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Exam 5: Business Deductions

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Question 81

True/False

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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.

A) True
B) False

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Question 82

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Any § 179 expense amount that is carried forward is subject to the business income limitation in the carryforward year.

A) True
B) False

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Question 83

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White Company acquires a new machine (seven-year property) on January 10,2015,at a cost of $600,000.White makes the election to expense the maximum amount under § 179.No election is made to use the straight-line method.White does take additional first-year depreciation.Determine the total deductions in calculating taxable income related to the machine for 2015 assuming White has taxable income of $800,000.

The luxury auto cost recovery limits applies to all automobiles.

For a corporation,the domestic production activities deduction is equal to 9% of the lesser of (1)qualified production activities income or (2)taxable income.However,the deduction cannot exceed 50% of the W-2 wages related to qualified production activities income.

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

For real property,the ADS convention is the mid-month convention.

Are there any circumstances under which lobbying expenditures are deductible?

Discuss the reason for the inclusion amount with respect to leased automobiles.

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?

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

Doug purchased a new factory building on January 15,1990,for $400,000.On March 1,2015,the building was sold.Determine the cost recovery deduction for the year of the sale;Doug did not use the MACRS straight-line method.

The cost recovery period for 3-year class property is 4 years.

Under the alternative depreciation system (ADS),the half-year convention must be used for personalty.

Ivory,Inc. ,has taxable income of $600,000 and qualified production activities income (QPAI) of $700,000 in the current year.Ivory's domestic production activities deduction is:

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