Question 1

Which of the following is not a "trade or business" expense?

Accepted Answer

A) Interest on business indebtedness. 
B) Property taxes on business property. 
C) Parking ticket paid on business auto. 
D) Depreciation on business property. 
E) All of the above are "trade or business" expenses. 
A) Interest on business indebtedness. 
B) Property taxes on business property. 
C) Parking ticket paid on business auto. 
D) Depreciation on business property. 
E) All of the above are "trade or business" expenses.

Question 2

Which of the following expenses associated with the illegal sale of whiskey (i.e., bootlegging) can be deducted?

Accepted Answer

A) Cost of goods sold. 
B) Advertising. 
C) Cost of delivery. 
D) Only a.and c. 
E) a., b., and c. 
A) Cost of goods sold. 
B) Advertising. 
C) Cost of delivery. 
D) Only a.and c. 
E) a., b., and c.

Question 3

Velma and Josh divorced. Velma's attorney fee of $4,000 is allocated as follows:   Of the $4,000 Velma pays to her attorney, the amount she may deduct as an itemized deduction is:

Accepted Answer

A) $0. 
B) $1,100. 
C) $2,800. 
D) $4,000. 
E) None of the above. 
A) $0. 
B) $1,100. 
C) $2,800. 
D) $4,000. 
E) None of the above.

Question 4

Which of the following can be claimed as a deduction for AGI?

Accepted Answer

A) Personal casualty losses. 
B) Investment interest expenses. 
C) Moving expenses. 
D) Property taxes on personal use real estate. 
E) None of the above. 
A) Personal casualty losses. 
B) Investment interest expenses. 
C) Moving expenses. 
D) Property taxes on personal use real estate. 
E) None of the above.

Question 5

Sandra sold 500 shares of Wren Corporation to Bob, her brother, for its fair market value.She had paid $26,000 for the stock.Calculate Sandra's and Bob's gain or loss under the following circumstances:

Accepted Answer

The answer of Sandra sold 500 shares of Wren Corporation...

Question 6

Legal expenses incurred in connection with rental property are deductions from AGI.

Accepted Answer

A) True 
 B)False

Question 7

Legal fees incurred in connection with a criminal defense are not deductible even if the crime is associated with a trade or business.

Accepted Answer

A) True 
 B)False

Question 8

The Code defines what constitutes a trade or business.

Accepted Answer

A) True 
 B)False

Question 9

The legal cost of having a will prepared is not deductible.

Accepted Answer

A) True 
 B)False

Question 10

What are the relevant factors to be considered in determining whether an activity is profit-seeking or a hobby?

Accepted Answer

The nine relevant factors detailed in Re

Question 11

Under what circumstance can a bribe be deducted?

Accepted Answer

Bribes paid to a domestic official are d

Question 12

If a vacation home is classified as primarily rental use, a deduction for all of the rental expenses is allowed.

Accepted Answer

A) True 
 B)False

Question 13

None of the prepaid rent paid on November 1 by a calendar year cash basis taxpayer for the next 18 months is deductible in the current period.

Accepted Answer

A) True 
 B)False

Question 14

For an activity classified as a hobby, the expenses are categorized as follows: (1) Amounts that affect adjusted basis and would be deductible under other Code sections if the activity had been engaged in for profit (e.g., depreciation, amortization, and depletion).
(2) Amounts deductible under other Code sections without regard to the nature of the activity, such as property taxes and home mortgage interest.
(3) Amounts deductible under other Code sections if the activity had been engaged in for profit, but only if those amounts do not affect adjusted basis (e.g., maintenance, utilities, and supplies).
If these expenses exceed the gross income from the activity and are thus limited, the sequence in which they are deductible is:

Accepted Answer

A) (1), (2), (3). 
B) (1), (3), (2). 
C) (2), (3), (1). 
D) (2), (1), (3). 
E) (3), (2), (1). 
A) (1), (2), (3). 
B) (1), (3), (2). 
C) (2), (3), (1). 
D) (2), (1), (3). 
E) (3), (2), (1).

Question 15

Mitch is in the 28% tax bracket. He may receive a different tax benefit for a $2,000 expenditure that is classified as a deduction from AGI than he will receive for a $1,000 expenditure that is classified as a deduction for AGI.

Accepted Answer

A) True 
 B)False

Question 16

Are all personal expenses disallowed as deductions?

Accepted Answer

No.Selected personal expenses can be ded

Question 17

Which of the following cannot be deducted as a § 162 business expense?

Accepted Answer

A) Expenses of investing in rental property. 
B) Charitable contributions made by a sole proprietorship. 
C) Fines and penalties. 
D) Only a.and c.cannot. 
E) a., b., and c.cannot. 
A) Expenses of investing in rental property. 
B) Charitable contributions made by a sole proprietorship. 
C) Fines and penalties. 
D) Only a.and c.cannot. 
E) a., b., and c.cannot.

Question 18

The amount of the addition to the reserve for bad debts for an accrual method taxpayer is allowed as a deduction for tax purposes, but is not allowed for a cash method taxpayer.

Accepted Answer

A) True 
 B)False

Question 19

If a residence is used primarily for personal use (rented for fewer than 15 days per year), which of the following is correct?

Accepted Answer

A) No income is included in AGI. 
B) No expenses are deductible. 
C) Expenses must be allocated between rental and personal use. 
D) Only a.and b.are correct. 
E) a., b., and c.are correct. 
A) No income is included in AGI. 
B) No expenses are deductible. 
C) Expenses must be allocated between rental and personal use. 
D) Only a.and b.are correct. 
E) a., b., and c.are correct.

Question 20

Taylor, a cash basis architect, rents the building in which his office is located for $5,000 per month.He commenced his practice on February 1, 2012.In order to guarantee no rent increases during an 18-month period, he signed an 18-month lease and prepaid the $90,000 on February 1, 2012.How much can Taylor deduct as rent expense for 2012?

Accepted Answer

Taylor is a cash basis taxpayer.Thus, he

Exam 6: Deductions and Losses: in General

Which of the following is not a "trade or business" expense?

Which of the following expenses associated with the illegal sale of whiskey (i.e., bootlegging) can be deducted?

Velma and Josh divorced. Velma's attorney fee of $4,000 is allocated as follows: Of the $4,000 Velma pays to her attorney, the amount she may deduct as an itemized deduction is:

Which of the following can be claimed as a deduction for AGI?

Sandra sold 500 shares of Wren Corporation to Bob, her brother, for its fair market value.She had paid $26,000 for the stock.Calculate Sandra's and Bob's gain or loss under the following circumstances:

Legal expenses incurred in connection with rental property are deductions from AGI.

Legal fees incurred in connection with a criminal defense are not deductible even if the crime is associated with a trade or business.

The Code defines what constitutes a trade or business.

The legal cost of having a will prepared is not deductible.

What are the relevant factors to be considered in determining whether an activity is profit-seeking or a hobby?

Under what circumstance can a bribe be deducted?

If a vacation home is classified as primarily rental use, a deduction for all of the rental expenses is allowed.

None of the prepaid rent paid on November 1 by a calendar year cash basis taxpayer for the next 18 months is deductible in the current period.

Mitch is in the 28% tax bracket. He may receive a different tax benefit for a $2,000 expenditure that is classified as a deduction from AGI than he will receive for a $1,000 expenditure that is classified as a deduction for AGI.

Are all personal expenses disallowed as deductions?

Which of the following cannot be deducted as a § 162 business expense?

The amount of the addition to the reserve for bad debts for an accrual method taxpayer is allowed as a deduction for tax purposes, but is not allowed for a cash method taxpayer.

If a residence is used primarily for personal use (rented for fewer than 15 days per year), which of the following is correct?

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