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Exam 6: Deductions and Losses: In General

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Question 21

True/False

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Alice incurs qualified moving expenses of $12,000 in 2018. If she is not reimbursed by her employer, the deduction is classified as a deduction for AGI.

A) True
B) False

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Question 22

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Priscella pursued a hobby of making bedspreads in her spare time. Her AGI before considering the hobby is $40,000. During 2018 she sold the bedspreads for $10,000. She incurred expenses as follows: Assuming that the activity is deemed a hobby, how should she report these items on her tax return?

A) Include $10,000 in income and deduct $11,000 for AGI.
B) Ignore both income and expenses since hobby losses are disallowed.
C) Include $10,000 in income, deduct nothing for AGI, and claim $11,000 of the expenses as itemized deductions.
D) Include $10,000 in income and deduct nothing.
E) None of the above.

F) All of the above
G) None of the above

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Question 23

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Purchased goodwill must be capitalized, but can be amortized over a 60-month period.

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.

The amount of the addition to the reserve for bad debts for an accrual method taxpayer is allowed as a deduction for tax purposes, but is not allowed for a cash method taxpayer.

Salaries are considered an ordinary and necessary expense of a trade or business if they meet what other requirement? What are the tax consequences if this requirement is not met?

Are there any circumstances under which lobbying expenditures are deductible?

Iris, a calendar year cash basis taxpayer, owns and operates several TV rental outlets in Florida, and wants to expand to other states. During 2018, she spends $14,000 to investigate TV rental stores in South Carolina and $9,000 to investigate TV rental stores in Georgia. She acquires the South Carolina operations, but not the outlets in Georgia. As to these expenses, Iris should:

Marsha is single, had gross income of $50,000, and incurred the following expenses: Her AGI is:

Deductions are allowed unless a specific provision in the tax law provides otherwise.

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.

Legal fees incurred in connection with a criminal defense are not deductible even if the crime is associated with a trade or business.

Which of the following is correct?

Are there any exceptions to the rule that personal expenditures cannot be deducted?

Petal, Inc. is an accrual basis taxpayer. Petal uses the aging approach to calculate the reserve for bad debts. During 2018, the following occur associated with bad debts. The amount of the deduction for bad debt expense for Petal for 2018 is:

Janet is the CEO for Silver, Inc., a closely held corporation. Her total compensation for 2018 is $5 million. Of this amount, $2 million is a salary and $3 million is a bonus. The bonus was calculated as 5% of Silver's net income before the bonus and before taxes ($60 million × 5% = $3 million). The bonus provision has been in effect since Janet became CEO five years ago and is related to Silver's performance. It is approved annually by the entire board of directors (1 of the 5 directors is an outside director) of Silver. How much of Janet's compensation can Silver deduct for 2018?

Which of the following is not deductible in 2018?

Which of the following is not a "trade or business" expense?

Melba incurred the following expenses for her dependent daughter during the current year: How much may Melba deduct in computing her itemized deductions?

What losses are deductible by an individual taxpayer?