Exam 5: Introduction to Business Expenses

Karen owns a vacation home in Door County,Wisconsin.During the year,she rents it out for two weeks and uses it personally for three weeks.Her expenses directly related to renting out the property were utilities $300,and maid service $150.The portion of taxes allocable to the rental activity is $600 and revenue from the rental is $1,000.Karen will

(Multiple Choice)

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Question 121

Which of the following expenditures are not deductible because they are personal in nature? I.Premiums paid on liability insurance for the taxpayer. II.Education costs that improves the taxpayer's skills in his/her trade or business.

(Multiple Choice)

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Question 122

Angel owns a gourmet Mexican restaurant.His head chef,Carmen,is arrested for a parole violation.Because Angel needs Carmen back to work as soon as possible,Angel pays her bail of $250,attorney's fees of $300,and a court fine of $200. I.A business purpose exists for the payments. II.If Carmen were required to repay the expenditures,it would constitute a loan and not be deductible for Angel. III.If Angel does not require Carmen to repay the amounts paid on Carmen's behalf,the payments constitute compensation and Angel gets a deduction for the expenses paid.

(Multiple Choice)

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Question 123

An exception to the economic performance test allows the deduction of year-end accruals if I.Either the expense is not material for both tax and financial purposes or the accrual results in a better matching of revenue and expenses. II.The taxpayer consistently treats the item as incurred in the year the all events test is met.

(Multiple Choice)

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Question 124

Michelle is a bank president and a weekend artist.She regularly sells her paintings at flea markets and spends an average of 9 hours a week painting or selling.Although she made about $6,000 last year from sales of artwork,she tells her friends she would do it for free.For the current tax year,she incurs expenses of $800 primarily for admission fees to flee markets and art fairs.The $800 is I.deductible for AGI as a business expense. II.a miscellaneous itemized deduction. III.is deductible only because she has revenue from the activity.

(Multiple Choice)

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Question 125

Explain the rationale for disallowing the deduction for interest expense attributable to money borrowed to acquire tax-exempt municipal bonds.

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Question 126

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Which of the following factors absolutely must be present for an activity to be considered a trade or business for tax purposes?

(Multiple Choice)

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Question 127

Andy lives in New York and rents his house for two weeks during the U.S.Open Tennis tournament for $3,500.He must include the rent in his income.

(True/False)

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Question 128

For its financial accounting records Addison Company uses the allowance method to account for bad debts and estimates the balance in the "Allowance for Bad Debts" account using the aging method.For tax purposes,the allowance method cannot be used.The rationale for not allowing this method is

(Multiple Choice)

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Question 129

Cornelius owns a condominium in Orlando.During the year,Cornelius uses the condo a total of 25 days.The condo is also rented to vacationers for a total of 75 days and generates rental income of $9,000.Cornelius incurs the following expenses: Determine Cornelius's deduction related to the condominium.Indicate the amount of each expense that can be deducted and how it would be deducted.

(Essay)

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Question 130

For a taxpayer to be engaged in a trade or business,the activity must meet all of the following tests: it must produce a profit every year;must be continuous and regular activity;and must be the taxpayer's livelihood not their hobby.

(True/False)

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Question 131

Match each statement with the correct term below. -Production-of-income expense

(Multiple Choice)

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Question 132

Pedro owns 5 rental properties.He contracts with East Lake Properties,Inc. ,to manage the real estate.East Lake obtains tenants,negotiates leases,makes necessary repairs,pays expenses related to the properties,and remits monthly net receipts to Pedro. I.Pedro's sale of the properties at a gain will result in a capital gain. II.Pedro's sale of the properties at a loss results in an ordinary loss on his tax return.

(Multiple Choice)

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Question 133

Income tax accounting methods and financial accounting methods differ in many ways.Which of the following tax law provisions are likely to create permanent differences between taxable income and financial (or book)income of a single entity? I.Treatment of payment of penalties and fines. II.Disallowance of 50% of the cost of business meals and entertainment.

(Multiple Choice)

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Question 134

Match the proper deduction method with the correct expenditures. -Federal lobbying expenditures

(Multiple Choice)

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Question 135

An accrual basis taxpayer may deduct expenses in the year in which certain tests are met.These tests include I.when services or property are provided to the taxpayer or when the taxpayer uses the property. II.when the "all-events test" is met. III.when "economic performance" has occurred. IV.when all events have occurred to determine that a liability exists and the amount of the liability can be determined with reasonable accuracy.

(Multiple Choice)

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Question 136

In order for a taxpayer to reduce taxable income with a deduction,the tax law must allow it,and it must meet all statutory requirements.

(True/False)

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Question 137

Which of the following individuals is involved in a trade or business? I.Lil owns a farm near Lafayette,Indiana.She leases the property to Cal,who operates the farm for himself.Lil receives 10% of Cal's net income as part of the lease agreement but has no responsibilities for the farming operation. II.Lorraine owns a warehouse located in Brooklyn NY.She paid $250,000 for the real estate several years ago.It is now appraised at over $1,000,000,but she still uses the building only to store her painting collection.

(Multiple Choice)

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Question 138

Which of the following factors are used to aid in determining whether an activity that earns income is profit motivated and should be treated as a business or is subject to the hobby loss rules? I.The amounts of occasional profits,if any. II.Taxpayer's success in similar activities.

(Multiple Choice)

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Question 139

Jack and Cheryl own a cabin near Copper Mountain,Colorado.During the year,Jack and Cheryl rent the cabin for 30 days to friends for $1,800.Jack and Cheryl use the cabin a total of 60 days during the year.After making the appropriate allocation of planned expenses between personal and rental use,the following rental loss was determined: How should Jack and Cheryl report the rental income and expenses for the forthcoming year? I.Only expenses up to the amount of $1,800 rental income may be deducted for the year. II.Only depreciation in the amount of $100 may be deducted. III.The amount of the disallowed depreciation deduction ($300)can be carried forward. IV.Nothing needs to be reported.

(Multiple Choice)

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Question 140

Showing 121 - 140 of 167

Which of the following expenditures are not deductible because they are personal in nature? I.Premiums paid on liability insurance for the taxpayer. II.Education costs that improves the taxpayer's skills in his/her trade or business.

Explain the rationale for disallowing the deduction for interest expense attributable to money borrowed to acquire tax-exempt municipal bonds.

Which of the following factors absolutely must be present for an activity to be considered a trade or business for tax purposes?

Andy lives in New York and rents his house for two weeks during the U.S.Open Tennis tournament for $3,500.He must include the rent in his income.

For its financial accounting records Addison Company uses the allowance method to account for bad debts and estimates the balance in the "Allowance for Bad Debts" account using the aging method.For tax purposes,the allowance method cannot be used.The rationale for not allowing this method is

For a taxpayer to be engaged in a trade or business,the activity must meet all of the following tests: it must produce a profit every year;must be continuous and regular activity;and must be the taxpayer's livelihood not their hobby.

Match each statement with the correct term below. -Production-of-income expense

Match the proper deduction method with the correct expenditures. -Federal lobbying expenditures

In order for a taxpayer to reduce taxable income with a deduction,the tax law must allow it,and it must meet all statutory requirements.

Which of the following factors are used to aid in determining whether an activity that earns income is profit motivated and should be treated as a business or is subject to the hobby loss rules? I.The amounts of occasional profits,if any. II.Taxpayer's success in similar activities.

Conceptual Foundations of Tax Law

Income Tax Concepts

Income Sources

Income Exclusions

Business Expenses

Losses -- Deductions and Limitations

Taxation of Individuals

Acquisitions of Property

Cost Recovery on Property: Depreciation, depletion, and Amortization

Property Dispositions

Nonrecognition Transactions

Choice of Business Entity -- General Tax and Nontax Factorsformation

Choice of Business Entity -- Operations and Distributions

Choice of Business Entity -- Other Considerations

Tax Research

Filters

Exam 5: Introduction to Business Expenses

Which of the following expenditures are not deductible because they are personal in nature? I.Premiums paid on liability insurance for the taxpayer. II.Education costs that improves the taxpayer's skills in his/her trade or business. ​

Explain the rationale for disallowing the deduction for interest expense attributable to money borrowed to acquire tax-exempt municipal bonds.

Which of the following factors absolutely must be present for an activity to be considered a trade or business for tax purposes?

Andy lives in New York and rents his house for two weeks during the U.S.Open Tennis tournament for $3,500.He must include the rent in his income.

For its financial accounting records Addison Company uses the allowance method to account for bad debts and estimates the balance in the "Allowance for Bad Debts" account using the aging method.For tax purposes,the allowance method cannot be used.The rationale for not allowing this method is

For a taxpayer to be engaged in a trade or business,the activity must meet all of the following tests: it must produce a profit every year;must be continuous and regular activity;and must be the taxpayer's livelihood not their hobby.

Match each statement with the correct term below. -Production-of-income expense

Match the proper deduction method with the correct expenditures. -Federal lobbying expenditures

In order for a taxpayer to reduce taxable income with a deduction,the tax law must allow it,and it must meet all statutory requirements.

Which of the following factors are used to aid in determining whether an activity that earns income is profit motivated and should be treated as a business or is subject to the hobby loss rules? I.The amounts of occasional profits,if any. II.Taxpayer's success in similar activities. ​

Conceptual Foundations of Tax Law

Income Tax Concepts

Income Sources

Income Exclusions

Business Expenses

Losses -- Deductions and Limitations

Taxation of Individuals

Acquisitions of Property

Cost Recovery on Property: Depreciation, depletion, and Amortization

Property Dispositions

Nonrecognition Transactions

Choice of Business Entity -- General Tax and Nontax Factorsformation

Choice of Business Entity -- Operations and Distributions

Choice of Business Entity -- Other Considerations

Tax Research

Filters

Which of the following expenditures are not deductible because they are personal in nature? I.Premiums paid on liability insurance for the taxpayer. II.Education costs that improves the taxpayer's skills in his/her trade or business.

Which of the following factors are used to aid in determining whether an activity that earns income is profit motivated and should be treated as a business or is subject to the hobby loss rules? I.The amounts of occasional profits,if any. II.Taxpayer's success in similar activities.