Exam 7: Overview of Deductions and Losses

With respect to the deduction for hobby expenses, the taxpayer's expectation of profit need not be considered reasonable in order for the expense to be deductible.

F, a calendar year, cash basis taxpayer, started a business on June 1.Her lease required monthly payments of $ 1,000 beginning on June 1.Insurance for the premises, also begun on June 1, was to be paid every six months and cost $600 for each six-month period (she paid her premiums due on June 1 and December 1).F's deductions for these expenses total

J, an accrual basis taxpayer, deducted an estimated expense for next year that she was required by law to pay.The principle that the IRS follows in disallowing this deduction is the

Fees paid for preparation of a tax return are deductible only if they are related to a taxpayer's trade, business, or activity engaged in for profit.

H recently purchased a residence for himself and his family for $60,000.Shortly thereafter, property nearby was rezoned by the city council for light commercial businesses.As a result, the value of H's house dropped to $50,000.H may deduct a loss of $10,000.