Question 1

A taxpayer who claims the standard deduction cannot also deduct expenses that are classified as deductions from AGI.

Accepted Answer

A) True 
 B)False

Question 2

In determining whether an activity should be classified as a business or as a hobby, the satisfaction of the presumption (i.e., profit in at least 3 out of 5 years) ensures treatment as a business.

Accepted Answer

A) True 
 B)False

Question 3

Which of the following is relevant in deciding whether an activity is profit-seeking or a hobby?

Accepted Answer

A) The time and effort expended. 
B) The expertise of the taxpayers or their advisers. 
C) The history of income or losses from the activity. 
D) The tax benefits of the activity to the taxpayer. 
E) All of the above factors are to be considered. 
A) The time and effort expended. 
B) The expertise of the taxpayers or their advisers. 
C) The history of income or losses from the activity. 
D) The tax benefits of the activity to the taxpayer. 
E) All of the above factors are to be considered.

Question 4

If a vacation home is rented for less than 15 days during a year, the only expenses that can be deducted are mortgage interest, property taxes, and personal casualty losses.

Accepted Answer

A) True 
 B)False

Question 5

During the year, Martin rented his vacation home for three months and spent one month there.Gross rental income from the property was $5,000.Martin incurred the following expenses: mortgage interest, $3,000; real estate taxes, $1,500; utilities, $800; maintenance, $500; and depreciation, $4,000.Compute Martin's allowable deductions for the vacation home.
Since the vacation home is rented for 15 or more days and is used for personal purposes for more than the greater of (1) 14 days or (2) 10% of the rental days, the deductions are scaled down, using the court's approach, as follows:
   Thus, Martin may deduct $1,125 taxes and interest, $975 utilities and maintenance, and $2,900 depreciation against the gross income of $5,000.The personal portion of taxes and interest ($3,375) is deductible as an itemized deduction.Example 29

Accepted Answer

Using the IRS's approach, though, the de

Question 6

Assuming an activity is deemed to be a hobby, discuss the order and limits in which expenses must be deducted.

Accepted Answer

Amounts deductible under other Code sect

Question 7

Which of the following is correct?

Accepted Answer

A) A personal casualty loss is classified as a deduction from AGI. 
B) Real estate taxes on a taxpayer's personal residence are classified as deductions from AGI. 
C) An expense associated with rental property is classified as a deduction from AGI. 
D) Only a.and b.are correct. 
E) a., b., and c., are correct. 
A) A personal casualty loss is classified as a deduction from AGI. 
B) Real estate taxes on a taxpayer's personal residence are classified as deductions from AGI. 
C) An expense associated with rental property is classified as a deduction from AGI. 
D) Only a.and b.are correct. 
E) a., b., and c., are correct.

Question 8

Under no circumstance can a loss on the sale of a personal use asset be deducted.

Accepted Answer

A) True 
 B)False

Question 9

Which of the following must be capitalized by a business?

Accepted Answer

A) Replacement of a windshield of a business truck which was broken in an accident. 
B) Repair of a roof of a building used in business. 
C) Amount paid for a covenant not to compete. 
D) Only b.and c.must be capitalized. 
E) a., b., and c.can be expensed rather than capitalized. 
A) Replacement of a windshield of a business truck which was broken in an accident. 
B) Repair of a roof of a building used in business. 
C) Amount paid for a covenant not to compete. 
D) Only b.and c.must be capitalized. 
E) a., b., and c.can be expensed rather than capitalized.

Question 10

Susan is a sales representative for a U.S.weapons manufacturer.She makes a $100,000 "grease" payment to a U.S.government official associated with a weapons purchase by the U.S.Army.She makes a similar payment to a Saudi Arabian government official associated with a similar sale.Neither of these payments is deductible by Susan's employer.

Accepted Answer

A) True 
 B)False

Question 11

Hobby activity expenses are deductible from AGI to the extent of hobby income.Such expenses not in excess of hobby income are not subject to the 2% of AGI floor.

Accepted Answer

A) True 
 B)False

Question 12

In distinguishing whether an activity is a hobby or a trade or business, discuss the presumptive rule.

Accepted Answer

The Code provides a rebuttable presumpti

Question 13

Salaries are considered an ordinary and necessary expense of a trade or business if they meet what other requirement? What are the tax consequences if this requirement is not met?

Accepted Answer

"Reasonableness" is an additional requir

Question 14

Janice is single, had gross income of $38,000, and incurred the following expenses:   Her AGI is:

Accepted Answer

A) $21,300. 
B) $28,800. 
C) $32,800. 
D) $35,500. 
E) $37,800. 
A) $21,300. 
B) $28,800. 
C) $32,800. 
D) $35,500. 
E) $37,800.

Question 15

If an item such as property taxes and home mortgage interest exceed the income from a hobby, the excess amount of this item over the hobby income cannot be deducted if the taxpayer itemizes deductions.

Accepted Answer

A) True 
 B)False

Question 16

Under what circumstances may a taxpayer deduct the expenses of investigating a possible business acquisition, if (1) the business is not acquired; and (2) the business is acquired?

Accepted Answer

The answer of Under what circumstances may a taxpayer deduct...

Question 17

Alfred's Enterprises, an unincorporated entity, pays employee salaries of $92,000 during the year. At the end of the year, $9,000 of additional salaries have been earned but not paid until the beginning of the next year.

Accepted Answer

The answer of Alfred's Enterprises, an unincorporated entity, pays employee...

Question 18

A cash basis taxpayer who charges an expense on a bank credit card is allowed to claim a deduction currently, whereas a cash basis taxpayer who charges an expense on a department store credit card is not allowed to claim a deduction until payment is made.

Accepted Answer

A) True 
 B)False

Question 19

Because it has only one owner, any sole proprietorship is permitted to elect the cash method of accounting.

Accepted Answer

A) True 
 B)False

Question 20

In applying the $1 million limit on deducting executive compensation, what corporations are subject to the deduction limit? What executives are covered?

Accepted Answer

The $1 million limit on deducting the co

Exam 6: Deductions and Losses: in General

A taxpayer who claims the standard deduction cannot also deduct expenses that are classified as deductions from AGI.

In determining whether an activity should be classified as a business or as a hobby, the satisfaction of the presumption (i.e., profit in at least 3 out of 5 years) ensures treatment as a business.

Which of the following is relevant in deciding whether an activity is profit-seeking or a hobby?

If a vacation home is rented for less than 15 days during a year, the only expenses that can be deducted are mortgage interest, property taxes, and personal casualty losses.

Assuming an activity is deemed to be a hobby, discuss the order and limits in which expenses must be deducted.

Which of the following is correct?

Under no circumstance can a loss on the sale of a personal use asset be deducted.

Which of the following must be capitalized by a business?

Hobby activity expenses are deductible from AGI to the extent of hobby income.Such expenses not in excess of hobby income are not subject to the 2% of AGI floor.

In distinguishing whether an activity is a hobby or a trade or business, discuss the presumptive rule.

Salaries are considered an ordinary and necessary expense of a trade or business if they meet what other requirement? What are the tax consequences if this requirement is not met?

Janice is single, had gross income of $38,000, and incurred the following expenses: Her AGI is:

If an item such as property taxes and home mortgage interest exceed the income from a hobby, the excess amount of this item over the hobby income cannot be deducted if the taxpayer itemizes deductions.

Under what circumstances may a taxpayer deduct the expenses of investigating a possible business acquisition, if (1) the business is not acquired; and (2) the business is acquired?

Alfred's Enterprises, an unincorporated entity, pays employee salaries of $92,000 during the year. At the end of the year, $9,000 of additional salaries have been earned but not paid until the beginning of the next year.

A cash basis taxpayer who charges an expense on a bank credit card is allowed to claim a deduction currently, whereas a cash basis taxpayer who charges an expense on a department store credit card is not allowed to claim a deduction until payment is made.

Because it has only one owner, any sole proprietorship is permitted to elect the cash method of accounting.

In applying the $1 million limit on deducting executive compensation, what corporations are subject to the deduction limit? What executives are covered?

An Introduction to Taxation and Understanding the Federal Tax Law

Working With the Tax Law

Computing the Tax

Gross Income: Concepts and Inclusions

Gross Income: Exclusions

Deductions and Losses: Certain Business Expenses and Losses

Depreciation, Cost Recovery, Amortization, and Depletion

Deductions: Employee and Self-Employed-Related Expenses

Deductions and Losses: Certain Itemized Deductions

Investor Losses

Tax Credits and Payments

Property Transactions: Determination of Gain or Loss, Basis Considerations, and Nontaxable Exchanges-Part 1

Property Transactions: Determination of Gain or Loss, Basis Considerations, and Nontaxable Exchanges-Part 2

Property Transactions: Capital Gains and Losses, 1231, Recapture Provisions

Alternative Minimum Tax

Accounting Periods and Methods

Corporations: Introduction and Operating Rules

Corporations: Organization and Capital Structure

Corporations: Distributions Not in Complete Liquidation

Corporations: Distributions in Complete Liquidation and an Overview of Reorganizations

Partnerships

S: Corporations

Exempt Entities

Multistate Corporate Taxation

Taxation of International Transactions

Tax Practice and Ethics

Income Taxation of Trusts and Estates

Filters