Exam 22: Deductions and Losses

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

Itemized deductions are deductions for AGI.

Explain the rules for determining whether a home is considered a rental property or a vacation home and the tax consequences of this classification.

Toby,owner of a cupcake shop in New York,had been considering opening a similar business (i.e. ,a cupcake shop)in Phoenix.After spending $6,800 investigating such possibilities in Phoenix,Toby decided against opening the store on July 1.What is the maximum amount of deduction for the current year attributable to these expenditures?

A single taxpayer has adjusted gross income of $325,000 and has total itemized deductions in various categories totaling $20,000.The taxpayer discovers some additional deductions for AGI.The extra deductions will not affect his itemized deductions.

During the current year,Donna,a single taxpayer,reports the following items of income and expenses: Income: Compute Donna's taxable income.(Show all calculations in good form. )

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

An accrual-basis taxpayer may elect to accrue real property taxes ratably over the period to which the taxes relate.

On July 1 of the current year,Marcia purchases a new home and borrows $320,000.Marcia is required to pay two points on the loan.The loan is secured by the residence and the charging of points is an established business practice in the area.The term of the loan is 20 years,beginning on July 1 of the current year.How much,if any,of the points may Marcia deduct in the current year?

Desi Corporation incurs $5,000 in travel,market surveys,and legal expenses to investigate the feasibility of opening a new coffee house in one of the new suburban malls in town.Desi already owns a similar coffee house downtown. a.What is the proper tax treatment of these expenses if Desi decides not to open the new coffee house? b.What is the proper tax treatment of these expenses if Desi decides to open the new coffee house? c.Assume that Desi Corp is currently in the cleaning services business and incurs the noted expenses because it is considering opening a coffee house.Reconsider your responses to parts a and b.

Generally,Section 267 requires that the deduction of unpaid (accrued)expenses be deferred until the year in which the related payee recognizes the amount as income.

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

American Healthcare (AH),an insurance company,is trying to persuade Congress to enact nationwide anti-smoking legislation.As part of this effort,AH paid $500,000 to hire a lobbying firm to discuss its concerns with members of Congress.AH also contributed $100,000 to candidates for political office who support limiting public smoking.What amount of these expenditures can AH deduct?

Brienne sells land to her brother,Abe,at a loss.A few years later,Abe sells the land to an unrelated party for a substantial gain.Brienne can recognize her realized loss on the land when Abe sells the land to an unrelated party.

Discuss when expenses are deductible under the accrual method of accounting.

Juanita knits blankets as a hobby and sells them.In the current year,she earns $5,000 from her blanket sales and incurs expenses of $600.Juanita does not itemize deductions.On her tax return,she should

Diane,a successful accountant with an annual income of $150,000,also enjoys raising and training race horses,an activity in which she spends about 10 hours per week.Over the past five years her winnings from races have amounted to $20,000.She employs neighborhood children to feed the horses but has a professional trainer who works with the horses about 5 hours per week.Discuss some of the factors that might enter into the determination of whether or not this activity is a hobby or a trade/business.

Efrain owns 1,000 shares of RJ Inc.common stock which he purchased three years ago for $36,000.Efrain sells the 1,000 shares on October 15,2017,for $10,000.On November 12,he purchases 400 shares of RJ Inc.preferred stock for $8,000.Efrain's recognized loss on the sale of the 1,000 shares will be

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

If an activity produces a profit for at least two years during a consecutive five-year period,the burden of proof shifts to the IRS to show that the activity is not profit-motivated.