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Exam 6: Deductions and Losses: in General

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Question 1

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

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The two tests that an accrual basis taxp...

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Question 2

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Swan,Inc.is an accrual basis taxpayer.Swan uses the aging approach to calculate the reserve for bad debts.During 2010,the following occur associated with bad debts. The amount of the deduction for bad debt expense for Swan for 2010 is:

A) $10,000.
B) $12,000.
C) $20,000.
D) $22,000.
E) None of the above.

F) A) and E)
G) D) and E)

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Question 3

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Agnes is the sole shareholder of Violet,Inc.For 2010,she receives from Violet a salary of $200,000 and dividends of $100,000.Violet's taxable income for 2010 is $500,000.On audit,the IRS treats $50,000 of Agnes's salary as unreasonable.Which of the following statements is correct?

If a vacation home is used for personal use less than 15 days and is rented for more than 14 days during a year,the property is treated as primarily rental property.

Expenses incurred in a trade or business are deductible from AGI.

All expenses associated with the production of income are classified as deductions from AGI.

Benita incurred a business expense on December 10,2010,which she charged on her bank credit card.She paid the credit card statement which included the charge on January 5,2011.Which of the following is correct?

Nikeya sells land (adjusted basis of $60,000) to her adult son,Shamed,for its appraised value of $50,000.Which of the following statements is correct?

Beulah's personal residence has an adjusted basis of $250,000 and a fair market value of $230,000.Beulah converts the property to rental use on December 1,2010.The vacation home rules that limit the amount of the deduction to the rental income will apply and the adjusted basis for depreciation is $230,000.

Velma and Josh divorced.Velma's attorney fee of $4,000 is allocated as follows: Of the $4,000 Velma pays to her attorney,the amount she may deduct as an itemized deduction is:

Which of the following must be capitalized by a business?

Trade and business expenses should be treated as:

If an activity involves horses,a profit in at least two of seven consecutive years meets the presumptive rule of § 183.

Alex sells land with an adjusted basis of $73,000 and a fair market value of $64,000 to his mother,Sybil,for $64,000.Sybil holds the land for one year and a day and sells it in the marketplace for $72,000.

If part of a shareholder/employee's salary is classified as unreasonable,determine the effect on the:

Iris,a calendar year cash basis taxpayer,owns and operates several TV rental outlets in Florida,and wants to expand to other states.During 2010,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:

Kitty runs a brothel (illegal under state law)and has the following items of income and expense.What is the amount that she must include in taxable income from her operation?

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

If a vacation home is determined to be a personal/rental use residence,which of the following statements is correct?

Under what circumstances may a taxpayer deduct the expenses of investigating a possible business acquisition,if (1)the business is not acquired;and (2)the business is acquired?