Arnold and Beth file a joint return in 2019. Use the following data to calculate their deduction for AGI. $\begin{array}{lr} \text { Mortgage interest on personal residence } & \$ 6,000 \\ \text { Property taxes on personal residence } & 2,500 \\ \text { Alimony payments (divorce finalized in 2014) } & 12,000 \\ \text { Moving expenses } & 7,000 \\ \text { Charitable contributions } & 1,500 \\ \text { State income taxes } & 5,000 \\ \text { Investment interest }(\$ 8,000 \text { of expenses limited to net investment income of } \$ 7,500) & 7,500 \\ \text { Unreimbursed employee expenses } & 2,500 \\ \text { Sales taxes } & 2,600 \end{array}$

Arnold and Beth's deduction for AGI is $

Marvin spends the following amounts on a house he owns: \[\begin{array} { l r } \text { Repair to roof } & \$ 1,100 \\ \text { Carpeting for the living room } & 1,200 \\ \text { Painting of the exterior } & 4,000 \\ \text { Replacement of front door } & 800 \end{array}\] a. How much of these expenses can Marvin deduct if the house is his principal residence? b. How much of these expenses can Marvin deduct if he rents the house to a tenant? c. Classify any deductible expenses as deductions for AGI or as deductions from AGI.

a. Since these expenditures are personal

Exam 6: Deductions and Losses: in General

While she was a college student, Angel lived by a bookstore located near campus. She thinks a bookstore located on the other side of campus would be successful. She incurs expenses of $42,800 (legal fees, accounting fees, marketing survey, etc.) in exploring its business potential. Her parents have agreed to lend her the money required to start the business. What amount of these investigation costs can Angel deduct if: a. She opens the bookstore on August 1, 2019. b. She decides not to open the bookstore.

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Question 1

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a.If Angel opens the bookstore on August 1, 2019, she can deduct the following investigation expenses in 2019. $\begin{array}{ll}\text { Allowed expense deduction in first year } & \$ 5,000 \\\text { Amortization ( } \$ 37,800 / 180 \text { months } \times 5 \text { months) } & \underline{1,050} \\\text { Deductible investigation expenses } & \$ 6,050\end{array}$ b. If Angel does not open the bookstore, she cannot deduct any of the $42,800 of expenses she incurred since she is not already in the same or a similar business.

Salaries are considered an ordinary and necessary expense of a trade or business if they meet what other requirement? What are the tax consequences if this requirement is not met?

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"Reasonableness" is an additional requirement that applies to salaries. Generally, the unreasonable portion of the salary expense is disallowed as a deduction to the corporation and taxable as a dividend, rather than as salary, to the shareholder.

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

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The nine relevant factors detailed in Reg. § 1.183-2(b) are as follows:
(1) Whether the activity is conducted in a businesslike manner.
(2) The expertise of the taxpayers or their advisers.
(3) The time and effort expended.
(4) The expectation that the assets of the activity will appreciate in value.
(5) The previous success of the taxpayer in the conduct of similar activities.
(6) The history of income and losses from the activity.
(7) The relationship of profits earned to losses incurred.
(8) The financial status of the taxpayer.
(9) Elements of personal pleasure or recreation in the activity.

Arnold and Beth file a joint return in 2019. 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 (divorce finalized in 2014) 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

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Question 4

If part of a shareholder/employee's salary is classified as unreasonable, determine the effect on the: a. Shareholder/employee's gross income. b. Corporation's taxable income.

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Question 5

Which of the following may be deductible in 2019?

(Multiple Choice)

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Question 6

If a vacation home is classified as primarily rental use, a deduction for all of the rental expenses is allowed.

(True/False)

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Question 7

Depending on the nature of the expenditure, expenses incurred in a trade or business may be deductible for or from AGI.

(True/False)

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Question 8

Robin and Jeff own an unincorporated hardware store. They determine their salaries at the end of the year by using the amount required to reduce the net income of the hardware store to $0. Based on this policy, Robin and Jeff each receive a total salary of $125,000. This is paid as follows: $8,000 per month and $29,000 on December 31. Determine the amount of the salary deduction.

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Question 9

A taxpayer's note or promise to pay satisfies the "actually paid" requirement for the cash basis method of accounting.

(True/False)

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Question 10

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

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Question 11

If a taxpayer operated an illegal business (not drug trafficking), what expenses can be deducted and what expenses are disallowed?

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Question 12

Marvin spends the following amounts on a house he owns: Repair to roof \ 1,100 Carpeting for the living room 1,200 Painting of the exterior 4,000 Replacement of front door 800 a. How much of these expenses can Marvin deduct if the house is his principal residence? b. How much of these expenses can Marvin deduct if he rents the house to a tenant? c. Classify any deductible expenses as deductions for AGI or as deductions from AGI.

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Question 13

Which of the following is not deductible in 2018?

(Multiple Choice)

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Question 14

For a taxpayer who is engaged in a trade or business, the cost of investigating a business in the same field is deductible only if the taxpayer acquires the business.

(True/False)

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Question 15

If a vacation home is rented for less than 15 days during a year, the only expenses that can be deducted are mortgage interest, property taxes, and personal casualty losses.

(True/False)

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Question 16

Are there any circumstances under which lobbying expenditures are deductible?

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Question 17

Paula is the sole shareholder of Violet, Inc. For 2019, she receives from Violet a salary of $300,000 and dividends of $100,000. Violet's taxable income for 2019 is $500,000. On audit, the IRS treats $100,000 of Paula's salary as unreasonable. Which of the following statements is correct?

(Multiple Choice)

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Question 18

Isabella owns two business entities. She may be able to use the cash method for one and the accrual method for the other.

(True/False)

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Question 19

Agnes operates a Christmas shop in Atlantic City, NJ. She makes a weekend trip to Vero Beach, FL, for the purpose of determining the feasibility of opening another shop. Her travel expenses are $2,000 (includes $500 for meals). In addition, she pays $5,000 to a market research firm in Vero Beach to prepare a feasibility study. Determine the amount of the expenses that Agnes can deduct if: a. She opens a new shop in Vero Beach. b. She decides not to open a new shop in Vero Beach.

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Question 20

Showing 1 - 20 of 148

Exam 6: Deductions and Losses: in General

Salaries are considered an ordinary and necessary expense of a trade or business if they meet what other requirement? What are the tax consequences if this requirement is not met?

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

If part of a shareholder/employee's salary is classified as unreasonable, determine the effect on the: a. Shareholder/employee's gross income. b. Corporation's taxable income.

Which of the following may be deductible in 2019?

If a vacation home is classified as primarily rental use, a deduction for all of the rental expenses is allowed.

Depending on the nature of the expenditure, expenses incurred in a trade or business may be deductible for or from AGI.

A taxpayer's note or promise to pay satisfies the "actually paid" requirement for the cash basis method of accounting.

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

If a taxpayer operated an illegal business (not drug trafficking), what expenses can be deducted and what expenses are disallowed?

Which of the following is not deductible in 2018?

For a taxpayer who is engaged in a trade or business, the cost of investigating a business in the same field is deductible only if the taxpayer acquires the business.

If a vacation home is rented for less than 15 days during a year, the only expenses that can be deducted are mortgage interest, property taxes, and personal casualty losses.

Are there any circumstances under which lobbying expenditures are deductible?

Paula is the sole shareholder of Violet, Inc. For 2019, she receives from Violet a salary of $300,000 and dividends of $100,000. Violet's taxable income for 2019 is $500,000. On audit, the IRS treats $100,000 of Paula's salary as unreasonable. Which of the following statements is correct?

Isabella owns two business entities. She may be able to use the cash method for one and the accrual method for the other.

Understanding and Working With 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, Section 1231, and Recapture Provisions

Taxing Business Income

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

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