Exam 5: Introduction to Business Expenses

Sergio purchases $3,000-worth of supplies from a local vendor. The supplies are delivered on April 1, 2018. The supplies are fully used up on December 31, 2018. Because of unusual circumstances, a bill for the supplies arrives from the vendor on February 1, 2019, and is promptly paid. When can Sergio deduct the expenses? I.In 2018, if he is an accrual basis taxpayer. II.In 2018, if he is a cash basis taxpayer. ​

William, a single taxpayer, has $3,500 state income tax withheld from his paychecks in 2017. When he filed his 2017 state income tax return on April 15, 2018, he calculated and received a $600 refund. The $600 refund was received on May 27, 2018. What are the federal tax effects of the state income tax events of 2017 and 2018? I.If his itemized deductions including state income taxes total $6,600 in 2017, William includes $300 in gross income for 2018, II.If he did not itemize his deductions in 2017, none of the refund is included in 2018 gross income. ​

Match the proper deduction method with the correct expenditures. -Hobby loss

Evelyn can reduce her adjusted gross income by having her partnership pay her charitable contributions rather her paying them.

Diana bought 1,500 shares of Dalton Protection, Inc., common stock for $10 per share. She paid her broker a $300 commission to close the purchase. The following year, Diana sold 1,000 of the shares for $17 per share and paid a commission of $175 on the sale. What is Diana's capital gain on the sale of the stock?

Sarah extensively buys and sells securities . The IRS has determined upon examination that she is in a trade or business concerning the securities' transactions and therefore, Sarah is

Which of the following payments are deductible? I.Wilcox pays $1,000 to run an ad in the program of the state Independent Party convention II.Wilcox is in the construction business. In January, he sends his chief financial officer to Washington, D.C., to monitor current legislation affecting the real estate industry. Expenses totaled $2,100. III.In March, Wilcox personally travels to Washington, D.C., to testify before the banking subcommittee on the effects of proposed legislation on the construction industry. Expenses totaled $2,300. ​

Match each statement with the correct term below. -Mixed-use asset

Business expenses include I.expenditures that have a business purpose II.expenditures that are incurred for the production of income. ​

Frank is a self-employed architect who maintains a qualifying office in his home. Frank has $80,000 gross income from his practice and incurs $72,000 in salaries, supplies, computer services, etc. Frank's mortgage interest and real estate taxes allocable to the office total $3,000. Other expenses total $9,000 and consist of depreciation, utilities, insurance, and maintenance. Frank's total office in home deductions are

Oscar drives a taxi on weekends. In maximizing the amount of fares he earns, he occasionally gets tickets for speeding. Oscar figures that as long as he keeps his traffic violations under $100 over a weekend, he can more than offset those costs with additional fares. What is/are the tax effect(s) of Oscar's speeding ticket costs?

Income tax accounting methods and financial accounting methods differ in many ways. Which of the following tax law provisions are likely to create permanent differences between taxable income and financial (or book) income of a single entity? I.Treatment of payment of penalties and fines. II.Disallowance of 50% of the cost of business meals and 100% of entertainment. ​

Wanda owns and operates a restaurant on the north side of Cleveland. She is considering opening a second restaurant on the south side of town and incurs $13,600 of investigation expenses. In July of the current year, Wanda decides not to open a second restaurant. How much of the investigation expenses can Wanda deduct in the current year?

Which of the following can be deducted as a trade or business expense?

Cornelius owns a condominium in Orlando. During the year, Cornelius uses the condo a total of 25 days. The condo is also rented to vacationers for a total of 75 days and generates rental income of $9,000. Cornelius incurs the following expenses: Determine Cornelius's deduction related to the condominium. Indicate the amount of each expense that can be deducted and how it would be deducted. Mortgage interest \ 4,000 Property taxes 1,800 Utilities 2,000 Insurance 1,200 Depreciation 10,000

The legislative grace concept dictates that deductible business expenses be grouped into certain categories that include I.Personal expenses. II.Trade or business expenses. III.Expenses for the production of income. ​

Which of the following factors absolutely must be present for an activity to be considered a trade or business for tax purposes?

Match each statement with the correct term below. -Necessary Expense

Which of the following expenditures are not deductible because they are personal in nature? I.Legal costs to acquire a personal residence. II.Losses resulting from the sale of personal residences. ​

Clay incurs $5,000 of investment interest expense related to purchasing Renco Company stock and New Orleans municipal bonds. He receives $6,000 of dividends on the stock and $14,000 of interest on the bonds. The amount of investment interest expense Clay can deduct is: