Exam 6: Deductions and Losses: in General

Graham,a CPA,has submitted a proposal to do the annual audit for a municipality.Owen,the city treasurer,tells Graham that for a $1,000 fee,he will use his influence to have the audit awarded to Graham.What factors are relevant in determining if Graham can deduct the $1,000 payment assuming he pays the fee to Owen?

Are there any circumstances under which lobbying expenditures are deductible?

What losses are deductible by an individual taxpayer?

The salaries of the top seven executives of Lime,Inc.are as follows:

Which of the following is not deductible?

If a taxpayer operated an illegal business (not drug trafficking),what expenses can be deducted and what expenses are disallowed?

Legal fees incurred in connection with a criminal defense are deductible if the crime is associated with a trade or business.

Which of the following is incorrect?

Payment of expenses by a cash basis taxpayer does not necessarily ensure a deduction in the current year.

If an item such as property taxes exceeds the income from a hobby,the excess amount of this item over the hobby income can be deducted if the taxpayer itemizes deductions.

A taxpayer in the 25% tax bracket may receive a different tax benefit for a $100 expenditure that is classified as a deduction from AGI than he or she will receive for a $100 expenditure that is classified as a deduction for AGI.

Saul is single,under age 65,and has gross income of $50,000.His deductible expenses are as follows: What is Saul's AGI?

Briefly explain the provisions regarding the deductibility of expenditures paid for another's benefit or obligation.

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:

Which of the following statements is correct?

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

Rob,a shareholder-employee of Falcon,Inc. ,receives a $300,000 salary.The IRS classifies $100,000 of this amount as unreasonable compensation.The effect of this reclassification is to decrease Rob's gross income by $100,000 and increase Falcon's gross income by $100,000.

A taxpayer who claims the standard deduction can also deduct expenses that are classified as deductions for AGI.

A hobby activity can result in all of the hobby income being included in AGI and no deductions being allowed.

Rabbit,Inc. ,an airline manufacturer,is negotiating with a Middle East country for the sale of jet fighters.To complete the sale,a $1 million grease payment must be made.How much,if any,of the grease payment is deductible?