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Exam 5: Business Deductions

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Question 61

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For a new car that is used predominantly in business, the "luxury auto" limit depends on whether the taxpayer takes MACRS or straight-line depreciation.

A) True
B) False

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Question 62

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What losses are deductible by an individual taxpayer?

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Generally deductible losses of individua...

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Question 63

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Mary purchased a new five-year class asset on March 7, 2016. The asset was listed property (not an automobile) . It was used 60% for business and the rest of the time for personal use. The asset cost $900,000. Mary made the § 179 election. The income from the business before the § 179 deduction was $600,000. Mary also takes additional first-year depreciation (if available) . Determine the total deductions with respect to the asset for 2016.

The basis of cost recovery property must be reduced by at least the cost recovery allowable.

Andrew, who operates a laundry business, incurred the following expenses during the year. What amount can Andrew deduct for these expenses?

Alfred's Enterprises, an unincorporated entity, pays employee salaries of $100,000 during the year. At the end of the year, $12,000 of additional salaries have been earned but not paid until the beginning of the next year. a.Determine the amount of the deduction for salaries if Alfred is a cash method taxpayer. b.Determine the amount of the deduction for salaries if Alfred is an accrual method taxpayer.

In January, Lance sold stock with a cost basis of $26,000 to his brother, James, for $24,000, the fair market value of the stock on the date of sale. Five months later, James sold the same stock through his broker for $27,000. What is the tax effect of these transactions?

Discuss the tax implications of a seller allocating the selling price to goodwill or a covenant not to compete.

Which of the following is not a related party for constructive ownership purposes under § 267?

Motel buildings have a cost recovery period of 27.5 years.

Augie purchased one new asset during the year (five-year property) on November 10, 2016, at a cost of $650,000. She would like to use the § 179 election and will also take additional first-year depreciation, if available. The income from the business before the cost recovery deduction and the § 179 deduction was $600,000. Determine the total cost recovery deduction with respect to the asset for 2016.

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.

On March 1, 2016, Lana leases and places in service a passenger automobile. The lease will run for five years and the payments are $500 per month. During 2016, she uses her car 60% for business and 40% for personal activities. Assuming the dollar amount from the IRS table for auto leases is $70, determine Lana's gross income attributable to the lease.

Hazel purchased a new business asset (five-year asset) on September 30, 2016, at a cost of $100,000. On October 4, 2016, Hazel placed the asset in service. This was the only asset Hazel placed in service in 2016. Hazel did not elect § 179 or additional first-year depreciation if available. On August 20, 2017, Hazel sold the asset. Determine the cost recovery for 2017 for the asset.

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

Generally, a closely-held family corporation is not permitted to take a deduction for a salary paid to a family member in calculating corporate taxable income.

Sandra sold 500 shares of Wren Corporation to Bob, her brother, for its fair market value. She had paid $26,000 for the stock. Calculate Sandra's and Bob's gain or loss under the following circumstances: a.Sandra sold the shares to Bob for $20,000. One year later, Bob sold them for $18,000. b.Sandra sold the shares to Bob for $30,000. One year later, Bob sold them for $27,000. c.Sandra sold the shares to Bob for $20,000. One year later, Bob sold them for $28,000.

A taxpayer may elect to use the alternative depreciation system (ADS) to compute depreciation for earnings and profits.

Property which is classified as personalty may be depreciated.

During the past two years, through extensive advertising and improved customer relations, Orange Corporation estimated that it had developed customer goodwill worth $500,000. For the current year, determine the amount of goodwill Orange Corporation may amortize.