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Exam 6: Deductions and Losses: in General

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Question 51

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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.?

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The $750,000 payment to the U.S.assistan...

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Question 52

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For an expense to be deducted,the amount must be paid by the taxpayer.

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Question 53

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Kitty runs a brothel (illegal under state law)and has the following items of income and expense.What is the amount that she must include in taxable income from her operation?

Rex,a cash basis calendar year taxpayer,runs a bingo operation which is illegal under state law.During 2011,a bill designated H.R.9 is introduced into the state legislature which,if enacted,would legitimize bingo games.In 2011,Rex had the following expenses: Of these expenditures,Rex may deduct:

Emelie and Taylor are employed by the Federal government and own their home in Washington,D.C.While vacationing in the summer for three weeks,they rent their home for two weeks to an Angolian diplomat for $3,000.During the third week,they permit Taylor's aunt and uncle to stay in the house with no rent being charged.Expenses associated with the home for the year are as follows: Determine the effect of these income and expense items associated with their home if they file a joint return.

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:

Which of the following is deductible as a trade or business expense?

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

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

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

Paul is single,age 63,and has gross income of $70,000.His deductible expenses are as follows: What is Paul's AGI?

Rose's business sells air conditioners which have a one-year warranty.Based on historical data,the warranty costs amount to 14% of sales.During 2011,air conditioner sales are $300,000.Actual warranty expenses paid in 2011 are $37,000.

Arnold and Beth file a joint return.Use the following data to calculate their deduction for AGI.

How can an individual's consultation with a lawyer be classified as a deduction for AGI in some cases and a deduction from AGI in other instances?

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

Gladys owns a retail hardware store in Tangipahoa.She is considering opening a business in Hammond,a community located 25 miles away.She incurs expenses of $60,000 in 2011 in investigating the feasibility and desirability of doing so.What amount can Gladys deduct in 2011 if the business is:

All employment related expenses are classified as deductions for AGI.

Which of the following is not deductible?

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?

A loss on the sale of a personal use asset cannot be deducted.