to resolve a tax dispute with the Internal Revenue Service. II.Legal fees to purchase land that will be used to expand its warehouse.

Drew incurs the following expenses in his grocery store business. Drew can deduct the following as business expenses in the current year I.$3,750 for advertising on the web. II.$2,000 of interest expense related to the purchase of a new delivery truck.

Which of the following taxes paid by the Fowlers Company can be deducted during 2018? I.State sales tax on utilities. II.Federal income tax paid in 2018 when filing Fowlers' 2017 corporate tax return.

Deductions for adjusted gross income include I.Student loan interest. II.Unreimbursed employee business expenses for a nonaccountable plan.