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Exam 5: Business Deductions

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Question 1

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Which of the following statements is correct in connection with the investigation of a business?

A) If the taxpayer is not already engaged in the trade or business, the expenses incurred are deductible if the project is abandoned.
B) Expenses may be deducted immediately by a taxpayer engaged in a similar trade or business regardless of whether the business being investigated is acquired.
C) That business must be related to the taxpayer's present business for any expense ever to be deductible.
D) Regardless of whether the taxpayer is already engaged in the trade or business, the expenses must be capitalized and amortized.
E) None of these.

F) B) and E)
G) None of the above

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Question 2

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Tom operates an illegal drug-running operation and incurred the following expenses: Which of the following amounts reduces his taxable income?

A) $119,000.
B) $160,000.
C) $279,000.
D) $324,000.
E) None of these.

F) A) and B)
G) None of the above

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Question 3

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Intangible drilling costs are capitalized and recovered through depletion.

Under the alternative depreciation system (ADS), the half-year convention must be used for personalty.

Hans purchased a new passenger automobile on August 17, 2019, for $30,000.During the year, the car was used 40% for business and 60% for personal use.Determine his cost recovery deduction for the car for 2019.

The period in which an accrual basis taxpayer can deduct an expense is determined by applying the economic performance and all events tests.

The § 179 deduction can exceed $1,020,000 in 2019 if the taxpayer had a § 179 amount that exceeded the taxable income limitation in the prior year.

On March 1, 2019, Lana leases and places in service a passenger automobile.The lease will run for five years and the payments are $500 per month.During 2019, she uses her car 60% for business and 40% for personal activities.Assuming the dollar amount from the IRS table for auto leases is $70, determine Lana's gross income attributable to the lease.

On December 20, 2019, the directors of Quail Corporation (an accrual basis, calendar year C corporation) authorized a cash donation of $5,000 to the American Cancer Society, a qualified charity.The payment, which is made on April 6, 2020, may be claimed as a deduction for tax year 2019.

Marge sells land to her adult son, Jason, for its $20,000 appraised value.Her adjusted basis for the land is $25,000. Marge's recognized loss is $5,000, and Jason's adjusted basis for the land is $25,000 ($20,000 cost + $5,000 recognized lossof Marge).

The portion of a shareholder-employee's salary that is classified as unreasonable has no effect on the amount of the shareholder-employee's gross income but results in an increase in the taxable income of the corporation.

Tan Company acquires a new machine (10-year property) on January 15, 2019, at a cost of $200,000.Tan also acquires another new machine (7-year property) on November 5, 2019, at a cost of $40,000.No election is made to use the straight-line method.The company does not make the § 179 election and elects to not take additional first- year depreciation.Determine the total deductions in calculating taxable income related to the machines for 2019.

Maple Company purchases new equipment (7-year MACRS property) on January 10, 2019, at a cost of $430,000. Maple also purchases new machines (5-year MACRS property) on July 19, 2019 at a cost of $290,000.Maple wants to maximize its MACRS deductions; assume no taxable income limitations apply.What is Maple's total MACRS deduction for 2019?

Once the more-than-50% business usage test is passed for listed property, it still matters if the business usage for the property drops to 50% or less during the recovery period.

Under the MACRS straight-line election for personalty, only the half-year convention is applicable.

The cost recovery basis for property converted from personal use to business use may be the fair market value of the property at the time of the conversion.

Doug purchased a new factory building on January 15, 1991, for $400,000.On March 1, 2019, the building was sold. Determine the cost recovery deduction for the year of the sale; Doug did not use the MACRS straight-line method.

Research and experimental expenditures do not include the cost of consumer surveys.

For a new car that is used predominantly in business, the "luxury auto" limit depends on whether the taxpayer takes MACRS or straight-line depreciation.

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