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Exam 7: Deductions and Losses: Certain Business Expenses and Losses

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Question 21

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Two years ago, Gina loaned Tom $50,000. Tom signed a note the terms of which called for monthly payments of $2,000 plus 6% interest on the outstanding balance. Last year, when the balance owing on the loan was $18,000, Tom defaulted on the note. As of the end of last year, there appeared to be no reasonable prospect of Gina recovering the $18,000. As a consequence, Gina claimed the $18,000 as a nonbusiness bad debt. Last year, Gina had AGI of a negative $6,000 which included $5,000 net long-term capital gains and $4,000 of qualified dividends. Gina did not itemize her deductions. During the current year, Tom paid Gina $13,000 in final settlement of the loan. How should Gina account for the payment in the current year?

A) File an amended tax return for last year.
B) Report no income for the current year.
C) Report $8,000 of income for the current year.
D) Report $12,000 of income for the current year.
E) None of the above.

F) D) and E)
G) C) and D)

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Question 22

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Juanita, single and age 43, had the following items for 2017: ​ Compute Juanita's taxable income for 2017.

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Question 23

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Regarding research and experimental expenditures, which of the following are not qualified expenditures?

The cost of repairs to damaged property is not an acceptable measure of the loss in value of the property.

Mary incurred a $20,000 nonbusiness bad debt last year. She also had an $8,000 long-term capital gain last year. Her taxable income for last year was an NOL of $15,000. During the current year, she unexpectedly collected $12,000 on the debt. How should Mary account for the collection?

Red Company is a proprietorship owned by Sally, a single individual. Red manufactures and sells widgets. An examination of Red's records shows the following items for the current year: ​ Determine Sally's domestic production activities deduction for the current year.

Ralph is single and has the following items for the current year: ​ In calculating Ralph's net operating loss, and with respect to the above amounts only, what amount must be added back to taxable income (loss) ?

If an election is made to defer deduction of research expenditures, the amortization period is based on the expected life of the research project if less than 60 months.

Peggy is in the business of factoring accounts receivable. Last year, she purchased a $30,000 account receivable for $25,000. This year, the account was settled for $25,000. How much loss can Peggy deduct and in which year?

In the current year, Amber Corporation has taxable income of $880,000, alternative minimum taxable income of $600,000, and qualified production activities income (QPAI) of $640,000. The total W-2 wages paid to employees engaged in qualified domestic production activities are $116,000. Amber's DPAD for the current year is:

Sally is an employee of Blue Corporation. Last year, she purchased a very expensive computer with her own funds. She used the computer 100% for business purposes. During the current year, the computer was completely destroyed in a fire. Blue Corporation did not reimburse her for her loss. Discuss whether Sally's loss will create or increase Sally's net operating loss.

Ivory, Inc., has taxable income of $600,000 and qualified production activities income (QPAI) of $700,000 in the current year. Ivory's domestic production activities deduction is:

Khalid, who is single, had the following items for 2017: ​ What is Khalid's NOL for 2017?

The amount of loss for partial destruction of business property is the decline in fair market value of the business property.

In 2016, Robin Corporation incurred the following expenditures in connection with the development of a new product: In 2017, Robin incurred the following additional expenditures in connection with the development of the product: In October 2017, Robin began receiving benefits from the project. If Robin elects to expense research and experimental expenditures, determine the amount and year of the deduction.

A theft loss of investment property is an itemized deduction not subject to the 2%-of-AGI floor.

Discuss the tax treatment of non-reimbursed losses of an employee in connection with a trade or business.

The excess of nonbusiness capital gains over nonbusiness capital losses must be added to taxable income to compute the net operating loss of an individual.

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

Bruce, who is single, had the following items for the current year: Determine Bruce's AGI for the current year.