Mattie and Elmer are separated and are in the process of obtaining a divorce. They incur legal fees for their respective attorneys with the expenses being itemized as follows: $\begin{array}{lrr} \text { For } & \text { Mattie } & \text { Elmer } \\ \text { General costs of the divorce } & \$ 3,500 & \$ 3,000 \\ \text { Determination of dependency exemptions } & 1,500 & -0- \\ \text { Property settlement tax consequences } & {400}&{1,500}\\&\$5,400&\$4,500 \end{array}$ Although there is no requirement that he do so, Elmer pays Mattie's lawyer as a gesture of the positive feelings he still has for her. a. Determine the deductions for Mattie and for Elmer. b. Classify the deductions as for AGI and from AGI.

a. Only the legal fees associated with t

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. $\begin{array}{lrr}& \text { Terry } & \text { Jim } \\ \text { Employee salaries } & \$ 200,000 & \$ 200,000 \\ \text { Bribes to police } & 25,000 & 25,000 \\ \text { Rent and utilities } & 50,000 & 50,000 \\ \text { Cost of goods sold } & -0- & 125,000 \end{array}$ Which of the following statements is correct?

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.

Sammy, a calendar year cash basis taxpayer who is age 66, has the following transactions: $\begin{array}{lr} \text { Salary from job } & \$ 90,000 \\ \text { Alimony received from ex-wife } & 10,000 \\ \text { Medical expenses } & 8,000 \end{array}$ $\text { Based on this information, Sammy has: }$ A)AGI of $ \$ 90,000 $. B)AGI of $\$95,000$. C)AGI of $ \$ 99,500 $. D) Deduction for medical expenses of $ \$ 0 $. E)None of the above

The answer of Sammy, a calendar year cash basis taxpayer...

Arnold and Beth file a joint return. Use the following data to calculate their deduction for AGI. $\begin{array}{llr} \text {Mortgage interest on personal residence } &\$6,000\\ \text { Property taxes on personal residence} &2,500\\ \text { Alimony payments } &12,000\\ \text { Moving expenses } &7,000\\ \text {Charitable contributions } &1,500\\ \text { State income taxes } &5,000\\ \text { Investment interest ( \( \$ 8,000 $ of expenses limited to net } &\\ \text { investment income of $ \$ 7,500 $ )} &7,500\\ \text {Unreimbursed employee expenses } &2,500\\ \text { Sales taxes } &2,600\\ \end{array}\)

Arnold and Beth's deduction for AGI is $

Exam 6: Deductions and Losses: in General

Mattie and Elmer are separated and are in the process of obtaining a divorce. They incur legal fees for their respective attorneys with the expenses being itemized as follows: For Mattie Elmer General costs of the divorce \ 3,500 \ 3,000 Determination of dependency exemptions 1,500 -0- Property settlement tax consequences 400 1,500 \5 ,400 \4 ,500 Although there is no requirement that he do so, Elmer pays Mattie's lawyer as a gesture of the positive feelings he still has for her. a. Determine the deductions for Mattie and for Elmer. b. Classify the deductions as for AGI and from AGI.

(Essay)

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Question 121

If a vacation home is a personal/rental residence, no maintenance and utility expenses can be claimed as a deduction.

(True/False)

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Question 122

The amount of the addition to the reserve for bad debts for an accrual method taxpayer is allowed as a deduction for tax purposes, but is not allowed for a cash method taxpayer.

(True/False)

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Question 123

For purposes of the § 267 loss disallowance provision, a taxpayer's aunt is a related party.

(True/False)

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Question 124

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. Terry Jim Employee salaries \ 200,000 \ 200,000 Bribes to police 25,000 25,000 Rent and utilities 50,000 50,000 Cost of goods sold -0- 125,000 Which of the following statements is correct?

(Multiple Choice)

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Question 125

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

(Multiple Choice)

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Question 126

The portion of property tax on a vacation home that is attributable to personal use is an itemized deduction.

(True/False)

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Question 127

Max opened his dental practice (a sole proprietorship) in March 2014. At the end of the year, he has unpaid accounts receivable of $62,000 and no unpaid accounts payable. Should Max use the accrual method or the cash method for his dental practice?

(Essay)

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Question 128

In a related party transaction where realized loss is disallowed, when can the disallowed loss be used by the buyer on the subsequent sale of the property? In the case of a related party disallowed loss transaction, can the related party seller's disallowed loss be used by a taxpayer other than the related party buyer?

(Essay)

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Question 129

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.

(True/False)

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Question 130

Which of the following legal expenses are deductible for AGI?

(Multiple Choice)

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Question 131

Sammy, a calendar year cash basis taxpayer who is age 66, has the following transactions: Salary from job \ 90,000 Alimony received from ex-wife 10,000 Medical expenses 8,000 $\text { Based on this information, Sammy has: }$ A)AGI of $\$ 90,000$ . B)AGI of $\$95,000$ . C)AGI of $\$ 99,500$ . D) Deduction for medical expenses of $\$ 0$ . E)None of the above

(Short Answer)

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Question 132

Assuming an activity is deemed to be a hobby, discuss the order and limits in which expenses must be deducted.

(Essay)

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Question 133

During 2013, the first year of operations, Silver, Inc., pays salaries of $175,000. At the end of the year, employees have earned salaries of $20,000, which are not paid by Silver until early in 2014. What is the amount of the deduction for salary expense?

(Multiple Choice)

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Question 134

Nikeya sells land (adjusted basis of $120,000) to her adult son, Shamed, for its appraised value of $95,000. Which of the following statements is correct?

(Multiple Choice)

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Question 135

Discuss the application of the "oneyear rule" on prepayments by a cash basis taxpayer.

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Question 136

Which of the following is not deductible?

(Multiple Choice)

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Question 137

Which of the following is not a related party for constructive ownership purposes under § 267?

(Multiple Choice)

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Question 138

Arnold and Beth file a joint return. Use the following data to calculate their deduction for AGI. Mortgage interest on personal residence \6 ,000 Property taxes on personal residence 2,500 Alimony payments 12,000 Moving expenses 7,000 Charitable contributions 1,500 State income taxes 5,000 Investment interest ( \ 8,000 of expenses limited to net investment income of \ 7,500 ) 7,500 Unreimbursed employee expenses 2,500 Sales taxes 2,600

(Essay)

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Question 139

Are all personal expenses disallowed as deductions?

(Essay)

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Question 140

Exam 6: Deductions and Losses: in General

If a vacation home is a personal/rental residence, no maintenance and utility expenses can be claimed as a deduction.

The amount of the addition to the reserve for bad debts for an accrual method taxpayer is allowed as a deduction for tax purposes, but is not allowed for a cash method taxpayer.

For purposes of the § 267 loss disallowance provision, a taxpayer's aunt is a related party.

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

The portion of property tax on a vacation home that is attributable to personal use is an itemized deduction.

Max opened his dental practice (a sole proprietorship) in March 2014. At the end of the year, he has unpaid accounts receivable of $62,000 and no unpaid accounts payable. Should Max use the accrual method or the cash method for his dental practice?

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 legal expenses are deductible for AGI?

Assuming an activity is deemed to be a hobby, discuss the order and limits in which expenses must be deducted.

During 2013, the first year of operations, Silver, Inc., pays salaries of $175,000. At the end of the year, employees have earned salaries of $20,000, which are not paid by Silver until early in 2014. What is the amount of the deduction for salary expense?

Nikeya sells land (adjusted basis of $120,000) to her adult son, Shamed, for its appraised value of $95,000. Which of the following statements is correct?

Discuss the application of the "one­year rule" on prepayments by a cash basis taxpayer.

Which of the following is not deductible?

Which of the following is not a related party for constructive ownership purposes under § 267?

Are all personal expenses disallowed as deductions?

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

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

Property Transactions: Capital Gains and Losses, 1231, and 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

The Federal Gift and Estate Taxes

Income Taxation of Trusts and Estates

Filters

Discuss the application of the "oneyear rule" on prepayments by a cash basis taxpayer.