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Exam 6: Deductions and Losses: in General

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Question 21

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Which of the following is incorrect?

A) Alimony is a deduction for AGI.
B) The expenses associated with royalty property are a deduction from AGI.
C) Contributions to a traditional IRA are a deduction for AGI.
D) Property taxes on taxpayer's personal residence are a deduction from AGI
E) All of these are correct.

F) A) and E)
G) A) and B)

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Question 22

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Which of the following statements is correct in connection with the investigation of a business?

A) If the taxpayer is not already engaged in the trade or business,the expenses incurred are deductible if the project is abandoned.
B) If the business is acquired,the expenses may be deducted immediately by a taxpayer engaged in a similar trade or business regardless of whether the business being investigated is acquired.
C) That business must be related to the taxpayer's present business for any expense ever to be deductible.
D) Regardless of whether the taxpayer is already engaged in the trade or business,the expenses must be capitalized and amortized.
E) None of these.

F) All of the above
G) B) and E)

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Question 23

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What losses are deductible by an individual taxpayer?

What is the appropriate tax treatment for expenditures paid by a taxpayer for another's benefit?

Terry and Jim are both involved in operating illegal businesses.Terry operates a gambling business and Jim operates a drug running business.Both businesses have gross revenues of $500,000.The businesses incur the following expenses.

Bridgett's son,Clyde,is $12,000 in arrears on his residential mortgage payments.Of the $12,000,$7,500 represents interest and $4,500 represents principal. a.If Bridgett pays the $12,000 to the lender,how much can she deduct? How much can Clyde deduct? b.If Bridgett pays the $7,500 of interest to the lender and loans or gives $4,500 to Clyde,who pays the $4,500 of principal,how much can Bridgett deduct? How much can Clyde deduct? c.If Bridgett gives or lends the $12,000 to Clyde who pays the lender,how much can he deduct? How much can Bridgett deduct? d.Advise Bridgett and Clyde on how the payment should be made.

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

Investigation of a business unrelated to one's present business never results in a current period deduction of the entire amount if the amount of the investigation expenses exceeds $5,000.

Describe the circumstances under which a taxpayer can receive rent income from a personal residence,but does not have to report it as gross income.

On January 2,2014,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 2014?

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?

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 1,2014.How much of the $36,000 payment can she deduct in 2014 and 2015? a.If Mella is an accrual basis taxpayer? b.If Mella is a cash basis taxpayer?

Walter sells land with an adjusted basis of $175,000 and a fair market value of $160,000 to his mother,Shirley,for $160,000.Walter reinvests the proceeds in the stock market.Shirley holds the land for one year and a day and sells it in the marketplace for $169,000. a.Determine the tax consequences to Walter. b.Determine the tax consequences to Shirley.

Mitch is in the 28% tax bracket.He may receive a different tax benefit for a $2,000 expenditure that is classified as a deduction from AGI than he will receive for a $1,000 expenditure that is classified as a deduction for AGI.

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?

Discuss the application of the "one­year rule" on prepayments by a cash basis taxpayer.

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

A baseball team that pays a star player an annual salary of $25 million can deduct the entire $25 million as salary expense.If the same amount is paid to the CEO of IBM,only $1 million is deductible.

The income of a sole proprietorship is reported on Schedule C (Profit or Loss from Business).

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