Exam 6: Deductions and Losses: in General

Graham, a CPA, has submitted a proposal to do the annual audit for a municipality.Owen, the city treasurer, tells Graham that for a $1,000 fee, he will use his influence to have the audit awarded to Graham.What factors are relevant in determining if Graham can deduct the $1,000 payment assuming he pays the fee to Owen?

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

Max opened his dental practice (a sole proprietorship) in March 2012.At the end of the year, he has unpaid accounts receivable of $62,000 and no unpaid accounts payable.Should Max use the accrual method or the cash method for his dental practice?

Marvin spends the following amounts on a house he owns:

Mattie and Elmer are separated and are in the process of obtaining a divorce.They incur legal fees for their respective attorneys with the expenses being itemized as follows: Although there is no requirement that he do so, Elmer pays Mattie's lawyer as a gesture of the positive feelings he still has for her.

In a related party transaction where realized loss is disallowed, when can the disallowed loss be used by the buyer on the subsequent sale of the property? In the case of a related party disallowed loss transaction, can the related party seller's disallowed loss be used by a taxpayer other than the related party buyer?

Trade and business expenses should be treated as:

Terry and Jim are both involved in operating illegal businesses.Terry operates a gambling business and Jim operates a drug running business.Both businesses have gross revenues of $500,000.The businesses incur the following expenses. Which of the following statements is correct?

Iris, a calendar year cash basis taxpayer, owns and operates several TV rental outlets in Florida, and wants to expand to other states.During 2012, she spends $14,000 to investigate TV rental stores in South Carolina and $9,000 to investigate TV rental stores in Georgia.She acquires the South Carolina operations, but not the outlets in Georgia.As to these expenses, Iris should:

If an activity involves horses, a profit in at least two of seven consecutive years meets the presumptive rule of § 183.

Al single, age 60, and has gross income of $140,000.His deductible expenses are as follows: What is Al's AGI?

The cash method can be used even if inventory and cost of goods sold are an income producing factor in the business.

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.

Can a trade or business expense be deductible if it is necessary but not ordinary?

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?

Abner contributes $1,000 to the campaign of the Tea Party candidate for governor, $750 to the campaign of the Tea Party candidate for senator, and $500 to the campaign of the Tea Party candidate for mayor.Can Abner deduct these political contributions?

Briefly explain the provisions regarding the deductibility of expenditures paid for another's benefit or obligation.

Tommy, an automobile mechanic employed by an auto dealership, is considering opening a fast food franchise.If Tommy decides not to acquire the fast food franchise, any investigation expenses are:

Payments by a cash basis taxpayer of capital expenditures:

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 must include the $2,500 in her gross income whereas Martha is not required to include the $3,000 in her gross income.