Exam 6: Deductions and Losses: in General

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.

Are there any exceptions to the rule that personal expenditures cannot be deducted?

Marsha is single,had gross income of $50,000,and incurred the following expenses: Charitable contribution $2,000 Taxes and interest on home 7,000 Legal fees incurred in a tax dispute 1,000 Medical expenses 3,000 Penalty on early withdrawal of savings 250 ​ Her AGI is:

Mitch is in the 28% tax bracket.He may receive a different tax benefit for a $2,000 expenditure that is classified as a deduction from AGI than he will receive for a $1,000 expenditure that is classified as a deduction for AGI.

Bobby operates a drug trafficking business.Because he has an accounting background,he keeps detailed financial records.What expenses can Bobby deduct on his Federal income tax return?

A baseball team that pays a star player an annual salary of $25 million can deduct the entire $25 million as salary expense.If the same amount is paid to the CEO of IBM,only $1 million is deductible.

Melba incurred the following expenses for her dependent daughter during the current year: Payment of principal on daughter's automobile loan $3,600 Payment of interest on above loan 2,900 Payment of daughter's property taxes 1,800 Payment of principal on daughter's personal residence loan 2,800 Payment of interest on daughter's personal residence loan 7,000 ​ How much may Melba deduct in computing her itemized deductions?

Beulah's personal residence has an adjusted basis of $450,000 and a fair market value of $390,000.Beulah converts the property to rental use this year.The vacation home rules that limit the amount of the deduction to the rental income will apply and the adjusted basis for depreciation is $390,000.

What losses are deductible by an individual taxpayer?

Deductions are allowed unless a specific provision in the tax law provides otherwise.

Under the "one-year rule" for the current period deduction of prepaid expenses of cash basis taxpayers,the asset must expire or be consumed by the end of the tax year following the year of payment.

If a taxpayer operates an illegal business,no deductions are permitted.

Susan is a sales representative for a U.S.weapons manufacturer.She makes a $100,000 "grease" payment to a U.S.government official associated with a weapons purchase by the U.S.Army.She makes a similar payment to a Saudi Arabian government official associated with a similar sale.Neither of these payments is deductible by Susan's employer.

Albie operates an illegal drug-running business and has the following items of income and expense.What is Albie's adjusted gross income from this operation? Income $800,000 Expenses: Rent 24,000 Utilities 9,000 Bribes to police 55,000 Medical expense 5,000 Legal fees 25,000 Depreciation 30,000 Illegal kickbacks 30,000 Cost of goods sold 300,000

Trade and business expenses should be treated as:

If an item such as property taxes and home mortgage interest exceed the income from a hobby,the excess amount of this item over the hobby income can be deducted if the taxpayer itemizes deductions.

Walt wants to give his daughter $1,800 for Christmas.As an alternative,she suggests that he pay the property taxes on her residence.If Ralph pays the property taxes,he can deduct them.

Discuss the application of the "one-year rule" on prepayments by a cash basis taxpayer.

Abner contributes $2,000 to the campaign of the Tea Party candidate for governor,$1,000 to the campaign of the Tea Party candidate for senator,and $500 to the campaign of the Tea Party candidate for mayor.Can Abner deduct these political contributions?

Velma and Bud divorced.Velma's attorney fee of $5,000 is allocated as follows: General representation in obtaining the divorce $1,500 Services in obtaining custody of the child 900 Services in settlement of martial property 600 Determining the tax consequences of: Dependency deduction for child 700 Property settlement 1,300 ​ Of the $5,000 Velma pays to her attorney,the amount she may deduct as an itemized deduction is: