Question 1

To be tax deductible by an accrual-basis taxpayer,an expense must be all of the following except

Accepted Answer

A) ordinary and necessary. 
B) paid in cash. 
C) reasonable in amount. 
D) an expense of the taxpayer. 
A) ordinary and necessary. 
B) paid in cash. 
C) reasonable in amount. 
D) an expense of the taxpayer.

Question 2

A deduction will be allowed for an expenditure unless the Internal Revenue Code specifically disallows it.

Accepted Answer

A) True 
 B)False

Question 3

During the current year,Martin purchases undeveloped land as an investment.Martin intends to rent the land as pastureland and hopefully sell it later for a profit.In the current year,Martin receives no rent but he does pay taxes of $2,800,mortgage interest of $900 and liability insurance of $500.How much of these expenses can Martin deduct (before any limitations)on his current tax return?

Accepted Answer

A) $0 
B) $1,400 
C) $3,700 
D) $4,200 
A) $0 
B) $1,400 
C) $3,700 
D) $4,200

Question 4

For the years 2013 through 2017 (inclusive)Max,a surgeon,has been involved in bowling competitions.Only in 2016 and 2017 did his revenue exceed the expenses from the activity.Which statement is correct?

Accepted Answer

A) The activity is a business.The IRS cannot prove it is a hobby. 
B) The activity is a hobby.Max cannot prove it is a business. 
C) The activity is presumed to be a business.However,the IRS may prove it is a hobby. 
D) The activity is presumed to be a hobby.However,Max may prove it is a business. 
A) The activity is a business.The IRS cannot prove it is a hobby. 
B) The activity is a hobby.Max cannot prove it is a business. 
C) The activity is presumed to be a business.However,the IRS may prove it is a hobby. 
D) The activity is presumed to be a hobby.However,Max may prove it is a business.

Question 5

Business investigation expenses incurred by a taxpayer who is already involved in a similar business and who enters the new business are deductible currently.

Accepted Answer

A) True 
 B)False

Question 6

Tess has started a new part-time business.She is concerned that the IRS will call it a hobby if her return is audited.This first year of business showed a small profit,and she expects it to continue to show modest profits.She would like to take advantage of the three out of five year profit rule to shift the burden of proof to the IRS.Because of the three-year statute of limitations,this will not be possible for the first year of business.

Accepted Answer

A) True 
 B)False

Question 7

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.

Accepted Answer

A) Toni must capitalize and amortize the Northtown investigation costs,but can immediately deduct the Southtown investigation costs. 
B) Toni must capitalize and amortize the Northtown investigation costs,but the Southtown investigation costs are not deductible at all. 
C) Both the Northtown and the Southtown investigation costs must be capitalized and amortized. 
D) Both the Northtown and the Southtown investigation costs are currently deductible. 
A) Toni must capitalize and amortize the Northtown investigation costs,but can immediately deduct the Southtown investigation costs. 
B) Toni must capitalize and amortize the Northtown investigation costs,but the Southtown investigation costs are not deductible at all. 
C) Both the Northtown and the Southtown investigation costs must be capitalized and amortized. 
D) Both the Northtown and the Southtown investigation costs are currently deductible.

Question 8

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

Accepted Answer

A) the time and place of the dinners. 
B) the business relationship with the person invited. 
C) the business purpose of the dinners. 
D) All of the above information must be substantiated in order to deduct the entertainment costs. 
A) the time and place of the dinners. 
B) the business relationship with the person invited. 
C) the business purpose of the dinners. 
D) All of the above information must be substantiated in order to deduct the entertainment costs.

Question 9

Expenses attributable to the rental use of a taxpayer's personal residence are limited to the gross income generated by the property.

Accepted Answer

A) True 
 B)False

Question 10

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

Accepted Answer

A) True 
 B)False

Question 11

Mickey has a rare blood type and sells his blood for payment on a regular basis.In order to maintain the quality of his blood,Mickey takes expensive vitamins and nutritional supplements.What tax issues should Mickey consider?

Accepted Answer

Does the sale of blood constit

Question 12

A small business uses the accrual method of accounting for its financial statements.It must also use the accrual method for computing taxable income.

Accepted Answer

A) True 
 B)False

Question 13

Discuss tax planning considerations which a taxpayer may use to possibly avoid classification of an activity as a hobby.

Accepted Answer

1.Accelerate income so that profitable o

Question 14

Carole owns 75% of Pet Foods,Inc.As CEO,Carole must travel extensively and does so on the company jet.In addition,she also uses the jet to take several personal vacations.Carole reports the value of the personal use of the jet,$40,000,as additional compensation.Which of the following is true in terms of the corporation?

Accepted Answer

A) The corporation includes $40,000 as miscellaneous income. 
B) The $40,000 has no impact on the corporation's income tax. 
C) The corporation takes a deduction of $40,000 for compensation expense. 
D) The corporation takes a deduction of $40,000 for dividend expense. 
A) The corporation includes $40,000 as miscellaneous income. 
B) The $40,000 has no impact on the corporation's income tax. 
C) The corporation takes a deduction of $40,000 for compensation expense. 
D) The corporation takes a deduction of $40,000 for dividend expense.

Question 15

Generally,deductions for adjusted gross income on an individual's tax return include all the following types of expenses except those

Accepted Answer

A) incurred in gambling activities. 
B) incurred in a trade or business. 
C) incurred in the production of rent income. 
D) incurred in the production of royalty income. 
A) incurred in gambling activities. 
B) incurred in a trade or business. 
C) incurred in the production of rent income. 
D) incurred in the production of royalty income.

Question 16

Tory considered opening a cupcake store in Denver.Tory is currently a full-time dentist.After spending $8,600 on a market study,he decided against opening the store on August 1.What is the maximum amount of deduction for the current year attributable to this expenditure?

Accepted Answer

A) $0 
B) $5,000 
C) $5,600 
D) $6,800 
A) $0 
B) $5,000 
C) $5,600 
D) $6,800

Question 17

Expenses paid with a credit card are deductible at the time a cash-basis taxpayer pays for the charge.

Accepted Answer

A) True 
 B)False

Question 18

Leigh pays the following legal and accounting fees during the year:   What is the total amount of her for AGI deduction for these fees?

Accepted Answer

A) $10,800 
B) $14,000 
C) $15,000 
D) $20,000 
A) $10,800 
B) $14,000 
C) $15,000 
D) $20,000

Question 19

Losses on sales of property between a taxpayer and his/her siblings are disallowed.

Accepted Answer

A) True 
 B)False

Question 20

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.

Accepted Answer

A) True 
 B)False

Exam 22: Deductions and Losses

To be tax deductible by an accrual-basis taxpayer,an expense must be all of the following except

A deduction will be allowed for an expenditure unless the Internal Revenue Code specifically disallows it.

For the years 2013 through 2017 (inclusive)Max,a surgeon,has been involved in bowling competitions.Only in 2016 and 2017 did his revenue exceed the expenses from the activity.Which statement is correct?

Business investigation expenses incurred by a taxpayer who is already involved in a similar business and who enters the new business are deductible currently.

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.

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

Expenses attributable to the rental use of a taxpayer's personal residence are limited to the gross income generated by the property.

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

Mickey has a rare blood type and sells his blood for payment on a regular basis.In order to maintain the quality of his blood,Mickey takes expensive vitamins and nutritional supplements.What tax issues should Mickey consider?

A small business uses the accrual method of accounting for its financial statements.It must also use the accrual method for computing taxable income.

Discuss tax planning considerations which a taxpayer may use to possibly avoid classification of an activity as a hobby.

Generally,deductions for adjusted gross income on an individual's tax return include all the following types of expenses except those

Tory considered opening a cupcake store in Denver.Tory is currently a full-time dentist.After spending $8,600 on a market study,he decided against opening the store on August 1.What is the maximum amount of deduction for the current year attributable to this expenditure?

Expenses paid with a credit card are deductible at the time a cash-basis taxpayer pays for the charge.

Leigh pays the following legal and accounting fees during the year: What is the total amount of her for AGI deduction for these fees?

Losses on sales of property between a taxpayer and his/her siblings are disallowed.

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.

Tax Research

Corporate Formations and Capital Structure

the Corporate Income Tax

Corporate Nonliquidating Distributions

Other Corporate Tax Levies

Corporate Liquidating Distributions

Corporate Acquisitions and Reorganizations

Consolidated Tax Returns

Partnership Formation and Operation

Special Partnership Issues

S Corporations

The Gift Tax

The Estate Tax

Income Taxation of Trusts and Estates

Administrative Procedures

Ustaxation of Foreign-Related Transactions

An Introduction to Taxation

Determination of Tax

Gross Income: Inclusions

Gross Income: Exclusions

Property Transactions: Capital Gains and Losses

Itemized Deductions

Losses and Bad Debts

Employee Expenses and Deferred Compensation

Depreciation, cost Recovery, amortization, and Depletion

Accounting Periods and Methods

Property Transactions: Nontaxable Exchanges

Property Transactions: Sec1231 and Recapture

Special Tax Computation Methods, tax Credits, and Payment of Tax

Tax Research

Corporations

Partnerships and S Corporations

Taxes and Investment Planning

Filters