Intro to Taxation Exam #2 Prep – Flashcards
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False
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In determining whether a debt is a business or nonbusiness bad debt, the debtor's use of the borrowed funds is important.
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False
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A bond held by an investor that is uncollectible will be treated as a worthless security and hence, produce a capital loss.
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False
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If a taxpayer sells their § 1244 stock at a loss, all of the loss will be ordinary loss.
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a) $0 b) $3,000*** c) $2,000 d) $5,000
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Jed is an electrician. Jed and his wife are accrual basis taxpayers and file a joint return. Jed wired a new house for Alison and billed her $15,000. Alison paid Jed $10,000 and refused to pay the remainder of the bill, claiming the fee to be exorbitant. Jed took Alison to Small Claims Court for the unpaid amount and was awarded a $2,000 judgment. Jed was able to collect the judgment but not the remainder of the bill from Alison. What amount of loss may Jed deduct in the current year?
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a) ($5,000) b) $0*** c) $45,000 d) $51,000
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John files a return as a single taxpayer. In 2014, he had the following items: - Salary of $40,000 - Loss of $65,000 on the sale of § 1244 stock acquired two years ago. - Interest income of $6,000 Question: Determine John's AGI for 2014.
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a) $36,000 b) $42,000 c) $54,000*** d) $63,000
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Ivory Inc., has taxable income of $600,000 and qualified production activities income (QPAI) of $700,000 in 2014. Ivory's domestic production activities deduction is:
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a) $0*** b) $7,000 c) $8,000 d) $12,000
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On June 2, 2013, Fred's TV Sales sold Mark a large HD TV, on account, for $12,000. Fred's TV Sales uses the accrual method. In 2014, when the balance on the account was $8,000, Mark filed for bankruptcy. Fred was notified that he could not expect to receive any of the amount owed to him. In 2015, final settlement was made and Fred received $1,000. How much bad debt loss can Fred deduct in 2015?
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a) $4,000 long-term capital loss and $9,000 short-term capital loss. b) $4,000 long-term capital loss and $3,000 short-term capital loss. c) $8,000 ordinary loss and $3,000 short-term capital loss.*** d) $8,000 ordinary loss and $5,000 short-term capital loss. e) $8,000 long-term capital loss and $6,000 short-term capital loss.
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On February 20, 2013, Bill purchased stock in Pink Corporation (the stock is not small business stock) for $1,000. On May 1, 2014, the stock became worthless. During 2014, Bill also had an $8,000 loss on § 1244 small business stock purchased two years ago, a $9,000 loss on a nonbusiness bad debt, and a $5,000 long-term capital gain. How should Bill treat these items on his 2014 tax return?
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a) $0 b) $100 c) $500*** d) $9,500
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Norm's car, which he uses 100% for personal purposes, was completely destroyed in an accident in 2014. The car's adjusted basis at the time of the accident was $13,000. Its fair market value was $10,000. The car was covered by a $2,000 deductible insurance policy. Norm did not file a claim against the insurance policy because of a fear that reporting the accident would result in a substantial increase in his insurance rates. His adjusted gross income was $14,000 (before considering the loss). What is Norm's deductible loss?
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a) $13,000*** b) $14,100 c) $14,300 d) $22,000
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In 2014, Mary had the following items: - Salary $30,000 - Personal use casualty gain $10,000 - Personal use casualty loss (after $100 floor) $17,000 - Other itemized deductions $4,000 Question: Assuming that Mary files as head of household (has one dependent child), determines her taxable income of 2014.
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a) $3,750 b) $14,650 c) $14,750 d) $18,750***
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Alma is in the business of dairy farming. During the year, one of her barns was completely destroyed by fire. The adjusted basis of the barn was $90,000. The fair market value of the barn before the fire was $75,000. The barn was insured for 95% of its fair market value, and Alma recovered this amount under the insurance policy. Alma has adjusted gross income for the year of $40,000 (before considering the casualty). Determine the amount of loss she can deduct on her tax return for the current year.
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True
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The basis of cost recovery property must be reduced by at least the cost recovery allowable.
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False
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Under MACRS, if the mid-quarter convention is applicable, all property sold is treated as being sold at the mid-point of the quarter in which it is placed in service.
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False
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Under the alternative depreciation system (ADS), the half-year convention must be used for personalty.
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a) $14,250 b) $19,000 c) $23,750*** d) $38,000
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Hazel purchased a new business asset (five-year asset) on September 30, 2014, at a cost of $100,000. On October 4, 2014, Hazel placed the asset in service. This was the only asset Hazel placed in service in 2014. Hazel did not elect § 179 or additional firstyear depreciation if available. On August 20, 2015, Hazel sold the asset. Determine the cost recovery for 2015 for the asset.
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a) $11,480*** b) $9,240 c) $6,360 d) $3,480
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Tara purchased a machine for $40,000 to be used in the business. The cost recovery allowed and allowable for the three years the machine was used are as follows: Cost Recovery Allowed Cost Recovery Allowable Year 1 $16,000 $8,000 Year 2 $9,600 $12,800 Year 3 $5,760 $7,680 Question: If Tara sells the machine after three years for $15,000, how much gain should she recognize?
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a) $132,858 b) $24,000 c) $25,716*** d) $102,000
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Tan Company acquires a new machine (ten-year property) on January 15, 2014, at a cost of $200,000. Tan also acquires another new machine (seven-year property) on November 5, 2014, at a cost of $40,000. No election is made to use the straightline method. The company does not make the § 179 election and elects to not take additional first-year depreciation if available. Determine the total deductions in calculating taxable income related to the machines for 2014.
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a) $41,665 b) $33,333 c) $8,333 d) $26,666***
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James purchased a new business asset (three-year personalty) on July 23, 2013, at a cost of $40,000. James takes additional first-year depreciation Determine the cost recovery deduction for 2013.
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a) $0 b) $127,990 c) $149,354*** d) $123,503
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On February 20, 2014, Susan paid $200,000 for a leasehold improvement to an office building that she is going to lease to John. The leasehold improvement is not a qualified leasehold improvement. The lease will begin on June 1, 2014, and terminate on May 31, 2024. At the termination of the lease, the improvement will be worthless. Determine Susan's deductible loss as a result of the termination of the lease.
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a) $23,328 b) $80,000*** c) $92,500 d) $82,048
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Bhaskar purchased a new factory building on September 10, 2014, for $3,700,000. Five hundred thousand of the purchase price was allocated to the land. He elected the alternative depreciation system (ADS). Determine the cost recovery deduction for 2015.
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False
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Once the actual cost method is used, a taxpayer cannot change to the automatic mileage method in a later year.
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True
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Bob lives and works in Newark, NJ. He travels to London for a three-day business meetng, after which he spend three days touring Scotland. All of his air fare is deductible.
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False
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If a taxpayer does not own a home but rents an apartment, the office in the home deduction is not available.
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a) 0 b) 30 c) 35 d) 60***
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Amy works as an auditor for a large major CPA firm. During the months of September through November of each year, she is permanently assigned to the team auditing Garnet Corporation. As a result, every day she drives from her home to Garnet and returns home after work. Mileage is as follows: Miles Home to office 10 Home to Garnet 30 Office to Garnet 35 Question: For these three months, Amy's deductible mileage for each workday is:
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a) $3,200 b) $4,800*** c) $3,900 d) $5,500
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During the year, John went from Milwaukee to Alaska on business. Preceding a five-day business meeting, he spent four days vacationing at the beach. Excluding the vacation costs, his expenses for the trip are: Air Fare $ 3,200 Lodging $ 900 Meals $ 800 Entertainment $ 600 Question: Presuming no reimbursement, deductible expenses are:
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a) $98 b) $0 c) $53*** d) $73
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Ralph made the following business gifts during the year. To Robert (a key client) at Christmas $50; To Angel (Robert's 8-year old daughter) on her birthday $20; To Art (Ralph's secretary) on his birthday ($3 was for gift wrapping) $30; To Paige (Ralph's boss) at Christmas $40. Question: Presuming proper substantiation, Ralph's deduction is:
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a) 32 miles*** b) 10 miles c) 12 miles d) 22 miles
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Aaron is a self-employed practical nurse who works out of his home. He provides nursing care for disabled persons living in their residences. During the day he drives his car as follows. Miles Aaron's home to patient Louise 12 Patient Louise to patient Carl 4 Patient Carl to patient Betty 6 Patient Betty to Aaron's home 10 Question: Aaron's deductible mileage for each workday is:
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a) $0, since the trips are personal and not work related. b) $0, since Dave's tax home has changed from Salt Lake City to Boise. c) $60 d) $350*** e) $410
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Dave is the regional manager for a national chain of auto-parts stores and is based in Salt Lake City. When the company opens new stores in Boise, Dave is given the task of supervising their initial operation. For three months, he works weekdays in Boise and returns home on weekends. He spends $350 returning to Salt Lake City but would have spent $410 had he stayed in Boise for the weekend. As to the weekend trips, how much, if any, qualifies as a deduction?
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a) $5,500*** b) $4,500 c) $6,000 d) $3,500
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During the year, Walt travels from Seattle to Tokyo (Japan) on business. His time was spent as follows: 2 days travel (one day each way), 2 days business, and 2 days personal. His expenses for the trip were as follows (meals and lodging reflect only the business portion): Air Fare $3,000 Lodging $2,000 Meals and Entertainment $1,000 Question: Presuming no reimbursement, Walt's deductible expenses are:
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a) Work at the new location must involve a full-time job - part-time job will not suffice.*** b) The taxpayer has two years in which to satisfy the 39-weeks or 78-weeks requirement. c) The time test is waived for persons whose move follows retirement. d) The moving expense deduction cannot be claimed if the taxpayer has not yet met the time test.
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As to meeting the time test for purposes of deducting moving expenses, which of the following statements is correct?
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a) $900*** b) $1,550 c) $1,260 d) $1,500 e) $1,100
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Stacey, the regional sales director for a manufacturer of exercise equipment, pays $2,500 to rent a skybox for a visiting performance of the Harlem Globetrotters. The skybox holds 10 seats, and Stacey invites 7 clients to the event. Nonluxury seats range in price from $80 to $120. The refreshments provided during the event cost $600. If Tracy meets all of the requirements for deductibility (i.e., business discussion, substantiation), she may deduct:
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False
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Adrienne sustained serious facial injuries in a motorcycle accident. To restore her physical appearance, Adrienne had cosmetic surgery. She cannot deduct the cost of this procedure as a medical expense.
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True
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In 2015, Rhonda received an insurance reimbursement for medical expenses incurred in 2014. She is not required to include the reimbursement in gross income in 2015 if she claimed the standard deduction in 2014.
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True
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On December 31, 2014, Lynette used her credit card to make a $500 contribution to the United Way, a qualified charitable organization. She will pay her credit card balance in January 2015. If Lynette itemizes, she can deduct the $500 in 2014.
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a) $6,157 b) $6,050*** c) $5,200 d) $1,550
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Sandra is single and does a lot of business entertaining at home. Because Arthur, Sandra's 80-year old dependent grandfather who lived with Sandra, needs medical and nursing care, he moved to Twilight Nursing Home. During the year, Sandra made the following payments on behalf of Arthur: Room at Twilight $4,500 Meals for Arthur at Twilight 850 Doctor and nurse fees 700 Cable TV service for Arthur's room 107 Total $6,157 Twilight has medical staff in residence. Disregarding the AGI floor, how much, if any, of these expenses qualify for a medical deduction by Sandra?
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a) $0 b) $800*** c) $1,000 d) $6,800 e) $7,000
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Pedro's child attends a school operated by the church the family attends. Pedro made a donation of $1,000 to the church in lieu of the normal registration fee of $200. In addition, Pedro paid the regular tuition of $6,000 to the school. Based on this information, what is Pedro's charitable contribution?
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a) Professional dues paid by an accountant (employed by Ford Motor Co.) to the National Association of Accountants. b) Gambling losses to the extent of gambling winnings.*** c) Job hunting costs. d) Appraisal fee paid to a valuation expert to determine the fair market value of art work donated to a qualified museum. e) None of the above.
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Which of the following items would be an itemized deduction on Schedule A of Form 1040 not subject to the 2%- of-AGI floor?
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a) $3,150 b) $4,950 c) $10,350*** d) $13,350
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Brad, who would otherwise qualify as Faye's dependent, had gross income of $9,000 during the year. Faye, who had AGI of $120,000, paid the following medical expenses in 2014: Cataract operation for Brad $ 5,400 Brad's prescribed contact lenses 1,800 Faye's doctor and dentist bills 12,600 Prescribed drugs for Faye 2,550 Total $22,350 Assuming Faye is age 45, she has a medical expense deduction of:
