Exam 7: Deductions and Losses: Certain Business Expenses and Losses

Why was the domestic production activities deduction (DPAD)enacted by Congress?

Identify the factors that should be considered in determining whether a transaction is a bona fide loan or a gift.

Peggy is in the business of factoring accounts receivable.Last year,she purchased a $30,000 account receivable for $25,000.This year,the account was settled for $18,000.How much loss can Peggy deduct and in which year?

The cost of repairs to damaged property may be acceptable as a measure of the loss in value of the property.

On June 2,2009,Fred's TV Sales sold Mark a large HD TV,on account,for $12,000.Fred's TV Sales uses the accrual method.In 2010,when the balance on the account was $8,000,Mark filed for bankruptcy.Fred was notified that he could expect to receive 60 cents on the dollar of the amount owed to him.In 2011,final settlement was made and Fred received $5,000.How much bad debt loss can Fred deduct and in which years?

The domestic production activities deduction (DPAD)for 2010 cannot exceed 50% of all W-2 wages paid to employees engaged in qualified domestic production activities by the taxpayer during the tax year.

On July 20,2008,Matt (who files a joint return)purchased 3,000 shares of Orange Corporation stock (the stock is § 1244 small business stock)for $24,000.On November 10,2009,Matt purchased an additional 1,000 shares of Orange Corporation stock for $150,000.On September 15,2010,Matt sold the 4,000 shares of stock for $80,000.How should Matt treat the sale of the stock on his 2010 return?

A taxpayer who sustains a casualty loss in an area designated by the President of the United States as a disaster area may take the loss in the year in which the loss occurred or elect to take the loss in the previous year.Identify factors that should be considered in deciding in which year to take the loss.

Alma is in the business of dairy farming.During the year,one of her barns was completely destroyed by fire.The adjusted basis of the barn was $90,000.The fair market value of the barn before the fire was $75,000.The barn was insured for 95% of its fair market value,and Alma recovered this amount under the insurance policy.Alma has adjusted gross income for the year of $40,000 (before considering the casualty).Determine the amount of loss she can deduct on her tax return for the current year.

Research and experimental expenditures do not include expenditures for ordinary testing of materials for quality control.

Last year,Sarah (who files as single)had silverware worth $10,000 (basis $6,000)stolen from her home.Sarah's insurance company told her that her policy did not cover the theft.Sarah's other itemized deductions last year were $10,000.She had AGI of $30,000 last year.In August of the current year,Sarah's insurance company decided that Sarah's policy did cover the theft of the silverware and they paid Sarah $5,000.Determine the tax treatment of the $5,000 received by Sarah during the current year.

Two years ago,Gina loaned Tom $50,000.Tom signed a note the terms of which called for monthly payments of $2,000 plus 6% interest on the outstanding balance.Last year,when the balance owing on the loan was $18,000,Tom defaulted on the note.As of the end of last year,there appeared to be no reasonable prospect of Gina recovering the $18,000.As a consequence,Gina claimed the $18,000 as a nonbusiness bad debt.Last year,Gina had AGI of $60,000 which included $5,000 net long-term capital gains and $4,000 of qualified dividends.Gina did not itemize her deductions.During the current year,Tom paid Gina $13,000 in final settlement of the loan.How should Gina account for the payment in the current year?

Tonya had the following items for last year: For the current year,Tonya had the following items: Determine Tonya's adjusted gross income for the current year.

The amount of a farming loss cannot exceed the amount of the taxpayer's NOL for the taxable year.

John files a return as a single taxpayer.In 2010,he had the following items: Determine John's AGI for 2010.

What are the three methods of handling research and experimental expenditures incurred in a trade or business? Under what circumstances would you choose each?

A father cannot claim a casualty on his daughter's personal use property.

A business bad debt can offset an unlimited amount of ordinary income.

A bona fide debt arises from a debtor-creditor relationship based on a valid and enforceable obligation to pay a fixed sum of money.

If personal casualty losses (after deducting the $100 floor)exceed personal casualty gains in 2010,the itemized deduction is always equal to the losses,to the extent they exceed 10% of adjusted gross income.