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Exam 6: Deductions and Losses: in General

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Question 71

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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.

A) True
B) False

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Question 72

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Discuss the application of the "one-year rule" on prepayments by a cash basis taxpayer.

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The Regulations set forth the general ru...

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Question 73

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The cost of legal advice associated with the preparation of an individual's Federal income tax return is not deductible because it is a personal expense.

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?

Ordinary and necessary business expenses,other than cost of goods sold,of an illegal drug trafficking business do not reduce taxable income.

A salary that is classified as unreasonable by the IRS is disallowed as a deduction to the corporation.

Graham,a CPA,has submitted a proposal to do the annual audit for a municipality.Owen,the city treasurer,tells Graham that for a $1,000 fee,he will use his influence to have the audit awarded to Graham.What factors are relevant in determining if Graham can deduct the $1,000 payment assuming he pays the fee to Owen?

During the year,Jim rented his vacation home for 200 days and lived in it for 19 days.During the remaining days,the vacation home was available for rental use.Is the vacation home subject to the limitation on the deductions of a personal/rental vacation home?

Ralph wants to give his daughter $1,000 for Christmas.As an alternative,she suggests that he pay the property taxes on her residence.If Ralph pays the property taxes,he cannot deduct them.

Under no circumstance can a loss on the sale of a personal use asset be deducted.

Because Scott is three months delinquent on the mortgage payments for his personal residence,Jeanette (his sister) is going to cover the arrearage.Based on past experience,she does not expect to be repaid by Scott.Which of the following statements is correct?

Beige,Inc.,an airline manufacturer,is conducting negotiations for the sale of military aircraft.One negotiation is with a U.S.assistant secretary of defense.She can close the deal on the purchase of 50 attack helicopters if she is paid $750,000 under the table.Another negotiation is with the minister of defense of a third world country.To complete the sale of 20 jet fighters to his government,he demands that he be paid a $1 million grease payment.Beige makes the payments and closes the deals.How much of these payments are deductible by Beige,Inc.?

Payments by a cash basis taxpayer of capital expenditures:

Which of the following is not deductible?

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.

Under the "one-year rule" for the current period deduction of prepaid expenses of cash basis taxpayers,the asset must expire or be consumed by the end of the tax year following the year of payment.

Vera is the CEO of Brunettes,a publicly held corporation.For the year,she receives a salary of $800,000,a bonus of $400,000,and contributions to her retirement plan of $45,000.The bonus was awarded at the December board meeting based on Vera's threat to accept a better paying job with a competitor.What amount may Brunettes deduct?

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

Max opened his dental practice (a sole proprietorship)in March 2012.At the end of the year,he has unpaid accounts receivable of $62,000 and no unpaid accounts payable.Should Max use the accrual method or the cash method for his dental practice?

Which of the following is not a "trade or business" expense?