Exam 6: Deductions and Losses in General

Generally,a closely-held family corporation is not permitted to take a deduction for a salary paid to a family member in calculating corporate taxable income.

During the year,Rita rented her vacation home for twelve days for $2,400 and she used it personally for three months.The following expenses were incurred on the home: Property taxes $ 2,200 Mortgage interest 10,800 Utilities and maintenance 1,900 Depreciation 5,000 Insurance 900 ​ Calculate her rental gain or loss and itemized deductions.

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 Tax Consequences of property settlement 1,300 ​ Of the $5,000 Velma pays to her attorney,the amount she may deduct as an itemized deduction is:

Purchased goodwill must be capitalized,but can be amortized over a 60-month period.

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?

In January,Lance sold stock with a cost basis of $26,000 to his brother,James,for $24,000,the fair market value of the stock on the date of sale.Five months later,James sold the same stock through his broker for $27,000.What is the tax effect of these transactions?

If a vacation home is a personal/rental residence,no maintenance and utility expenses can be claimed as a deduction.

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

The portion of a shareholder-employee's salary that is classified as unreasonable has no effect on the amount of a shareholder-employee's gross income,but results in an increase in the taxable income of the corporation.

The Code does not specifically define what constitutes a trade or business.

Which of the following may be deductible?

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.

Trade or business expenses are classified as deductions for AGI.Section 212 expenses,barring certain exceptions,are classified as deductions from AGI.What are these exceptions?

Cory incurred and paid the following expenses: Tax return preparation fee $ 600 Moving expenses 2,000 Investment expenses 500 Expenses associated with rental property 1,500 Interest expense associated with loan to finance tax-exempt bonds 400 ​ Calculate the amount that Cory can deduct (before any percentage limitations).

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

If a taxpayer can satisfy the three-out-of-five year presumption test associated with hobby losses,then expenses from the activity can be deducted in excess of the gross income from the activity.

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

Sammy,a calendar year cash basis taxpayer who is age 66,has the following transactions: Salary from job $90,000 Alimony received from ex-wife 10,000 Medical expenses 8,000 ​ Based on this information,Sammy has:

If a vacation home is classified as primarily personal use (i.e. ,rented for fewer than 15 days),none of the related expenses can be deducted.

Beige,Inc. ,an airline manufacturer,is conducting negotiations for the sale of military aircraft.One negotiation is with a U.S.assistant secretary of defense.She can close the deal on the purchase of 50 attack helicopters if she is paid $750,000 under the table.Another negotiation is with the minister of defense of a third world country.To complete the sale of 20 jet fighters to his government,he demands that he be paid a $1 million grease payment.Beige makes the payments and closes the deals.How much of these payments are deductible by Beige,Inc.?