Exam 5: Introduction to Business Expenses

Larry is a history teacher.He subscribes to several periodicals about teaching history and judging history fairs.This year Larry spends $285 on subscriptions to various periodicals.Discuss the deductibility of the expenditures for tax purposes.

Three requirements must be met in order to deduct a trade or business expense.Also,deductible trade or business expenses may not be which of the following: I.a capital expenditure. II.reasonable in amount. III.a payment that frustrates public policy. IV.an expense related to tax-exempt income. ​

The Wilson Corporation incurs the following expenses.Explain whether the following expenses should be capitalized or deducted in the current period. a.Paid $2,500 to blacktop a gravel parking lot. b.Paid $1,900 for new tires on the truck. c.Paid $3,000 for a new fire and security alarm system for the factory. d.Paid $6,250 to paint the interior and exterior of the office and factory building that it just acquired. e.Paid $1,200 for a new compressor for the factory's central air conditioning system.

Which of the following payments are currently deductible? I.Steve is a self-employed attorney.He pays another attorney $14,000 to represent him in a lawsuit that alleged that he was liable in a personal auto accident. II.Connie has an investment portfolio in excess of $600,000.She pays Chris $1,000 to do an analysis of her investments and make recommendations on restructuring the portfolio. ​

Jim operates a business out of his home.One room in his home is used for business and qualifies as a home office.Which of the following allocable expenditures can Jim use in computing his home office expense deduction? I.Jim pays his housekeeper $25 a week to sweep,dust and straighten-up his office. II.Jim's fire and casualty insurance premiums on his home are $800. ​

Jackie recently retired from the U.S.Coast Guard after 30 years of service.She would like to open a boat shop to operate in her retirement years.Jackie incurs $3,800 of expenses while investigating sites for her shop and while checking out boat franchises.What are the tax effects of the expenses Jackie incurs? I.If Jackie enters the boat business,she can deduct the costs only by capitalizing them and amortizing them over 180 months. II.They are not deductible if Jackie does not enter the ski and boat business. ​

Twin City Manufacturing Corporation is an accrual basis taxpayer.Twin City Manufacturing provides medical insurance for its employees through a self-insured reimbursement plan.Twin City Manufacturing pays $100 per month per employee into the plan fund.The fund is then used to reimburse employees' medical expenses.During the current year,Twin City Manufacturing Corp.pays $12,000 into the fund and pays medical reimbursement claims of $10,600. I.If Twin City Manufacturing is an accrual basis taxpayer it can deduct $12,000. II.If Twin City Manufacturing is a cash basis taxpayer it can deduct $10,600. ​

To be deductible,the dominant motive for incurring an expense must be

Janine,a cash-basis taxpayer,borrowed $15,000 for her business from a local bank three years ago.To increase her deductions for 2017,she pays December interest of $150 and prepays January and February interest totaling $300.The maturity date of the note is November 30,2087.How much of the interest is deductible in 2017?

Which of the following payments are currently deductible? I.Sweeney Corporation pays tuition to an MBA program for Phyllis,the controller. II.Amber's Construction Company pays the tuition for Karl's son.Karl is a local building inspector and has no other relationship with the company. ​

Match the proper deduction method with the correct expenditures. -Hobby loss

A business expense includes I.an expenditure that satisfies the dominant profit-motive requirement. II.an expenditure that is incurred in a trade or business activity. ​

Oscar drives a taxi on weekends.In maximizing the amount of fares he earns,he occasionally gets tickets for speeding.Oscar figures that as long as he keeps his traffic violations under $100 over a weekend,he can more than offset those costs with additional fares.What is/are the tax effect(s)of Oscar's speeding ticket costs?

Which of the following expenses is/are deductible? I.Transportation and lodging expenses of $4,000 to influence state legislation that may affect the taxpayer's business. II.A $4,000 contribution to the mayor's campaign fund. ​

Which of the following expenditures or losses incurred in the context of a trade or business activity is deductible at the time it is incurred?

Match the proper deduction method with the correct expenditures. -Political contributions

An individual should be indifferent whether an expense is deducted for or deducted from adjusted gross income.

Richard,a cash basis taxpayer,is an 80% owner and president of WLFI TV.WLFI TV is an S corporation and uses the accrual method of accounting.On December 1,2017,WLFI TV accrues a bonus of $50,000 to Richard.The bonus is payable on January 31,2018.In what year does Richard report the income and WLFI TV take the deduction? Richard WLFI TV

An expense that is incurred for the production of rent will be deducted for adjusted gross income.

In order to take a business deduction,the taxpayer engaged in a business must be able to establish a business purpose for each expenditure.