Question 1

Tom and RoseMary own a cabin near Stowe,Vermont.During the current year the cabin is rented for 31 days for $1,800.Tom and RoseMary used the cabin a total of 12 days during the year.After making the appropriate allocation of expenses between personal and rental use,the following rental loss was determined:
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How should Tom and RoseMary report the rental income and expenses for the current year?

Accepted Answer

A) Include the $1,700 in gross income,but no deductions are allowed. 
B) Report the $300 loss for AGI. 
C) Only expenses up to the amount of $1,700 rental income may be deducted in the current year. 
D) Report the interest ($950)and taxes ($150)as itemized deductions and the other expenses for AGI. 
E) No reporting for the rental activity should be reported.

Question 2

Discuss whether the following persons are currently engaged in a trade or business:
a.Darlene has expenses related to managing her portfolio of securities.The trading of the securities generates most of her annual income.She generally does not hold securities long-term.She buys and sells continuously.She has no other job.
b.Mark incurs expenses related to investing in stocks and bonds.Mark is a Sociology professor at Indiana University but spends 10-15 hours per week on his investments.Approximately 70% of Mark's annual income come from his investments as dividends and interest.
c.Paul leases real estate to Floyd's Barber Shop for a parking lot.The only expense he incurs is legal expense regarding the lease,which he renegotiates annually.
d.Mandy owns several rental apartments.She arranges for repairs and maintenance,pays for the expenses related to the properties,and handles all leasing activities.

Accepted Answer

The answer of Discuss whether the following persons are currently...

Question 3

Sheila extensively buys and sells securities.The IRS has determined upon examination that she is not in a trade or business concerning the securities' transactions and therefore,Shelia must be

Accepted Answer

A) a broker. 
B) an active trader. 
C) an active investor. 
D) a securities' dealer.

Question 4

Walter pays a financial adviser $2,100 to help him manage his investment portfolio during the current year.Walter receives $5,000 in interest from investments in General Motors and Xerox bonds,and $2,500 in interest from investments in City of San Francisco bonds.How much may Walter deduct for the current year?

Accepted Answer

A) $- 0 - 
B) $ 700 
C) $1,050 
D) $1,400 
E) $4,200

Question 5

Clay incurs $5,000 of investment expenses 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 expense Clay can deduct is:

Accepted Answer

A) $- 0 - 
B) $1,500 
C) $2,500 
D) $3,500 
E) $5,000

Question 6

In which of the following circumstances would a cash basis taxpayer be required to account for an item of income or deduction under the accrual method of accounting?

Accepted Answer

A) Alice receives advance payment for services that she will perform and complete by the end of the following tax year. 
B) Ben paid his business property taxes at year-end even though they were not due until the end of January. 
C) Cheryl received six months of pre-paid rent on her rental property just before the end of the year. 
D) Donald prepaid a one-year service contract on his copy machine just before year-end. 
E) A cash basis taxpayer will not be required to use the accrual basis method of accounting in any of the above circumstances.

Question 7

Which of the following is/are currently deductible trade or business expenses?
I.Personal property taxes on a hot air balloon operated as a hobby.
II.Interest paid on the mortgage note on a business warehouse.
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Accepted Answer

A) Only statement I is correct. 
B) Only statement II is correct. 
C) Both statements are correct. 
D) Neither statement is correct.

Question 8

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

Accepted Answer

A) Automobile used 75% for business. 
B) Investment expenses on municipal bonds. 
C) Cost of investigating a new trade or business that the taxpayer enters. 
D) Can be separated into two classifications. 
E) Safety-deposit box for taxable investments.
F)Expenditure to influence legislation.
G)Cost of a new roof for office building.
H)Relates to an income producing activity mainly carried on for recreation or personal enjoyment.
I)Deductibility depends on income and amount of personal and rental use.
J)Deductibility depends on whether the area is used exclusively for trade or business activities.

Question 9

William,a single taxpayer,has $3,500 state income tax withheld from his paychecks in 2016.When he filed his 2016 state income tax return on April 15,2017,he calculated and received a $600 refund.The $600 refund was received on May 27,2017.What are the federal tax effects of the state income tax events of 2016 and 2017?
I.If his itemized deductions including state income taxes total $6,600 in 2016,William includes $300 in gross income for 2017,
II.If he did not itemize his deductions in 2016,none of the refund is included in 2017 gross income.
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Accepted Answer

A) Only statement I is correct. 
B) Only statement II is correct. 
C) Both statements are correct. 
D) Neither statement is correct.

Question 10

Match the proper deduction method with the correct expenditures.
-Covenant not to compete for 4 years

Accepted Answer

A) Capitalized and amortized over a number of accounting periods 
B) Expensed in the period incurred 
C) Not deductible 
D) Can be capitalized and amortized or deductible depending on the amount of the expenditure

Question 11

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

Accepted Answer

A) $3,000 
B) $5,000 
C) $8,000 
D) $9,000 
E) $12,000

Question 12

Several factors are used to determine whether an activity is classified as a hobby or as a business.Which of the following are factors that aid in this determination?
I.The financial status of the taxpayer
II.The expectation that the assets involved in the activity will increase in value.
III.The taxpayer's success in similar activities.
IV.The amount of personal pleasure and enjoyment that accrues to the taxpayer.
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Accepted Answer

A) Only statements II,III,and IV are correct. 
B) Only statement III is correct. 
C) Statements I,II,and III are correct. 
D) Only statement IV is correct. 
E) Statements I,II,III,and IV are correct.

Question 13

Match each statement with the correct term below.
-Active Investor

Accepted Answer

A) Specifically disallowed. 
B) Appropriate and helpful. 
C) Considered a trade or business. 
D) Not considered a trade or business. 
E) Problems with this generally arise with related parties.
F)This is met when services or property are provided to the taxpayer.
G)Normal,common,and accepted but not necessarily regularly recurring.
H)This is met when the existence and the amount of a liability have been established.

Question 14

Match each statement with the correct term below.
-Economic Performance

Accepted Answer

A) Specifically disallowed. 
B) Appropriate and helpful. 
C) Considered a trade or business. 
D) Not considered a trade or business. 
E) Problems with this generally arise with related parties.
F)This is met when services or property are provided to the taxpayer.
G)Normal,common,and accepted but not necessarily regularly recurring.
H)This is met when the existence and the amount of a liability have been established.

Question 15

Which of the following production of income expenses would be deductible:
I.Interest expense on loan to acquire U.S.Treasury notes.
II.Interest expense on loan to acquire IBM Corporate bonds.
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Accepted Answer

A) Only statement I is correct. 
B) Only statement II is correct. 
C) Both statements are correct. 
D) Neither statement is correct.

Question 16

Using the general tests for deductibility,explain why the following expenses are not fully deductible.
a.Irene spends $1,600 on a trip to Florida to investigate opening up a consulting firm.Irene currently works for a consulting firm.
b.Augie and his wife divorce during the current year.Augie pays $3,000 in legal fees related to the divorce.
c.Peter owns a hardware store.During the current year,he pays $328,000 to acquire a new warehouse.
d.Paul contributes $25 to a fund to be used for advertising to persuade voters to vote against a candidate running for Congress.

Accepted Answer

The answer of Using the general tests for deductibility,explain why...

Question 17

Match the proper deduction method with the correct expenditures.
-Repair-and-maintenance expenditures

Accepted Answer

A) Capitalized and amortized over a number of accounting periods 
B) Expensed in the period incurred 
C) Not deductible 
D) Can be capitalized and amortized or deductible depending on the amount of the expenditure

Question 18

Discuss whether the following persons are currently engaged in a trade or business:
a.Katerina owns 35 home sites in and around Orlando.She bought these vacant lots several years ago in hopes to developing them into a subdivision.She begins to develop the lots in the current year.
b.John spends 2 hours a day,5 days a week,managing his investment portfolio.He watches the market and buys and sells securities when he thinks the market is right.His investment strategy is to realize dividends,interest,and long-term gains from holding the investments.
c.Bill lives in Miami and works full-time betting on dog races.Although he intends to win large sums,he has failed to win the big one.He considers his betting activities his job and relies on his meager winnings to support his family.He is devoted to the races and has rarely missed a day betting in over 3 years.

Accepted Answer

The answer of Discuss whether the following persons are currently...

Question 19

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

Accepted Answer

A) a day trader. 
B) an active trader. 
C) an active investor. 
D) a securities' dealer.

Question 20

Which of the following is an example of a business purpose as dominant motive?
I.Darren is a full-time plumber and a part-time Amway salesman.He is taking his family to Disney World and plans to take his Amway products with him so that he may deduct most of his cost of the trip.
II.Larry is a full-time plumber.He is taking his family with him to a convention in Orlando featuring the latest in plumbing products and techniques.He plans to deduct most of his cost of the trip.
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Accepted Answer

A) Only statement I is correct. 
B) Only statement II is correct. 
C) Both statements are correct. 
D) Neither statement is correct.

Exam 5: Introduction to Business Expenses

Sheila extensively buys and sells securities.The IRS has determined upon examination that she is not in a trade or business concerning the securities' transactions and therefore,Shelia must be

Clay incurs $5,000 of investment expenses 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 expense Clay can deduct is:

In which of the following circumstances would a cash basis taxpayer be required to account for an item of income or deduction under the accrual method of accounting?

Which of the following is/are currently deductible trade or business expenses? I.Personal property taxes on a hot air balloon operated as a hobby. II.Interest paid on the mortgage note on a business warehouse. ​

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

Match the proper deduction method with the correct expenditures. -Covenant not to compete for 4 years

Match each statement with the correct term below. -Active Investor

Match each statement with the correct term below. -Economic Performance

Which of the following production of income expenses would be deductible: I.Interest expense on loan to acquire U.S.Treasury notes. II.Interest expense on loan to acquire IBM Corporate bonds. ​

Match the proper deduction method with the correct expenditures. -Repair-and-maintenance expenditures

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 is/are currently deductible trade or business expenses? I.Personal property taxes on a hot air balloon operated as a hobby. II.Interest paid on the mortgage note on a business warehouse.

Which of the following production of income expenses would be deductible: I.Interest expense on loan to acquire U.S.Treasury notes. II.Interest expense on loan to acquire IBM Corporate bonds.