Exam 6: Deductions and Losses: in General

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.

For a vacation home to be classified in the primarily rental use category,what attributes must be present?

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 loan 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 1,2015. b.She decides not to open the bookstore.

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

Priscella pursued a hobby of making bedspreads in her spare time.Her AGI before considering the hobby is $40,000.During the year she sold the bedspreads for $10,000.She incurred expenses as follows: Supplies $4,000 Interest on loan to get business started 500 Advertising 6,500 ​ Assuming that the activity is deemed a hobby,how should she report these items on her tax return?

None of the prepaid rent paid on September 1 by a calendar year cash basis taxpayer for the next 18 months is deductible in the current period.

A vacation home at the beach which is rented for 200 days and used personally for 16 days is classified in the personal/rental use category.

In order to protect against rent increases on the building in which she operates a dance studio,Mella signs an 18-month lease for $36,000.The lease commences on October 1,2015.How much of the $36,000 payment can she deduct in 2015 and 2016? a.If Mella is an accrual basis taxpayer? b.If Mella is a cash basis taxpayer?

Hobby activity expenses are deductible from AGI to the extent of hobby income.Such expenses not in excess of hobby income are not subject to the 2% of AGI floor.

Which of the following is a required test for the deduction of a business expense?

Which of the following is not a related party for constructive ownership purposes under § 267?

Which of the following are deductions for AGI?

Briefly discuss the two tests that an accrual basis taxpayer must apply before an expense can be deducted.

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:

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.

Only some employment related expenses are classified as deductions for AGI.

Calculate the net income includible in taxable income for the following hobby: Income $23,000 Mortgage interest and property taxes allocable to hobby 12,000 Depreciation 4,000 Supplies and fees 7,000 Telephone for hobby 3,000

The stock of Eagle,Inc.is owned as follows: Tom 23% Tom's uncle 22% Tom's daughter 7% Tom's sister 15% Tom's spouse 15% Tom's nephew 8% Tom's CPA,unrelated 10% Tom sells land and a building to Eagle,Inc.for $212,000.His adjusted basis for these assets is $225,000.Calculate Tom's realized and recognized loss associated with the sale.

Terry and Jim are both involved in operating illegal businesses.Terry operates a gambling business and Jim operates a drug running business.Both businesses have gross revenues of $500,000.The businesses incur the following expenses. Terry Jim Employee salaries $200,000 $200,000 Bribes to police 25,000 25,000 Rent and utilities 50,000 50,000 Cost of goods sold -0- 125,000 Which of the following statements is correct?

Kitty runs a brothel (illegal under state law) and has the following items of income and expense.What is the amount that she must include in taxable income from her operation? Income $200,000 Expenses: Rent 8,000 Utilities 2,000 Bribes to police 10,000 Office supplies 5,000 Legal fees 20,000 Depreciation 14,000 Illegal kickbacks 15,000