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Exam 7: Deductions and Losses: Certain Business Expenses and Losses

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Question 31

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Identify the factors that should be considered in determining whether a transaction is a business bad debt or a nonbusiness bad debt.

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Factors to be considered in determining ...

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Question 32

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

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The following methods are permitted:
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Question 33

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If the amount of the insurance recovery for a theft of business property is greater than the asset's fair market value (FMV) but less than its adjusted basis, a gain is recognized.

When a net operating loss is carried forward, it can affect the medical expense deduction of that year.

Regarding research and experimental expenditures, which of the following are not qualified expenditures?

Jack, age 30 and married with no dependents, is a self-employed individual. For 2019, his self-employed business sustained a net loss from operations of $10,000 from operations . The following additional information was obtained from his personal records for the year: $\begin{array}{lr}\text { Nonbusiness long-term capital gain } & \$ 2,000 \\\text { Interest income } & 6,000 \\\text { Itemized deductions-consisting of taxes and interest } & (26,000) \end{array}$ Based on this information, what is Jack's net operating loss for 2019 if he and his spouse file a joint return?

Jim had a car accident in 2019 in which his car was completely destroyed. At the time of the accident, the car had a fair market value of $30,000 and an adjusted basis of $40,000. Jim used the car 100% of the time for business use. He received an insurance recovery of 70% of the value of the car at the time of the accident. If Jim's AGI for the year is $60,000, determine his deductible loss on the car.

Stella, age 38, is single with no dependents. The following information was obtained from her personal records for the 2019 year. $\begin{array}{lr}\text { Salary } & \$ 30,000 \\\text { Interest income } & 7,000 \\\text { Alimony received } & 12,000 \\\text { Individual retirement account contribution } & 2,000\\\text { Home mortgage interest expense } & 4,000 \\\text { Property taxes } & 2,000 \\\text { Personal casual ty loss in a Federal disaster area } & 38,000 \\\quad \text { (after the } \$ 100 \text { floor) } &\end{array}$ Based on this information, what is Stella's net operating loss for 2019? a. $0 b. ($7,200) c. ($8,300) d. ($13,000) e. None of these.

Neal, single and age 37, reports the following items for 2019: $\begin{array}{lr}\text { Salary } & \$ 50,000 \\\text { Casualty loss on business property } & (8,000) \\\text { Casualty loss on rental property } & (5,000)\\\text { Federal disaster area personal casualty gains } & 3,000 \\\begin{array}{l}\text { Federal disaster area personal casualty losses } \\\text { (after \$100 floor) }\end{array} & (12,000) \\\text { Interest expense and taxes on personal } & (11,700) \\\text { residence }\end{array}$ Determine Neal's taxable income for 2019.

Wu, who is single, reports the following items for 2019: $\begin{array}{lr}\text { Salary } & \$ 25,000 \\\text { Interest income } & 8,000 \\\text { Itemized deductions }(\$ 27,000 \text { attributable to dedutible casualty loss) } & (32,000) \end{array}$ What is Wu's net operating loss for 2019?

The amount of loss for partial destruction of business property is the decline in fair market value of the business property.

In 2019, Tan Corporation incurred the following expenditures in connection with the development of a new product: $\begin{array} { l r } \text { Salaries } & \$ 60,000 \\\text { Supplies } & 20,000 \\\text { Depreciation on research equipment } & 10,000 \\\text { Testing for quality control } & 5,000 \\\text { Advertising } & 8,000 \\\text { Overhead allocated to research } & 2,000\end{array}$ Tan began selling the product in November 2019. If Tan elects to amortize research and experimental expenditures, determine its deduction for 2019.

Blue Corporation incurred the following expenses in connection with the development of a new product: $\begin{array} { l r } \text { Salaries } & \$ 100,000 \\\text { Utilities } & 18,000 \\\text { Materials } & 25,000 \\\text { Advertising } & 5,000 \\\text { Market survey } & 3,000 \\\text { Depreciation on machine } & 9,000\end{array}$ Blue expects to begin selling the product next year. If Blue elects to amortize research and experimental expenditures over 60 months, determine the amount of the deduction for research and experimental expenditures for the current year.

Janice, single, reports the following items for 2019: Salary $30,000 Dividend income 8,000 Loss on § 1244 small business stock held for three years (45,000) Total itemized deductions (5,000) Determine Janice's net operating loss for 2019.

A taxpayer can carry back any NOL incurred for two years and then forward up to 20 years.

Juanita, single and age 43, reports the following items for 2019: $\begin{array} { l r } \text { Salary } & \$ 60,000 \\\text { Interest income } & 6,000 \\\text { Casualty loss on business property } & ( 15,000 ) \\\text { Casualty loss on rental property } & ( 5,000 ) \\\text { Loss on theft of securities } & ( 8,000 ) \\\text { Personal casualty gains } & 9,000 \\\text { Personal casualty loss (after } \$ 100 \text { floor) } & ( 13,000 ) \\\text { Other itemized deductions } & ( 9,000 )\end{array}$ Compute Juanita's taxable income for 2019.

In 2019, Mary had the following items: $\begin{array}{lr}\text { Salary } & \$ 30,000 \\\text { Personal use casualty gain } & 10,000 \\\text { Personal use casualty loss (after } \$ 100 \text { floor) } & 17,000 \\\text { Other itemized deductions } & 4,000\end{array}$ Assuming that Mary files as head of household (has one dependent child) , determine her taxable income for 2019.

Personal casualty gains are allowed to offset personal casualty losses. Currently, if an excess casualty loss results, it is not deductible (unless attributable to a Federally declared disaster).

Which of the following events would produce a deductible loss in 2019?

Other casualty means casualties similar to those associated with fires, storms, or shipwrecks.