Exam 6: Deductions and Losses: in General

Abner contributes $1,000 to the campaign of the Tea Party candidate for governor, $750 to the campaign of the Tea Party candidate for senator, and $500 to the campaign of the Tea Party candidate for mayor.Can Abner deduct these political contributions?

Briefly explain the provisions regarding the deductibility of expenditures paid for another's benefit or obligation.

Sandra sold 500 shares of Wren Corporation to Bob, her brother, for its fair market value.She had paid $26,000 for the stock.Calculate Sandra's and Bob's gain or loss under the following circumstances:

Which of the following expenses associated with the illegal sale of whiskey (i.e., bootlegging) can be deducted?

A football team that pays a star player an annual salary of $20 million can deduct the entire $20 million as salary expense.If the same amount is paid to the CEO of IBM, only $1 million is deductible.

If a residence is used primarily for personal use (rented for fewer than 15 days per year), which of the following is correct?

Brenda invested in the following stocks and bonds during 2012. To finance the investments, she borrowed $100,000 from Swan Bank.Interest expense paid on the loan during 2012 was $6,000.During 2012, Brenda received $2,400 of dividend income from Green, Inc.and $3,200 of interest income on the municipal bonds.

During the year, Jim rented his vacation home for 200 days and lived in it for 19 days. During the remaining days, the vacation home was available for rental use. Is the vacation home subject to the limitation on the deductions of a personal/rental vacation home?

Rex, a cash basis calendar year taxpayer, runs a bingo operation which is illegal under state law.During 2012, a bill designated H.R.9 is introduced into the state legislature which, if enacted, would legitimize bingo games.In 2012, Rex had the following expenses: Of these expenditures, Rex may deduct:

A hobby activity can result in all of the hobby income being included in AGI and no deductions being allowed.

A vacation home at the beach which is rented for 170 days and used personally for 16 days is classified in the personal/rental use category.

Amos, a shareholder-employee of Pigeon, Inc., receives a $400,000 salary.The IRS classifies $125,000 of this amount as unreasonable compensation.The effect of this reclassification is to decrease Amos' gross income by $125,000 and increase Pigeon's gross income by $125,000.

Benita incurred a business expense on December 10, 2012, which she charged on her bank credit card.She paid the credit card statement which included the charge on January 5, 2013.Which of the following is correct?

If an item such as property taxes and home mortgage interest exceed the income from a hobby, the excess amount of this item over the hobby income cannot be deducted if the taxpayer itemizes deductions.

Which of the following is deductible as a trade or business expense?

Albie operates an illegal drug-running business and has the following items of income and expense.What is Albie's adjusted gross income from this operation?

Cory incurred and paid the following expenses: Calculate the amount that Cory can deduct (before any percentage limitations).

How can an individual's consultation with a lawyer be classified as a deduction for AGI in some cases and a deduction from AGI in other instances?

During the year, Martin rented his vacation home for three months and spent one month there.Gross rental income from the property was $5,000.Martin incurred the following expenses: mortgage interest, $3,000; real estate taxes, $1,500; utilities, $800; maintenance, $500; and depreciation, $4,000.Compute Martin's allowable deductions for the vacation home. Since the vacation home is rented for 15 or more days and is used for personal purposes for more than the greater of (1) 14 days or (2) 10% of the rental days, the deductions are scaled down, using the court's approach, as follows: Thus, Martin may deduct $1,125 taxes and interest, $975 utilities and maintenance, and $2,900 depreciation against the gross income of $5,000.The personal portion of taxes and interest ($3,375) is deductible as an itemized deduction.Example 29

Which of the following statements is correct in connection with the investigation of a business?