Question 1

A hobby activity can result in all of the hobby income being included in AGI and no deductions being allowed.

Accepted Answer

A) True 
 B)False

Question 2

If a vacation home is classified as primarily personal use (i.e.,rented for fewer than 15 days),none of the related expenses can be deducted.

Accepted Answer

A) True 
 B)False

Question 3

Velma and Josh divorced.Velma's attorney fee of $4,000 is allocated as follows:  Of the $4,000 Velma pays to her attorney,the amount she may deduct as an itemized deduction is:

Accepted Answer

A)   $0.
B)   $1,100.
C)   $2,800.
D)   $4,000.
E)   None of the above.F) A) and B)
G) A) and E)

Question 4

Under no circumstance can a loss on the sale of a personal use asset be deducted.

Accepted Answer

A) True 
 B)False

Question 5

Legal fees incurred in connection with a criminal defense are not deductible even if the crime is associated with a trade or business.

Accepted Answer

A) True 
 B)False

Question 6

Which of the following is relevant in deciding whether an activity is profit-seeking or a hobby?

Accepted Answer

A)   The time and effort expended.
B)   The expertise of the taxpayers or their advisers.
C)   The history of income or losses from the activity.
D)   The tax benefits of the activity to the taxpayer.
E)   All of the above factors are to be considered.F) B) and E)
G) None of the above

Question 7

Investigation of a business unrelated to one's present business never results in a current period deduction of the entire amount if the amount of the investigation expenses exceeds $5,000.

Accepted Answer

A) True 
 B)False

Question 8

Sandra owns an insurance agency.The following selected data are taken from the agency balance sheet and income statement prepared using the accrual method.
  Calculate Sandra's net profit using the cash method for 2012.

Accepted Answer

Sandra's accrual method net pr...

Question 9

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?

Accepted Answer

<img  loading="lazy" src="/assets/images/blured-textbook.svg" class="d-inline m-1" alt="blured image" width="139" height="30"> The bribes to polic...

Question 10

All domestic bribes (i.e.,to a U.S.official)are disallowed as deductions.

Accepted Answer

A) True 
 B)False

Question 11

Payments by a cash basis taxpayer of capital expenditures:

Accepted Answer

A)   Must be expensed at the time of payment.
B)   Must be expensed by the end of the first year after the asset is acquired.
C)   Must be deducted over the actual or statutory life of the asset.
D)   Can be deducted in the year the taxpayer chooses.
E)   None of the above.F) B) and C)
G) A) and C)

Question 12

Which of the following must be capitalized by a business?

Accepted Answer

A)   Replacement of a windshield of a business truck which was broken in an accident.
B)   Repair of a roof of a building used in business.
C)   Amount paid for a covenant not to compete.
D)   Only b. and c. must be capitalized.
E)   a., b., and c. can be expensed rather than capitalized.F) None of the above
G) B) and D)

Question 13

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

Accepted Answer

No.If a taxpayer owns multiple...

Question 14

Which of the following cannot be deducted as a § 162 business expense?

Accepted Answer

A)   Expenses of investing in rental property.
B)   Charitable contributions made by a sole proprietorship.
C)   Fines and penalties.
D)   Only a. and c. cannot.
E)   a., b., and c. cannot.F) C) and D)
G) A) and B)

Question 15

Expenses incurred for the production or collection of income generally are deductions from adjusted gross income.

Accepted Answer

A) True 
 B)False

Question 16

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?

Accepted Answer

"Reasonableness" is an additional requir...

Question 17

The cash method can be used even if inventory and cost of goods sold are an income producing factor in the business.

Accepted Answer

A) True 
 B)False

Question 18

Bridgett's son,Hubert,is $10,000 in arrears on his residential mortgage payments.Of the $10,000,$7,500 represents interest and $2,500 represents principal.

Accepted Answer

The answer of Bridgett's son,Hubert,is $10,000 in arrears on his...

Question 19

Under the "one-year rule" for the current period deduction of prepaid expenses of cash basis taxpayers,the asset must expire or be consumed by the end of the tax year following the year of payment.

Accepted Answer

A) True 
 B)False

Question 20

The only § 212 expenses that are deductions for AGI are those related to rent and royalty income.

Accepted Answer

A) True 
 B)False

Exam 6: Deductions and Losses: in General

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

Correct AnswerverifiedNo.If a taxpayer owns multiple...View AnswerShow Answer

If a vacation home is classified as primarily personal use (i.e.,rented for fewer than 15 days),none of the related expenses can be deducted.

Correct AnswerverifiedShow Answer

Expenses incurred for the production or collection of income generally are deductions from adjusted gross income.

Correct AnswerverifiedShow Answer

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?

Correct Answerverified"Reasonableness" is an additional requir...View AnswerShow Answer

Which of the following cannot be deducted as a § 162 business expense?

Correct AnswerverifiedShow Answer

Investigation of a business unrelated to one's present business never results in a current period deduction of the entire amount if the amount of the investigation expenses exceeds $5,000.

Correct AnswerverifiedShow Answer

Bridgett's son,Hubert,is $10,000 in arrears on his residential mortgage payments.Of the $10,000,$7,500 represents interest and $2,500 represents principal.

Correct AnswerverifiedShow Answer

The cash method can be used even if inventory and cost of goods sold are an income producing factor in the business.

Correct AnswerverifiedShow Answer

The only § 212 expenses that are deductions for AGI are those related to rent and royalty income.

Correct AnswerverifiedShow Answer

Which of the following must be capitalized by a business?

Correct AnswerverifiedShow Answer

Which of the following is relevant in deciding whether an activity is profit-seeking or a hobby?

Correct AnswerverifiedShow Answer

A hobby activity can result in all of the hobby income being included in AGI and no deductions being allowed.

Correct AnswerverifiedShow Answer

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?

Correct Answerverified The bribes to polic...View AnswerShow Answer

Legal fees incurred in connection with a criminal defense are not deductible even if the crime is associated with a trade or business.

Correct AnswerverifiedShow Answer

Under the "one-year rule" for the current period deduction of prepaid expenses of cash basis taxpayers,the asset must expire or be consumed by the end of the tax year following the year of payment.

Correct AnswerverifiedShow Answer

Sandra owns an insurance agency.The following selected data are taken from the agency balance sheet and income statement prepared using the accrual method. Calculate Sandra's net profit using the cash method for 2012.

Correct AnswerverifiedSandra's accrual method net pr...View AnswerShow Answer

All domestic bribes (i.e.,to a U.S.official)are disallowed as deductions.

Correct AnswerverifiedShow Answer

Under no circumstance can a loss on the sale of a personal use asset be deducted.

Correct AnswerverifiedShow Answer

Velma and Josh divorced.Velma's attorney fee of $4,000 is allocated as follows: Of the $4,000 Velma pays to her attorney,the amount she may deduct as an itemized deduction is:

Correct AnswerverifiedShow Answer

Payments by a cash basis taxpayer of capital expenditures:

Correct AnswerverifiedShow Answer

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No.If a taxpayer owns multiple...
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"Reasonableness" is an additional requir...
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The bribes to polic...
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Sandra's accrual method net pr...
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