Essay Summary of Income Tax
1.Near year end, P, a cash basis, calendar year taxpayer, paid for various deductible expenses as described below.1.
The payment was dropped in the mail before year end. 2. P gave a note evidencing her promise to pay the amount in three months. 3. The amount was charged on her Master Card on December 28. The charge appeared on her bill for the period December 1 through December 31, which she received in January and which she paid on January 20. The bank actually paid the expense in January. 4. The amount was paid using the pay by phone service provided by her bank.
P called in the charge on December 20. The bank sent her a statement indicating that it had paid the charge on January 3. P may deduct the expense in which cases? a. 1 b. 1 and 2 c. 1 and 3 d. 1, 3, and 4 e. 1, 2, 3, and 4 2. The crucial reason for determining whether an item is deductible as an expense under § 162 or under § 212 is that a. production of income expenses are not deductible. b. § 162 business expenses usually are deductions for A. G. I. , while § 212 production of income expenses usually are miscellaneous itemized deductions. c. § 162 business expenses are deductions from A.
G. I. , while § 212 production of income expenses are deductions for A. G. I. d. it resolves certain ownership questions. 3. C purchased two cars in 2010 a Corvette for $20,000 and a Buick for $10,000. Both cars were used solely for personal purposes. During the year, C sold the Corvette to a car collector for $24,000 and the Buick for $7,000. Based on these two transactions he will report a. a gain of $1,000. b. a gain of $4,000. c. a gain of $4,000 and a loss of $3,000. d. no gain or loss. 4. F, a calendar year, cash basis taxpayer, started a business on June 1.
Her lease required monthly payments of $1,000 beginning on June 1. Insurance for the premises, also begun on June 1, was to be paid every six months and cost $600 for each six month period (she paid her premiums due on June 1 and December 1). F’s deductions for these expenses total a. $7,000. b. $7,100. c. $7,600. d. $8,200. $1,000 * 7 months = $7,000 rent expense $600 premium paid 6/1 = 600 insurance expense $600 premium paid 12/1 = 600 7,000 + 600 + 600 = $8,200 insurance expense 5. Which of the following is not a deduction for A. G. I.? a. Lawn mowing expense for a rental property actively managed by the taxpayer. . Deductible expenses related to a physician’s home office. c. Employee transportation expense not reimbursed by the employer. d. Employee transportation expense reimbursed by the employer and included in employee’s income. 6K is an attorney who had to travel to Chicago for a trial. Her law firm reimbursed her for the $1,200 hotel bill and $200 for food, but only half of her $200 entertainment expense eligible for deduction under § 162. If the law firm includes the $1,500 in K’s compensation on her Form W 2, she may a. include the $1,500 as a miscellaneous itemized deduction. b. educt the $1,500 for A. G. I. c. include the $100 unreimbursed entertainment expense with the miscellaneous itemized deductions. d. Both b and c are true. 7F, an attorney in New York, also operates a small farm in New Jersey. During the year, he reported the following income and expenses from the farm: Gross income$8,000 Depreciation(3,000) Property taxes(6,000) Other operating expenses(4,000) Assuming the activity is considered a hobby, F may deduct a. taxes $6,000, other $0, depreciation $0. b. taxes $6,000, other $0, depreciation $2,000. c. taxes $6,000, other $2,000, depreciation $0. . taxes $6,000, other $4,000, depreciation $3,000. 8Which one of the following would qualify, at least in part, as a deductible educational expense? a. The cost of transportation between home and school on a nonworking day. b. Transportation between work and school on a working day. c. Both of the above. d. Neither of the above. 9. C obtained a new job in Alaska with H&J Engineering. She incurred the following moving expenses: Transportation of furniture and household goods$1,000 House hunting trip1,900 Attorney’s fees on sale of former residence1,400
Assuming C is eligible to deduct her moving expenses, what is the amount of the deduction? a. $1,000 b. $2,900 c. $3,400 d. $3,900 e. $4,400 10. Which of the following statements regarding deductions for home office expenses is true? a. Deductions may be taken only if the home office is used for the taxpayer’s main business. b. Deductions may be taken if the home office is used regularly for meeting clients or customers in the normal course of the taxpayer’s business. c. Deductions may not be claimed if the taxpayer merely performs administrative tasks related to his business in the home office. d.
All of above are true. e. None of the above is true. 11. K is an attorney who had to travel to Chicago for a trial. Her law firm reimbursed her for the $1,200 hotel bill and $200 for food, but only half of her $200 entertainment expense eligible for deduction under § 162. If the law firm includes the $1,500 in K’s compensation on her Form W 2, she may a. include the $1,500 as a miscellaneous itemized deduction. b. deduct the $1,500 for A. G. I. c. include the $100 unreimbursed entertainment expense with the miscellaneous itemized deductions. d. Both b and c are true. 12. Which one of the following statements is true? . The expenses of commuting are personal, and as such are never deductible regardless of the surrounding circumstances. b. The expenses of commuting from Job A to Job B are deductible to the extent that the distance between Jobs A and B does not exceed the distance from home to Job A. c. The expenses of commuting to a temporary assignment and returning the same day when the temporary assignment is outside the vicinity in which the taxpayer conducts his business (the tax home) are deductible and are determined based on the cost of transportation from the employee’s office to the temporary location. . b and c are true. e. All are false. 13. Which statement concerning deductible transportation costs is true? a. B drives 20 miles to his office, then later in the day drives to meet a client at the client’s office. By the time he gets home that night he has driven 63 miles. He can deduct the cost of driving 23 miles. b. F, an architect, usually drives 40 miles round trip from home to office. Today, she skips the office and drives directly to a job site to inspect the construction. Her round trip is 50 miles. She may deduct a cost of 50 miles. c. M, a contractor, works out of her home.
She may deduct the cost of driving to a client’s place of business. d. More than one answer is true. e. All are true. 14S maintains a principal residence in St. Louis, Missouri. He lays brick for a living. S’s employer asked him to go to Chicago, Illinois to work on a single job for six months. Due to difficulties with weather, S was forced to stay in Chicago for a total of eleven months. S wants to deduct a portion of the cost of meals and lodging in Chicago while on the job. S will be a. denied the deduction because the job in Chicago was only a temporary assignment. . allowed the deduction because the job in Chicago will be considered temporary, as it was not an indefinite assignment. c. allowed the deduction because the job in Chicago will be considered indefinite, as it was not a temporary assignment. d. denied the deduction because living expenses are always nondeductible personal expenses. 15D owns and operates her own real estate business. She loves to entertain. Indicate which of the following statements is true. Assume the expenditure is deductible unless otherwise implied. a. D takes her new neighbor to the ball game.
The expense is deductible, assuming D’s entertainment expense creates goodwill that may lead the individual to become D’s client if and when he decides to sell his house. b. D takes a prospective client to the theater. Unless the taxpayer can prove otherwise, the IRS presumes the expense is not deductible because the nature of the event precludes business discussion. c. D holds a golf outing for all of her employees. D may deduct the expense, assuming it is primarily for her employees. d. More than one but less than all of the statements above are true. e. None of the statements above is true.