Exam 6: Deductions and Losses in General

Alfred's Enterprises,an unincorporated entity,pays employee salaries of $100,000 during the year.At the end of the year,$12,000 of additional salaries have been earned but not paid until the beginning of the next year. a.Determine the amount of the deduction for salaries if Alfred is a cash method taxpayer. b.Determine the amount of the deduction for salaries if Alfred is an accrual method taxpayer.

Arnold and Beth file a joint return.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 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

Rex,a cash basis calendar year taxpayer,runs a bingo operation which is illegal under state law.During 2016,a bill designated H.R.9 is introduced into the state legislature which,if enacted,would legitimize bingo games.In 2016,Rex had the following expenses: Operating expenses in conducting bingo games $247,000 Payoff money to state and local police 24,000 Newspaper ads supporting H.R.9 3,000 Political contributions to legislators who support H.R.9 8,000 Of these expenditures,Rex may deduct:

Walter sells land with an adjusted basis of $175,000 and a fair market value of $160,000 to his mother,Shirley,for $160,000.Walter reinvests the proceeds in the stock market.Shirley holds the land for one year and a day and sells it in the marketplace for $169,000. a.Determine the tax consequences to Walter. b.Determine the tax consequences to Shirley.

Aaron,a shareholder-employee of Pigeon,Inc. ,receives a $300,000 salary.The IRS classifies $100,000 of this amount as unreasonable compensation.The effect of this reclassification is to decrease Aaron's gross income by $100,000 and increase Pigeon's gross income by $100,000.

Which of the following can be claimed as a deduction for AGI?

Tom operates an illegal drug-running operation and incurred the following expenses: Salaries $ 75,000 Illegal kickbacks 20,000 Bribes to border guards 25,000 Cost of goods sold 160,000 Rent 8,000 Interest 10,000 Insurance on furniture and fixtures 6,000 Utilities and telephone 20,000 Which of the above amounts reduces his taxable income?

Under what circumstances may a taxpayer deduct the expenses of investigating a possible business acquisition,if (1)the business is not acquired;and (2)the business is acquired?

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

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:

Robyn rents her beach house for 60 days and uses it for personal use for 30 days during the year.The rental income is $6,000 and the expenses are as follows: Mortgage interest $9,000 Real estate taxes 3,000 Utilities 2,000 Maintenance 1,000 Insurance 500 Depreciation (rental part) 4,000 ​ Using the IRS approach,total expenses that Robyn can deduct on her tax return associated with the beach house are:

Briefly discuss the disallowance of deductions for capital expenditures.

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.

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

Ordinary and necessary business expenses,other than cost of goods sold,of an illegal drug trafficking business do not reduce taxable income.

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.

Legal expenses incurred in connection with rental property are deductions from AGI.

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

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

Why are there restrictions on the recognition of gains and losses resulting from transactions between related parties?