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Exam 6: Deductions and Losses: in General

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Question 71

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The amount of the addition to the reserve for bad debts for an accrual method taxpayer is allowed as a deduction for tax purposes, but is not allowed for a cash method taxpayer.

A) True
B) False

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Question 72

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The legal cost of having a will prepared is not deductible.

A) True
B) False

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Question 73

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Under what circumstance can a bribe be deducted?

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?

Which of the following expenses associated with the illegal sale of whiskey (i.e., bootlegging) can be deducted?

Sandra sold 500 shares of Wren Corporation to Bob, her brother, for its fair market value.She had paid $26,000 for the stock.Calculate Sandra's and Bob's gain or loss under the following circumstances:

What are the relevant factors to be considered in determining whether an activity is profit-seeking or a hobby?

Which of the following can be claimed as a deduction for AGI?

Legal expenses incurred in connection with rental property are deductions from AGI.

Legal fees incurred in connection with a criminal defense are not deductible even if the crime is associated with a trade or business.

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:

None of the prepaid rent paid on November 1 by a calendar year cash basis taxpayer for the next 18 months is deductible in the current period.

The Code defines what constitutes a trade or business.

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

Which of the following cannot be deducted as a § 162 business expense?

Are all personal expenses disallowed as deductions?

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.

If a residence is used primarily for personal use (rented for fewer than 15 days per year) , which of the following is correct?

For an activity classified as a hobby, the expenses are categorized as follows: (1) Amounts that affect adjusted basis and would be deductible under other Code sections if the activity had been engaged in for profit (e.g., depreciation, amortization, and depletion) . (2) Amounts deductible under other Code sections without regard to the nature of the activity, such as property taxes and home mortgage interest. (3) Amounts deductible under other Code sections if the activity had been engaged in for profit, but only if those amounts do not affect adjusted basis (e.g., maintenance, utilities, and supplies) . If these expenses exceed the gross income from the activity and are thus limited, the sequence in which they are deductible is:

If a vacation home is classified as primarily rental use, a deduction for all of the rental expenses is allowed.