Question 1

The income of a sole proprietorship are reported on Schedule C (Profit or Loss from Business).

Accepted Answer

A) True 
 B)False

Question 2

Trade or business expenses are classified as deductions for AGI.Section 212 expenses, barring certain exceptions, are classified as deductions from AGI.What are these exceptions?

Accepted Answer

The normal classification for § 212 expe

Question 3

Legal fees incurred in connection with a criminal defense are not deductible even if the crime is associated with a trade or business.

Accepted Answer

A) True 
 B)False

Question 4

Bruce owns several sole proprietorships.Must Bruce use the same accounting method for each of these businesses?

Accepted Answer

No. If a taxpayer owns multipl

Question 5

Fines and penalties paid for violations of the law (e.g., illegal dumping of hazardous waste) are deductible only if they relate to a trade or business.

Accepted Answer

A) True 
 B)False

Question 6

Tom operates an illegal drug-running operation and incurred the following expenses:   Which of the above amounts reduces his taxable income?

Accepted Answer

A) $0. 
B) $160,000. 
C) $279,000. 
D) $324,000. 
E) None of the above. 
A) $0. 
B) $160,000. 
C) $279,000. 
D) $324,000. 
E) None of the above.

Question 7

Investigation of a business unrelated to one's present business never results in a current period deduction of the entire amount if the amount of the investigation expenses exceeds $5,000.

Accepted Answer

A) True 
 B)False

Question 8

Which of the following is relevant in deciding whether an activity is profit-seeking or a hobby?

Accepted Answer

A) The time and effort expended. 
B) The expertise of the taxpayers or their advisers. 
C) The history of income or losses from the activity. 
D) The tax benefits of the activity to the taxpayer. 
E) All of the above factors are to be considered. 
A) The time and effort expended. 
B) The expertise of the taxpayers or their advisers. 
C) The history of income or losses from the activity. 
D) The tax benefits of the activity to the taxpayer. 
E) All of the above factors are to be considered.

Question 9

For an expense to be deducted as ordinary, it must be recurring in nature.

Accepted Answer

A) True 
 B)False

Question 10

A taxpayer who claims the standard deduction cannot also deduct expenses that are classified as deductions from AGI.

Accepted Answer

A) True 
 B)False

Question 11

Sandra owns an insurance agency.The following selected data are taken from the agency balance sheet and income statement prepared using the accrual method.
   Calculate Sandra's net profit using the cash method for 2012.

Accepted Answer

Sandra's accrual method net pr

Question 12

Walter sells land with an adjusted basis of $175,000 and a fair market value of $160,000 to his mother, Shirley, for $160,000.Walter reinvests the proceeds in the stock market.Shirley holds the land for one year and a day and sells it in the marketplace for $169,000.

Accepted Answer

The answer of Walter sells land with an adjusted basis...

Question 13

Robin and Jeff own an unincorporated hardware store.They determine their salaries at the end of the year by using the amount required to reduce the net income of the hardware store to $0.Based on this policy, Robin and Jeff each receive a total salary of $125,000.This is paid as follows: $8,000 per month and $29,000 on December 31.Determine the amount of the salary deduction.

Accepted Answer

Since the hardware store is not incorpor

Question 14

Ordinary and necessary business expenses, other than cost of goods sold, of an illegal drug trafficking business do not reduce taxable income.

Accepted Answer

A) True 
 B)False

Question 15

Terry and Jim are both involved in operating illegal businesses.Terry operates a gambling business and Jim operates a drug running business.Both businesses have gross revenues of $500,000.The businesses incur the following expenses.   Which of the following statements is correct?

Accepted Answer

A) Neither Terry nor Jim can deduct any of the above items in calculating the business profit. 
B) Terry should report profit from his business of $250,000. 
C) Jim should report profit from his business of $500,000. 
D) Jim should report profit from his business of $250,000. 
E) None of the above. 
A) Neither Terry nor Jim can deduct any of the above items in calculating the business profit. 
B) Terry should report profit from his business of $250,000. 
C) Jim should report profit from his business of $500,000. 
D) Jim should report profit from his business of $250,000. 
E) None of the above.

Question 16

Which of the following is incorrect?

Accepted Answer

A) Alimony is a deduction for AGI. 
B) The expenses associated with royalty property are a deduction from AGI. 
C) Contributions to a traditional IRA are a deduction for AGI. 
D) Property taxes on taxpayer's personal residence are a deduction from AGI 
E) All of the above are correct. 
A) Alimony is a deduction for AGI. 
B) The expenses associated with royalty property are a deduction from AGI. 
C) Contributions to a traditional IRA are a deduction for AGI. 
D) Property taxes on taxpayer's personal residence are a deduction from AGI 
E) All of the above are correct.

Question 17

Which of the following is incorrect?

Accepted Answer

A)  All salaries of a business are deductible. 
B)  To be deductible, a business expense must be both ordinary and necessary. 
C)  The income and expenses of a sole proprietorship business are reported on Schedule C. 
D)  The purchase of a building must be capitalized. 
E)  All of the above are incorrect. 
A)  All salaries of a business are deductible. 
B)  To be deductible, a business expense must be both ordinary and necessary. 
C)  The income and expenses of a sole proprietorship business are reported on Schedule C. 
D)  The purchase of a building must be capitalized. 
E)  All of the above are incorrect.

Question 18

The Code defines what constitutes a trade or business.

Accepted Answer

A) True 
 B)False

Question 19

Bobby operates a drug trafficking business.Because he has an accounting background, he keeps detailed financial records.What expenses can Bobby deduct on his Federal income tax return?

Accepted Answer

Bobby cannot deduct any of the expenses

Question 20

Two-thirds of treble damage payments under the antitrust law are deductible.

Accepted Answer

A) True 
 B)False

Exam 6: Deductions and Losses: in General

The income of a sole proprietorship are reported on Schedule C (Profit or Loss from Business).

Trade or business expenses are classified as deductions for AGI.Section 212 expenses, barring certain exceptions, are classified as deductions from AGI.What are these exceptions?

Legal fees incurred in connection with a criminal defense are not deductible even if the crime is associated with a trade or business.

Bruce owns several sole proprietorships.Must Bruce use the same accounting method for each of these businesses?

Fines and penalties paid for violations of the law (e.g., illegal dumping of hazardous waste) are deductible only if they relate to a trade or business.

Tom operates an illegal drug-running operation and incurred the following expenses: Which of the above amounts reduces his taxable income?

Investigation of a business unrelated to one's present business never results in a current period deduction of the entire amount if the amount of the investigation expenses exceeds $5,000.

Which of the following is relevant in deciding whether an activity is profit-seeking or a hobby?

For an expense to be deducted as ordinary, it must be recurring in nature.

A taxpayer who claims the standard deduction cannot also deduct expenses that are classified as deductions from AGI.

Sandra owns an insurance agency.The following selected data are taken from the agency balance sheet and income statement prepared using the accrual method. Calculate Sandra's net profit using the cash method for 2012.

Walter sells land with an adjusted basis of $175,000 and a fair market value of $160,000 to his mother, Shirley, for $160,000.Walter reinvests the proceeds in the stock market.Shirley holds the land for one year and a day and sells it in the marketplace for $169,000.

Ordinary and necessary business expenses, other than cost of goods sold, of an illegal drug trafficking business do not reduce taxable income.

Terry and Jim are both involved in operating illegal businesses.Terry operates a gambling business and Jim operates a drug running business.Both businesses have gross revenues of $500,000.The businesses incur the following expenses. Which of the following statements is correct?

Which of the following is incorrect?

Which of the following is incorrect?

The Code defines what constitutes a trade or business.

Bobby operates a drug trafficking business.Because he has an accounting background, he keeps detailed financial records.What expenses can Bobby deduct on his Federal income tax return?

Two-thirds of treble damage payments under the antitrust law are deductible.

An Introduction to Taxation and Understanding the Federal Tax Law

Working With the Tax Law

Computing the Tax

Gross Income: Concepts and Inclusions

Gross Income: Exclusions

Deductions and Losses: Certain Business Expenses and Losses

Depreciation, Cost Recovery, Amortization, and Depletion

Deductions: Employee and Self-Employed Related Expenses

Deductions and Losses: Certain Itemized Deductions

Investor Losses

Tax Credits and Payments

A: Property Transactions: Determination of Gain or Loss, Basis Considerations, and Nontaxable Exchanges-Part 1

Property Transactions: Determination of Gain or Loss, Basis Considerations, and Nontaxable Exchanges-Part 2

Property Transactions: Capital Gains and Losses, 1231, Recapture Provisions

Alternative Minimum Tax

Accounting Periods and Methods

Corporations: Introduction and Operating Rules

Corporations: Organization and Capital Structure

Corporations: Distributions Not in Complete Liquidation

Corporations: Distributions in Complete Liquidation and an Overview of Reorganizations

Partnerships

S: Corporations

Exempt Entities

Multistate Corporate Taxation

Taxation of International Transactions

Tax Practice and Ethics

Income Taxation of Trusts and Estates

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