Exam 6: Deductions and Losses: in General

Petal, Inc. is an accrual basis taxpayer. Petal uses the aging approach to calculate the reserve for bad debts. During 2017, the following occur associated with bad debts. The amount of the deduction for bad debt expense for Petal for 2017 is:

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?

Cory incurred and paid the following expenses: ​ Calculate the amount that Cory can deduct (before any percentage limitations).

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.

Marge sells land to her adult son, Jason, for its $20,000 appraised value. Her adjusted basis for the land is $25,000. Marge's recognized loss is $5,000 and Jason's adjusted basis for the land is $25,000 ($20,000 cost + $5,000 recognized gain of Marge).

Briefly explain why interest on money borrowed to buy tax-exempt municipal bonds is disallowed as a deduction.

Investigation of a business unrelated to one's present business never results in a current period deduction of the entire amount if the amount of the investigation expenses exceeds $5,000.

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.

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

Tracy invested in the following stocks and bonds during 2017. To finance the investments, she borrowed $100,000 from Swan Bank. Interest expense paid on the loan during 2017 was $5,000. During 2017, Tracy received $1,250 of dividend income from Blue, Inc. and $3,000 of interest income on the municipal bonds. a.Determine the amount of Tracy's gross income. b.Determine the maximum amount of Tracy's deductible interest expense.

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.

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

A hobby activity can result in all of the hobby income being included in AGI and no deductions being allowed.

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

In applying the $1 million limit on deducting executive compensation, what corporations are subject to the deduction limit? What executives are covered?

What losses are deductible by an individual taxpayer?

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

Which of the following is a deduction for AGI?

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.

Martha rents part of her personal residence in the summer for 3 weeks for $3,000. Anne rents all of her personal residence for one week in December for $2,500. Anne is not required to include the $2,500 in her gross income whereas Martha is required to include the $3,000 in her gross income.