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Exam 5: Business Deductions

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Question 21

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Bruce owns several sole proprietorships.Must Bruce use the same accounting method for each of these businesses?

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No.If a taxpayer owns multiple...

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Question 22

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A used $35,000 automobile that is used 100% for business is placed in service in 2015.If the automobile fails the 50% business usage test in the second year,no cost recovery will be recaptured.

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B) False

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Question 23

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Bobby operates a drug trafficking business.Because he has an accounting background,he keeps detailed financial records.What expenses can Bobby deduct on his Federal income tax return?

On December 16,2015,the directors of Quail Corporation (an accrual basis,calendar year taxpayer)authorized a cash donation of $5,000 to the American Cancer Society,a qualified charity.The payment,which is made on April 11,2016,may be claimed as a deduction for tax year 2015.

On June 1,2015,Norm leases a taxi and places it in service.The lease payments are $1,000 per month.Assuming the dollar amount from the IRS table for such leases is $241,determine Norm's gross income inclusion amount.

Carlos purchased an apartment building on November 16,2015,for $3,000,000.Determine the cost recovery for 2015.

The domestic production activities deduction (DPAD)for a sole proprietor is calculated by multiplying a percentage rate (currently 9%)times adjusted gross income.

Briefly discuss the disallowance of deductions for capital expenditures.

Cora purchased a hotel building on May 17,2015,for $3,000,000.Determine the cost recovery deduction for 2016.

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

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.

Discuss the tax implications of a seller allocating the selling price to goodwill or a covenant not to compete.

The cost of a covenant not to complete for 10 years incurred in connection with the acquisition of a business is amortized over 10 years.

Payments by a cash basis taxpayer of capital expenditures:

Pat purchased a used five-year class asset on March 15,2015,for $60,000.He did not elect § 179 expensing.Determine the cost recovery deduction for 2015 for earnings and profits purposes.

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?

All personal property placed in service in 2015 and used in a trade or business qualifies for additional first-year depreciation.

A baseball team that pays a star player an annual salary of $25 million can deduct the entire $25 million as salary expense.If the same amount is paid to the CEO of IBM,only $1 million is deductible.

LD Partnership,a cash basis taxpayer,purchases land and a building for $200,000 with $150,000 of the cost being allocated to the building.The gross receipts of the partnership are less than $100,000.LD must capitalize the $50,000 paid for the land,but can deduct the $150,000 paid for the building in the current tax year.

Paula is the sole shareholder of Violet,Inc.For 2015,she receives from Violet a salary of $300,000 and dividends of $100,000.Violet's taxable income for 2015 is $500,000.On audit,the IRS treats $100,000 of Paula's salary as unreasonable.Which of the following statements is correct?