Exam 6: Deductions and Losses: in General

Robyn rents her beach house for 60 days and uses it for personal use for 30 days during the year.The rental income is $6,000 and the expenses are as follows: Using the IRS approach, total expenses that Robyn can deduct on her tax return associated with the beach house are:

Paula is the sole shareholder of Violet, Inc.For 2012, she receives from Violet a salary of $300,000 and dividends of $100,000.Violet's taxable income for 2012 is $500,000.On audit, the IRS treats $100,000 of Paula's salary as unreasonable.Which of the following statements is correct?

Brenda invested in the following stocks and bonds during 2012. To finance the investments, she borrowed $100,000 from Swan Bank.Interest expense paid on the loan during 2012 was $6,000.During 2012, Brenda received $2,400 of dividend income from Green, Inc.and $3,200 of interest income on the municipal bonds.

If a taxpayer operated an illegal business (not drug trafficking), what expenses can be deducted and what expenses are disallowed?

Bruce owns several sole proprietorships.Must Bruce use the same accounting method for each of these businesses?

A political contribution to the Democratic Party or the Republican Party is not deductible, but a contribution to the Presidential Election Campaign Fund is deductible.

Austin, a single individual with a salary of $100,000, incurred and paid the following expenses during the year: Calculate Austin's deductions for AGI.

Which of the following is not deductible?

A salary that is classified as unreasonable by the IRS is disallowed as a deduction to the corporation.

In order to protect against rent increases on the building in which she operates a dance studio, Mella signs an 18-month lease for $36,000.The lease commences on October 1, 2012. How much of the $36,000 payment can she deduct in 2012 and 2013?

All employment related expenses are classified as deductions for AGI.

Ordinary and necessary business expenses, other than cost of goods sold, of an illegal drug trafficking business do not reduce taxable income.

Fines and penalties paid for violations of the law (e.g., illegal dumping of hazardous waste) are deductible only if they relate to a trade or business.

Petal, Inc.is an accrual basis taxpayer.Petal uses the aging approach to calculate the reserve for bad debts.During 2012, the following occur associated with bad debts. The amount of the deduction for bad debt expense for Petal for 2012 is:

In January, Lance sold stock with a cost basis of $26,000 to his brother, James, for $24,000, the fair market value of the stock on the date of sale.Five months later, James sold the same stock through his broker for $27,000.What is the tax effect of these transactions?

Are there any exceptions to the rule that personal expenditures cannot be deducted?

Which of the following are deductions for AGI?

Under the "one-year rule" for the current period deduction of prepaid expenses of cash basis taxpayers, the asset must expire or be consumed by the end of the tax year following the year of payment.

Tom operates an illegal drug-running operation and incurred the following expenses: Which of the above amounts reduces his taxable income?

Briefly discuss the two tests that an accrual basis taxpayer must apply before an expense can be deducted.