Question 1

Itemized deductions are deductions for AGI.

Accepted Answer

A) True 
 B)False  False

Question 2

In order for an expense to be ordinary,it must be reasonable in amount and it must bear a reasonable and proximate relationship to the income-producing activity or property.

Accepted Answer

A) True 
 B)False  True

Question 3

On August 1 of this year,Sharon,a cash-method taxpayer,signs a lease for office space and begins business.The lease is for 3 years.At the time the lease is signed,Sharon pays the $12,600 rent for the entire 36-month lease term.How much can Sharon deduct this year?

Accepted Answer

A)   $350
B)   $1,750
C)   $5,950
D)   $12,600 B

Question 4

The Super Bowl is played in Tasha's home town.Tasha moves out of her house for 10 days and stays with her parents.She rents her house for a very high fee to a crew from ESPN.With respect to this rental activity,Tasha will

Accepted Answer

A)   report the rental income but be allowed a deduction for AGI for the related expenses (e.g. interest, taxes, utilities, depreciation) .
B)   report the rental income but be allowed a deduction from AGI for the related expenses (e.g. interest, taxes, utilities, depreciation) .
C)   report the rental income, but she will not be allowed any deductions other than the mortgage interest and property taxes.
D)   not be required to report the income, but she will not take any deductions other than her normal mortgage interest and property taxes.

Question 5

On July 1 of the current year,Marcia purchases a new home and borrows $320,000.Marcia is required to pay two points on the loan.The loan is secured by the residence and the charging of points is an established business practice in the area.The term of the loan is 20 years,beginning on July 1 of the current year.How much,if any,of the points may Marcia deduct in the current year?

Accepted Answer

A)   $0
B)   $160
C)   $3,200
D)   $6,400

Question 6

Jason sells stock with an adjusted basis of $66,000 to JJ Inc.,his 60% owned corporation,for its fair market value of $60,000.JJ Inc.sells the stock three years later for $67,000.JJ Inc.'s recognized gain or loss on the sale will be

Accepted Answer

A)   $0.
B)   ($3,000) .
C)   $1,000.
D)   $4,000.

Question 7

On December 1,Robert,a cash-method taxpayer,borrows $10,000 from the bank for use in his business.Under the terms of the loan,the bank discounts the loan by $300,paying Robert the $9,700 cash proceeds.If Robert repays the loan next year,he may deduct

Accepted Answer

A)   $300 next year.
B)   $300 this year.
C)   $25 this year and $275 next year.
D)   nothing since the note is "noninterest-bearing."

Question 8

Which of the following factors is important in distinguishing between capital and revenue expenditures?

Accepted Answer

A)   The expenditure improves the property, adding to the value of the property.
B)   The expenditure provides a betterment, adding to the value of the property.
C)   The expenditure restores the property.
D)   All of the above.

Question 9

Efrain owns 1,000 shares of RJ Inc.common stock which he purchased three years ago for $36,000.Efrain sells the 1,000 shares on October 15,2017,for $10,000.On November 12,he purchases 400 shares of RJ Inc.preferred stock for $8,000.Efrain's recognized loss on the sale of the 1,000 shares will be

Accepted Answer

A)   $0.
B)   $10,400.
C)   $15,600.
D)   $26,000.

Question 10

An expense is considered necessary if it is "appropriate and helpful" in the taxpayer's business.

Accepted Answer

A) True 
 B)False

Question 11

Leigh pays the following legal and accounting fees during the year:

What is the total amount of her for AGI deduction for these fees?

Accepted Answer

A)   $10,800
B)   $14,000
C)   $15,000
D)   $20,000

Question 12

On July 1 of the current year,Marcia purchases a small office building to use in her business and borrows $320,000.Marcia is required to pay two points on the loan.The loan is secured by the property and the charging of points is an established business practice in the area.The term of the loan is 20 years,beginning on July 1 of the current year.How much,if any,of the points may Marcia deduct in the current year?

Accepted Answer

A)   $0
B)   $160
C)   $3,200
D)   $6,400

Question 13

Which of the following is not required for an expenditure to be deductible as a business or investment expense?

Accepted Answer

A)   recurring in nature
B)   ordinary and necessary
C)   reasonable in amount
D)   incurred by the taxpayer

Question 14

Points paid to refinance a mortgage on a principal residence are fully deductible in the year paid.

Accepted Answer

A) True 
 B)False

Question 15

Charles is a single person,age 35,with no dependents.In 2017,Charles has gross income of $75,000 from his sole proprietorship.Charles also incurs $80,000 of deductible business expenses in connection with his proprietorship.He has interest and dividend income of $22,000.Charles has no itemized deductions.Charles's taxable income is

Accepted Answer

A)   $6,600.
B)   $10,650.
C)   $12,950.
D)   $17,000.

Question 16

For the years 2013 through 2017 (inclusive) Mary,a best-selling author,has been involved in operating an antique store.In 2013,2014 and 2015 her revenue exceeded the expenses from the activity.In 2016 and 2017,the antique store generated a loss.Which statement is correct?

Accepted Answer

A)   The activity is a business. The IRS cannot prove it is a hobby.
B)   The activity is a hobby. Mary cannot prove it is a business.
C)   The activity is presumed to be a business. However, the IRS may prove it is a hobby.
D)   The activity is presumed to be a hobby. However, Mary may prove it is a business.

Question 17

Lloyd purchased 100 shares of Gold Corporation common stock for $20 per share for a total basis of $2,000.Several years later,on May 1 of the current year,Lloyd sells all 100 shares for $500.On May 29 of the current year,Lloyd purchases 30 shares of Gold Corporation common stock for $180.
a.How much loss is Lloyd allowed to recognize?
b.What is Lloyd's basis in the 30 new shares?

Accepted Answer

The answer of Lloyd purchased 100 shares of Gold Corporation...

Question 18

Juanita knits blankets as a hobby and sells them.In the current year,she earns $5,000 from her blanket sales and incurs expenses of $600.Juanita does not itemize deductions.On her tax return,she should

Accepted Answer

A)   report $5,000 of hobby income and deduct $600 of hobby expenses from AGI.
B)   report $5,000 of hobby income and deduct $600 of hobby expenses for AGI.
C)   report $5,000 of hobby income and deduct nothing from AGI since Juanita does not itemize deductions.
D)   report no hobby income and no hobby deductions.

Question 19

Mickey has a rare blood type and sells his blood for payment on a regular basis.In order to maintain the quality of his blood,Mickey takes expensive vitamins and nutritional supplements.What tax issues should Mickey consider?

Accepted Answer

The answer of Mickey has a rare blood type and...

Question 20

Expenses incurred in connection with conducting a trade or business activity or in connection with generating investment income are generally deductible,but personal expenses are generally not deductible.

Accepted Answer

A) True 
 B)False

Exam 6: Deductions and Losses

Itemized deductions are deductions for AGI.

In order for an expense to be ordinary,it must be reasonable in amount and it must bear a reasonable and proximate relationship to the income-producing activity or property.

On August 1 of this year,Sharon,a cash-method taxpayer,signs a lease for office space and begins business.The lease is for 3 years.At the time the lease is signed,Sharon pays the $12,600 rent for the entire 36-month lease term.How much can Sharon deduct this year?

The Super Bowl is played in Tasha's home town.Tasha moves out of her house for 10 days and stays with her parents.She rents her house for a very high fee to a crew from ESPN.With respect to this rental activity,Tasha will

Jason sells stock with an adjusted basis of $66,000 to JJ Inc.,his 60% owned corporation,for its fair market value of $60,000.JJ Inc.sells the stock three years later for $67,000.JJ Inc.'s recognized gain or loss on the sale will be

On December 1,Robert,a cash-method taxpayer,borrows $10,000 from the bank for use in his business.Under the terms of the loan,the bank discounts the loan by $300,paying Robert the $9,700 cash proceeds.If Robert repays the loan next year,he may deduct

Which of the following factors is important in distinguishing between capital and revenue expenditures?

Efrain owns 1,000 shares of RJ Inc.common stock which he purchased three years ago for $36,000.Efrain sells the 1,000 shares on October 15,2017,for $10,000.On November 12,he purchases 400 shares of RJ Inc.preferred stock for $8,000.Efrain's recognized loss on the sale of the 1,000 shares will be

An expense is considered necessary if it is "appropriate and helpful" in the taxpayer's business.

Leigh pays the following legal and accounting fees during the year: What is the total amount of her for AGI deduction for these fees?

Which of the following is not required for an expenditure to be deductible as a business or investment expense?

Points paid to refinance a mortgage on a principal residence are fully deductible in the year paid.

For the years 2013 through 2017 (inclusive) Mary,a best-selling author,has been involved in operating an antique store.In 2013,2014 and 2015 her revenue exceeded the expenses from the activity.In 2016 and 2017,the antique store generated a loss.Which statement is correct?

Juanita knits blankets as a hobby and sells them.In the current year,she earns $5,000 from her blanket sales and incurs expenses of $600.Juanita does not itemize deductions.On her tax return,she should

Mickey has a rare blood type and sells his blood for payment on a regular basis.In order to maintain the quality of his blood,Mickey takes expensive vitamins and nutritional supplements.What tax issues should Mickey consider?

Expenses incurred in connection with conducting a trade or business activity or in connection with generating investment income are generally deductible,but personal expenses are generally not deductible.