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Exam 6: Deductions and Losses: in General

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Question 21

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

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The usual expenses of operatin...

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Question 22

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

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B) False

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Question 23

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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 $5,000 and Jason's adjusted basis for the land is $25,000 $20,000 cost + $5,000 recognized gain of Marge).

An advance payment received in June 2018 by an accrual basis and calendar year taxpayer for services to be provided over a 36-month period can be spread over four tax years.

For a vacation home to be classified in the primarily rental use category, what attributes must be present?

Briefly discuss the two tests that an accrual basis taxpayer must apply before an expense can be deducted.

Which of the following is not deductible in 2018?

Mitch is in the 24% tax bracket. He may receive a different tax benefit for a $2,000 expenditure that is classified as a deduction from AGI than he will receive for a $2,000 expenditure that is classified as a deduction for AGI.

Walt wants to give his daughter $1,800 for Christmas. As an alternative, she suggests that he pay the property taxes on her residence. If Ralph pays the property taxes, he can deduct them.

A taxpayer's note or promise to pay satisfies the "actually paid" requirement for the cash basis method of accounting.

Depending on the nature of the expenditure, expenses incurred in a trade or business may be deductible for or from AGI.

Robin and Jeff own an unincorporated hardware store. They determine their salaries at the end of the year by using the amount required to reduce the net income of the hardware store to $0. Based on this policy, Robin and Jeff each receive a total salary of $125,000. This is paid as follows: $8,000 per month and $29,000 on December 31. Determine the amount of the salary deduction.

The legal cost of having a will prepared is not deductible.

If a taxpayer operates an illegal business, no deductions are permitted.

Investment related expenses, such as paying a fee to an investment manager, generally are deductions from adjusted gross income in 2018.

For a taxpayer who is engaged in a trade or business, the cost of investigating a business in the same field is deductible only if the taxpayer acquires the business.

Which of the following can be claimed as a deduction for AGI?

If an activity involves horses, a profit in at least two of seven consecutive years meets the presumptive rule of § 183.

In distinguishing whether an activity is a hobby or a trade or business, discuss the presumptive rule.

The portion of property tax on a vacation home that is attributable to personal use is an itemized deduction.