Exam 22: Deductions and Losses

During the current year,the United States files criminal and civil actions against Joe,the CEO of Box Corporation,and Jane,the president of Cable Corporation,for price fixing.Both enter pleas of no contest and appropriate judgments are entered.Subsequent to this action,Square Corporation sues both Box and Cable for treble damages of $6,000,000.In settlement,Box and Cable each pay Square $1,200,000.What is the maximum amount that Box and Cable may each deduct?

According to the tax formula,individuals can deduct the greater of for AGI deductions or from AGI deductions.

Jimmy owns a trucking business.During the current year he incurred the following: Gasoline and oil \ 100,000 Maintenance \ 15,000 Fines for speeding \ 8,000 Bribes to government inspection officials \ 21,000 The fines for speeding were a necessary cost because missing deadlines would cause lost business and are ordinary in the industry.What is the total amount of deductible expenses?

Three years ago,Myriah refinanced her home mortgage and was required to pay two points on the refinanced loan.The loan was secured by the property,and the charging of points was the established lending practice in the area.The term of the loan was 20 years.Myriah sold the house earlier this year and paid off the refinanced mortgage.In this year of the home sale,is Myriah allowed any deduction with respect to the points paid on the refinanced mortgage?

Juanita knits blankets as a hobby and occasionally sells them.In the current year,she earns $5,000 from her blanket sales and incurs expenses of $600.On her tax return,she should

Riva works at a full-time job,but also restores her antique doll collection and sells them on eBay.She received $10,000 of sales revenue and paid $12,000 of supplies expense.A number of factors must be weighed to determine the appropriate classification of the activity.Depending on that classification,the net effect on her taxable income will be

Accrual-basis taxpayers are allowed to deduct expenses when they meet either the economic performance test or the all-events test.

Fees paid to prepare a taxpayer's Schedule C of the tax return (Profit or Loss from Business)are for AGI deductions.

Gabby owns and operates a part-time art gallery,now in its fifth year.She views it as a business activity,but she is concerned that the IRS will challenge her classification and consider it a hobby.Her business results,using the cash method of accounting,were net losses in the first and fourth years and small profits in the second and third years.It is now almost year-end and based on projections,the business is showing a small profit of $6,000.Repairs to the security system and to the heating/cooling system were recently completed and these bills total $7,000.When should Gabby pay these bills?

Individuals are generally allowed to deduct the greater of the standard deduction or itemized deductions.

Which of the following individuals is not considered a relative for purposes of the related parties loss disallowance rules under Sec.267?

In March of the current year,Marcus began investigating the possibility of opening a specialty clothing store.From March through June,he spent $2,300 on a market survey,$2,700 in consulting fees to find the best location and $3,600 in professional fees setting up an accounting and inventory system.Although he had never run his own business before,on August 1 he opened his doors for business.What is the maximum amount of deduction for the current year attributable to these expenditures?

Laura,the controlling shareholder and an employee of Southtown Corporation,receives an annual salary of $750,000.Based on several factors including the size of the corporation's operations and a comparison of salary received by officers of comparably sized corporations,the IRS contends that Laura's salary should be no higher than $600,000.The Court upheld the IRS's position.As a result,which of the following is true?

Self-employed individuals may claim,as a deduction for adjusted gross income,50 percent of their

Bart owns 100% of the stock of Octo Corporation,which uses the accrual method.Bart's sister Samantha,a cash method taxpayer,did some advertising work for Octo in November 2019.In December,Octo received a billing statement from Samantha for $5,000 and paid Samantha the $5,000 in January 2020.Samantha is a calendar-year taxpayer.When may Octo deduct the $5,000?

The vacation home limitations of Section 280A may also apply to boats and mobile homes.

Paul,a business consultant,regularly takes clients and potential clients out to dinner.In order to deduct these expenses,Paul must maintain records substantiating all of the following except

The term "principal place of business" includes a home office used by a taxpayer for administrative or management activities of the business if no fixed location exists where the taxpayer conducts these activities.

Kelsey enjoys making cupcakes as a hobby and occasionally sells them for parties.Kelsey receives $1,000 in revenues from cupcake sales this year and pays $1,300 for supplies.Kelsey takes the standard deduction each year.The net effect of the cupcake activity on Kelsey's taxable income is

FIFO Corporation,a public-traded corporation,pays its CFO a basic salary of $900,000 and a $500,000 bonus awarded for exceptional service.Her compensation package is considered reasonable compensation when compared to other similar corporations and her level of responsibilities.FIFO can deduct