Exam 22: Deductions and Losses

Anita has decided to sell a parcel of land she had been holding for investment purposes.She purchased the land 5 years ago for $10,000.The current fair market value is $6,000.Anita's sister,Kathy,is interested in buying the land as is Anita's friend,Marcia.What tax issues should Anita consider when deciding to whom the land should be sold?

Points paid to refinance a mortgage on a principal residence are fully deductible in the year paid.

Under the wash sale rule,if all of the sold shares are not repurchased within the relevant time period,a portion of the loss on the sale is allowed.

Under the accrual method,recurring liabilities may be deducted currently and paid in the next period if all of the following are present except for

A partnership is owned by three individuals.The partnership generated $15 million of gross receipts per year on average from sales of its inventory.While the inventory is a material income-producing factor,the partnership records inventories as incidental supplies in its internal accounting.For tax purposes,the partnership will not be allowed the cash method of accounting.

Adjusted gross income (AGI)is the basis for a number of phase-outs of deductions.

What must a taxpayer do to properly document a deductible travel or client business meal expense?

Which of the following is not required for an expenditure to be deductible as a business or investment expense?

In 2019 the IRS audits a company's 2017 tax return and determines that the president's salary was excessive and disallowed $100,000 of the salary deduction.Under the terms of the hedge (payback)agreement in the corporate bylaws,the president repays $100,000 of her salary to her employer in 2017.The president will amend her 2017 tax return to get a refund of the taxes paid on the excess salary.

Nikki is a single taxpayer who owns a vacation cottage on the lake.During the year,she rented it for $2,000 for 14 days,lived in it for 56 days,and left it vacant the remainder of the year.The year's expenses amounted to $5,000 interest expense,$800 property taxes,$1,500 utilities and maintenance,and $2,400 depreciation.Using the IRS method of allocating expenses,how much of the property-related expenses will be deductible for AGI?

Taxpayers may deduct lobbying expenses incurred to influence legislation if the legislation is of direct interest to the taxpayer's trade or business.

2020 Enterprises,owned by Xio who also manages the businesses,has generated more than $30 million of sales for each of the past five years.This year it is reporting the following income and deduction amounts: Sales \ 35,000,000 Cost of goods sold (22,000,000) Other operating expenses (8,000,000) Depreciation (2,000,000) Preliminary taxable income \ 3,000,000 Xio just received a statement from the bank reporting interest expense of $1,800,000 on a loan to 2020 Enterprises to fund operations and equipment purchases.How much of the interest expense can 2020 Enterprises deduct in computing this year's taxable income?

If a loss is disallowed under Section 267,a gain on a subsequent sale of the property by the related purchaser may be offset by the previously unrecognized loss.

A sole proprietor contributes to the election campaign of a state governor.The candidate has promised to change a law that severely limits the growth of the sole proprietor's business.Given the direct benefit,the sole proprietor can deduct the contribution.

Itemized deductions are deductions for AGI.

Which of the following is not required for an accrual method taxpayer to currently deduct the cost of services received?

Which of the following statements is false?

Doug,a self-employed consultant,has been a firm believer in maintaining a paperless office.Unfortunately,he recently lost all of his business records in a ransomware attack,and his backup system was also compromised.Which of the following tax doctrines and cases should Doug investigate to better understand substantiation requirements for business expenses?

Mackensie owns a condominium in the Rocky Mountains.During the year,Mackensie uses the condo a total of 23 days.The condo is also rented to tourists for a total of 77 days and generates rental income of $10,900.Mackensie incurs the following expenses in the condo: Expense Amount Mortgage interest \ 5,000 Property taxes 3,500 Utilities 2,500 Insurance 1,800 Depreciation 11,000 Using the court's method of allocating expenses and assuming a 365-day year,the amount of depreciation that Mackensie may take with respect to the rental property will be

Toni owns a gourmet dog treat shop downtown.She spends $2,800 investigating opening another dog treat shop in Northtown and an additional $3,100 investigating a new location in Southtown.Toni does open the Northtown shop,but does not open the Southtown shop.