Question 1

Arnold and Beth file a joint return.Use the following data to calculate their deduction for AGI.

Accepted Answer

Arnold and Beth's deduction for AGI is $

Question 2

On January 2,2010,Fran acquires a business from Chuck.Among the assets purchased are the following intangibles: patent with a 9-year remaining life,a covenant not to compete for 12 years,and goodwill. Of the purchase price,$150,000 was paid for the patent and $48,000 for the covenant.The amount of the excess of the purchase price over the identifiable assets was $87,000.What is the amount of the amortization deduction for 2010?

Accepted Answer

A) $13,200. 
B) $15,800. 
C) $19,000. 
D) $26,467. 
E) None of the above. 
A) $13,200. 
B) $15,800. 
C) $19,000. 
D) $26,467. 
E) None of the above.

Question 3

If a taxpayer cannot satisfy the three-out-of-five year presumption test associated with hobby losses,then expenses from the activity cannot be deducted in excess of the gross income from the activity.

Accepted Answer

A) True 
 B)False

Question 4

Terry and Jim are both involved in operating illegal businesses.Terry operates a gambling business and Jim operates a drug running business.Both businesses have gross revenues of $500,000.The businesses incur the following expenses.   Which of the following statements is correct?

Accepted Answer

A) Neither Terry nor Jim can deduct any of the above items in calculating the business profit. 
B) Terry should report profit from his business of $250,000. 
C) Jim should report profit from his business of $500,000. 
D) Jim should report profit from his business of $250,000. 
E) None of the above. 
A) Neither Terry nor Jim can deduct any of the above items in calculating the business profit. 
B) Terry should report profit from his business of $250,000. 
C) Jim should report profit from his business of $500,000. 
D) Jim should report profit from his business of $250,000. 
E) None of the above.

Question 5

Only certain employment related expenses are classified as deductions for AGI.

Accepted Answer

A) True 
 B)False

Question 6

If a vacation home is classified as primarily personal use (i.e. ,rented for fewer than 15 days),none of the related expenses can be deducted.

Accepted Answer

A) True 
 B)False

Question 7

Clark operates a gambling operation,which is an illegal business under the laws of Texas.Therefore,none of the expenses of the business are deductible.

Accepted Answer

A) True 
 B)False

Question 8

Marvin spends the following amounts on a house he owns:

Accepted Answer

The answer of Marvin spends the following amounts on a...

Question 9

The concept of reasonableness applies not only to salaries but also to other business expenses.

Accepted Answer

A) True 
 B)False

Question 10

Marge sells land to her adult son,Jason,for its $20,000 appraised value.Her adjusted basis for the land is $25,000.Marge's recognized loss is $0 and Jason's adjusted basis for the land is $25,000 ($20,000 cost + $5,000 disallowed loss of Marge).

Accepted Answer

A) True 
 B)False

Question 11

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

Accepted Answer

A) True 
 B)False

Question 12

The period in which an accrual basis taxpayer can deduct an expense is determined by applying the economic performance test.

Accepted Answer

A) True 
 B)False

Question 13

Hollis operates a lawn care service in southeastern Missouri.He incurs $63,000 of expenses determining the feasibility of expanding the business to southwestern Missouri.If he expands the business,the $63,000 is deductible in the current year.If he does not do so,then he must amortize the $63,000 over a 180-month period.

Accepted Answer

A) True 
 B)False

Question 14

In order to protect against rent increases on the building in which she operates a dance studio,Mella signs an 18-month lease for $18,000.The lease commences on November 1,2010.How much of the $18,000 payment can she deduct in 2010 and 2011?

Accepted Answer

a.If Mella is an accrual basis taxpayer?

Question 15

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 16

For an activity classified as a hobby,the expenses are categorized as follows: (1)Amounts deductible under other Code sections without regard to the nature of the activity,such as property taxes and home mortgage interest.
(2)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).
(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 17

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

Accepted Answer

A) $0. 
B) $160,000. 
C) $279,000. 
D) $324,000. 
E) None of the above. 
A) $0. 
B) $160,000. 
C) $279,000. 
D) $324,000. 
E) None of the above.

Question 18

Why are there restrictions on the recognition of gains and losses resulting from transactions between related parties?

Accepted Answer

Sham transactions can be structured betw

Question 19

The legal cost of having a will prepared is deductible.

Accepted Answer

A) True 
 B)False

Question 20

Investigation of a business unrelated to one's present business never results in a current period deduction of the entire amount.

Accepted Answer

A) True 
 B)False

Exam 6: Deductions and Losses: in General

Arnold and Beth file a joint return.Use the following data to calculate their deduction for AGI.

If a taxpayer cannot satisfy the three-out-of-five year presumption test associated with hobby losses,then expenses from the activity cannot be deducted in excess of the gross income from the activity.

Terry and Jim are both involved in operating illegal businesses.Terry operates a gambling business and Jim operates a drug running business.Both businesses have gross revenues of $500,000.The businesses incur the following expenses. Which of the following statements is correct?

Only certain employment related expenses are classified as deductions for AGI.

If a vacation home is classified as primarily personal use (i.e. ,rented for fewer than 15 days),none of the related expenses can be deducted.

Clark operates a gambling operation,which is an illegal business under the laws of Texas.Therefore,none of the expenses of the business are deductible.

Marvin spends the following amounts on a house he owns:

The concept of reasonableness applies not only to salaries but also to other business expenses.

Marge sells land to her adult son,Jason,for its $20,000 appraised value.Her adjusted basis for the land is $25,000.Marge's recognized loss is $0 and Jason's adjusted basis for the land is $25,000 ($20,000 cost + $5,000 disallowed loss of Marge).

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

The period in which an accrual basis taxpayer can deduct an expense is determined by applying the economic performance test.

In order to protect against rent increases on the building in which she operates a dance studio,Mella signs an 18-month lease for $18,000.The lease commences on November 1,2010.How much of the $18,000 payment can she deduct in 2010 and 2011?

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

Why are there restrictions on the recognition of gains and losses resulting from transactions between related parties?

The legal cost of having a will prepared is deductible.

Investigation of a business unrelated to one's present business never results in a current period deduction of the entire amount.

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

Part 1--Property Transactions: Determination of Gain or Loss,basis Considerations,and Nontaxable Exchanges

Part 2--Property Transactions: Determination of Gain or Loss,basis Considerations,and Nontaxable Exchanges

Property Transactions: Capital Gains and Losses,1231,and Recapure Provisions

Alternative Minimum Tax

Accounting Periods and Methods

Corporations: Introduction and Operating Rules

Corporations: Organization and Capital Structure

Corporations: Distributions Not in Complete Liquidation

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

The Federal Gift and Estate Taxes

Income Taxation of Trusts and Estates

Filters