question

Deductions are allowed unless a specific provision in the tax law provides otherwise.

answer

False

question

Mitch is in the 28% tax bracket. He may receive a different tax benefit for a $2,000 expenditure that is classified as a deduction from AGI than he will receive for a $1,000 expenditure that is classified as a deduction for AGI.

answer

True

question

Depending on the nature of the expenditure, expenses incurred in a trade or business may be deductible for or from AGI.

answer

False

question

Only some employment related expenses are classified as deductions FOR AGI

answer

True

question

Only some employment related expenses are classified as deductions for AGI.

answer

True

question

Section 212 expenses that are related to rent and royalty income are deductions for AGI.

answer

True

question

Alice incurs qualified moving expenses of $12,000. If she is reimbursed by her employer, the deduction is classified as a deduction for AGI. If not reimbursed, the deduction is classified as an itemized deduction.

answer

False

question

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

answer

True

question

The Code does not specifically define what constitutes a trade or business.

answer

True

question

An expense need not be recurring in order to be "ordinary."

answer

True

question

Aaron, a shareholder-employee of Pigeon, Inc., receives a $300,000 salary. The IRS classifies $100,000 of this amount as unreasonable compensation. The effect of this reclassification is to decrease Aaron's gross income by $100,000 and increase Pigeon's gross income by $100,000.

answer

False

question

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

answer

True

question

Generally, a closely-held family corporation is not permitted to take a deduction for a salary paid to a family member in calculating corporate taxable income.

answer

False

question

Only under limited circumstances can a loss on the sale of a personal use asset be deducted.

answer

False

question

The income of a sole proprietorship are reported on Schedule C (Profit or Loss from Business).

answer

True

question

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

answer

False

question

A taxpayer's note or promise to pay satisfies the "actually paid" requirement for the cash basis method of accounting.

answer

False

question

Isabella owns two business entities. She may be able to use the cash method for one and the accrual method for the other.

answer

True

question

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.

answer

True

question

None of the prepaid rent paid on September 1 by a calendar year cash basis taxpayer for the next 18 months is deductible in the current period.

answer

False

question

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

answer

True

question

The amount of the addition to the reserve for bad debts for an accrual method taxpayer is allowed as a deduction for tax purposes, but is not allowed for a cash method taxpayer.

answer

False

question

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

answer

True

question

Fines and penalties paid for violations of the law (e.g., illegal dumping of hazardous waste) are deductible only if they relate to a trade or business.

answer

False

question

Susan is a sales representative for a U.S. weapons manufacturer. She makes a $100,000 "grease" payment to a U.S. government official associated with a weapons purchase by the U.S. Army. She makes a similar payment to a Saudi Arabian government official associated with a similar sale. Neither of these payments is deductible by Susan's employer.

answer

False

question

The cost of legal advice associated with the preparation of an individual's Federal income tax return is not deductible because it is a personal expense.

answer

False

question

Two-thirds of treble damage payments under the antitrust law are not deductible.

answer

False

question

The legal cost of having a will prepared is not deductible.

answer

True

question

Legal expenses incurred in connection with rental property are deductions from AGI.

answer

False

question

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

answer

False

question

If a taxpayer operates an illegal business, no deductions are permitted.

answer

False

question

Ordinary and necessary business expenses, other than cost of goods sold, of an illegal drug trafficking business do not reduce taxable income.

answer

True

question

Jacques, who is not a U.S. citizen, makes a contribution to the campaign of a candidate for governor. Cassie, a U.S. citizen, also makes a contribution to the same campaign fund. If contributions by noncitizens are illegal under state law, the contribution by Cassie is deductible, while that by Jacques is not.

answer

False

question

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.

answer

True

question

For a taxpayer who is engaged in a trade or business, the cost of investigating a business in the same field is deductible only if the taxpayer acquires the business.

answer

False

question

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.

answer

True

question

In determining whether an activity should be classified as a business or as a hobby, the satisfaction of the presumption (i.e., profit in at least 3 out of 5 years) ensures treatment as a business.

answer

False

question

If an activity involves horses, a profit in at least two of seven consecutive years meets the presumptive rule of § 183.

answer

True

question

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

answer

True

question

If an item such as property taxes and home mortgage interest exceed the income from a hobby, the excess amount of this item over the hobby income can be deducted if the taxpayer itemizes deductions.

answer

True

question

Hobby activity expenses are deductible from AGI to the extent of hobby income. Such expenses not in excess of hobby income are not subject to the 2% of AGI floor.

answer

False

question

Martha rents part of her personal residence in the summer for 3 weeks for $3,000. Anne rents all of her personal residence for one week in December for $2,500. Anne is not required to include the $2,500 in her gross income whereas Martha is required to include the $3,000 in her gross income.

answer

True

question

If a vacation home is rented for less than 15 days during a year, the only expenses that can be deducted are mortgage interest, property taxes, and personal casualty losses.

answer

True

question

If a vacation home is classified as primarily rental use, a deduction for all of the rental expenses is allowed.

answer

False

question

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.

answer

False

question

The portion of property tax on a vacation home that is attributable to personal use is an itemized deduction.

answer

True

question

If a vacation home is classified as primarily personal use, part of the maintenance and utility expenses can be allocated and deducted as a rental expense.

answer

False

question

A vacation home at the beach which is rented for 200 days and used personally for 16 days is classified in the personal/rental use category.

answer

False

question

If a vacation home is a personal/rental residence, no maintenance and utility expenses can be claimed as a deduction.

answer

False

question

Beulah's personal residence has an adjusted basis of $450,000 and a fair market value of $390,000. Beulah converts the property to rental use on November 1, 2013. The vacation home rules that limit the amount of the deduction to the rental income will apply and the adjusted basis for depreciation is $390,000.

answer

False

question

Walt wants to give his daughter $1,800 for Christmas. As an alternative, she suggests that he pay the property taxes on her residence. If Ralph pays the property taxes, he can deduct them.

answer

False

question

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.

answer

False

question

Purchased goodwill must be capitalized, but can be amortized over a 60-month period.

answer

False

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