42) Generally, deductions for adjusted gross income on an individual's tax return include all the following types of expenses except those
A) incurred in gambling activities.
43) On Form 1040, deductions for adjusted gross income include the amounts paid for all of the following except
B) home mortgage interest.
44) Deductions for adjusted gross income include all of the following except
D) unreimbursed employee business expenses.
45) Self-employed individuals may claim, as a deduction for adjusted gross income, 50 percent of their
D) self-employment tax.
46) Charles is a single person, age 35, with no dependents. In 2014, Charles has gross income of $75,000 from his sole proprietorship. Charles also incurs $80,000 of deductible business expenses in connection with his proprietorship. He has interest and d
A) $6,850.
47) In 2014, Sean, who is single and age 44, received $55,000 of gross income and had $5,000 of deductions for AGI and $4,600 of itemized deductions. Sean's taxable income is
A) $39,850.
48) In 2014, Venkat, who is single and age 37, received $60,000 of gross income and had $6,800 of itemized deductions. Venkat's taxable income is
A) $49,250.
49) Liz, who is single, lives in a single family home and owns a second single family home that she rented for the entire year at a fair rental rate. Liz had the following items of income and expense during the current year.
Income:
Gross salary and commi
C) $62,200
50) Assume Congress wishes to encourage healthy eating and is considering a deduction for broccoli purchases. In order to maximize the value of this tax deduction for taxpayers, Congress should provide for a
B) deduction for AGI.
51) Deductions for AGI may be located
D) All of the above are true.
52) To be tax deductible, an expense must be all of the following except
B) paid in cash.
53) Which of the following is not required for an expenditure to be deductible as a business or investment expense?
A) recurring in nature
54) Various criteria will disqualify the deduction of a business or investment related expenditure. Which of the following criteria will not disqualify a business or investment expenditure?
C) expenses are not incurred annually
55) Maria pays the following legal and accounting fees during the year:
Legal fees in connection with ongoing operations of a trade or business $4,000
Legal fees related to purchase of personal residence 2,600
Legal fees related to tax deficiency related
B) $6,000
56) Leigh pays the following legal and accounting fees during the year:
Legal fees in connection with a contract dispute in her trade or business $8,800
Legal fees related to resolving a tax deficiency related to business 4,000
Tax return preparation fees
B) $14,000
57) During the current year, Martin purchases undeveloped land as an investment. Martin intends to rent the land as pastureland and hopefully sell it later for a profit. In the current year, Martin receives no rent but he does pay taxes of $2,800, mortgag
D) $4,200
58) Pamela was an officer in Green Restaurant which subsequently went bankrupt. Pamela started a new restaurant and, to establish goodwill, paid off the debts of $100,000 of Green Restaurant. She was under no obligation to do so. The $100,000 is
B) capitalized because the expenses are not ordinary.
59) Laura, the controlling shareholder and an employee of Southwest Corporation, receives an annual salary of $750,000. Based on several factors including the size of the corporation's operations and a comparison of salary received by officers of comparab
B) $600,000 is deductible by the corporation; $750,000 is taxable to Laura.
60) Carole owns 75% of Pet Foods, Inc. As CEO, Carole must travel extensively and does so on the company jet. In addition, she also uses the jet to take several personal vacations. Carole reports the value of the personal use of the jet, $140,000, as addi
C) The corporation takes a deduction of $140,000 for compensation expense.
61) Mark and his brother, Rick, each own farms. Rick is experiencing severe financial difficulties and cannot afford to buy feed for his cattle. Mark purchases $2,000 of feed and gives Rick one-half of the feed. Mark tells Rick that there is no need to re
B) Mark can deduct $1,000 for the feed.
62) Which of the following factors is important in distinguishing between capital and revenue expenditures?
D) All of the above.
63) During 2014 and 2015, Danny pays property taxes of $3,500 each year on a piece of land. During 2014, the land is vacant and unproductive. In 2015, Danny uses the land as a parking lot and generates $16,000 in income. Which of the following is true reg
B) Deduct $3,500 each year.
C) Capitalize $3,500 in 2014 and deduct $3,500 in 2015.
D) Either B or C is acceptable.
64) During the current year, Ivan begins construction of an office building and a hotel. He incurs $10,000 in property taxes during the construction of the office building and $15,000 for the hotel. Which of the following statements is true of the propert
C) Ivan may elect to capitalize the property taxes on one of the properties while deducting the property taxes on the other for each year.
65) Emeril borrows $340,000 to finance taxable and tax-exempt investments. He incurs $18,000 investment interest expense, allocated equally between the taxable and tax-exempt investments. Ignore any possible investment interest expense limitation. How muc
D) $9,000 from AGI
66) Sacha, a dentist, has significant investment assets. She holds corporate bonds, municipal bonds, stocks and mutual funds. Sacha paid $1,500 to an investment adviser to conduct a portfolio review and to prepare a recommendation for rebalancing her port
C) Part of the $1,500 fee will be disallowed due to the holding of the municipal bonds.
67) Jimmy owns a trucking business. During the current year he incurred the following:
Gasoline and Oil $ 100,000
Maintenance $ 15,000
Fines for Speeding and Illegal parking $ 8,000
Bribes to Government Inspection Officials $ 21,000
What is the total amou
A) $115,000
68) During the current year, the United States files criminal and civil actions against Joe, the CEO of Box Corporation, and Jane, the president of Cable Corporation, for price fixing. Both enter pleas of no contest and appropriate judgments are entered.
A) $400,000
69) Troy incurs the following expenses in his business, an illegal gambling establishment:
Salaries to employees $200,000
Insurance expense 60,000
Utilities expense 70,000
Bribes to police 50,000
His deductible expenses are
C) $330,000.
70) Pat, an insurance executive, contributed $1,000,000 to the re-election campaign of Governor Stephens, in hopes that Stephens will appoint her to a coveted position on the State Board of Insurance. How much of the contribution can Pat deduct?
A) $0
71) American Healthcare (AH), an insurance company, is trying to persuade Congress to enact nationwide anti-smoking legislation. As part of this effort, AH paid $500,000 to hire a lobbying firm to discuss its concerns with members of Congress. AH also con
A) $0
72) In March of the current year, Marcus began investigating the possibility of opening a specialty clothing store. From March through June, he spent $2,300 on a market survey, $2,700 in consulting fees to find the best location and $3,600 in professional
C) $5,100
73) Toby, owner of a cupcake shop in New York, is considering opening a similar business (i.e., a cupcake shop) in Phoenix. After spending $4,200 investigating such possibilities in Phoenix, Toby decides against opening the store. What is the maximum amou
D) $4,200
74) Paul, a business consultant, regularly takes clients and potential clients out to dinner. In order to deduct these expenses, Paul must maintain records substantiating all of the following except:
D) All of the above information must be substantiated in order to deduct the entertainment costs.
75) Jones, Inc., a calendar-year taxpayer, is in the air conditioner repair business. The business uses the cash method. In December of the current year, Jones charged $100 of supplies at Refrigeration, Inc., (he will pay the credit card bill in January)
A) $100
76) On August 1 of this year, Sharon, a cash method taxpayer, signs a lease for office space and begins business. The lease is for 3 years. At the time the lease is signed, Sharon pays the $12,600 rent for the entire 36-month lease term. How much can Shar
B) $1,750
77) On December 1, Robert, a cash method taxpayer, borrows $10,000 from the bank for use in his business. Under the terms of the loan, the bank discounts the loan by $300, paying Robert the $9,700 cash proceeds. If Robert repays the loan next year, he may
A) $300 next year.
78) In which of the following situations are points paid on a home mortgage loan not deductible in the year of payment?
B) refinance
79) On August 1 of the current year, Terry refinances her home and borrows $240,000. Terry is required to pay two points on the loan. The loan is secured by the residence and the charging of points is an established business practice in the area. The term
B) $100
80) On July 1 of the current year, Marcia purchases a new home and borrows $320,000. Marcia is required to pay two points on the loan. The loan is secured by the residence and the charging of points is an established business practice in the area. The ter
D) $6,400
81) Which of the following is not required for an accrual method taxpayer to currently deduct the cost of services received?
A) The liability must be paid.
82) Which of the following statements is false?
A) A tax deduction is allowed to a taxpayer for estimated warranty expense.
83) Under the accrual method, recurring liabilities may be deducted currently and paid in the next period if all of the following are present except for
C) the expense is material.
84) Victor, a calendar year taxpayer, owns 100 shares of AB Corporation stock, which was purchased three years ago for $5,000. Victor sells all 100 shares on December 27, of the current year, for $4,000 and on January 5, of the following year, purchases 6
B) $400.
85) Ashley, a calendar year taxpayer, owns 400 shares of Yale Corporation stock that she purchased two years ago for $4,000. In the current year Ashley sells all 400 shares of the Yale Corporation stock for $2,400 on December 27. On January 4 of the follo
B)
Recognized Loss Basis
$400 $2,000.
86) Samuel, a calendar year taxpayer, owns 100 shares of R Corporation common stock which was purchased two years ago for $3,600. Samuel sells all 100 shares on December 27 of the current year for $1,000. On January 4 of the following year, Samuel purchas
D) $2,600.
87) Which of the following individuals is not considered a relative for purposes of the related parties loss disallowance rules under Sec. 267?
C) sister-in-law
88) Erin, Sarah, and Timmy are equal partners in EST Partnership. Sarah also owns 40% of Elton Corporation. The remaining shareholders of Elton Corporation are: Erin (24%) and Sarah's uncle (36%). What percent ownership does Sarah directly or constructive
B) 64%
89) Jason sells stock with an adjusted basis of $66,000 to JJ Inc., his 60% owned corporation, for its fair market value of $60,000. JJ Inc. sells the stock three years later for $67,000. JJ Inc.'s recognized gain or loss on the sale will be
C) $1,000.
90) Donald sells stock with an adjusted basis of $38,000 to his son, Kiefer, for its fair market value of $30,000. Kiefer sells the stock three years later for $32,000. Kiefer will recognize a gain on the subsequent sale of
A) $0.
91) Dana purchased an asset from her brother for $15,000. Her brother's basis was $20,000. If Dana sells the asset to an unrelated party for $12,000, she will recognize
C) ($3,000) loss.
92) Sheila sells stock, which has a basis of $12,000, to her daughter for $7,000, the stock's fair market value. Subsequently, the daughter sells the stock to an unrelated party for $5,000. Which of the following is true for the Sheila and the Daughter?
A)
Sheila Daughter
recognizes no loss recognizes loss of $2,000
93) Rob sells stock with a cost of $3,000 to his daughter for $2,200, which is its fair market value. Later the daughter sells the stock for $3,200 to an unrelated party. Which of the following describes the tax treatment to Rob and Daughter?
B)
Rob Daughter
Recognizes no loss Recognizes gain of $200
94) Bart owns 100% of the stock of Octo Corporation, which uses the accrual method. Bart's sister Samantha, a cash method taxpayer, did some advertising work for Octo in November 2014. In December, Octo received a billing statement from Samantha for $5,00
B) 2015
95) Which of the following factors is not used to determine whether an activity is a hobby or a business?
D) the success of the taxpayer in other dissimilar activities
96) For the years 2010 through 2014 (inclusive) Max, a surgeon, has been involved in bowling competitions. Only in 2013 and 2014 did his revenue exceed the expenses from the activity. Which statement is correct?
D) The activity is presumed to be a hobby. However, Max may prove it is a business.
97) For the years 2010 through 2014 (inclusive) Mary, a best-selling author, has been involved in operating an antique store. In 2010, 2011 and 2012 her revenue exceeded the expenses from the activity. In 2013 and 2014, the antique store generated a loss.
C) The activity is presumed to be a business. However, the IRS may prove it is a hobby.
98) Kelsey enjoys making cupcakes as a hobby and occasionally sells them for parties. Kelsey receives $1,000 in revenues from cupcake sales this year and pays $1,300 for supplies. Kelsey takes the standard deduction each year. The net effect of the cupcak
B) an increase of $1,000.
99) Abigail's hobby is sculpting. During the current year, Abigail sold three of her sculptures for a total of $3,200. Her related expenses include $1,500 in utilities, $1,200 in supplies and $900 in depreciation. Of the total expenses incurred, Abigail m
C) $1,500 in utilities, $1,200 in supplies, and $500 in depreciation.
100) Kyle drives a race car in his spare time and on weekends. His records regarding this activity reflect the following information for the year.
Income $7,800
Entry fees 2,100
Depreciation on car 1,700
Gasoline 1,000
Interest on home equity loan for rac
C) $1,400
101) Juanita knits blankets as a hobby and sells them. In the current year, she earns $5,000 from her blanket sales and incurs expenses of $600. Juanita does not itemize deductions. On her tax return, she should
C) report $5,000 of hobby income and deduct nothing from AGI since Juanita does not itemize deductions.
102) Vanessa owns a houseboat on Lake Las Vegas that she personally uses for 25 days out of the year and rents for 280 days. For tax purposes, the houseboat is classified as
B) rental property. Expenses in excess of income may be deducted although net income or loss is subject to the passive activity rules.
103) Mackensie owns a condominium in the Rocky Mountains. During the year, Mackensie uses the condo a total of 23 days. The condo is also rented to tourists for a total of 77 days and generates rental income of $10,900. Mackensie incurs the following expe
C) $5,796.
104) Abby owns a condominium in the Great Smokey Mountains. During the year, Abby uses the condo a total of 21 days. The condo is also rented to tourists for a total of 79 days and generates rental income of $12,500. Abby incurs the following expenses:
Ex
A) $ 5,074.
105) Nikki is a single taxpayer who owns a vacation cottage on the lake. During the year, she rented it for $2,000 for 14 days, lived in it for 56 days, and left it vacant the remainder of the year. The year's expenses amounted to $5,000 interest expense,
A) 0
106) Gabby owns and operates a part-time art gallery, now in its fifth year. She views it as a business activity, but she is concerned that the IRS will challenge her classification and consider it a hobby. Her business results, using the cash method of a
B) next year
107) Brent must substantiate his travel and entertainment expenses. Which of the following is not required for documentation?
A) company expense report