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Exam 6: Deductions and Losses: in General

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Question 1

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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?

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"Reasonableness" is an additional requir...

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Question 2

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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:

A) $0.
B) $1,100.
C) $2,800.
D) $4,000.
E) None of the above.

F) A) and B)
G) B) and D)

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Question 3

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LD Partnership,a cash basis taxpayer,purchases land and a building for $200,000 with $150,000 of the cost being allocated to the building.The gross receipts of the partnership are less than $100,000.LD must capitalize the $50,000 paid for the land,but can deduct the $150,000 paid for the building in the current tax year.

Cory incurred and paid the following expenses: Calculate the amount that Cory can deduct (before any percentage limitations) .

If a vacation home is rented for less than 15 days during a year,the only expenses that can be deducted are mortgage interest,property taxes,and personal casualty losses.

Taylor,a cash basis architect,rents the building in which his office is located for $5,000 per month.He commenced his practice on February 1,2012.In order to guarantee no rent increases during an 18-month period,he signed an 18-month lease and prepaid the $90,000 on February 1,2012.How much can Taylor deduct as rent expense for 2012?

The ordinary and necessary expenses for operating an illegal gambling operation (excluding such items as fines,bribes,and other illegal payments)are deductible.

Are there any circumstances under which lobbying expenditures are deductible?

Two-thirds of treble damage payments under the antitrust law are deductible.

In January,Lance sold stock with a cost basis of $26,000 to his brother,James,for $24,000,the fair market value of the stock on the date of sale.Five months later,James sold the same stock through his broker for $27,000.What is the tax effect of these transactions?

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.

Albie operates an illegal drug-running business and has the following items of income and expense.What is Albie's adjusted gross income from this operation?

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.

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?

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

Can a trade or business expense be deductible if it is necessary but not ordinary?

Tom operates an illegal drug-running operation and incurred the following expenses: Which of the above amounts reduces his taxable income?

The expenses incurred to investigate the expansion of an existing business are deductible even if the expansion is not accomplished.

Which of the following is incorrect?

Under what circumstance can a bribe be deducted?