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Exam 5: Business Deductions

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Question 61

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Cream,Inc.'s taxable income for 2013 before any deduction for an NOL carryforward of $30,000 is $70,000.Cream's qualified production activities income (QPAI) is $60,000.What is the amount of Cream's domestic production activities deduction (DPAD) for 2013?

A) $1,200.
B) $1,800.
C) $2,400.
D) $3,600.
E) None of the above.

F) C) and D)
G) None of the above

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Question 62

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None of the prepaid rent paid on September 1 by a calendar year cash basis taxpayer for the next 18 months is deductible in the current period.

A) True
B) False

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Question 63

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Fines and penalties paid for violations of the law (e.g.,illegal dumping of hazardous waste)are deductible only if they relate to a trade or business.

Discuss the reason for the inclusion amount with respect to leased automobiles.

Aaron,a shareholder-employee of Pigeon,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 Aaron's gross income by $100,000 and increase Pigeon's gross income by $100,000.

Tara purchased a machine for $40,000 to be used in her business.The cost recovery allowed and allowable for the three years the machine was used are as follows: If Tara sells the machine after three years for $15,000,how much gain should she recognize?

Norm purchases a new sports utility vehicle (SUV)on October 12,2013,for $50,000.The SUV has a gross vehicle weight of 6,200 lbs.It is used 100% of the time for business and it is the only business asset acquired by Norm during 2013.Compute the maximum deduction with respect to the SUV for 2013.Norm does take additional first-year depreciation.

In 2013,Tan Corporation incurred the following expenditures in connection with the development of a new product: Tan began selling the product in November,2013.If Tan elects to amortize research and experimental expenditures,determine Tan's deduction for 2013.

For purposes of the § 267 loss disallowance provision,a taxpayer's aunt is a related party.

Carlos purchased an apartment building on November 16,2013,for $3,000,000.Determine the cost recovery for 2013.

What are the three methods of handling research and experimental expenditures incurred in a trade or business? Under what circumstances would you choose each?

On May 15,2013,Brent purchased new farm equipment for $200,000.Brent used the equipment in connection with his farming business.Brent does not elect to expense assets under § 179.Brent does not take additional first-year depreciation.Determine the cost recovery deduction for 2013.

In the current year,Plum Corporation,a computer manufacturer,donated 100 laptop computers to a local university (a qualified educational organization) .The computers were constructed by Plum earlier this year,and the university will use the computers for research and research training.Plum's basis in the computers is $35,000,and their fair market value is $120,000.What is Plum's deduction for the contribution of the computers (ignoring the taxable income limitation) ?

Are there any circumstances under which lobbying expenditures are deductible?

On May 30,2013,Jane signed a 20-year lease on a factory building to use for her business.The lease begins on June 1,2013.In August 2013,Jane paid $300,000 for qualified leasehold improvements to the building.Jane takes additional first-year depreciation.Determine Jane's total deduction with respect to the leasehold improvements for 2013.

For a corporation,the domestic production activities deduction is equal to 9% of the lesser of (1)qualified production activities income or (2)taxable income.However,the deduction cannot exceed 50% of the W-2 wages related to qualified production activities income.

Last year,Green Corporation incurred the following expenditures in the development of a new plant process: During the current year,benefits from the project began being realized in May.If Green Corporation elects a 60 month deferral and amortization period,determine the amount of the deduction for the current year.

James purchased a new business asset (three-year personalty) on July 23,2013,at a cost of $40,000.James takes additional first-year depreciation Determine the cost recovery deduction for 2013.

Briefly describe the charitable contribution deduction rules applicable to C corporations.

Percentage depletion enables the taxpayer to recover more than the cost of an asset.