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Exam 6: Deductions and Losses: in General

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Question 31

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Rex,a cash basis calendar year taxpayer,runs a bingo operation which is illegal under state law.During 2015,a bill designated H.R.9 is introduced into the state legislature which,if enacted,would legitimize bingo games.In 2015,Rex had the following expenses: Operating expenses in conducting bingo games $247,000 Payoff money to state and local police 24,000 Newspaper ads supporting H.R.9 3,000 Political contributions to legislators who support H.R.9 8,000 Of these expenditures,Rex may deduct:

A) $247,000.
B) $250,000.
C) $258,000.
D) $282,000.
E) None of the above.

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

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Question 32

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The cash method can be used even if inventory and cost of goods sold are an income producing factor in the business.

A) True
B) False

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Question 33

Multiple Choice

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Which of the following may be deductible?

Which of the following is not deductible?

Sammy,a calendar year cash basis taxpayer who is age 66,has the following transactions: Salary from job $90,000 Alimony received from ex-wife 10,000 Medical expenses 8,000 ​ Based on this information,Sammy has:

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

Andrew,who operates a laundry business,incurred the following expenses during the year. ∙ Parking ticket of $250 for one of his delivery vans that parked illegally. ∙ Parking ticket of $75 when he parked illegally while attending a rock concert in Tulsa. ∙ DUI ticket of $500 while returning from the rock concert. ∙ Attorney's fee of $600 associated with the DUI ticket. What amount can Andrew deduct for these expenses?

Alfred's Enterprises,an unincorporated entity,pays employee salaries of $100,000 during the year.At the end of the year,$12,000 of additional salaries have been earned but not paid until the beginning of the next year. a.Determine the amount of the deduction for salaries if Alfred is a cash method taxpayer. b.Determine the amount of the deduction for salaries if Alfred is an accrual method taxpayer.

During the year,Martin rented his vacation home for three months and spent one month there.Gross rental income from the property was $5,000.Martin incurred the following expenses: mortgage interest,$3,000;real estate taxes,$1,500;utilities,$800;maintenance,$500;and depreciation,$4,000.Compute Martin's allowable deductions for the vacation home under the court's approach and the IRS's approach.

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

Briefly discuss the disallowance of deductions for capital expenditures.

During 2014,the first year of operations,Silver,Inc. ,pays salaries of $175,000.At the end of the year,employees have earned salaries of $20,000,which are not paid by Silver until early in 2015.What is the amount of the deduction for salary expense?

Expenses incurred for the production or collection of income generally are deductions from adjusted gross income.

Two-thirds of treble damage payments under the antitrust law are not deductible.

Olive,Inc. ,an accrual method taxpayer,is a corporation that is equally owned by Maurice and Alex,who are brothers.The corporation uses the accrual method of accounting and the shareholders use the cash method.To provide Olive with funds to acquire additional working capital,the shareholders each loan Olive $100,000 with a 6% interest rate.At the end of the tax year,there is unpaid accrued interest of $3,000 due to each shareholder.From a timing perspective,when should Olive deduct this $6,000 and when should Maurice and Alex include the $3,000 in gross income? Olive pays the $3,000 to each shareholder early next year.

Arnold and Beth file a joint return.Use the following data to calculate their deduction for AGI. Mortgage interest on personal residence $ 6,000 Property taxes on personal residence 2,500 Alimony payments 12,000 Moving expenses 7,000 Charitable contributions 1,500 State income taxes 5,000 Investment interest ($8,000 of expenses limited to net investment income of $7,500) 7,500 Unreimbursed employee expenses 2,500 Sales taxes 2,600

Mattie and Elmer are separated and are in the process of obtaining a divorce.They incur legal fees for their respective attorneys with the expenses being itemized as follows: For Mattie Elmer General costs of the divorce $3,500 $3,000 Determination of dependency exemptions 1,500 -0- Property settlement tax consequences 400 1,500 $5,400 $4,500 ​ Although there is no requirement that he do so,Elmer pays Mattie's lawyer as a gesture of the positive feelings he still has for her. a.Determine the deductions for Mattie and for Elmer. b.Classify the deductions as for AGI and from AGI.

If a taxpayer operated an illegal business (not drug trafficking),what expenses can be deducted and what expenses are disallowed?

Austin,a single individual with a salary of $100,000,incurred and paid the following expenses during the year: Medical expenses $ 5,000 Alimony 24,000 Charitable contributions 2,000 Casualty loss (after $100 floor) 1,000 Mortgage interest on personal residence 4,500 Property taxes on personal residence 4,200 Moving expenses 2,500 Contribution to a traditional IRA 4,000 Sales taxes (no state or local income tax is imposed) 1,300 ​ Calculate Austin's deductions for AGI.

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