Question 1

To be deductible,the dominant motive for incurring an expense must be

Accepted Answer

A) the relationship to a business activity. 
B) to reduce income taxes. 
C) tax avoidance. 
D) the intent to earn a profit. 
E) personal. 
A) the relationship to a business activity. 
B) to reduce income taxes. 
C) tax avoidance. 
D) the intent to earn a profit. 
E) personal.

Question 2

Which of the following is a currently deductible trade or business expense.

Accepted Answer

A) $ 5,000 trustee fees paid to a bank to manage tax-exempt securities. 
B) $ 12,000 fee paid to a marketing firm for a market analysis for a new business. 
C) $15,000 fee paid to a TV station to advertise a new product. 
D) $20,000 to an attorney to defend title to a new patent. 
E) All of the above are currently deductible expenses. 
A) $ 5,000 trustee fees paid to a bank to manage tax-exempt securities. 
B) $ 12,000 fee paid to a marketing firm for a market analysis for a new business. 
C) $15,000 fee paid to a TV station to advertise a new product. 
D) $20,000 to an attorney to defend title to a new patent. 
E) All of the above are currently deductible expenses.

Question 3

Which of the following expenditures are not deductible because they are personal in nature?
I.Premiums paid on liability insurance for the taxpayer.
II.Education costs that improves the taxpayer's skills in his/her trade or business.

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 4

The Business Purpose Concept means
I.that the economic purpose of the transaction must exceed the tax avoidance motive.
II.that the taxpayer's dominant motive for an expenditure is to reduce taxation.

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 5

Wilson owns a condominium in Gatlinburg,Tennessee.During the current year,she incurs the following expenses before allocation related to the property:
 $$\begin{array} { l r } 
\text { Mortgage interest } & \$ 10,000 \
\text { Property taxes } & 4,000 \
\text { Utilities } & 1,000 \
\text { Maintenance fees } & 1,300 \
\text { Repairs } & 800 \
\text { Depreciation } & 6,000
\end{array}$$ 
a.For each of the following scenarios indicate whether Wilson would treat the condominium for income tax purposes as personal use property, a rental or a vacation home. $$\begin{array} { | c | c | c | c | c | } 
\hline \text { Case } & \begin{array} { c } 
\text { Rental } \
\text { Income }
\end{array} & \begin{array} { c } 
\text { Rental } \
\text { Days }
\end{array} & \begin{array} { c } 
\text { Personal } \
\text { Use Days }
\end{array} & \begin{array} { c } 
\text { Personal, } \
\text { rental, or } \
\text { vacation }
\end{array} \
\hline \text { A } & \$ 10,000 & 300 & 0 & \
\hline \text { B } & 7,000 & 60 & 10 & \
\hline \text { C } & 15,000 & 60 & 20 & \
\hline \text { D } & 2,000 & 10 &40 & \
\hline \text { E } & 11,000 & 280 &20 & \
\hline
\end{array}$$ 
b.Consider Case C. Determine Wilson's deductions related to the condominium. Indicate the amount of each expense that can be deducted and how it would be deducted.

Accepted Answer

@#IMG-DLM& Wilson can deduct $15,000 in allocated

Question 6

An expense that is incurred for the production of rent will be deducted for adjusted gross income.

Accepted Answer

A) True 
 B)False

Question 7

Dustin,Dan,and Dennis operate Heritage Hills dry cleaners as an S corporation.Dustin owns 50% of the business,Dan 30%,and Dennis 20%.For the current year,Heritage Hills reports the following:
 $\begin{array}{l|r}
\hline \text { Sales revenues } & \$ 400,000 \
\hline \text { Trade and business expenses } & (185,000) \
\hline \text { Charitable contributions } & (5,000)\
\hline\text { Short-term capital losses } & (4,000) \
\hline \text { Long-term capital gains } & 12,000 \
\hline\text { Taxable income } & \$ 218.000\
\hline 
\end{array}$ 
How must Heritage Hills report its results to each of the owners?

Accepted Answer

Because capital gains and losses,and cha

Question 8

The all-events test requires that
I.All events have occurred that determine a liability exists
II
The due date for payment of the liability has been established
III.The amount of a liability is determined with reasonable accuracy.

Accepted Answer

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

Question 9

Using the tests for deductibility discussed in Chapter 5,explain why the following expenses may not be fully deductible in the current year
a.Janet pays $900 in interest on debt she incurred to purchase municipal bonds. The bonds pay $1,500 of interest in the current year.
b.Andrew owns a retail-clothing store. Andrew has the opportunity to obtain a franchise to operate a discount sporting goods store. He spends $5,000 investigating the possibility of opening a sporting goods store in a neighboring town.
c.Jane owns a fitness center. She employs the star basketball player at Local University as an aerobics instructor. Because of his reputation, she pays him $20 an hour. Jane pays her other aerobics instructors $10 an hour.
d.Alvin makes a vacation trip to Florida, and while there spends two days investigating the feasibility of opening up a new office of his optometry practice.

Accepted Answer

a.Expenses paid to produce tax-exempt in

Question 10

A taxpayer can take a deduction for a portion of his phone bill if he is eligible for the home office deduction.

Accepted Answer

A) True 
 B)False

Question 11

Which of the following payments are currently deductible?
I.Steve is a self-employed attorney.He pays another attorney $14,000 to represent him in a lawsuit that alleged that he was liable in a personal auto accident.
II.Connie has an investment portfolio in excess of $600,000.She pays Chris $1,000 to do an analysis of her investments and make recommendations on restructuring the portfolio.

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 12

Match each statement with the correct term below.
-Hobby expense

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 13

An ordinary expense
I.is normal,common,and accepted under the circumstances of the business community.
II.is an expense commonly incurred in an income-producing 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 14

Frank is a self-employed architect who maintains a qualifying office in his home.Frank has $80,000 gross income from his practice and incurs $72,000 in salaries,supplies,computer services,etc.Frank's mortgage interest and real estate taxes allocable to the office total $3,000.Other expenses total $9,000 and consist of depreciation,utilities,insurance,and maintenance.Frank's total office in home deductions are

Accepted Answer

A) $ 3,000 
B) $ 5,000 
C) $ 8,000 
D) $ 9,000 
E) $12,000 
A) $ 3,000 
B) $ 5,000 
C) $ 8,000 
D) $ 9,000 
E) $12,000

Question 15

Which of the following expenditures are not deductible because they are personal in nature?
I.Legal costs to acquire a personal residence.
II.Losses resulting from the sale of personal residences.

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 16

Match each statement with the correct term below.
-Necessary 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 17

Match each statement with the correct term below.
-Active Investor

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

Diana bought 1,500 shares of Dalton Protection,Inc.,common stock for $10 per share.She paid her broker a $300 commission to close the purchase.The following year,Diana sold 1,000 of the shares for $17 per share and paid a commission of $175 on the sale.What is Diana's capital gain on the sale of the stock?

Accepted Answer

A) $1,525 
B) $2,000 
C) $6,625 
D) $6,825 
E) $7,000 
A) $1,525 
B) $2,000 
C) $6,625 
D) $6,825 
E) $7,000

Question 19

Which of the following payments are currently deductible?
I.Sweeney Corporation pays tuition to an MBA program for Phyllis,the controller.
II.Amber's Construction Company pays the tuition for Karl's son.Karl is a local building inspector and has no other relationship with the company.

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 20

Portia,a CPA,operates a financial and tax planning service.During the months of February,March,and April of every year,she hires graduate tax students from The University of Chicago as interns.This year she hires 4 interns.One is her brother,Sidney.She pays all interns except Sidney $20 per hour for help with tax return preparation and tax research.Sidney receives $25 an hour.She cannot deduct the full amount of Sidney's hourly wages because the expense is not

Accepted Answer

A) appropriate. 
B) ordinary. 
C) necessary. 
D) reasonable. 
A) appropriate. 
B) ordinary. 
C) necessary. 
D) reasonable.

To be deductible,the dominant motive for incurring an expense must be

Which of the following is a currently deductible trade or business expense.

Which of the following expenditures are not deductible because they are personal in nature? I.Premiums paid on liability insurance for the taxpayer. II.Education costs that improves the taxpayer's skills in his/her trade or business.

The Business Purpose Concept means I.that the economic purpose of the transaction must exceed the tax avoidance motive. II.that the taxpayer's dominant motive for an expenditure is to reduce taxation.

An expense that is incurred for the production of rent will be deducted for adjusted gross income.

The all-events test requires that I.All events have occurred that determine a liability exists II The due date for payment of the liability has been established III.The amount of a liability is determined with reasonable accuracy.

A taxpayer can take a deduction for a portion of his phone bill if he is eligible for the home office deduction.

Match each statement with the correct term below. -Hobby expense

An ordinary expense I.is normal,common,and accepted under the circumstances of the business community. II.is an expense commonly incurred in an income-producing activity.

Which of the following expenditures are not deductible because they are personal in nature? I.Legal costs to acquire a personal residence. II.Losses resulting from the sale of personal residences.

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

Match each statement with the correct term below. -Active Investor

Which of the following payments are currently deductible? I.Sweeney Corporation pays tuition to an MBA program for Phyllis,the controller. II.Amber's Construction Company pays the tuition for Karl's son.Karl is a local building inspector and has no other relationship with the company.

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

To be deductible,the dominant motive for incurring an expense must be

Which of the following is a currently deductible trade or business expense.

Which of the following expenditures are not deductible because they are personal in nature? I.Premiums paid on liability insurance for the taxpayer. II.Education costs that improves the taxpayer's skills in his/her trade or business.

The Business Purpose Concept means I.that the economic purpose of the transaction must exceed the tax avoidance motive. II.that the taxpayer's dominant motive for an expenditure is to reduce taxation.

An expense that is incurred for the production of rent will be deducted for adjusted gross income.

The all-events test requires that I.All events have occurred that determine a liability exists II The due date for payment of the liability has been established III.The amount of a liability is determined with reasonable accuracy.

A taxpayer can take a deduction for a portion of his phone bill if he is eligible for the home office deduction.

Match each statement with the correct term below. -Hobby expense

An ordinary expense I.is normal,common,and accepted under the circumstances of the business community. II.is an expense commonly incurred in an income-producing activity.

Which of the following expenditures are not deductible because they are personal in nature? I.Legal costs to acquire a personal residence. II.Losses resulting from the sale of personal residences.

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

Match each statement with the correct term below. -Active Investor

Which of the following payments are currently deductible? I.Sweeney Corporation pays tuition to an MBA program for Phyllis,the controller. II.Amber's Construction Company pays the tuition for Karl's son.Karl is a local building inspector and has no other relationship with the company.

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