Exam 6: Deductions and Losses

Hobby expenses are deductible as for AGI deductions.

Eugene,a hardware store owner in Detroit,incurs $7,000 in an attempt to influence the Detroit City Council on the matter of a new tax assessment on hardware stores in Detroit.Explain what amount Eugene can deduct.

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?

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?

Kaitlyn owns a hotel in Phoenix,Arizona.The city of Phoenix has proposed legislation to increase the hotel room tax.Kaitlyn incurs $1,000 of lobbying expenses to discourage passage of the legislation.Kaitlyn can deduct the $1,000.

Kyle drives a race car in his spare time and on weekends.His records regarding this activity reflect the following information for the year. What is the allowable deduction (before any AGI limitation) for depreciation assuming that this activity is not engaged in for profit and Kyle can itemize his deductions?

Deductions for adjusted gross income include all of the following except

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

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.

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.

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

During the current year,Jack personally uses his summer home for 25 days.He also rented his summer home to a group of vacationers for 12 days for $600 per day.How much income does Jack report from the rental of his summer home?

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 cases should Doug investigate to better understand substantiation requirements for business expenses?

Emeril borrows $340,000 to finance taxable and tax-exempt investments.He incurs $18,000 investment interest expense,allocated equally between the taxable and tax-exempt investments.Ignore any possible investment interest expense limitation.How much of the interest expense is deductible,and where is it deductible?

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?

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

Sheila sells stock,which has a basis of $12,000,to her daughter for $7,000,the stock's fair market value.Subsequently,the daughter sells the stock to an unrelated party for $5,000.Which of the following is true for Sheila and her daughter?

A taxpayer opens a new business this year.Prior to opening,she incurred $45,000 of business investigation and preopening costs.The taxpayer can elect to currently deduct $5,000 and amortize the balance over 180 months.

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

Vanessa owns a houseboat on Lake Las Vegas that she personally uses for 25 days out of the year and rents for 280 days.For tax purposes,the houseboat is classified as