Question 1

Match each statement with the correct term below.
-Profit motivated business expenses

Accepted Answer

A) Automobile used 75% for business. 
B) Investment expenses on municipal bonds. 
C) Cost of investigating a new trade or business that the taxpayer enters. 
D) Can be separated into two classifications. 
E) Safety-deposit box for taxable investments.
F)Expenditure to influence legislation.
G)Cost of a new roof for office building.
H)Relates to an income producing activity mainly carried on for recreation or personal enjoyment.
I)Deductibility depends on income and amount of personal and rental use.j.Deductibility depends on whether the area is used exclusively for trade or business activities. 
A) Automobile used 75% for business. 
B) Investment expenses on municipal bonds. 
C) Cost of investigating a new trade or business that the taxpayer enters. 
D) Can be separated into two classifications. 
E) Safety-deposit box for taxable investments.
F)Expenditure to influence legislation.
G)Cost of a new roof for office building.
H)Relates to an income producing activity mainly carried on for recreation or personal enjoyment.
I)Deductibility depends on income and amount of personal and rental use.j.Deductibility depends on whether the area is used exclusively for trade or business activities.

Question 2

Clay incurs $5,000 of investment expenses related to purchasing Renco Company stock and New Orleans municipal bonds.He receives $6,000 of dividends on the stock and $14,000 of interest on the bonds.The amount of investment expense Clay can deduct is:

Accepted Answer

A) $ - 0 - 
B) $1,500 
C) $2,500 
D) $3,500 
E) $5,000 
A) $ - 0 - 
B) $1,500 
C) $2,500 
D) $3,500 
E) $5,000

Question 3

Using the general tests for deductibility,explain why the following expenses are not fully deductible.
a.Irene spends $1,600 on a trip to Florida to investigate opening up a consulting firm. Irene currently works for a consulting firm.
b.Augie and his wife divorce during the current year. Augie pays $3,000 in legal fees related to the divorce.
c.Peter owns a hardware store. During the current year, he pays $328,000 to acquire a new warehouse.
d.Paul contributes $25 to a fund to be used for advertising to persuade voters to vote against a candidate running for Congress.

Accepted Answer

a.Because Irene is already in the consul

Question 4

Chelsea operates an illegal gambling enterprise out of her restaurant.Considering only the following expenses,what amount can Samantha deduct?
$\begin{array}{lr}
\text { Building rent } & \$ 34,000 \
\text { Secretarial services } & 12,000 \
\text { Payments to off-duty policemen to provide security } & 20,000 \
\text { Lease payments for cars given to health inspectors } & 18,000
\end{array}$

Accepted Answer

A) $ - 0 - 
B) $46,000 
C) $66,000 
D) $72,000 
E) $84,000 
A) $ - 0 - 
B) $46,000 
C) $66,000 
D) $72,000 
E) $84,000

Question 5

Which of the following factors are used to aid in determining whether an activity that earns income is profit motivated and should be treated as a business or is subject to the hobby loss rules?
I.The taxpayer's financial status.
II.Elements of personal pleasure derived from the activity.

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 6

Explain the rationale for disallowing the deduction for interest expense attributable to money borrowed to acquire tax-exempt municipal bonds.

Accepted Answer

Municipal bond interest is excluded from

Question 7

Bowen is planning to quit his job as a plumber and open a paint store.He has incurred expenses of $8,000 dealing with the opening of the store and will be able to deduct all of these expenses.

Accepted Answer

A) True 
 B)False

Question 8

Teresa,Terri,and Tricia operate Sassy Solutions,an exclusive boutique.Based on advice from Teresa's sister,a CPA,the three form a partnership.Teresa owns 50% and Terri and Tricia each own 25%.For the year,Sassy Solutions reports the following:
$\begin{array}{lr}
\text { Sales revenues } & \$ 600,000 \
\text { Business expenses } & (320,000) \
\text { Investment expenses } & (4,000) \
\text { Short-term capital gains } & 26,000 \
\text { Long-term capital losses } & (14,000) \
\text { Taxable income } & \$ 288,000
\end{array}$
For tax purposes,what amount will Sassy Solutions report to Teresa as her ordinary income from the partnership?

Accepted Answer

A) $144,000 
B) $146,000 
C) $148,000 
D) $138,000 
E) $140,000 
A) $144,000 
B) $146,000 
C) $148,000 
D) $138,000 
E) $140,000

Question 9

Angel owns a gourmet Mexican restaurant.His head chef,Carmen,is arrested for a parole violation.Because Angel needs Carmen back to work as soon as possible,Angel pays her bail of $250,attorney's fees of $300,and a court fine of $200.
I.A business purpose exists for the payments.
II.If Carmen were required to repay the expenditures,it would constitute a loan and not be deductible for Angel.
III.If Angel does not require Carmen to repay the amounts paid on Carmen's behalf,the payments constitute compensation and Angel gets a deduction for the expenses paid.

Accepted Answer

A) Only statement I is correct. 
B) Statements I and III are correct. 
C) Statements I and II are correct. 
D) Statements I, II and III are correct. 
A) Only statement I is correct. 
B) Statements I and III are correct. 
C) Statements I and II are correct. 
D) Statements I, II and III are correct.

Question 10

List the criteria necessary for an expenditure to be deductible as a trade or business expense or an expense for the production of income.

Accepted Answer

To be deductible an expenditure must be

Question 11

During 2013,Myca sells her car for $5,000.She acquired the car in 2009 for $11,000 and has used it 60% for business and 40% for personal use.She deducted $5,280 in depreciation.What is the taxable gain or loss from the sale of the car attributable to her business use?

Accepted Answer

A) $3,680 gain 
B) $ 432 gain 
C) $ 720 loss 
D) $2,280 loss 
E) $1,680 gain 
A) $3,680 gain 
B) $ 432 gain 
C) $ 720 loss 
D) $2,280 loss 
E) $1,680 gain

Question 12

Oscar drives a taxi on weekends.In maximizing the amount of fares he earns,he occasionally gets tickets for speeding.Oscar figures that as long as he keeps his traffic violations under $100 over a weekend,he can more than offset those costs with additional fares.What is/are the tax effect(s)of Oscar's speeding ticket costs?

Accepted Answer

A) The costs are deductible because they are ordinary and necessary expenses directly related to the business. 
B) The costs are deductible because they have a business purpose and the business is not illegal. 
C) The costs are not deductible because the business activity is illegal. 
D) The costs are not deductible because they are due to violations of law. 
A) The costs are deductible because they are ordinary and necessary expenses directly related to the business. 
B) The costs are deductible because they have a business purpose and the business is not illegal. 
C) The costs are not deductible because the business activity is illegal. 
D) The costs are not deductible because they are due to violations of law.

Question 13

Shaheen owns 2 rental properties.She hires her 21 year old son,who is a junior at State College,to obtain tenants,negotiate leases,make arrangements for repairs,and pay expenses related to the properties.
I.Shaheen's sale of the properties will result in a capital gain or loss.
II.Shaheen's sale of the properties at a loss results in a current-year loss deduction of no more than $3,000.

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 14

Match each statement with the correct term below.
-Home office deduction

Accepted Answer

A) Automobile used 75% for business. 
B) Investment expenses on municipal bonds. 
C) Cost of investigating a new trade or business that the taxpayer enters. 
D) Can be separated into two classifications. 
E) Safety-deposit box for taxable investments.
F)Expenditure to influence legislation.
G)Cost of a new roof for office building.
H)Relates to an income producing activity mainly carried on for recreation or personal enjoyment.
I)Deductibility depends on income and amount of personal and rental use.
J)Deductibility depends on whether the area is used exclusively for trade or business activities. 
A) Automobile used 75% for business. 
B) Investment expenses on municipal bonds. 
C) Cost of investigating a new trade or business that the taxpayer enters. 
D) Can be separated into two classifications. 
E) Safety-deposit box for taxable investments.
F)Expenditure to influence legislation.
G)Cost of a new roof for office building.
H)Relates to an income producing activity mainly carried on for recreation or personal enjoyment.
I)Deductibility depends on income and amount of personal and rental use.
J)Deductibility depends on whether the area is used exclusively for trade or business activities.

Question 15

Which of the following is not deductible?

Accepted Answer

A) Expenses related to earning dividends on a portfolio of "blue chip" stocks. 
B) Expenses related to interest income from municipal bonds. 
C) Legal expenses related to rental real estate property. 
D) Medical expenses of the taxpayer's dependent child. 
A) Expenses related to earning dividends on a portfolio of "blue chip" stocks. 
B) Expenses related to interest income from municipal bonds. 
C) Legal expenses related to rental real estate property. 
D) Medical expenses of the taxpayer's dependent child.

Question 16

Michael operates an illegal cock fighting business.Which of the following expenses is currently deductible?

Accepted Answer

A) Fines paid to the local authorities. 
B) Bribes paid to local police. 
C) Rent expense on the enterprise's building. 
D) Expenditures to acquire bar and kitchen equipment. 
E) None of these expenses are currently deductible. 
A) Fines paid to the local authorities. 
B) Bribes paid to local police. 
C) Rent expense on the enterprise's building. 
D) Expenditures to acquire bar and kitchen equipment. 
E) None of these expenses are currently deductible.

Question 17

Match each statement with the correct term below.
-Ordinary Expense

Accepted Answer

A) Specifically disallowed. 
B) Appropriate and helpful. 
C) Considered a trade or business. 
D) Not considered a trade or business. 
E) Problems with this generally arise with related parties.
F)This is met when services or property are provided to the taxpayer.
G)Normal, common, and accepted but not necessarily regularly recurring.
H)This is met when the existence and the amount of a liability have been established. 
A) Specifically disallowed. 
B) Appropriate and helpful. 
C) Considered a trade or business. 
D) Not considered a trade or business. 
E) Problems with this generally arise with related parties.
F)This is met when services or property are provided to the taxpayer.
G)Normal, common, and accepted but not necessarily regularly recurring.
H)This is met when the existence and the amount of a liability have been established.

Question 18

John decides rather than work late in the office,he does all of his work in an office at home.His employer approves of this arrangement.Since John uses his home office on a regular and exclusive basis,he will be eligible to take a home office deduction even though it was not required as a condition of employment.

Accepted Answer

A) True 
 B)False

Question 19

Jenny,an individual cash basis taxpayer,has $6,000 of state income taxes withheld from her salary during 2013.When she filed her 2012 state income tax return during April 2013,she paid an additional $500 in state income taxes.When she filed her 2013 state income tax return in April 2014,she received a $200 refund.What is her state income tax deduction for 2013 for federal income tax purposes?

Accepted Answer

A) $ 500 
B) $5,800 
C) $6,000 
D) $6,300 
E) $6,500 
A) $ 500 
B) $5,800 
C) $6,000 
D) $6,300 
E) $6,500

Question 20

Safina is a high school teacher.She has set aside one room in her home exclusively as a home office where she grades papers,prepares for class,etc.No revenues are generated from her activities.Depreciation and maintenance are $800 on the home office space.How much of the expenses are deductible by Safina?

Accepted Answer

A) $- 0 - 
B) $200 
C) $400 
D) $500 
E) $800 
A) $- 0 - 
B) $200 
C) $400 
D) $500 
E) $800

Match each statement with the correct term below. -Profit motivated business expenses

Clay incurs $5,000 of investment expenses related to purchasing Renco Company stock and New Orleans municipal bonds.He receives $6,000 of dividends on the stock and $14,000 of interest on the bonds.The amount of investment expense Clay can deduct is:

Which of the following factors are used to aid in determining whether an activity that earns income is profit motivated and should be treated as a business or is subject to the hobby loss rules? I.The taxpayer's financial status. II.Elements of personal pleasure derived from the activity.

Explain the rationale for disallowing the deduction for interest expense attributable to money borrowed to acquire tax-exempt municipal bonds.

Bowen is planning to quit his job as a plumber and open a paint store.He has incurred expenses of $8,000 dealing with the opening of the store and will be able to deduct all of these expenses.

List the criteria necessary for an expenditure to be deductible as a trade or business expense or an expense for the production of income.

During 2013,Myca sells her car for $5,000.She acquired the car in 2009 for $11,000 and has used it 60% for business and 40% for personal use.She deducted $5,280 in depreciation.What is the taxable gain or loss from the sale of the car attributable to her business use?

Match each statement with the correct term below. -Home office deduction

Which of the following is not deductible?

Michael operates an illegal cock fighting business.Which of the following expenses is currently deductible?

Match each statement with the correct term below. -Ordinary Expense

Federal Income Taxation - an Overview

Income Tax Concepts

Income Sources

Income Exclusions

Business Expenses

Losses: Deductions and Limitations

Taxation of Individuals

Acquisitions of Property

Cost Recovery on Property: Depreciation,depletion,and Amortization

Property Dispositions

Nonrecognition 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 5: Introduction to Business Expenses

Match each statement with the correct term below. -Profit motivated business expenses

Clay incurs $5,000 of investment expenses related to purchasing Renco Company stock and New Orleans municipal bonds.He receives $6,000 of dividends on the stock and $14,000 of interest on the bonds.The amount of investment expense Clay can deduct is:

Which of the following factors are used to aid in determining whether an activity that earns income is profit motivated and should be treated as a business or is subject to the hobby loss rules? I.The taxpayer's financial status. II.Elements of personal pleasure derived from the activity.

Explain the rationale for disallowing the deduction for interest expense attributable to money borrowed to acquire tax-exempt municipal bonds.

Bowen is planning to quit his job as a plumber and open a paint store.He has incurred expenses of $8,000 dealing with the opening of the store and will be able to deduct all of these expenses.

List the criteria necessary for an expenditure to be deductible as a trade or business expense or an expense for the production of income.

During 2013,Myca sells her car for $5,000.She acquired the car in 2009 for $11,000 and has used it 60% for business and 40% for personal use.She deducted $5,280 in depreciation.What is the taxable gain or loss from the sale of the car attributable to her business use?

Match each statement with the correct term below. -Home office deduction

Which of the following is not deductible?

Michael operates an illegal cock fighting business.Which of the following expenses is currently deductible?

Match each statement with the correct term below. -Ordinary Expense

Federal Income Taxation - an Overview

Income Tax Concepts

Income Sources

Income Exclusions

Business Expenses

Losses: Deductions and Limitations

Taxation of Individuals

Acquisitions of Property

Cost Recovery on Property: Depreciation,depletion,and Amortization

Property Dispositions

Nonrecognition 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