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Exam 6: Deductions and Losses: in General

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Question 1

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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 2

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Janet is the CEO for Silver, Inc., a closely held corporation. Her total compensation for 2012 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 X 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 2012?

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All of the $5 million is deductible by S...

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Question 3

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Which of the following is correct?

Are all personal expenses disallowed as deductions?

Because it has only one owner, any sole proprietorship is permitted to elect the cash method of accounting.

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

For purposes of the § 267 loss disallowance provision, a taxpayer's aunt is a related party.

Priscella pursued a hobby of making bedspreads in her spare time.Her AGI before considering the hobby is $40,000.During the year 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?

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

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?

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.

Assuming an activity is deemed to be a hobby, discuss the order and limits in which expenses must be deducted.

On January 2, 2012, Fran acquires a business from Chuck.Among the assets purchased are the following intangibles: patent with a 7-year remaining life, a covenant not to compete for 10 years, and goodwill. Of the purchase price, $140,000 was paid for the patent and $60,000 for the covenant.The amount of the excess of the purchase price over the identifiable assets was $100,000.What is the amount of the amortization deduction for 2012?

Iris, a calendar year cash basis taxpayer, owns and operates several TV rental outlets in Florida, and wants to expand to other states.During 2012, 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:

Marvin spends the following amounts on a house he owns:

In a related party transaction where realized loss is disallowed, when can the disallowed loss be used by the buyer on the subsequent sale of the property? In the case of a related party disallowed loss transaction, can the related party seller's disallowed loss be used by a taxpayer other than the related party buyer?

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

Larry, a calendar year cash basis taxpayer, has the following transactions: Based on this information, Larry has:

Which of the following must be capitalized by a business?

Arnold and Beth file a joint return.Use the following data to calculate their deduction for AGI.