Question 1

The income of a sole proprietorship is reported on Schedule C (Profit or Loss from Business).

Accepted Answer

A) True 
 B)False

Question 2

Are all personal expenses disallowed as deductions?

Accepted Answer

No.Selected personal expenses can be ded

Question 3

Iris,a calendar year cash basis taxpayer,owns and operates several TV rental outlets in Florida,and wants to expand to other states.During 2017,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:

Accepted Answer

A) Capitalize $14,000 and not deduct $9,000. 
B) Expense $23,000 for 2017. 
C) Expense $9,000 for 2017 and capitalize $14,000. 
D) Capitalize $23,000. 
E) None of the above. 
A) Capitalize $14,000 and not deduct $9,000. 
B) Expense $23,000 for 2017. 
C) Expense $9,000 for 2017 and capitalize $14,000. 
D) Capitalize $23,000. 
E) None of the above.

Question 4

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?

Accepted Answer

The related party buyer is permitted to

Question 5

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

Accepted Answer

A) True 
 B)False

Question 6

Sammy,a calendar year cash basis taxpayer who is age 66,has the following transactions in 2017:
​
 
Based on this information,Sammy has:

Accepted Answer

A) AGI of $90,000. 
B) AGI of $95,000. 
C) AGI of $99,500. 
D) Deduction for medical expenses of $0. 
E) None of the above. 
A) AGI of $90,000. 
B) AGI of $95,000. 
C) AGI of $99,500. 
D) Deduction for medical expenses of $0. 
E) None of the above.

Question 7

The portion of property tax on a vacation home that is attributable to personal use is an itemized deduction.

Accepted Answer

A) True 
 B)False

Question 8

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 9

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?

Accepted Answer

A) Disallowed loss to James of $2,000; gain to Lance of $1,000. 
B) Disallowed loss to Lance of $2,000; gain to James of $3,000. 
C) Deductible loss to Lance of $2,000; gain to James of $3,000. 
D) Disallowed loss to Lance of $2,000; gain to James of $1,000. 
E) None of the above. 
A) Disallowed loss to James of $2,000; gain to Lance of $1,000. 
B) Disallowed loss to Lance of $2,000; gain to James of $3,000. 
C) Deductible loss to Lance of $2,000; gain to James of $3,000. 
D) Disallowed loss to Lance of $2,000; gain to James of $1,000. 
E) None of the above.

Question 10

Briefly explain why interest on money borrowed to buy tax-exempt municipal bonds is disallowed as a deduction.

Accepted Answer

Because the interest income on municipal

Question 11

Isabella owns two business entities.She may be able to use the cash method for one and the accrual method for the other.

Accepted Answer

A) True 
 B)False

Question 12

If a taxpayer operates an illegal business,no deductions are permitted.

Accepted Answer

A) True 
 B)False

Question 13

Expenses incurred for the production or collection of income generally are deductions from adjusted gross income.

Accepted Answer

A) True 
 B)False

Question 14

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 15

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?

Accepted Answer

Bobby cannot deduct any of the expenses

Question 16

Bob and April own a house at the beach.The house was rented to unrelated parties for 8 weeks during the year.April and the children used the house 12 days for their vacation during the year.After properly dividing the expenses between rental and personal use,it was determined that a loss was incurred as follows:
​
 
What is the correct treatment of the rental income and expenses on Bob and April's joint income tax return for the current year assuming the IRS approach is used if applicable?

Accepted Answer

A) A $1,500 loss should be reported. 
B) Only the mortgage interest and property taxes should be deducted. 
C) Since the house was used more than 10 days personally by Bob and April, the rental expenses (other than mortgage interest and property taxes) are limited to the gross rental income in excess of deductions for interest and taxes allocated to the rental use. 
D) Since the house was used less than 50% personally by Bob and April, all expenses allocated to personal use may be deducted. 
E) Bob and April should include none of the income or expenses related to the beach house in their current year income tax return. 
A) A $1,500 loss should be reported. 
B) Only the mortgage interest and property taxes should be deducted. 
C) Since the house was used more than 10 days personally by Bob and April, the rental expenses (other than mortgage interest and property taxes) are limited to the gross rental income in excess of deductions for interest and taxes allocated to the rental use. 
D) Since the house was used less than 50% personally by Bob and April, all expenses allocated to personal use may be deducted. 
E) Bob and April should include none of the income or expenses related to the beach house in their current year income tax return.

Question 17

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.

Accepted Answer

Only the following e

Question 18

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.
a.​Determine the tax consequences to Walter.
b.Determine the tax consequences to Shirley.

Accepted Answer

The answer of Walter sells land with an adjusted basis...

Question 19

Sandra owns an insurance agency.The following selected data are taken from the agency balance sheet and income statement prepared using the accrual method.
Calculate Sandra's net profit using the cash method for 2017.

Accepted Answer

Sandra's accrual method net pr

Question 20

Olive,Inc.,an accrual method taxpayer,is a corporation that is equally owned by Maurice and Alex,who are brothers.The corporation uses the accrual method of accounting and the shareholders use the cash method.To provide Olive with funds to acquire additional working capital,the shareholders each loan Olive $100,000 with a 6% interest rate.At the end of the tax year,there is unpaid accrued interest of $3,000 due to each shareholder.From a timing perspective,when should Olive deduct this $6,000 and when should Maurice and Alex include the $3,000 in gross income? Olive pays the $3,000 to each shareholder early next year.

Accepted Answer

Maurice and Alex are related parties wit

Exam 6: Deductions and Losses: in General

The income of a sole proprietorship is reported on Schedule C (Profit or Loss from Business).

Are all personal expenses disallowed as deductions?

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

Sammy,a calendar year cash basis taxpayer who is age 66,has the following transactions in 2017: ​ Based on this information,Sammy has:

The portion of property tax on a vacation home that is attributable to personal use is an itemized deduction.

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 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?

Briefly explain why interest on money borrowed to buy tax-exempt municipal bonds is disallowed as a deduction.

Isabella owns two business entities.She may be able to use the cash method for one and the accrual method for the other.

If a taxpayer operates an illegal business,no deductions are permitted.

Expenses incurred for the production or collection of income generally are deductions from adjusted gross income.

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.

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?

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.

Sandra owns an insurance agency.The following selected data are taken from the agency balance sheet and income statement prepared using the accrual method. Calculate Sandra's net profit using the cash method for 2017.

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

Property Transactions, capital Gains and Losses, sec1231, and 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 Reorganization

Partnerships

S Corporations

Exempt Entities

Multistate Corporate Taxation

Taxation of International Transactions

Tax Practice and Ethics

The Federal Gift and Estate Taxes

Income Taxation of Trusts and Estates

Filters

Sammy,a calendar year cash basis taxpayer who is age 66,has the following transactions in 2017: Based on this information,Sammy has:

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.