Exam 6: Deductions and Losses: in General

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?

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Question 1

Correct Answer:

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Taylor is a cash basis taxpayer.Thus,he is eligible to use the "one-year rule" on prepayments.Since his prepayments of 18-months rent does not extend beyond the end of 2013,he can deduct the $90,000 paid in 2012.

Are there any circumstances under which lobbying expenditures are deductible?

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Question 2

Correct Answer:

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Yes.Lobbying expenditures are deductible under the following three circumstances.
· Influencing local legislation.
· Activities devoted solely to monitoring legislation.
· De minimis provision for annual in-house expenditures (lobbying expenses other than those paid to professional lobbyists)if such expenditures do not exceed $2,000.

The expenses incurred to investigate the expansion of an existing business are deductible even if the expansion is not accomplished.

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(True/False)

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Question 3

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True

Walter sells land with an adjusted basis of $175,000 and a fair market value of $160,000 to his mother,Shirley,for $160,000.Walter reinvests the proceeds in the stock market.Shirley holds the land for one year and a day and sells it in the marketplace for $169,000.

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Question 4

Under what circumstance can a bribe be deducted?

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Question 5

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

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Question 6

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:

(Multiple Choice)

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Question 7

If part of a shareholder/employee's salary is classified as unreasonable,determine the effect on the:

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Question 8

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?

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Question 9

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

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Question 10

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.

(True/False)

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Question 11

Two-thirds of treble damage payments under the antitrust law are deductible.

(True/False)

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Question 12

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.

(True/False)

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Question 13

Which of the following is incorrect?

(Multiple Choice)

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Question 14

The ordinary and necessary expenses for operating an illegal gambling operation (excluding such items as fines,bribes,and other illegal payments)are deductible.

(True/False)

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Question 15

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?

(Multiple Choice)

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Question 16

Cory incurred and paid the following expenses: Calculate the amount that Cory can deduct (before any percentage limitations).

(Multiple Choice)

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Question 17

LD Partnership,a cash basis taxpayer,purchases land and a building for $200,000 with $150,000 of the cost being allocated to the building.The gross receipts of the partnership are less than $100,000.LD must capitalize the $50,000 paid for the land,but can deduct the $150,000 paid for the building in the current tax year.

(True/False)

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Question 18

Albie operates an illegal drug-running business and has the following items of income and expense.What is Albie's adjusted gross income from this operation?

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Question 19

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?

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Question 20

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Are there any circumstances under which lobbying expenditures are deductible?

The expenses incurred to investigate the expansion of an existing business are deductible even if the expansion is not accomplished.

Walter sells land with an adjusted basis of $175,000 and a fair market value of $160,000 to his mother,Shirley,for $160,000.Walter reinvests the proceeds in the stock market.Shirley holds the land for one year and a day and sells it in the marketplace for $169,000.

Under what circumstance can a bribe be deducted?

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

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:

If part of a shareholder/employee's salary is classified as unreasonable,determine the effect on the:

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

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.

Two-thirds of treble damage payments under the antitrust law are deductible.

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.

Which of the following is incorrect?

The ordinary and necessary expenses for operating an illegal gambling operation (excluding such items as fines,bribes,and other illegal payments)are deductible.

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?

Cory incurred and paid the following expenses: Calculate the amount that Cory can deduct (before any percentage limitations).

Albie operates an illegal drug-running business and has the following items of income and expense.What is Albie's adjusted gross income from this operation?

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?

An Introduction to Taxation and Understanding the Federal Tax Law

Working With the Tax Law

Tax Formula and Tax Determination; an Overview of Property Transactions

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

Alternative Minimum Tax

Tax Credits and Payment Procedures

Property Transactions: Determination of Gain or Loss and Basis Considerations

Property Transactions: Nontaxable Exchanges

Property Transactions: Capital Gains and Losses

Property Transactions: Section 1231 and Recapture Provisions

Accounting Periods and Methods

Deferred Compensation

Corporations and Partnerships

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