Federal Taxation Chapter 8 – Flashcards
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Individual proprietors report their business income and deductions on
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Schedule C
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According to the Internal Revenue Code §162, deductible business expenses must be one of the following?
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ordinary and necessary
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Which of the following is NOT likely to be allowed as a current deduction for a landscaping and nursery business?
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cost of a greenhouse
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The IRS would most likely apply the arm's length transaction test to determine which of the following?
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REASONABLENESS of an expenditure
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Which of the following is a true statement? A. Interest expense is not deductible if the loan is used to purchase municipal bonds. B. Insurance premiums are not deductible if paid for "key man" life insurance. C. One half of the cost of business meals is not deductible.
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All of these are true.
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Which of the following expenditures is most likely to be deductible for a construction business?
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An ARM'S LENGTH PAYMENT to a related party for emergency repairs of a sewage line.
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Which of the following is an explanation for why insurance premiums on a key employee are not deductible?
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The INSURANCE DEDUCTION would offset taxable income without the potential for the proceeds generating taxable income.
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Which of the following is a true statement?
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The cost of business meals must be reasonable.
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In order to deduct a portion of the cost of a business meal which of the following conditions must be met?
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The TAXPAYER OR AN EMPLOYEE must be present at the meal.
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Which of the following is likely to be a fully deductible business expense?
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SALARIES IN EXCESS of the industry average paid to attract talented employees.
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Which of the following is a true statement?
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MEALS, LODGING, AND INCIDENTAL EXPENDITURES are only deductible if the taxpayer is away from home overnight while traveling.
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Which of the following is a true statement about travel that has both business and personal aspects?
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The COST OF LODGING, AND INCIDENTAL EXPENDITURES is limited to those incurred during the business portion of the travel.
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Which of the following is a true statement about the domestic production activities deduction?
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This deduction REPRESENTS A SUBSIDY to taxpayers who manufacture or construct goods in the United States.
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Qualified production activities income is defined as follows for purposes of the domestic production activities deduction
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NET INCOME from selling or leasing property the taxpayer manufactured in the United States.
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Which of the following CANNOT be selected as a valid tax year end?
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December 15th
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When does the all-events test under the accrual method require the recognition of income from the sale of goods?
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the EARLIEST of these three dates.
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Which of the following types of transactions may not typically be accounted for using the cash method?
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sales of INVENTORY
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Which of the following types of expenditures is not subject to capitalization under the UNICAP rules?
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SELLING EXPENDITURES
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Which of the following is NOT considered a related party for the purpose of limitation on accruals to related parties?
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A MINORITY SHAREHOLDER when the taxpayer is a corporation.
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Which of the following is a true statement about accounting for business activities?
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An overall accounting method is INITIALLY ADOPTED ON THE FIRST RETURN filed for the business.
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Which of the following is a true statement about impermissible accounting methods?
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An impermissible method is ADOPTED BY USING THE METHOD to report results for two consecutive years.
