Exam 6: Deductions and Losses: in General

What are the relevant factors to be considered in determining whether an activity is profit-seeking or a hobby?

Tommy, an automobile mechanic employed by an auto dealership, is considering opening a fast food franchise. If Tommy decides not to acquire the fast food franchise, any investigation expenses are:

The income of a sole proprietorship are reported on Schedule C (Profit or Loss from Business).

Describe the circumstances under which a taxpayer can receive rent income from a personal residence, but does not have to report it as gross income.

Paula is the sole shareholder of Violet, Inc. For 2014, she receives from Violet a salary of $300,000 and dividends of $100,000. Violet's taxable income for 2014 is $500,000. On audit, the IRS treats $100,000 of Paula's salary as unreasonable. Which of the following statements is correct?

Jacques, who is not a U.S. citizen, makes a contribution to the campaign of a candidate for governor. Cassie, a U.S. citizen, also makes a contribution to the same campaign fund. If contributions by noncitizens are illegal under state law, the contribution by Cassie is deductible, while that by Jacques is not.

In determining whether an activity should be classified as a business or as a hobby, the satisfaction of the presumption (i.e., profit in at least 3 out of 5 years) ensures treatment as a business.

Can a trade or business expense be deductible if it is necessary but not ordinary?

In distinguishing whether an activity is a hobby or a trade or business, discuss the presumptive rule.

Alfred's Enterprises, an unincorporated entity, pays employee salaries of $100,000 during the year. At the end of the year, $12,000 of additional salaries have been earned but not paid until the beginning of the next year. a. Determine the amount of the deduction for salaries if Alfred is a cash method taxpayer. b. Determine the amount of the deduction for salaries if Alfred is an accrual method taxpayer.