Question 1

Legal expenses are generally deductible if they have a business purpose; they are generally not deductible if they originate from a personal transaction.

Accepted Answer

A) True 
 B)False

Question 2

Julie travels to Mobile to meet with a client. While in Mobile, she spends 4 days meeting with the client and one-day sightseeing. Her husband Harry goes with her and spends all 5 days sightseeing and playing golf. The cost of the trip is as follows:
?
$\begin{array}{ll}
\text { Airfare } & \$ 540 \text { for each person. } \
\text { Lodging at hotel } & \$ 150 / \text { day (Single Occupancy Rate }=\$ 125 \text { ). } \
\text { Meals } & \$ 75 / \text { day for each person. } \
\text { Incidental expenses } & \$ 20 / \text { day for Julie. } \$ 15 / \text { day for Harry. }
\end{array}$
If Julie is self-employed, what is the amount of the deduction she may claim for the trip?

Accepted Answer

A) $730 
B) $1,270 
C) $1,370 
D) $1,420 
E) $1,520 
A) $730 
B) $1,270 
C) $1,370 
D) $1,420 
E) $1,520

Question 3

Arlene, a criminal defense attorney inherits $500,000 from her grandmother. Unsure of how to invest the money, Arlene attends a three-day investment seminar in New York. Arlene attends all the sessions and receives a certificate for successfully completing the seminar. Her expenses to attend the seminar are as follows:
What amount may she deduct as travel expenses for the seminar?
$$\begin{array} { l r } 
\text { Airfare } & \$ 450 \
\text { Hotel daily rate } & 110 \
\text { Meals } @\$ 40 \text { per day } & 40 \
\text { Incidentals }@ \$ 15 \text { per day } & 15 \
\text { Entertainment } & 140
\end{array}$$

Accepted Answer

A) $- 0 - 
B) $780 
C) $825 
D) $885 
E) $955 
A) $- 0 - 
B) $780 
C) $825 
D) $885 
E) $955

Question 4

For each of the following situations, determine whether the item is deductible, how it would be deducted on the taxpayer's return (if there are alternatives possible, discuss the conditions that would determine the treatment) and any limitations, which might be placed on the deduction.
a.Tony and Rika are married and file a joint return. Only Tony is covered by an employee-sponsored pension plan and their adjusted gross income is $189,000. Determine their maximum IRA contribution and deduction for the current year.
b.Elise graduated from Southern University in May of 2017 and immediately started working as a financial analyst for Simone Financial Group. To finance her college education, she borrowed $30,000 from a local bank. In January of 2018, she begins paying back her student loans and pays $2,400 of interest expense during the year. Her adjusted gross income for the year is $63,000.
c.During the current year, Rowland accepts a job as a computer programmer with Davenport Industries. He incurs the following expenses in moving from East Brunswick, New Jersey to Durham, North Carolina. Davenport Industries reimburses him $4,000 for his move.

Accepted Answer

?
 a. Both Tony and Rika are allowed to

Question 5

Business and nonbusiness bad debts are both deductible as a short-term capital loss.

Accepted Answer

A) True 
 B)False

Question 6

For each of the following situations explain why the expenditure is or is not deductible and any limitations that may be placed on the amount of the deduction.
a.Akira is self-employed as a personal financial planner. He went out-of-town for two days to visit three of his best clients and incurs the following expenses:
$\begin{array} { l r } 
\text { Airfare } & \$ 350 \
\text { Rental car } & 160 \
\text { Lodging } & 240 \
\text { Incidentals } & 90 \
\text { Meals } & 220 \
\text { Entertainment } & 130
\end{array}$

b.Woodrow is President and CEO of ISPEP, a closely held corporation with assets of $20,000,000. Woodrow, who owns 60% of the company, decides to hire his twin daughters who have just completed their freshman year at Aztec State to work in the promotions department of the company. His daughters will be paid $5,000 each for the summer. Other college students who are hired for the summer to perform similar tasks will be paid $4,000.
c.Felix is a Realtor. To show his appreciation, he gives each client who buys a home from him a $75 wall clock. During the year Felix gives 64 clocks to his clients.
d.Sandy sues Harrison for divorce. Originally, Sandy asks for one-half of all their assets, including 50% of Harrison's car dealership. Harrison's lawyer has worked out a compromise with Sandy and her attorney that allows Harrison to retain 100% ownership of the dealership. Harrison pays his lawyer $10,000 in legal fees.

Accepted Answer

a. Akira can deduct the full cost of the

Question 7

A taxpayer may use either the actual cost method or the standard mileage rate for deducting auto expenses.

Accepted Answer

A) True 
 B)False

Question 8

Amanda is the president and 60% owner of ANR, a closely held corporation. During the year, she is paid a salary of $650,000. Her salary is 40% higher than that for executives of comparably sized companies in the industry. ANR has experienced 4 straight years of increased sales growth, at 3% per year, while other companies in the industry have experienced decreasing or level sales. Discuss what factors are used to determine whether Amanda's salary represents reasonable compensation.

Accepted Answer

In determining whether Amanda's salary i

Question 9

Jerry recently graduates with an MBA degree from a leading university and will be going to work as an employee of a major stock brokerage firm. Jerry is unsure of the circumstances under which he can legitimately deduct the costs of entertaining and dining with clients and prospective clients. Jerry will spend approximately $5,000 a year on such activities for which he will not be reimbursed. It is important that he be able to derive tax benefit for these costs. Advise Jerry of the general rules in this area of the tax law. Include a brief discussion of substantiation requirements for such business expenses.

Accepted Answer

To be deductible, meal and entertainment

Question 10

Sidney owns a residential rental property with an adjusted basis of $200,000 at the beginning of the current year. The county treasurer sends Sidney a tax bill payable by December 31. The bill is for real estate property taxes of $1,200 for the current calendar year and for a $6,000 special assessment for a new sewer line. On November 1, Sidney sells the property to Donald for $225,000. As part of the sale contract, Sidney will pay the real estate taxes of $1,200 at closing and Donald agrees to pay the special assessment of $6,000 on the due date. What is Sidney's gain on the sale?

Accepted Answer

A) $19,800 
B) $20,000 
C) $24,800 
D) $29,800 
E) $30,800 
A) $19,800 
B) $20,000 
C) $24,800 
D) $29,800 
E) $30,800

Question 11

Natasha is an employee of The Johnson Company. She incurs a total of $7,500 in business expenses as follows:
?
$$\begin{array} { l r } 
\text { Lodging } & \$ 2,500 \
\text { Transportation (no commuting) } & 3,500 \
\text { Dues and subscriptions } & 1,500
\end{array}$$
Natasha receives reimbursement of $5,600 after an adequate accounting to her employer. Natasha's itemized deductions before any limitations would be:

Accepted Answer

A) $- 0 - 
B) $1,500 
C) $1,900 
D) $5,600 
E) $7,500 
A) $- 0 - 
B) $1,500 
C) $1,900 
D) $5,600 
E) $7,500

Question 12

Dan and Dawn are married and file a joint return. During the current year, Dan had a salary of $30,000 and Dawn had a salary of $36,000. Both Dan and Dawn are covered by an employer-sponsored pension plan. Their adjusted gross income for the year is $100,000. Determine the maximum IRA contribution and deduction amounts.
?
$\begin{array} { c c } 
\text { Maximum }&\text { Maximum } \
\text { Contribution }&\text { Deduction }
\end{array} $
A)$\begin{array} { c c } \$ 11,000 &&&& \$11,000 \\end{array}$
B)$\begin{array} { c c } \$ 11,000 &&&& \$-0- \\end{array}$
C)$\begin{array} { c c }  \$11,000 &&&& \$ 5,500 \\end{array}$
D)$\begin{array} { c c }  \$ 5,500 &&&& \$ -0-\\end{array}$
E)$\begin{array} { c c }\$ 8,000 &&&& \$ 8,000
\end{array}$

Accepted Answer

The answer of Dan and Dawn are married and file...

Question 13

For each of the following situations, determine whether the expenses are deductible as an education expense. Explain.
a.Marvin owns a real estate development firm and his adjusted gross income is $60,000. He enrolls as a part-time student at Northern College. His primary motivation for taking the classes is to obtain a greater understanding of the accounting issues associated with his real estate development business. He also believes that he can save 25% of the amount he pays in accounting expenses. The cost of the 2 courses he enrolls in is $900.
b.Nancy is employed as a computer manager for a data processing company and her adjusted gross income is $90,000. She enrolls in a night course ($225) at the local college. The course is not required by her employer, but does improve her job skills.
c.Janine is a recent graduate of Western University and has been hired by a local accounting firm. The firm expects Janine to pass the CPA exam on her initial attempt. To help her prepare for the CPA exam, she takes the Booker CPA Review Course that costs $1,500.
d.Cam runs a licensed day-care center. To maintain his license he is required to attend a minimum of 30 hours a year of continuing education. During the year, Cam attends 40 hours of continuing education seminars at a cost of $1,500.

Accepted Answer

a. The education expenses will help Marv

Question 14

During 2017, Wan-Ying, a lawyer, made a bona fide $5,750 loan to her friend Bill when he was in a time of need. Bill died in 2018. Wan-Ying has been informed by Bill's estate that he was insolvent. What is her deduction ton her 2018 tax return (she has no other capital transactions)?

Accepted Answer

A) $- 0 - 
B) $1,500 
C) $3,000 
D) $3,500 
E) $5,750 
A) $- 0 - 
B) $1,500 
C) $3,000 
D) $3,500 
E) $5,750

Question 15

Walker, an employee of Lakeview Corporation, drives his automobile 18,000 business miles during 2018. He pays tolls of $145 while traveling on business. What amount can Walker deduct as unreimbursed transportation expenses?

Accepted Answer

A) $0 
B) $9,810 for AGI. 
C) $9,955 for AGI. 
D) $9,955 from AGI. 
A) $0 
B) $9,810 for AGI. 
C) $9,955 for AGI. 
D) $9,955 from AGI.

Question 16

Ernest went to Boston to negotiate several new contracts with clients. His airfare was $400 and he spent $150 per day on lodging, $40 per day on meals, and a total of $60 on cab fare.
I.If Ernest spends 2 days on business and 3 days on personal activities, he can deduct $160 of his airfare.
II.If Ernest spends 3 days on business and 2 days on personal activities, he can deduct $120 of the meal costs.
​

Accepted Answer

A) Only statement I is correct. 
B) Only statement II is correct. 
C) Both statements are correct. 
D) Neither statement is correct. 
A) Only statement I is correct. 
B) Only statement II is correct. 
C) Both statements are correct. 
D) Neither statement is correct.

Question 17

Milroy Company earnings before interest, taxes, depreciation, depletion and amortization is $2,000,000 in 2018. Milroy's gross receipts have always exceeded $40,000,000. Milroy's interest expense is $800,000. Which of the follow is correct?

Accepted Answer

A) Milroy can deduct $800,000 of interest expense. 
B) Milroy can deduct $600,000 of interest expense and can carry forward the remaining $200,000 indefinitely. 
C) Milroy can deduct $600,000 of interest expense and the remaining $200,000 can not be carried forward 
D) Milroy can deduct $600,000 of interest expense and can carry back the remaining $200,0003 years.. 
E) Milroy cannot deduct any interest expense. 
A) Milroy can deduct $800,000 of interest expense. 
B) Milroy can deduct $600,000 of interest expense and can carry forward the remaining $200,000 indefinitely. 
C) Milroy can deduct $600,000 of interest expense and the remaining $200,000 can not be carried forward 
D) Milroy can deduct $600,000 of interest expense and can carry back the remaining $200,0003 years.. 
E) Milroy cannot deduct any interest expense.

Question 18

To be deductible, employee compensation must be for services actually performed by the employee and the amount must be reasonable.

Accepted Answer

A) True 
 B)False

Question 19

Which of the following is (are) correct concerning the deduction for moving expenses?
I.Prior to 2018, certain moving expenses were deductible for adjusted gross income.
II.After 2017, certain moving expenses are deductible from adjusted gross income..
​

Accepted Answer

A) Only statement I is correct. 
B) Only statement II is correct. 
C) Both statements are correct. 
D) Neither statement is correct. 
A) Only statement I is correct. 
B) Only statement II is correct. 
C) Both statements are correct. 
D) Neither statement is correct.

Question 20

Safina, a single taxpayer with adjusted gross income of $100,000, works is a self-employed engineer. Safina incurs $8,000 of education expenses (tuition and books) and can deduct the $8,000 education expense
I.If the course improves her skills as an engineer but does not qualify her for a new trade or business.
II.Is not a deduction for adjusted gross income.
​

Accepted Answer

A) Only statement I is correct. 
B) Only statement II is correct. 
C) Both statements are correct. 
D) Neither statement is correct. 
A) Only statement I is correct. 
B) Only statement II is correct. 
C) Both statements are correct. 
D) Neither statement is correct.

Legal expenses are generally deductible if they have a business purpose; they are generally not deductible if they originate from a personal transaction.

Business and nonbusiness bad debts are both deductible as a short-term capital loss.

A taxpayer may use either the actual cost method or the standard mileage rate for deducting auto expenses.

During 2017, Wan-Ying, a lawyer, made a bona fide $5,750 loan to her friend Bill when he was in a time of need. Bill died in 2018. Wan-Ying has been informed by Bill's estate that he was insolvent. What is her deduction ton her 2018 tax return (she has no other capital transactions)?

Walker, an employee of Lakeview Corporation, drives his automobile 18,000 business miles during 2018. He pays tolls of $145 while traveling on business. What amount can Walker deduct as unreimbursed transportation expenses?

Milroy Company earnings before interest, taxes, depreciation, depletion and amortization is $2,000,000 in 2018. Milroy's gross receipts have always exceeded $40,000,000. Milroy's interest expense is $800,000. Which of the follow is correct?

To be deductible, employee compensation must be for services actually performed by the employee and the amount must be reasonable.

Which of the following is (are) correct concerning the deduction for moving expenses? I.Prior to 2018, certain moving expenses were deductible for adjusted gross income. II.After 2017, certain moving expenses are deductible from adjusted gross income..

Federal Income Taxation-An Overview

Income Tax Concepts

Income Sources

Income Exclusions

Introduction to Business Expenses

Losses-Deductions and Limitations

Taxation of Individuals

Acquisitions of Property

Cost Recovery on Property: Depreciation, Depletion, and Amortization

Property Dispositions

Non-Recognition Transactions

Choice of Business Entity-General Tax and Nontax Factorsformation

Choice of Business Entity-Operations and Distributions

Choice of Business Entity-Other Considerations

Tax Research

Filters

Exam 6: Business Expenses

Legal expenses are generally deductible if they have a business purpose; they are generally not deductible if they originate from a personal transaction.

Business and nonbusiness bad debts are both deductible as a short-term capital loss.

A taxpayer may use either the actual cost method or the standard mileage rate for deducting auto expenses.

During 2017, Wan-Ying, a lawyer, made a bona fide $5,750 loan to her friend Bill when he was in a time of need. Bill died in 2018. Wan-Ying has been informed by Bill's estate that he was insolvent. What is her deduction ton her 2018 tax return (she has no other capital transactions)?

Walker, an employee of Lakeview Corporation, drives his automobile 18,000 business miles during 2018. He pays tolls of $145 while traveling on business. What amount can Walker deduct as unreimbursed transportation expenses?

Milroy Company earnings before interest, taxes, depreciation, depletion and amortization is $2,000,000 in 2018. Milroy's gross receipts have always exceeded $40,000,000. Milroy's interest expense is $800,000. Which of the follow is correct?

To be deductible, employee compensation must be for services actually performed by the employee and the amount must be reasonable.

Which of the following is (are) correct concerning the deduction for moving expenses? I.Prior to 2018, certain moving expenses were deductible for adjusted gross income. II.After 2017, certain moving expenses are deductible from adjusted gross income.. ​

Federal Income Taxation-An Overview

Income Tax Concepts

Income Sources

Income Exclusions

Introduction to Business Expenses

Losses-Deductions and Limitations

Taxation of Individuals

Acquisitions of Property

Cost Recovery on Property: Depreciation, Depletion, and Amortization

Property Dispositions

Non-Recognition Transactions

Choice of Business Entity-General Tax and Nontax Factorsformation

Choice of Business Entity-Operations and Distributions

Choice of Business Entity-Other Considerations

Tax Research

Filters

Which of the following is (are) correct concerning the deduction for moving expenses? I.Prior to 2018, certain moving expenses were deductible for adjusted gross income. II.After 2017, certain moving expenses are deductible from adjusted gross income..