Exam 5: Introduction to Business Expenses

Dustin,Dan,and Dennis operate Heritage Hills dry cleaners as an S corporation.Dustin owns 50% of the business,Dan 30%,and Dennis 20%.For the current year,Heritage Hills reports the following: How must Heritage Hills report its results to each of the owners?

Match the proper deduction method with the correct expenditures. -Organization costs

Match the proper deduction method with the correct expenditures. -Fire and casualty insurance premium on business warehouse

Angela is an accrual basis taxpayer.On September 1 of the current year,she prepays the annual premium of $4,800 for a one-year fire insurance policy on the contents of her business warehouse.The expense is not material for either financial or tax purposes.The prepayment is necessary to activate the insurance coverage and maintain annual renewals.How much may Angela deduct in the current year?

During the current year,Paul came down with a serious illness.Paul's uncle paid many of Paul's expenses during the period of rehabilitation.For tax purposes,how are Paul's mortgage interest and real estate property taxes handled? I.Paul can deduct both items. II.Paul's uncle can deduct both items. III.Neither Paul nor his uncle can deduct the expenses. ​

Match the proper deduction method with the correct expenditures. -Illegal gambling operation expenses

Wilson owns a condominium in Gatlinburg,Tennessee.During the current year,she incurs the following expenses before allocation related to the property: ​ a.For each of the following scenarios indicate whether Wilson would treat the condominium for income tax purposes as personal use property,a rental or a vacation home.​ ​ b.Consider Case C.Determine Wilson's deductions related to the condominium.Indicate the amount of each expense that can be deducted and how it would be deducted.

Michael operates an illegal cock fighting business.Which of the following expenses is currently deductible?

Kim owns and operates a restaurant on the north side of Indianapolis.She is considering opening a day care center on the south side of town and incurs $10,400 of investigation expenses.In July of the current year,Kim opens the day care center.How much of the investigation expenses can Kim deduct in the current year?

Match each statement with the correct term below. -Amortizable or deductible expense

An ordinary expense I.is normal,common,and accepted under the circumstances of the business community. II.is an expense commonly incurred in an income-producing activity. ​

Ona is a professional musician.She prepared her music teacher's tax return in exchange for music lessons.Since she is a cash basis taxpayer,she cannot take a deduction for the music lessons.

All of the following are a required test for the deduction of a business expense except?

Harold is a 90% owner of National Homes Construction,an accrual basis S corporation.On December 30,2016,National Homes accrues a $100,000 bonus to Harold,payable on February 15,2017. I.If Harold is an accrual basis taxpayer,National Homes deducts the bonus in 2016 and Harold reports the income in 2017. II.If Harold is a cash basis taxpayer,National Homes deducts the bonus in 2016 and Harold reports the income in 2017. ​

Bruce operates an illegal drug business.Which of the following is deductible?

Elise is a self-employed business consultant who operates her business out of an office in her home.The home office passes the qualifying tests for deducting office in the home expenses.For the current tax year,Elise earns $90,000 from her business activities.She incurs $82,000 in supplies,travel expenses,wage expense,etc.Elise's mortgage interest and real estate taxes allocable to the home office space were determined to be $9,000.Also,other expenses including insurance,repairs and maintenance,utilities,and depreciation allocable to the home office space total $11,000.How much of the other expenses (insurance,repairs,etc. )can Elise deduct?

If a taxpayer owes interest,economic performance occurs I.with the passage of time. II.when the all-events test is met. III.when payments are made by the taxpayer. ​

An exception to the economic performance test allows the deduction of year-end accruals if I.The liability exists and the amount of the liability can be reasonably estimated. II.Economic performance occurs within the shorter of 8 1/2 months after the close of the tax year or a reasonable time after the close of the tax year ​

Due to a shortage of cash,East Coast Entertainment Company,an accrual basis taxpayer,could not pay its November 2017 utility bill on time.In February of 2018,East Coast Entertainment pays the utility bill. I.East Coast can deduct the expense on either its 2017 or 2018 tax return. II.East Coast cannot deduct the utility expense in 2017 because it is paid in 2018. ​

Evelyn can avoid the 2 percent limitation on her investment expenses by having her partnership pay them.