Exam 22: Deductions and Losses

Jason sells stock with an adjusted basis of $66,000 to JJ Inc. ,his 60% owned corporation,for its fair market value of $60,000.JJ Inc.sells the stock three years later for $67,000.JJ Inc.'s recognized gain or loss on the sale will be

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

Mark and his brother,Rick,each own farms.Rick is experiencing severe financial difficulties and cannot afford to buy feed for his cattle.Mark purchases $2,000 of feed and gives Rick one-half of the feed.Mark tells Rick that there is no need to repay him and to consider the feed a gift.Which of the following statements is true?

If property that qualifies as a taxpayer's residence is rented for less than 15 days per year,the taxpayer includes no rental income in gross income and similarly may claim no expenses related to the property other than interest and taxes.

Abigail's hobby is sculpting.During the current year,Abigail sold three of her sculptures for a total of $3,200.Her related expenses include $1,500 in utilities,$1,200 in supplies and $900 in depreciation.Of the total expenses incurred,Abigail may deduct

On August 1 of this year,Sharon,a cash-method taxpayer,signs a lease for office space and begins business.The lease is for 3 years.At the time the lease is signed,Sharon pays the $12,600 rent for the entire 36-month lease term.How much can Sharon deduct this year?

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?

On Form 1040,deductions for adjusted gross income include the amounts paid for all of the following except

Generally,expenses incurred in an investment activity other than those incurred to produce rent and royalties are deductions from AGI.

During the current year,Lucy,who has a sole proprietorship,pays legal and accounting fees for the following: What amount is deductible for AGI?

In which of the following situations are points paid on a home mortgage loan not deductible in the year of payment?

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 entertainment expense?

Pamela was an officer in Green Restaurant which subsequently went bankrupt.Pamela started a new restaurant and,to establish goodwill,paid off the debts of $100,000 of Green Restaurant.She was under no obligation to do so.The $100,000 is

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

Interest expense on debt incurred to purchase or carry tax-exempt securities is not tax deductible.

Lindsey Forbes,a detective who is single,operates a small pottery activity on a part-time basis.This year she reported the following income and expenses from this activity: In addition,she had salary of $70,000 and itemized deductions,not including expenses listed above,of $6,800. a.What is the amount of Lindsey's taxable income assuming the activity is classified as a hobby? b.What is the amount of Lindsey's taxable income assuming the activity is classified as a trade or business?

RollerQueens Inc. ,a calendar-year accrual method taxpayer,enters into a contract each September with a cleaning service to clean the arena after each game during the team's October through March season.Under the criteria of the economic performance test,the RollerQueens Inc.'s deduction for cleaning expense

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

During the current year,Paul,a single taxpayer,reported the following items: Compute Paul's taxable income for the year.