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Exam 6: Deductions and Losses: In General

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Question 41

True/False

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If a vacation home is a personal/rental residence, no maintenance and utility expenses can be claimed as a deduction.

A) True
B) False

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Question 42

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Andrew, who operates a laundry business, incurred the following expenses during the year. ? Parking ticket of $250 for one of his delivery vans that parked illegally. ? Parking ticket of $75 when he parked illegally while attending a rock concert in Tulsa. ? DUI ticket of $500 while returning from the rock concert. ? Attorney's fee of $600 associated with the DUI ticket. What amount can Andrew deduct for these expenses?

A) $0.
B) $250.
C) $600.
D) $1,425.
E) None of the above.

F) A) and B)
G) C) and D)

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Question 43

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Abner contributes $2,000 to the campaign of the Tea Party candidate for governor, $1,000 to the campaign of the Tea Party candidate for senator, and $500 to the campaign of the Tea Party candidate for mayor. Can Abner deduct these political contributions?

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.

Are all personal expenses disallowed as deductions in 2018?

Tom operates an illegal drug-running operation and incurred the following expenses: Which of the above amounts reduces his taxable income?

The cash method can always be used by a corporation even if inventory and cost of goods sold are a significant income producing factor in the business.

Petula's business sells heat pumps which have a one-year warranty. Based on historical data, the warranty costs amount to 11% of sales. During 2018, heat pump sales are $400,000. Actual warranty expenses paid in 2018 are $40,000. a. Determine the amount of the warranty expense deduction for 2018 if Petula's business uses the accrual method. b. How would your answer change if Petula used the cash method for extended warranties and the purchasers paid $25,000 for the warranties which covered the second and third years of ownership?

Which of the following must be capitalized by a business?

Isabella owns two business entities. She may be able to use the cash method for one and the accrual method for the other.

Which of the following legal expenses are deductible for AGI in 2018?

In order to protect against rent increases on the building in which she operates a dance studio, Mella signs an 18- month lease for $36,000. The lease commences on October 1, 2018. How much of the $36,000 payment can she deduct in 2018 and 2019? a. If Mella is an accrual basis taxpayer? b. If Mella is a cash basis taxpayer?

Trade or business expenses are classified as deductions for AGI. Section 212 expenses, barring certain exceptions, are classified as deductions from AGI. What are these exceptions?

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

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

Which of the following is a deduction for AGI?

If a taxpayer can satisfy the three-out-of-five year presumption test associated with hobby losses, then expenses from the activity can be deducted in excess of the gross income from the activity.

Rex, a cash basis calendar year taxpayer, runs a bingo operation which is illegal under state law. During 2018, a bill designated H.R. 9 is introduced into the state legislature which, if enacted, would legitimize bingo games. In 2018, Rex had the following expenses: Of these expenditures, Rex may deduct:

An expense need not be recurring in order to be "ordinary."

If a vacation home is rented for less than 15 days during a year, the only expenses that can be deducted are mortgage interest, property taxes, and personal casualty losses.