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Exam 6: Deductions and Losses: in General

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Question 1

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Brenda invested in the following stocks and bonds during 2012.

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Question 2

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Petal,Inc.is an accrual basis taxpayer.Petal uses the aging approach to calculate the reserve for bad debts.During 2012,the following occur associated with bad debts. The amount of the deduction for bad debt expense for Petal for 2012 is:

A) $13,000.
B) $14,000.
C) $27,000.
D) $35,000.
E) None of the above.

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

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Question 3

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Hobby activity expenses are deductible from AGI to the extent of hobby income.Such expenses not in excess of hobby income are not subject to the 2% of AGI floor.

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.

Are there any circumstances under which lobbying expenditures are deductible?

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

Emelie and Taylor are employed by the Federal government and own their home in Washington,

Why are there restrictions on the recognition of gains and losses resulting from transactions between related parties?

Under what circumstance can a bribe be deducted?

Al single,age 60,and has gross income of $140,000.His deductible expenses are as follows: What is Al's AGI?

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

Calculate the net income includible in taxable income for the following hobby:

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

Max opened his dental practice (a sole proprietorship)in March 2012.At the end of the year,he has unpaid accounts receivable of $62,000 and no unpaid accounts payable.Should Max use the accrual method or the cash method for his dental practice?

If a vacation home is determined to be a personal/rental use residence,which of the following statements is correct?

A vacation home at the beach which is rented for 170 days and used personally for 16 days is classified in the personal/rental use category.

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 2012,air conditioner sales are $300,000.Actual warranty expenses paid in 2012 are $37,000.

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?

Alfred's Enterprises,an unincorporated entity,pays employee salaries of $92,000 during the year.At the end of the year,$9,000 of additional salaries have been earned but not paid until the beginning of the next year.

Rex,a cash basis calendar year taxpayer,runs a bingo operation which is illegal under state law.During 2012,a bill designated H.R.9 is introduced into the state legislature which,if enacted,would legitimize bingo games.In 2012,Rex had the following expenses: Of these expenditures,Rex may deduct: