Deductions for AGI are: a. Deductions for AGI are always deductible.

To be deductible for tax purposes, trade or business expenses must be: d. To be deductible, trade or business expenses must To be deductible for tax purposes, a trade or business expenditure must be: c. A deductible trade or business expenditure mu Hobby expenditures are deductible to the extent of: b. Hobby expenditures are deductible only to the extent of hobb If an expenditure is part business-related and part personal d. A part business-related and part personal expenditur Fines and penalties paid to the government for the violation of a law are: b. Fines and penalties paid to the governm Job-seeking expenses are deductible if incurred by an individual who is presently employed and looking for work in Dealers in illegal drugs can deduct: b. Dealers in illegal drugs can deduct cost of goods sold. Employment-related expenses of employees are: d. Employment-related expenses of employees are allowed as tra .For tax purposes, nonbusiness expenses are d. Nonbusiness expenses include all the expenses mentioned in the Which of the following investment related expenses are deductible for AGI? c. Rent and royalty expenses are dedu Tax planning and compliance expenses incurred by individual taxpayers are not: c. Tax planning and compliance ex For individual taxpayers, deductible losses for tax purposes do not include: c. Personal losses other than casualty a Under the cash method of tax accounting, tax deductions are taken when a. Deductions are taken when expenditur The Cohan rule has to do with: c. The Cohan rule has to do with substantiation of tax deductions. For MACRS depreciation purposes, autos and light-duty trucks are depreciated over what period? b. Autos and ligh Business depreciable property placed in service prior to what year is not eligible for ACRS depreciation? c. ACRS c Research and experimentation expenditures connected with a trade or business can be capitalized and amortized f A percentage depletion deduction computed on a natural resource cannot exceed what percent of the taxpayers tax A business tax deduction for business gifts is restricted to $25 per year per: d. A business tax deduction for busines For tax purposes, the term research and experimentation expenditures includes which of the following: b. The term .A business bad debt is deductible for tax purposes as a(n): d. A business bad debt is deductible for tax purposes a A nonbusiness bad debt is deductible for tax purposes as a(n): a. A nonbusiness bad debt is deductible for tax purp A deduction for salaries and wages can include: d. A deduction for salaries and wages can include both bonus paym If rental payments are paid in advance, they are usually deductible by a taxpayer: b. Advance rental payments are d The IRS takes the position that a taxpayers tax home, for purposes of determining travel expenses, is at the locatio If a taxpayer has two places of business in different areas, the IRS usually considers the following factors in determ Employee travel expenses are deductible b. Travel expenses are deductible from AGI. Travel expenses must be incurred by a taxpayer while away from home. To the IRS, the term away from home mea In order to qualify for the moving expense deduction, the taxpayer: b. The taxpayer must move because of a new jo Trade or business expenses are only deductible if they are: e. Business capital expenditures must be recovered thr An example of an expense not allowed as a deduction under Code Sec. 162(a) would be: d. Government imposed Which of the following types of taxes is not deductible? c. State income and property taxes are deductible against f The tax laws allow taxpayers to use which of the following methods of accounting for research and experimental co Nonbusiness bad debts are deductible: a. Nonbusiness bad debts are treated as investment losses and are limited Deductions for business gifts are limited to what amount per individual each year? a. The deduction for business gi During the holiday season, a taxpayer gives business gifts to 25 customers. The gifts have the following fair market Research and experimental expenditures connected with a trade or business can be capitalized and amortized for t $3,4 17 A calendar-year corporation incurs $53,000 of start-up costs. If the corporation began business on August 1 of the During the current year, a calendar year corporation incurred $52,000 of research and experimental expenditures. T PDQ, Inc., a calendar-year company, paid $15,000 as a prepayment of two years of its liability insurance on Novem HMP Inc. reported the following information: Net sales (U.S. production) Cost of goods sold Operating expenses W Taxpayers generally can deduct meal and entertainment expenses provided that the expenses are b. Meal and ente Expenses that are costs paid or incurred while traveling around town on business are known as: b. Transportation e A self-employed attorney uses a country club to entertain clients and spends the following amounts at the club: 94. An employee of a corporation takes a 10-day trip from Chicago to New York. He spends seven days conducting bu If a taxpayer drives 10,000 business miles during 2009, and uses the standard mileage method, the taxpayers dedu

ome. Susnne Watson is an employee and sole-shareholder of Klaxon. Klaxon is a calendar-year company which uses th The process used to recover the cost of intangible assets over time is known as a. Intangible assets are amortized. Depletion is dened as: b. The costs of regulating the usage of natural resources are not incurred by the taxpayer, b Code Sec. 179 allows certain taxpayers to: a. Section 179 is available only for depreciable personal property placed The two types of depletion methods are b. Taxpayers may choose either cost or percentage depletion. Last year, a corporation purchased an ofce building for $220,000, of which $30,000 was allocated to the land on wh During 2009, a corporation purchased machinery costing $450,000 and a warehouse costing $500,000. These are Two years ago, a corporation purchased residential real estate (an apartment complex) at a total cost of $250,000. Nonresidential realty costing $300,000 was placed in service three years ago, and was sold on March 25 of the cur Five-year property costing $25,000 was placed in service on January 11 of the current year. The property is deprec During 2009, Klecker, Inc. placed in service $865,000 of Code Sec. 179 property. How much can Klecker elect to im con ver ted from personal to business-use property. Subtracting $12,500 8 the This year, was Smith converted her principal residence to rental property. She originally purchased the homefor ye Ellen Ann Jones uses a dry cleaning machine in her business, and it was completely destroyed by re. At the time of the r

Ann Jones uses a dry cleaning machine in her business, and it was partially destroyed by re. At the time of the re, t

ad ster ABC, Inc. d asJasper, Georgia isa of suffered a casualtyarea by the Presidentin March 2009. This loss was caused b loss of $150,000

Which of the following is not a passive activity? a. Owning a business and not materially participating b. H

ness ) in com bu t not its portfolio income. All of the outstanding stock of a closelyeheld C corporation is owned equally by Evelyn Humo and Steve B

All of the outstanding stock of a closely held C corporation is owned equally by Evelyn Humo and Steve B

During 2009, Hugh Hughes reported the following income and loss: Activity X ($50,000) Activity Y $20,000

John Mapp dies with passive activity property having an adjusted basis of $50,000, suspended losses of $

John Mapp dies with passive activity property having an adjusted basis of $50,000, suspended losses of $

Billy Ray owns several parcels of rental real estate, and he actively participates in managing the propertie

Billy Ray owns several parcels of rental real estate, and he actively participates in managing the propertie

rd i nden ite ly. d. The disallowed loss participates forward until the propertie Billy Ray owns several parcels of rental real estate, and he actively may be carriedin managingthe property is s

The percentage of passive losses that may offset nonpassive income for 2009 is: a. 0% b. 10% c. The pe

pter 76 6 CCH Federal TaxationComprehensive fully d. Hobby expenses are gen Which of the following statements is correct? a. Hobby expenses are alwaysTopicsdeductible. b. The nanci

to $25, 0 of losses can be home becomes a personal residence when i Which of the following statements is incorrect? a. A vacationused to offset nonpassive income. . c. The losses are a

for the cu rren t year. a. $4,000 b. $24,000 bell peppers and green beans). D John Hughes is in the business of truck farming (i.e., growing tomatoes, c. $28,000.. d. $20,000 c. Amount of los

When a taxpayer incurs an NOL in 2009, that is not attributable to a casualty or theft loss, the taxpayer m

e pr oper During 2009, Tommys home ty. burglarized. Tommy had the following items stolen. A block of securities was

Which of the following is not a passive activity? a. Owning a working interest in oil and gas wells. b. Ownin

Bill Goggans died and left passive activity property to his nephew, Travis. Bills basis in the activity was $3

Bob Mapp gave his daughter a limited partnership interest in a real estate activity. Suspended losses amo

Net operating losses can be increased by which of the following? a. Theft losses. b. Business casualty los

The manufacturing deduction in 2009 is based on what percentage? a. 9% b. 6% c. 3% d. None of the ab

Which of the following is not deductible? a. NOLs b. Expenses incurred for the production of income. c. H

Steve Colburns portable sawmill used 100% for business, was completely destroyed by re. The sawmill ha

Tammy has the following items for the current year: Nonbusiness capital gains Nonbusiness capital losse

pa rtic ipa nt w ith respect to Activities A, and single activity all of the activitie Jim owns lfour separate activities. He elects not to group them togetherBas a C. d. Losses from under the appro

isk rule sa re is pplied the beginning of the current Freds at-risk amount in a passive activity a $50,000 atbefore the passive activity rules. year. His current loss f

Mike, who is single, has $100,000 of salary, $15,000 of income from a limited partnership, and a $30,000 Which of the listed dispositions for a passive activity allow a taxpayer to keep the suspended losses from

2009 . Jo hns net operating loss for 2009 is $41,850, computed as follows: Taxable b During 2009, John Colburn, a single individual, reports the following taxable income: Gross income frominc

me. m edic al expenses year Less: excess of reimbursement): Hospita Mark Miller paid theTota followingl medical expenses during the $2,650(all in7.5% of AGI 1,500 Medical expense deduct $1 ,80 0 Le ss: 7.5% of AGI 1,050 Medical expense deduction $750 John Jay ense is marriedsand supports his mother, age 67. During the year, he paid $300 for prescription medic .Malcolm Moore had medical expenses of $500 last year and took a $300 deduction. He was reimbursed

Unnecessary cosmetic surgery costs directed solely at improving the patient's physical appearance: c. Unnecessar Which one of the following is not deductible when itemizing? c. The cigarette tax is considered a penalty and is non ($1 bec ause it did not exceed during the year: Social security tax (withheld f Karen Baker, a cash 14) calendar year taxpayer, paid the followingthe amount of state income tax paid. The other ta basis ot educ tib le t axes. The real their taxes $600; Mrs. income taxes, are not de The followingdtaxes were paid by the Browns--real estate taxes onestatehome,paid forstate Brown's mother $700; city re d educ tib le. John Baker, a cash basis calendar year taxpayer, paid the following during the year: Social security tax (withheld fro Max Murphey, a cash basis taxpayer, borrowed $1,000 from a bank for a business loan on August 1, to be repaid o t ye ar is: c. The interest deduction is: Income tax Corporation: Interest on During the rren the following items were charged to the interest expense account of Doe interest $400 Bank loanon a year, Cathy buys a house (her principal residence) for $2,000,000, paying $500,000 down and borrowing the other $1,50 ome 150 ,000 . The deductible home equity mortgage) is $250,000. He took o Darrin owns a house is $ a FMV of $400,000, and acquisition indebtedness (firstloan interest of therefore $9,000 x ($1 with What is the amount of interest deduction allowed for the year 2009, assuming Marge Meyer incurred the following: All interest payments in the following category are not deductible for tax purposes: b. Personal credit card interest is Non-home-mortgage interest prepaid in cash can only be deducted: d. Except for home-mortgage "points", prepaid If an individual taxpayer contributes capital gain property to a qualified public charity and wants to deduct fair marke If an individual taxpayer contributes ordinary property to a qualified public charity, the deduction would be subject to A business machine valued at $800 was contributed to a charitable organization during the year. The machine cost Stock in the ABC Corporation was contributed to a public charitable organization. The basis in the stock was $1,000 ver woul d e the 1,000. Contribution % Limit % Limit Amount Amounts Deductions a Albert Allgood has adjusted grossbincome in$1 current year of $30,000. He gave $5,000 cash and a capital gain 5

Determine the amount of charitable contribution allowed for the current year assuming Guy Gallworthy has adjusted A contribution made to the following donee is not deductible: b. Oxford University, England Charitable contributions Private foundations are organizations which do not normally receive donations: b. Private foundations are organizat Kenneth Kruise purchased a personal residence for $66,000. It had a fair market value of $80,000 when it was dam In 2009, John Barraclough has $50,000 of adjusted gross income, a $10,000 casualty loss and a $2,000 casualty g red) rm damage to lake insurance paid - $150,000 - $20,000 -$500) la Gwen had covefollowing occur in 2009: $0 Sto the Car wreck repairs were $2,000, house ($200,000 $1,000. Theft of boat from $2 Frank Fox won $10,000 in a state lottery. He also lost $3,000 at the horse races. On his income tax return he shoul Unreimbursed expenses of employees are considered to be deductions: b. Unreimbursed expenses of employees a Lisa incurred the following employee business expenses: Meals $2,000 Lodging $4,000 Her employer reimburses h Miscellaneous itemized deductions are deductible only: a. to the extent that in aggregate they exceed two percent o Which of the following expenditures is always an itemized deduction for individual taxpayers? d. Both a. and b. cla $1,2 During the may George Gable, im 66, and his wife,25 as 61, incurred and paiddeduction, computed as expenses for year, age age their medical expense the following medical follows: Hospi What is the amount of dependent care credit for a couple with two children where they spend $5,000 for dependent What is the amount of dependent care credit allowed Sally Smith, a divorcee, who pays $3,100 for the year to send The $4,6 0 expe nses months. Joe and his wife have two less than the $6,000 m Joe College is married and attends State University for 12incurred are not reduced since they arechildren. Mrs. College 263 The cr edit is limited to may take as a of $60 [($21,500 - $13,000 the income t What is the maximum amount that Mr. and Mrs. Jones, both over 65, the tax liabilitycredit for the elderly before - $7,300 = $6 Mr. and Mrs. Gumball are both over age 65. They had income this year consisting of $8,500 earned income and $1,500 in soc Allied Corporations tax liability for the year is $49,000 before claiming a general business credit. The corporation earns a gene 00 x 10% purchased vest equipment for $15,000. The equipmenttaken $ 1,500cost recovery perio ment credit rate Investment credit has a 5-year Investment credit On July 10, 2005, Test CorporationIn energy May be ried back 2009 income tax liability. The resultant None of the above d. Carlton Corporations 2009 generalcar business credit exceeded itsone year and carried forward 20 years e.general business cred What is the earned income credit allowed Don Andersen assuming he has adjusted gross income of $8,500 and earned incom Sam and Betty Taylor maintain a home and they have two children. Their earned income was $10,000 and adjusted gross inco divi dual ha ving wage income His $94,200. Since neither spouse had $49,000. His Ron Ryder worked for both Boilerworks and Diemakers during the year.overtotal wages from Boilerworks were wages totalint ctin ep ayme nts made from the smaller of 90% of the present years tax liability Lorence Langes tax for g th year is $7,000. He has paid in $4,400 in four quarterly payments during the year. Last year, his taxo the xem ptio What is theLes alternative s: E minimum tax that must be paid bynaamount Net alternative minimum taxable income $100,000 Tax of taxpayer ling a joint return, if the taxpayer has taxable income ra An alternative minimum tax applies to items that are considered to be of a tax preference nature. Which of the following item

Which of the following is not a tax preference item for purposes of the alternative minimum tax? a. Percentage depletion in e

An example of a tax preference item that must be added to taxable income when computing AMTI would be: a. Percentage d

The minimum tax credit: a. Provides that the amount of AMT paid by a corporation in one year differences can be used to off

Which of the following is allowed when computing AMTI for individuals? a. Standard deduction b. Personal exemptions c. Cha

The tax structure of the individual AMT is a two-tier progressive tax where: a. The rst $175,000 of AMT base is taxed at a 15 p

All other things being equal, the tax benets of a tax credit outweigh the tax savings produced by a tax deduction because: a. I

Which of the following taxpayers derives the most benets from a $1 tax credit? a. Moderate-income taxpayers b. Higher-inco

The difference between a refundable credit and a nonrefundable credit is: a. A refundable credit can only reduce a taxpayers Unused general business credits can be: a. Carried back one year and carried forward ten years b. Carried back two years and

amou nt b w hich The amount of a taxpayers generalybusiness credit for anythe taxpayers net regular tax liability which the taxpayersThe taxpay tax year is limited to the amount by exceeds $15,000 d. net incom When tentative minimum tax exceeds the taxpayers regular tax liability, the excess represents the taxpayers: a. Net income t Which method is used to determine the order in which unused tax credits are carried forward and back? a. First-in, rst-out m

A work opportunity credit is available for qualied second-year wages paid to which one of the following? a. Qualied veterans

The rehabilitation credit can be taken by businesses: a. For costs associated with business activities that contribute to the rev To claim the disabled access credit, an eligible small business is dened as: a. One whose gross receipts did not exceed $1 milli

Which of the following tax credits is not part of the general business credit? a. Low-income housing credit b. Foreign tax cred

The low-income housing credit can be claimed by owners of qualied low-income building for a period of: a. 5 years b. 10 year During the current year a corporation pays $8,000 to install ramps to the entrance of the corporations ofce building that will A corporation paid $50,000 for qualied child care expenses during the year in order to provide child care for its employees. Th During 2008, a corporation pays $200,000 in federal income taxes and $120,000 in foreign income taxes to Country X. The co

cre dit the Hyman Homes, Inc. paid $3,000 of for qualied rst-year wagesyear qualied summer+youth employee who worked 400 hours and $ to a is $2,250 ($750 $1,500). During 2008, a corporation pays $200,000 in federal income taxes and $120,000 in foreign income taxes to Country X. The co

Hyman Homes, Inc. paid $3,000 of qualied rst-year wages to a qualied summer youth employee who worked 400 hours and $

trade or business expenses must satisfy all of the requirements listed.d. All of the above trade or business expenditure must be both ordinary and necessary. ctible only to the extent of hobby gross income. d and part personal expenditure is deductible only to the extent of the businessrelated portion of the expenditure. d penalties paid to the government for the violation of a law are not deductible. mployed and looking for work in the same trade or business: b. Job-seeking expenses are deductible by an individual who is pre

of employees are allowed as trade or business tax deductions. he expenses mentioned in the question. All of the above and royalty expenses are deductible for AGI. Tax planning and compliance expenses are not limited to the income tax area but also extend to gift and estate tax returns. nal losses other than casualty and theft losses are not deductible for tax purposes. ons are taken when expenditures are made under the cash basis of accounting. x deductions. what period? b. Autos and light-duty trucks are depreciated over ve years under MACRS. ACRS depreciation? c. ACRS came into existence in 1981. be capitalized and amortized for tax purposes over a period of not less than: b. Capitalized research and experimentation exp hat percent of the taxpayers taxable income derived from the natural resource for the year before deducting the depletion dedu siness tax deduction for business gifts is restricted to $25 per individual donee per year. ch of the following: b. The term research and experimentation expenditures includes development of a plant process. s deductible for tax purposes as an ordinary business deduction. d debt is deductible for tax purposes as a short-term capital loss. es can include both bonus payments and payments for services performed in prior years. Advance rental payments are deductible in the period covered by the payments. avel expenses, is at the location of the taxpayers: a. A taxpayers home for purposes of determining travel expenses is at the lo s the following factors in determining the taxpayers principal place of business: (Choose the wrong answer.) a. The taxpayers p

the term away from home means: c. To the IRS, the term away from home means away from home overnight. must move because of a new job location. nditures must be recovered through depreciation. Business noncapital expenditures are deductible if they are ordinary, necess d be: d. Government imposed nes and penalties are not deductible. Costs incurred in investigating the creation or acquisition y taxes are deductible against federal taxable income. Federal income taxes are not. r research and experimental costs paid or incurred in connection with a trade or business? d. Taxpayers have the option of cap estment losses and are limited to capital gains plus $3,000. . The deduction for business gifts is limited to $25 per donee per year. s have the following fair market values: 7 gifts of property valued at $10 each 5 gifts of property valued at $20 each 13 gifts of capitalized and amortized for tax purposes over a period of not less than: b. R & D expenditures may be amortized over a per

nd experimental expenditures. The corporation elects to capitalize and amortize the costs over 60 months. If the corporation rst its liability insurance on November 1 of the current year. How much insurance expense can PDQ deduct on its current year inc ds sold Operating expenses W-2 wages for the year(included in cost of goods sold and operating expenses) $550,000 300,00 expenses are b. Meal and entertainment expenses are only deductible if they can be directly association with the taxpayers tra e known as: b. Transportation expenses are incurred while traveling around town for business purposes. Travel expenses are t owing amounts at the club: 94. 95. 96. 97. Annual dues $1,000 Personal meals 1,500 Business meals 2,500 What amount can nds seven days conducting business and three days sightseeing and visiting friends. His expenses included: $ 800 2,800 1,00 age method, the taxpayers deduction is: d. The 2009 mileage allowance is 55 cents per mile.

ntangible assets are amortized. Tangible assets are depreciated. Natural resources are depleted. . not incurred by the taxpayer, but by the regulatory agency. Depletion refers to the recovery of the costs incurred to acquire an ciable personal property placed in service in the taxable year. Amounts expenses under Code Sec. 179 may not be depreciate centage depletion. was allocated to the land on which the building was located. The buildings salvage value was estimated to be $50,000. The co e costing $500,000. These are the only two acquisitions of depreciable property purchased by the corporation in 2009. The ma ex) at a total cost of $250,000. Of this amount, $50,000 was allocated to the underlying land. What is the corporations allowab as sold on March 25 of the current year. Current year depreciation expense with respect to the real estate will be: b. The mid-m nt year. The property is depreciated using straight-line MACRS. Assuming Code Sec. 179 is not elected and the mid-quarter c ow much can Klecker elect to immediately expense in 2009? a. The Code Sec. 179 deduction is reduced by the amount by whi perty. Subtracting $12,500 for the land, the depreciable basis is $343,750. The house is residential realty and is depreciated using the SL m oyed by re. At the time of the re, the adjusted basis was $20,000 and its fair market value was $18,000. How much is Anns los

ed by re. At the time of the re, the adjusted basis was $20,000 and its fair market value was $18,000. The adjusted basis after

t materially participating b. Having rental condos c. Owning a limited partnership interest in a real estate limited partn

y Evelyn Humo and Steve Bufusno. In 2009, the corporation generates taxable income of $20,000 from its active bu

($50,000) Activity Y $20,000 Both Activity X and Activity Y are passive to Mr. Hughes. Hugh purchased Activity X in

0,000, suspended losses of $20,000, and a fair market value at the date of Mr. Mapps death of $77,000. How much

0,000, suspended losses of $20,000, and a fair market value at the date of Mr. Mapps death of $60,000. How much

es in managing the properties. His total loss from these activities in 2009 is $30,000. Assuming that his AGI for 2009

es in managing the properties. His total loss from these activities in 2009 is $30,000 and his AGI for 2009 is $110,00

ied forward until the property is sold, regardless of how long that time period may be.

9 is: a. 0% b. 10% c. The percentage varies depending on the level of AGI. d. 100% . a. For all tax years beginning a

opics d. Hobby expenses are generally deductible only to the extent of income produced by the activity. The nancial status of the taxpaye

assive income. . c. The losses are allowed to be deducted for AGI

,000.. d. $20,000 c. Amount of loss (adjusted basis for business property that is completely destroyed) $100,000 Less: Insurance proceeds

or theft loss, the taxpayer may: a. Carry the NOL forward instead of back. b. Carry the NOL back three years . c. Ca

n oil and gas wells. b. Owning a limited partnership interest in oil and gas wells. c. Owning a limited partnership inter

s basis in the activity was $30,000, while Travis basis was stepped up to $50,000. Suspended losses amounted to $

ivity. Suspended losses amounted to $30,000. Bobs adjusted basis at the time of the gift was $40,000 ( fair market v

ses. b. Business casualty losses. c. Unreimbursed employee business expenses. d. All of the above. d. All of the ite 6% c. 3% d. None of the above. b. From 2007 through 2009, it is 6%.

e production of income. c. Hobby expenses in excess of hobby income. d. All of the above. . c. Hobby expenses can

stroyed by re. The sawmill had an adjusted basis of $35,000 and a fair market value of $50,000 before the re. The s

s Nonbusiness capital losses $10,000 (2,000) 57. 58. 59. 60. Interest Income 7,000 Itemized deductions (none of th

. d. Losses from all of the activities can be used to offset Jims active income. c. Jim did not participate more than 100 hrs. and not more th

partnership, and a $30,000 passive loss from a real estate rental activity in which he actively participates. His modie

the suspended losses from the disposed activity and utilize them on a subsequent taxable disposition? a. Dispositio

, computed as follows: Taxable income ($48,500) Plus: Nonbusiness deduction: Itemized deductions $8,000 Less: Casualty loss

AGI 1,500 Medical expense deduction $1,150 ense deduction $750

duction. He was reimbursed $450 this year by the insurance company. What amount must be included in this year's

cal appearance: c. Unnecessary cosmetic surgery will not qualify for the medical expense deduction. onsidered a penalty and is nondeductible. ate income tax paid. The other taxes and the fine are not deductible expenses. r Mrs. Brown's mother are not deductible by the Browns since it is not a tax that they incurred.

oan on August 1, to be repaid one year later. The interest for one year at 6 percent was deducted from the loan proceeds in ad me tax interest $400 Bank loan on machinery 700 Interest on 60-day note ($500 x 30/60 = $250) 250 Deductible interest $1,350 and borrowing the other $1,500,000 at 6% interest. If her interest expense for the year is $90,000, how much will her deductio interest is therefore $9,000 x ($100,000/$120,000) = $7,500. e Meyer incurred the following: Interest on loan used to purchase land for investment $18,000 (assume no net investment incom . Personal credit card interest is not deductible. me-mortgage "points", prepaid interest can only be deducted over the period of the loan. and wants to deduct fair market value, the deduction would be subject to which of the following limits? b. 30 percent of the taxp e deduction would be subject to which of the following limits? d.50 percent of the taxpayer's AGI ng the year. The machine cost $1,000 but was depreciated down to $600 before the donation was made. Indicate the correct i e basis in the stock was $1,000, but its fair market value was $1,500 at the time of the donation. Indicate the correct income ta it Amount Amounts Deductions 50% $ 5,000 $5,000 $5,000 30% Public 12,000 9,000 9,000 20% 8,000 --0---0-

ng Guy Gallworthy has adjusted gross income of $30,000 and gave inventory costing $2,000 but worth $2,500 to a public found ngland Charitable contributions must be made to charities that are incorporated in the United States. ivate foundations are organizations which normally do not receive donations from the general public. ue of $80,000 when it was damaged by a fire. The fair market value after the fire was $40,000 and insurance proceeds totaled ty loss and a $2,000 casualty gain. How much is John's net deductible casualty loss after making all appropriate reductions? b 00 - $150,000 - $20,000 -$500) $29,500 Total $30,000 $4,000 10% of AGI Net deduction $26,000 his income tax return he should report: d. Gambling winnings are reported as gross income and gambling losses are deductib ursed expenses of employees are deductible from AGI. 000 Her employer reimburses her a total of $4,500 for all of these expenses under an accountable plan. Ignoring any floor bas gate they exceed two percent of AGI. xpayers? d. Both a. and b. ction, computed as follows: Hospitalization insurance premiums $ 560 Hospital 1,700 Doctors 390 Prescription drugs and medicines 250 P ey spend $5,000 for dependent care and the husband earns $40,000 for the year and the wife earns $4,500? a. $1,000 b. $990 ays $3,100 for the year to send her daughter to a babysitter while she works? The daughter is claimed as a dependent by the f ce they are less than the $6,000 maximum allowed for two children. Also, there is no reduction for the lower income of the spouses since [($21,500 - $13,000 - $7,300 = $600) x 10%]. earned income and $1,500 in social security benets. . What amount may they claim as a credit for the elderly? They le a joint return. a. $9 edit. The corporation earns a general business credit of $60,000. What is the amount of credit allowable for the year? a. $60,000 b. $43,0 t taken $ 1,500 Investment credit taken $ 1,500 x 20% Recapture rate Investment credit recapture $ 300 d 20 years e. None of the above d. The general business credit carryover period is back one year and forward 20 years. come of $8,500 and earned income of $5,000? He maintains a household for his daughter. a. $2,890 b. $3,043 c. $1,700 d. $0 c. The earne as $10,000 and adjusted gross income was $11,000. They le a joint return. What is the amount, if any, of their earned income tax credit fo neither spouse had wages totaling more than $94,200 there were no excess social security taxes paid. of the present years tax liability or the previous years tax liability. Present years tax liability Amount needed to be paid Less: Amount paid m taxable income $100,000 Tax rate x 26% Tax at 26% for the year $ 26,000 6,000 Less: Regular tax for the year Alternative minimum tax ature. Which of the following items is not considered to be a tax preference item? a. Tax-exempt bond interest issued by a school system

m tax? a. Percentage depletion in excess of the adjusted basis in property b. Amortized circulation costs c. Excess intangible drilling costs d

g AMTI would be: a. Percentage depletion in excess of the adjusted basis in property b. Excess intangible drilling costs c. Tax-exempt inter

ear differences can be used to offset the regular tax liability of a subsequent year b. May not be used to offset any future AMT tax liability

tion b. Personal exemptions c. Charitable contributions d. Real estate taxes e. None of the above c.

000 of AMT base is taxed at a 15 percent rate and any excess over that amount is taxed at 25 percent b. The rst $175,000 of AMT base is t

d by a tax deduction because: a. It reduces a taxpayers tax liability b. It reduces a taxpayers taxable income c. It reduces a taxpayers capit

e-income taxpayers b. Higher-income taxpayers c. Lower-income taxpayers d. All of the above derive the same benet for a $1 tax credit d.

redit can only reduce a taxpayers tax liability to zero b. A nonrefundable credit can only reduce a taxpayers tax liability to zero c. Refunda ears b. Carried back two years and carried forward ten years c. Carried back one year and carried forward 20 years d. Carried back two yea

ity exceeds $15,000 d. The taxpayers alternative minimum tax for the tax year or 15 percent of the amount by which the taxpayers net re nts the taxpayers: a. Net income tax b. Alternative minimum tax (AMT) c. Total income tax liability d. None of the above . b rd and back? a. First-in, rst-out method b. Last-in, rst-out method c. First-in, last-out method d. None of the above . a

he following? a. Qualied veterans b. Long-term family assistance recipient c. Qualied ex-felon d. High-risk youth . b.

ctivities that contribute to the revitalization of economically depressed areas b. For costs associated with the substantial rehabilitation of ss receipts did not exceed $1 million b. One who employed no more than 30 full-time employees c. One who is located in one of the targe

housing credit b. Foreign tax credit c. Employer-provided child care credit d. Research credit e. All of the above are part of the general bus

r a period of: a. 5 years b. 10 years c. 15 years d. 20 years e. None of the above . b. rporations ofce building that will allow disabled individuals better access to the building. The corporations disabled access credit equals: a de child care for its employees. The corporations child care credit is: a. $0 b. $5,000 c. $10,000 d. $12,500 e. $25,000 d. $50,000 x 25% ncome taxes to Country X. The corporations worldwide taxable income is $550,000 and its taxable income from Country X was $250,000.

income taxes to Country X. The corporations worldwide taxable income is $550,000 and its taxable income from Country X was $250,000

oyee who worked 400 hours and $7,000 of qualied rst-year wages to a qualied ex-felon who worked 350 hours during the year. What is th

f the expenditure.

tible by an individual who is presently employed and looking for work in the same trade or business regardless of whether the

gift and estate tax returns.

earch and experimentation expenditures can be amortized over a period of not less than 60 months. re deducting the depletion deduction? a. A percentage depletion deduction cannot exceed 50 percent of the taxpayers taxable

nt of a plant process.

ning travel expenses is at the location of the taxpayers principal place of business. . ng answer.) a. The taxpayers preference for principal place of business is not considered by the IRS in determining the taxpay

home overnight.

ible if they are ordinary, necessary and reasonable in amount. ting the creation or acquisition of an active trade or business are classied as: b. Investigation costs are not organization expen

axpayers have the option of capitalizing R&D expenses or expensing them. If capitalized, taxpayers could choose not to amortiz

valued at $20 each 13 gifts of property valued at $50 each How much can the taxpayer deduct for business gifts? b. The maxi s may be amortized over a period not less than 60 months.

60 months. If the corporation rst realizes benets from the research and experimental expenditures on November 1 of the curren Q deduct on its current year income tax return? b. The prepayment will provide benets for more than one year after the end of ng expenses) $550,000 300,000 100,000 80,000 What is HMPs taxable income? a. $141,000 b. $145,500 c. $150,000 d. $154 ssociation with the taxpayers trade or business activities. urposes. Travel expenses are those incurred while traveling away from home for business. meals 2,500 What amount can the attorney deduct against business income on his personal tax return? b. The attorney can d ses included: $ 800 2,800 1,000 250 $4,850 The corporation reimburses the employee under an accountable plan. What amou

he costs incurred to acquire and exploit natural resources. . Sec. 179 may not be depreciated.

stimated to be $50,000. The corporations current year depreciation deduction for the building is b. Land is not depreciable. Sub he corporation in 2009. The maximum deduction the corporation can claim under Code Sec. 179 in 2009 is: a. The Section 179 hat is the corporations allowable depreciation deduction for the current year under MACRS d. Depreciation = $200,000 / 27.5 y real estate will be: b. The mid-month convention is used both in the year of acquisition and the year of sale. ($300,000/39 year t elected and the mid-quarter convention applies to all ve-year property placed in service this year, what will be depreciation ex reduced by the amount by which property placed in service in the current year exceeds $800,000. Thus, the limitation in this c y and is depreciated using the SL method over 27.5 years using the mid-month convention. Thus, depreciation expense is equal to $343,7 $18,000. How much is Anns loss? a. $18,000 b. $2,000 c. $20,000 d. None of the above c. If business or investment property i

8,000. The adjusted basis after the re is $10,000 and the fair market value after the casualty is $10,000. How much is the casua

in a real estate limited partnership d. Owning a working interest in oil and gas properties. d. A working interest is ex

of $20,000 from its active business activities. In addition, it earns $20,000 of interest from investments and incurs a

Hugh purchased Activity X in 1987 and Activity Y in 1993. How much is the loss that Mr. Hughes may deduct in 2009

eath of $77,000. How much suspended loss can be taken on Mr. Mapps nal Form 1040 return? a. $20,000 b. $77,00

eath of $60,000. How much suspended loss can be taken on Mr. Mapps nal Form 1040 return? a. $10,000 b. $20,00

suming that his AGI for 2009 is $110,000, what is the allowable deduction from these properties in 2009? a. $0 b. $1

his AGI for 2009 is $110,000. How much of the disallowed loss from rental real estate activities may be carried ove

For all tax years beginning after 1990, passive losses may not offset nonpassive income.

. The nancial status of the taxpayer is considered in determining whether activities are engaged in for prot. The deduction for the allowed

100,000 Less: Insurance proceeds received ( $80,000 x 90%) (72,000) Business loss $28,000

NOL back three years . c. Carry the NOL back ve years. d. All of the above. a. A taxpayer can elect to forgo the NOL

ng a limited partnership interest in real estate. d. Owning a business and not materially participating. . a. A working i

ended losses amounted to $22,000. How much is the passive loss deduction that can offset nonpassive income? a.

ft was $40,000 ( fair market value was greater than $40,000). What is the daughters basis in the property? a. $40,00

of the above. d. All of the items can increase an NOL.

ve. . c. Hobby expenses cannot be greater than hobby income

$50,000 before the re. The sawmill was uninsured. Steves casualty loss is: a. $34,900. b. $50,000. c. $49,900. d. $3

mized deductions (none of the amount realized from a casualty loss) (9,000) In calculating Tammys net operating los

more than 100 hrs. and not more than another party

ctively participates. His modied adjusted gross income is $100,000. Of the $30,000 loss, how much is deductible? a.

ble disposition? a. Disposition of death. b. Disposition by gift. c. All of the above. d. None of the above. . d. Nontaxab

000 Less: Casualty loss

ust be included in this year's tax return as gross income? c. The amount that must be included in income is the lesse

d from the loan proceeds in advance. His interest deduction for the current year is: e. There is no interest deduction allowed fo ductible interest $1,350 00, how much will her deduction for interest expenses be? c. Only interest on $1,000,000 of acquisition indebtedness is deduc

assume no net investment income) Interest on loan used to purchase personal residence $1,000 Interest on loan used to purch

limits? b. 30 percent of the taxpayer's AGI

was made. Indicate the correct income tax treatment with respect to the donation. a. An ordinary income property charitable ded . Indicate the correct income tax treatment as a result of the donation. The stock was held long term. b. In general, long-term c

t worth $2,500 to a public foundation. c. $2,000 Inventory is ordinary income property and limited to basis in the charitable cont

and insurance proceeds totaled $15,000. What is the net amount of casualty loss he can claim if his adjusted gross income is $ g all appropriate reductions? b. The deduction is $10,000 - $500 - $5,000 - $2,000 = $2,500. 67.

d gambling losses are deductible to the extent of winnings as itemized deductions.

ble plan. Ignoring any floor based on percent of AGI, what is her deduction for these expenses? a. $1500/$6000, or 25% of eac

ription drugs and medicines 250 Prescription drugs for brother 200 Cosmetic surgery (liposuction) 0 Total medical expenses $3,100 Less: 7 earns $4,500? a. $1,000 b. $990 c. $900 d. $0 e. None of the above c. The expenses for dependent care are limited to $4,500, laimed as a dependent by the father. Sally has adjusted gross income of $16,500 for the year. a. $1,085 b. $1,054 c. $1,020 d ower income of the spouses since the earned income imputed to the student- husband would be $6,000 ($500 x 12), but this amount is no

lderly? They le a joint return. a. $900 b. $1,165 c. $1,275 d. $0 e. None of the above d. There is no tax liability, so there is no credit. for the year? a. $60,000 b. $43,000 c. $18,000 d. $25,000 e. None of the above 2009 b. The general business credit is limited to the tax li

ward 20 years. $3,043 c. $1,700 d. $0 c. The earned income credit is based on earned income up to $8,950 but reduced by adjusted gross income over $1 their earned income tax credit for the year? a. $3,400 b. $4,000 c. $4,400 d. $0 . b. The earned income credit is based on earned income

eded to be paid Less: Amount paid Amount underpayment penalty applied to $7,000 x 90% $6,300 4,400 $1,900 Tax liability he year Alternative minimum tax $ 20,000 nterest issued by a school system b. Accelerated depreciation on real property acquired before 1987 c. Mining exploration and developm

c. Excess intangible drilling costs d. Tax-exempt interest on certain private activity bonds e. All of the above are tax preference items b.

e drilling costs c. Tax-exempt interest on certain private activity bonds d. Only a and b e. All of the above e. offset any future AMT tax liability c. May be carried forward indenitely as an offset against regular tax liability d. All of the above d.

The rst $175,000 of AMT base is taxed at a 26 percent rate and any excess over that amount is taxed at 28 percent c. The rst $175,000 of

me c. It reduces a taxpayers capital gains d. None of the above a.

e same benet for a $1 tax credit d.

ers tax liability to zero c. Refundable tax credits are only available to individual taxpayers d. Nonrefundable tax credits are only available t d 20 years d. Carried back two years and carried forward 20 years e. Carried back three years and carried forward ve years c.

unt by which the taxpayers net regular tax liability exceeds $15,000 e. None of the above a ne of the above . b the above . a

h the substantial rehabilitation of certied historic structure or other depreciable building that was originally placed in service prior to 1936 who is located in one of the target areas dened by the government d. a. and b. e. All of the above . d. above are part of the general business b

ns disabled access credit equals: a. $0 b. $2,000 c. $3,750 d. $3,875 e. $4,000 d. ($8,000 - $250) x 50% 00 e. $25,000 d. $50,000 x 25% me from Country X was $250,000. What is the corporations foreign tax credit for 2008? a. $0 b. $100,000 c. $120,000 d. $80,000 e. None

me from Country X was $250,000. What is the corporations foreign tax credit for 2008? a. $0 b. $100,000 c. $120,000 d. $80,000 e. None

0 hours during the year. What is the companys work opporutunity credit for the year? a. $1,200 b. $2,250 c. $3,600 d. $4,000 b. The work

ess regardless of whether the individual nds a new job.

ercent of the taxpayers taxable income derived from the natural resource for the year before deducting the depletion deduction

e IRS in determining the taxpayers principal place of business.

osts are not organization expenditures because no business activity has yet begun. Similarly, they are not acquisition costs, bec

ers could choose not to amortize them, although such an election would be unlikely.

for business gifts? b. The maximum deduction for business gifts is $25 per donee. Thus, the deduction is this case is equal to

es on November 1 of the current year, its R&E deduction will equal: d. $52,000 / 60 = $867 per month. For November and Dece than one year after the end of the year. The taxpayer must therefore use the accrual method for this expenditure. $145,500 c. $150,000 d. $154,500 Moving expenses qualify as deductions if: c. The employee must satisfy both the distance

x return? b. The attorney can deduct 50% of business meals. No deduction is allowed for country club dues, nor for personal m n accountable plan. What amount of the $4,850 qualies as deductible travel expenses for the corporation? c. The allowable de

b. Land is not depreciable. Subtracting this cost leaves $190,000 as the cost of the building. Depreciation is calculated using th 9 in 2009 is: a. The Section 179 deduction is limited to $250,000 in 2009. It is reduced to the extent that acquisitions of eligible Depreciation = $200,000 / 27.5 years = $7,272. year of sale. ($300,000/39 years) x (2.5/12) = $1,603. ar, what will be depreciation expense with regard to this property for the current year? (Ignore bonus depreciation.) c. ($25,000 00. Thus, the limitation in this case is equal to $250,000 - $65,000 = $185,000. ciation expense is equal to $343,750 27.5 x 6.5/12 = $6,771. siness or investment property is totally destroyed in a casualty, the amount of the loss is the taxpayers adjusted basis in the pr

10,000. How much is the casualty loss? a. $10,000 b. $8,000 c. $18,000 d. $20,000 32. b. If business or investment property i

s. d. A working interest is excluded from passive activities.

m investments and incurs a $40,000 loss from a passive activity. How much of a passive loss carryover does the co

Hughes may deduct in 2009? a. $50,000 b. $30,000 c. $3,000 d. $0 Chapter 7 2009 CCH. All Rights Reserved. Tes

return? a. $20,000 b. $77,000 c. $7,000 d. $0 . d. Suspended losses are lost to the extent of the amount of the basi

return? a. $10,000 b. $20,000 c. $0 d. None of the above . a. The deductible suspended losses are limited to the di

operties in 2009? a. $0 b. $15,000 c. $20,000 d. $30,000 c. Four-fths of the $25,000 exception to the passive loss r

activities may be carried over to future years? a. 0% b. 10% c. 50% d. 100% d. All of the disallowed loss is suspend

rot. The deduction for the allowed hobby expenses is an itemized deduction subject to the 2 percent oor.

er can elect to forgo the NOL carryback and carry it forward only.

participating. . a. A working interest is specically excluded from the passive loss rules

ffset nonpassive income? a. $22,000 b. $30,000 c. $2,000 d. None of the above. c. The $20,000 step-up means tha

sis in the property? a. $40,000 b. $30,000 c. $70,000 d. None of the above. c. $40,000 + $30,000.

b. $50,000. c. $49,900. d. $35,000. d. Complete business loss is limited to adjusted basis.

ng Tammys net operating loss, and with respect to the above amounts only, what amount must be added back to tax

how much is deductible? a. $30,000 b. $10,000 c. $25,000 d. $0.. a. Because of material participation, the full loss

e of the above. . d. Nontaxable exchange.

cluded in income is the lesser of the reimbursement or the excess itemized deductions for the previous year. .

no interest deduction allowed for the year because interest deducted from the loan proceeds is not considered prepaid interest.

quisition indebtedness is deductible. The deductible interest is $90,000 x ($1,000,000/$1,500,000) = $60,000.

0 Interest on loan used to purchase boat $500 Interest on loan to purchase 100 shares of General Auto $3,000 (no dividends re

income property charitable deduction is limited to basis. There is no income recognition when making a charitable donation. term. b. In general, long-term capital gain assets are deductible at fair market value.

d to basis in the charitable contribution computation.

f his adjusted gross income is $20,000? d. The reduction in fair market value is less than the basis; thus, that amount must be

a. $1500/$6000, or 25% of each expense, is not reimbursed, and 50% of the unreimbursed meal expense is not deductible. T

al medical expenses $3,100 Less: 7.5% of AGI 1,875 Medical expense deduction $1,225 dent care are limited to $4,500, the income of the lower-earning spouse, and the credit percentage for $44,500 of adjusted gros a. $1,085 b. $1,054 c. $1,020 d. $500 e. None of the above. c. Sally is limited to $3,000 of expenses and must multiply that am ($500 x 12), but this amount is not added into AGI. Thus, the $4,600 is multiplied by 35% to arrive at the dependent care credit to give $1

ability, so there is no credit. siness credit is limited to the tax liability minus 25% of the liability in excess of $25,000. $49,000 25,000 $24,000 x 25% $ 6,000 49,000 Ge

by adjusted gross income over $16,240. $5,000 x 34% = $1,700 earned income credit. credit is based on earned income up to $12,570 but reduced by adjusted gross income over $19,370. $10,000 x 40% = $4,000 earned inco

0 $1,900 Tax liability

Mining exploration and development costs d. Gain on the sale of certain small business stock e. Depletion a.Tax-exempt bond interest is n

ove are tax preference items b.

ability d. All of the above d.

28 percent c. The rst $175,000 of AMT base is taxed at a 25 percent rate and any excess over that amount is taxed at 35 percent d. b.

ble tax credits are only available to corporations b. d forward ve years c.

ally placed in service prior to 1936 c. Who purchase or substantially rehabilitate residential rental property used for low-income housing d

0 c. $120,000 d. $80,000 e. None of the above b. $220,000 U.S. income taxes x ($250,000/$550,000) = $100,000.

00 c. $120,000 d. $80,000 e. None of the above b. $220,000 U.S. income taxes x ($250,000/$550,000) = $100,000.

50 c. $3,600 d. $4,000 b. The work opportunity credit for a qualied summer youth employee is $750 ($3,000 x 25%). The credit for a qualie

ducting the depletion deduction.

ey are not acquisition costs, because the business has not yet been acquired and may never be. They are classied as start-up

duction is this case is equal to $70 (7 at 10) plus $100 (5 at 20) plus $325 (13 at 25).

month. For November and December, the corporation would be allowed a deduction of $1,733. or this expenditure. must satisfy both the distance and employment tests.

y club dues, nor for personal meals. orporation? c. The allowable deduction is $800 for airfare, $1,960 for lodging (7 days at $280), and $350 for meals (7 at 100 x 5

preciation is calculated using the straight-line method over 39 years, and ignoring salvage value: $190,000 / 39 = $4,872. ent that acquisitions of eligible personal property exceed $800,000.

onus depreciation.) c. ($25,000 x .2) x (10.5/12) = $4,375.

xpayers adjusted basis in the property, even if it is greater than the propertys fair market value.

siness or investment property is partially destroyed in a casualty, the amount of the loss is the lesser of adjusted basis or decli

e loss carryover does the corporation have? a. $20,000 b. $0 c. $40,000 d. None of the above a. Only $20,000 of th

CH. All Rights Reserved. Testbank 605 . d. Passive loss limitations were phased out in 1991

ent of the amount of the basis increase.

d losses are limited to the difference between the suspended losses at death less the basis adjustment

xception to the passive loss rules is allowed based on his AGI.

e disallowed loss is suspended and may be carried forward to future years.

e $20,000 step-up means that only $2,000 passive loss is allowed.

+ $30,000.

nt must be added back to taxable income (loss)? a. $0 b. $2,000 c. $3,000 d. $6,000 56. a. $9,000 (7,000 + (10,000

ial participation, the full loss is deductible.

or the previous year. .

not considered prepaid interest. The cash basis taxpayer must pay interest to be allowed the deduction.

0) = $60,000.

ral Auto $3,000 (no dividends received during the year) b. Only the home mortgage interest is deductible.

making a charitable donation.

sis; thus, that amount must be reduced by the insurance proceeds, $500 and 10 percent of adjusted gross income because of

al expense is not deductible. That means that the following amounts of each expense are deductible: Meals (25% x $2,000 x 5

ge for $44,500 of adjusted gross income is 20%. nses and must multiply that amount by 34% since she exceeds $15,000 of adjusted gross income. e dependent care credit to give $1,610.

$24,000 x 25% $ 6,000 49,000 General business credit allowed $43,000 CCH. All Rights Reserved.

0,000 x 40% = $4,000 earned income credit.

on a.Tax-exempt bond interest is not a tax preference item.

unt is taxed at 35 percent d. b.

rty used for low-income housing d. All of the above b

000 x 25%). The credit for a qualied ex-felon who works between 120 and 400 hours is $1,500 (25% x $6,000). The companys total work o

. They are classied as start-up costs.

nd $350 for meals (7 at 100 x 50%). These expenses total to $3,110.

e: $190,000 / 39 = $4,872.

esser of adjusted basis or decline in fair market value.

above a. Only $20,000 of the $40,000 passive loss may be deducted in 2009.

asis adjustment

. a. $9,000 (7,000 + (10,000 - 2,000)) = ($6,000). Therefore, nothing is added back.

usted gross income because of the nonbusiness casualty loss.

ctible: Meals (25% x $2,000 x 50% deductible) Lodging (25% x $4,000) Total

6,000). The companys total work opportunity credit for the year is $2,250 ($750 + $1,500).

A business bad debt is deductible for tax purposes as a(n): d. A business bad debt is deductible for tax purposes as A business machine valued at $800 was contributed to a charitable organization during the year. The machine cost A business tax deduction for business gifts is restricted to $25 per year per: d. A business tax deduction for busines A calendar-year corporation incurs $53,000 of start-up costs. If the corporation began business on August 1 of the A contribution made to the following donee is not deductible: b. Oxford University, England Charitable contributions A corporation paid $50,000 for qualied child care expenses during the year in order to provide child care for its employees. Th A deduction for salaries and wages can include: d. A deduction for salaries and wages can include both bonus paym A nonbusiness bad debt is deductible for tax purposes as a(n): a. A nonbusiness bad debt is deductible for tax purp A percentage depletion deduction computed on a natural resource cannot exceed what percent of the taxpayers tax A self-employed attorney uses a country club to entertain clients and spends the following amounts at the club: 94. A work opportunity credit is available for qualied second-year wages paid to which one of the following? a. Qualied veterans

ABC, Inc. of Jasper, Georgia suffered a casualty loss of $150,000 in March 2009. This loss was caused b

Albert Allgood has adjusted gross income in the current year of $30,000. He gave $5,000 cash and a capital gain a All interest payments in the following category are not deductible for tax purposes: b. Personal credit card interest is

All of the outstanding stock of a closely held C corporation is owned equally by Evelyn Humo and Steve B All of the outstanding stock of a closely held C corporation is owned equally by Evelyn Humo and Steve B

All other things being equal, the tax benets of a tax credit outweigh the tax savings produced by a tax deduction because: a. I Allied Corporations tax liability for the year is $49,000 before claiming a general business credit. The corporation earns a gene An alternative minimum tax applies to items that are considered to be of a tax preference nature. Which of the following item An employee of a corporation takes a 10-day trip from Chicago to New York. He spends seven days conducting bu An example of a tax preference item that must be added to taxable income when computing AMTI would be: a. Percentage d An example of an expense not allowed as a deduction under Code Sec. 162(a) would be: d. Government imposed

Ann Jones uses a dry cleaning machine in her business, and it was completely destroyed by re. At the tim Ann Jones uses a dry cleaning machine in her business, and it was partially destroyed by re. At the time o Bill Goggans died and left passive activity property to his nephew, Travis. Bills basis in the activity was $3 Billy Ray owns several parcels of rental real estate, and he actively participates in managing the propertie Billy Ray owns several parcels of rental real estate, and he actively participates in managing the propertie Billy Ray owns several parcels of rental real estate, and he actively participates in managing the propertie Bob Mapp gave his daughter a limited partnership interest in a real estate activity. Suspended losses amo

Business depreciable property placed in service prior to what year is not eligible for ACRS depreciation? c. ACRS c Carlton Corporations 2009 general business credit exceeded its 2009 income tax liability. The resultant general business cred Cathy buys a house (her principal residence) for $2,000,000, paying $500,000 down and borrowing the other $1,50 Code Sec. 179 allows certain taxpayers to: a. Section 179 is available only for depreciable personal property placed Darrin owns a house with a FMV of $400,000, and acquisition indebtedness (first mortgage) of $250,000. He took o Dealers in illegal drugs can deduct: b. Dealers in illegal drugs can deduct cost of goods sold. Deductions for AGI are: a. Deductions for AGI are always deductible. Deductions for business gifts are limited to what amount per individual each year? a. The deduction for business gi Depletion is dened as: b. The costs of regulating the usage of natural resources are not incurred by the taxpayer, b Determine the amount of charitable contribution allowed for the current year assuming Guy Gallworthy has adjusted During 2008, a corporation pays $200,000 in federal income taxes and $120,000 in foreign income taxes to Country X. The co During 2009, a corporation purchased machinery costing $450,000 and a warehouse costing $500,000. These are

During 2009, Hugh Hughes reported the following income and loss: Activity X ($50,000) Activity Y $20,000 During 2009, John Colburn, a single individual, reports the following taxable income: Gross income from b

During 2009, Klecker, Inc. placed in service $865,000 of Code Sec. 179 property. How much can Klecker elect to im

During 2009, Tommys home was burglarized. Tommy had the following items stolen. A block of securities

During the current year a corporation pays $8,000 to install ramps to the entrance of the corporations ofce building that will During the current year, a calendar year corporation incurred $52,000 of research and experimental expenditures. T During the holiday season, a taxpayer gives business gifts to 25 customers. The gifts have the following fair market During the year, George Gable, age 66, and his wife, age 61, incurred and paid the following medical expenses for During the year, the following items were charged to the interest expense account of Doe Corporation: Interest on a Employee travel expenses are deductible b. Travel expenses are deductible from AGI. Employment-related expenses of employees are: d. Employment-related expenses of employees are allowed as tra Expenses that are costs paid or incurred while traveling around town on business are known as: b. Transportation e Fines and penalties paid to the government for the violation of a law are: b. Fines and penalties paid to the governm Five-year property costing $25,000 was placed in service on January 11 of the current year. The property is deprec For individual taxpayers, deductible losses for tax purposes do not include: c. Personal losses other than casualty a For MACRS depreciation purposes, autos and light-duty trucks are depreciated over what period? b. Autos and ligh For tax purposes, nonbusiness expenses are d. Nonbusiness expenses include all the expenses mentioned in the q For tax purposes, the term research and experimentation expenditures includes which of the following: b. The term Frank Fox won $10,000 in a state lottery. He also lost $3,000 at the horse races. On his income tax return he shoul

Freds at-risk amount in a passive activity is $50,000 at the beginning of the current year. His current loss f

Gwen had the following occur in 2009: Car wreck repairs were $2,000, insurance paid $1,000. Theft of boat from la HMP Inc. reported the following information: Net sales (U.S. production) Cost of goods sold Operating expenses W Hobby expenditures are deductible to the extent of: b. Hobby expenditures are deductible only to the extent of hobb Hyman Homes, Inc. paid $3,000 of qualied rst-year wages to a qualied summer youth employee who worked 400 hours and $ If a taxpayer drives 10,000 business miles during 2009, and uses the standard mileage method, the taxpayers dedu If a taxpayer has two places of business in different areas, the IRS usually considers the following factors in determ If an expenditure is part business-related and part personal d. A part business-related and part personal expenditur If an individual taxpayer contributes capital gain property to a qualified public charity and wants to deduct fair marke If an individual taxpayer contributes ordinary property to a qualified public charity, the deduction would be subject to If rental payments are paid in advance, they are usually deductible by a taxpayer: b. Advance rental payments are d In 2009, John Barraclough has $50,000 of adjusted gross income, a $10,000 casualty loss and a $2,000 casualty g In order to qualify for the moving expense deduction, the taxpayer: b. The taxpayer must move because of a new jo

Jim owns four separate activities. He elects not to group them together as a single activity under the appro

Job-seeking expenses are deductible if incurred by an individual who is presently employed and looking for work in Joe College is married and attends State University for 12 months. Joe and his wife have two children. Mrs. College works to h John Baker, a cash basis calendar year taxpayer, paid the following during the year: Social security tax (withheld fro

John Hughes is in the business of truck farming (i.e., growing tomatoes, bell peppers and green beans). D

John Jay is married and supports his mother, age 67. During the year, he paid $300 for prescription medicines for h

John Mapp dies with passive activity property having an adjusted basis of $50,000, suspended losses of $ John Mapp dies with passive activity property having an adjusted basis of $50,000, suspended losses of $

Karen Baker, a cash basis calendar year taxpayer, paid the following during the year: Social security tax (withheld f Kenneth Kruise purchased a personal residence for $66,000. It had a fair market value of $80,000 when it was dam Last year, a corporation purchased an ofce building for $220,000, of which $30,000 was allocated to the land on wh Lisa incurred the following employee business expenses: Meals $2,000 Lodging $4,000 Her employer reimburses h Lorence Langes tax for the year is $7,000. He has paid in $4,400 in four quarterly payments during the year. Last year, his tax Malcolm Moore had medical expenses of $500 last year and took a $300 deduction. He was reimbursed $450 this y Mark Miller paid the following medical expenses during the year (all in excess of reimbursement): Hospital and doct Max Murphey, a cash basis taxpayer, borrowed $1,000 from a bank for a business loan on August 1, to be repaid o

Mike, who is single, has $100,000 of salary, $15,000 of income from a limited partnership, and a $30,000

Miscellaneous itemized deductions are deductible only: a. to the extent that in aggregate they exceed two percent o

Mr. and Mrs. Gumball are both over age 65. They had income this year consisting of $8,500 earned income and $1,500 in soc

Net operating losses can be increased by which of the following? a. Theft losses. b. Business casualty los

Nonbusiness bad debts are deductible: a. Nonbusiness bad debts are treated as investment losses and are limited Non-home-mortgage interest prepaid in cash can only be deducted: d. Except for home-mortgage "points", prepaid Nonresidential realty costing $300,000 was placed in service three years ago, and was sold on March 25 of the cur On July 10, 2005, Test Corporation purchased energy equipment for $15,000. The equipment has a 5-year cost recovery perio PDQ, Inc., a calendar-year company, paid $15,000 as a prepayment of two years of its liability insurance on Novem Private foundations are organizations which do not normally receive donations: b. Private foundations are organizat Research and experimental expenditures connected with a trade or business can be capitalized and amortized for t Research and experimentation expenditures connected with a trade or business can be capitalized and amortized f Ron Ryder worked for both Boilerworks and Diemakers during the year. His total wages from Boilerworks were $49,000. His t Sam and Betty Taylor maintain a home and they have two children. Their earned income was $10,000 and adjusted gross inco

Steve Colburns portable sawmill used 100% for business, was completely destroyed by re. The sawmill ha

Stock in the ABC Corporation was contributed to a public charitable organization. The basis in the stock was $1,000 Susnne Watson is an employee and sole-shareholder of Klaxon. Klaxon is a calendar-year company which uses th

Tammy has the following items for the current year: Nonbusiness capital gains Nonbusiness capital losse

Tax planning and compliance expenses incurred by individual taxpayers are not: c. Tax planning and compliance ex Taxpayers generally can deduct meal and entertainment expenses provided that the expenses are b. Meal and ent The amount of a taxpayers general business credit for any tax year is limited to the amount by which the taxpayers net incom The Cohan rule has to do with: c. The Cohan rule has to do with substantiation of tax deductions. The difference between a refundable credit and a nonrefundable credit is: a. A refundable credit can only reduce a taxpayers The following taxes were paid by the Browns--real estate taxes on their home, $600; state income taxes, $700; city The IRS takes the position that a taxpayers tax home, for purposes of determining travel expenses, is at the locatio The low-income housing credit can be claimed by owners of qualied low-income building for a period of: a. 5 years b. 10 year

The manufacturing deduction in 2009 is based on what percentage? a. 9% b. 6% c. 3% d. None of the ab

The minimum tax credit: a. Provides that the amount of AMT paid by a corporation in one year differences can be used to off

The percentage of passive losses that may offset nonpassive income for 2009 is: a. 0% b. 10% c. The pe

The process used to recover the cost of intangible assets over time is known as a. Intangible assets are amortized. The rehabilitation credit can be taken by businesses: a. For costs associated with business activities that contribute to the rev The tax laws allow taxpayers to use which of the following methods of accounting for research and experimental co The tax structure of the individual AMT is a two-tier progressive tax where: a. The rst $175,000 of AMT base is taxed at a 15 p The two types of depletion methods are b. Taxpayers may choose either cost or percentage depletion. This year, Ellen Smith converted her principal residence to rental property. She originally purchased the home 8 ye To be deductible for tax purposes, a trade or business expenditure must be: c. A deductible trade or business expe To be deductible for tax purposes, trade or business expenses must be: d. To be deductible, trade or business exp To claim the disabled access credit, an eligible small business is dened as: a. One whose gross receipts did not exceed $1 milli Trade or business expenses are only deductible if they are: e. Business capital expenditures must be recovered thr Travel expenses must be incurred by a taxpayer while away from home. To the IRS, the term away from home mea Two years ago, a corporation purchased residential real estate (an apartment complex) at a total cost of $250,000. Under the cash method of tax accounting, tax deductions are taken when a. Deductions are taken when expenditur Unnecessary cosmetic surgery costs directed solely at improving the patient's physical appearance: c. Unnecessar Unreimbursed expenses of employees are considered to be deductions: b. Unreimbursed expenses of employees a Unused general business credits can be: a. Carried back one year and carried forward ten years b. Carried back two years and What is the alternative minimum tax that must be paid by a taxpayer ling a joint return, if the taxpayer has taxable income of What is the amount of dependent care credit allowed Sally Smith, a divorcee, who pays $3,100 for the year to send her daugh What is the amount of dependent care credit for a couple with two children where they spend $5,000 for dependent care an What is the amount of interest deduction allowed for the year 2009, assuming Marge Meyer incurred the following:

What is the earned income credit allowed Don Andersen assuming he has adjusted gross income of $8,500 and earned incom What is the maximum amount that Mr. and Mrs. Jones, both over 65, may take as a credit for the elderly before the income t

When a taxpayer incurs an NOL in 2009, that is not attributable to a casualty or theft loss, the taxpayer m

When tentative minimum tax exceeds the taxpayers regular tax liability, the excess represents the taxpayers: a. Net income t Which method is used to determine the order in which unused tax credits are carried forward and back? a. First-in, rst-out m Which of the following expenditures is always an itemized deduction for individual taxpayers? d. Both a. and b. Which of the following investment related expenses are deductible for AGI? c. Rent and royalty expenses are dedu Which of the following is allowed when computing AMTI for individuals? a. Standard deduction b. Personal exemptions c. Cha

Which of the following is not a passive activity? a. Owning a business and not materially participating b. H Which of the following is not a passive activity? a. Owning a working interest in oil and gas wells. b. Ownin

Which of the following is not a tax preference item for purposes of the alternative minimum tax? a. Percentage depletion in e

Which of the following is not deductible? a. NOLs b. Expenses incurred for the production of income. c. H Which of the following statements is correct? a. Hobby expenses are always fully deductible. b. The nanci Which of the following statements is incorrect? a. A vacation home becomes a personal residence when i

Which of the following tax credits is not part of the general business credit? a. Low-income housing credit b. Foreign tax cred Which of the following taxpayers derives the most benets from a $1 tax credit? a. Moderate-income taxpayers b. Higher-inco Which of the following types of taxes is not deductible? c. State income and property taxes are deductible against f

Which of the listed dispositions for a passive activity allow a taxpayer to keep the suspended losses from

Which one of the following is not deductible when itemizing? c. The cigarette tax is considered a penalty and is non

s deductible for tax purposes as an ordinary business deduction. ng the year. The machine cost $1,000 but was depreciated down to $600 before the donation was made. Indicate the correct i siness tax deduction for business gifts is restricted to $25 per individual donee per year. n business on August 1 of the current year, what is the maximum amount of the start-up costs that it can deduct against busin ngland Charitable contributions must be made to charities that are incorporated in the United States. de child care for its employees. The corporations child care credit is: a. $0 b. $5,000 c. $10,000 d. $12,500 e. $25,000 d. $50,000 x 25% es can include both bonus payments and payments for services performed in prior years. d debt is deductible for tax purposes as a short-term capital loss. hat percent of the taxpayers taxable income derived from the natural resource for the year before deducting the depletion dedu owing amounts at the club: 94. 95. 96. 97. Annual dues $1,000 Personal meals 1,500 Business meals 2,500 What amount can he following? a. Qualied veterans b. Long-term family assistance recipient c. Qualied ex-felon d. High-risk youth . b.

009. This loss was caused by heavy rains that completely ooded their factory. As a result of these rains, the Preside

5,000 cash and a capital gain asset costing $10,000, worth $12,000, to a public charity, and an $8,000 cash contribution to a 20 . Personal credit card interest is not deductible.

y Evelyn Humo and Steve Bufusno. In 2009, the corporation generates taxable income of $20,000 from its active bu y Evelyn Humo and Steve Bufusno. In 2009, the corporation generates taxable income of $20,000 from its active bu

d by a tax deduction because: a. It reduces a taxpayers tax liability b. It reduces a taxpayers taxable income c. It reduces a taxpayers capit edit. The corporation earns a general business credit of $60,000. What is the amount of credit allowable for the year? a. $60,000 b. $43,0 ature. Which of the following items is not considered to be a tax preference item? a. Tax-exempt bond interest issued by a school system nds seven days conducting business and three days sightseeing and visiting friends. His expenses included: $ 800 2,800 1,00 g AMTI would be: a. Percentage depletion in excess of the adjusted basis in property b. Excess intangible drilling costs c. Tax-exempt inter d be: d. Government imposed nes and penalties are not deductible. Costs incurred in investigating the creation or acquisition

ly destroyed by re. At the time of the re, the adjusted basis was $20,000 and its fair market value was $18,000. How destroyed by re. At the time of the re, the adjusted basis was $20,000 and its fair market value was $18,000. The adj s basis in the activity was $30,000, while Travis basis was stepped up to $50,000. Suspended losses amounted to $ es in managing the properties. His total loss from these activities in 2009 is $30,000 and his AGI for 2009 is $110,00 es in managing the properties. His total loss from these activities in 2009 is $30,000 and his AGI for 2009 is $110,00 es in managing the properties. His total loss from these activities in 2009 is $30,000. Assuming that his AGI for 2009 ivity. Suspended losses amounted to $30,000. Bobs adjusted basis at the time of the gift was $40,000 ( fair market v

ACRS depreciation? c. ACRS came into existence in 1981. e resultant general business credit: a. May be placed in a reserve account and, based on the useful lives of the related assets, applied aga and borrowing the other $1,500,000 at 6% interest. If her interest expense for the year is $90,000, how much will her deductio ciable personal property placed in service in the taxable year. Amounts expenses under Code Sec. 179 may not be depreciate ortgage) of $250,000. He took out a home equity loan of $120,000 on the house, and used the proceeds to buy a yacht. If his in

. The deduction for business gifts is limited to $25 per donee per year. not incurred by the taxpayer, but by the regulatory agency. Depletion refers to the recovery of the costs incurred to acquire an ng Guy Gallworthy has adjusted gross income of $30,000 and gave inventory costing $2,000 but worth $2,500 to a public found ncome taxes to Country X. The corporations worldwide taxable income is $550,000 and its taxable income from Country X was $250,000. e costing $500,000. These are the only two acquisitions of depreciable property purchased by the corporation in 2009. The ma

($50,000) Activity Y $20,000 Both Activity X and Activity Y are passive to Mr. Hughes. Hugh purchased Activity X in ncome: Gross income from business $200,150 Less: Business expenses 240,000 ($39,850) Plus: Interest income 1

ow much can Klecker elect to immediately expense in 2009? a. The Code Sec. 179 deduction is reduced by the amount by whi

s stolen. A block of securities worth $20,000. Tommy purchased of securities three years ago for $8,000. A block of s

rporations ofce building that will allow disabled individuals better access to the building. The corporations disabled access credit equals: a nd experimental expenditures. The corporation elects to capitalize and amortize the costs over 60 months. If the corporation rst s have the following fair market values: 7 gifts of property valued at $10 each 5 gifts of property valued at $20 each 13 gifts of following medical expenses for which they received no reimbursement: Hospitalization insurance premiums $ 560 Hospital 1,70 Doe Corporation: Interest on additional income taxes assessed for two years ago $400 Interest on bank loan to finance install

of employees are allowed as trade or business tax deductions. e known as: b. Transportation expenses are incurred while traveling around town for business purposes. Travel expenses are d penalties paid to the government for the violation of a law are not deductible. nt year. The property is depreciated using straight-line MACRS. Assuming Code Sec. 179 is not elected and the mid-quarter c nal losses other than casualty and theft losses are not deductible for tax purposes. what period? b. Autos and light-duty trucks are depreciated over ve years under MACRS. he expenses mentioned in the question. All of the above ch of the following: b. The term research and experimentation expenditures includes development of a plant process. his income tax return he should report: d. Gambling winnings are reported as gross income and gambling losses are deductib

urrent year. His current loss from the activity is $60,000. He had no passive activity income during the year. At the en

id $1,000. Theft of boat from lake house in December fair market value = $10,000, cost = $15,000. She didn't discover the the ds sold Operating expenses W-2 wages for the year(included in cost of goods sold and operating expenses) $550,000 300,00 ctible only to the extent of hobby gross income. oyee who worked 400 hours and $7,000 of qualied rst-year wages to a qualied ex-felon who worked 350 hours during the year. What is th age method, the taxpayers deduction is: d. The 2009 mileage allowance is 55 cents per mile. s the following factors in determining the taxpayers principal place of business: (Choose the wrong answer.) a. The taxpayers p d and part personal expenditure is deductible only to the extent of the businessrelated portion of the expenditure. and wants to deduct fair market value, the deduction would be subject to which of the following limits? b. 30 percent of the tax e deduction would be subject to which of the following limits? d.50 percent of the taxpayer's AGI Advance rental payments are deductible in the period covered by the payments. ty loss and a $2,000 casualty gain. How much is John's net deductible casualty loss after making all appropriate reductions? b must move because of a new job location.

ingle activity under the appropriate economic unit standard. Jim participates for 140 hours in Activity A, 130 hours in

mployed and looking for work in the same trade or business: b. Job-seeking expenses are deductible by an individual who is pre o children. Mrs. College works to help put Joe through school. The children, who are four and ve years old, are kept at Sleepy Time Day Ca Social security tax (withheld from wages) $215 Ad valorem personal property taxes $52 State income tax $190 General sales

peppers and green beans). During the year, one of his barns was completely destroyed by re. The adjusted basis of

for prescription medicines for his mother, $100 for prescription medicines for his wife, and $1,400 for doctor and hospital bills f

0,000, suspended losses of $20,000, and a fair market value at the date of Mr. Mapps death of $60,000. How much 0,000, suspended losses of $20,000, and a fair market value at the date of Mr. Mapps death of $77,000. How much

r: Social security tax (withheld from wages) $215 Personal property taxes (ad valorem) 52 State income tax 190 State sales tax ue of $80,000 when it was damaged by a fire. The fair market value after the fire was $40,000 and insurance proceeds totaled was allocated to the land on which the building was located. The buildings salvage value was estimated to be $50,000. The co 000 Her employer reimburses her a total of $4,500 for all of these expenses under an accountable plan. Ignoring any floor bas during the year. Last year, his tax liability was $6,600. Which of the following is correct? a. Lorence will not have an underpayment penalt He was reimbursed $450 this year by the insurance company. What amount must be included in this year's tax return as gross mbursement): Hospital and doctor bills (for self and wife) $840 Medicine and drugs (for self and wife) $730 Hospitalization insur oan on August 1, to be repaid one year later. The interest for one year at 6 percent was deducted from the loan proceeds in ad

partnership, and a $30,000 passive loss from a real estate rental activity in which he actively participates. His modie

gate they exceed two percent of AGI.

earned income and $1,500 in social security benets. . What amount may they claim as a credit for the elderly? They le a joint return. a. $

ses. b. Business casualty losses. c. Unreimbursed employee business expenses. d. All of the above. d. All of the ite

estment losses and are limited to capital gains plus $3,000. me-mortgage "points", prepaid interest can only be deducted over the period of the loan. as sold on March 25 of the current year. Current year depreciation expense with respect to the real estate will be: b. The mid-m nt has a 5-year cost recovery period. The corporation took the appropriate investment credit for 2005. On August 15, 2009, the corporatio its liability insurance on November 1 of the current year. How much insurance expense can PDQ deduct on its current year inc ivate foundations are organizations which normally do not receive donations from the general public. capitalized and amortized for tax purposes over a period of not less than: b. R & D expenditures may be amortized over a per be capitalized and amortized for tax purposes over a period of not less than: b. Capitalized research and experimentation exp m Boilerworks were $49,000. His total wages from Diemakers were $20,000. Rons wife worked for Stenographers during the year and ear as $10,000 and adjusted gross income was $11,000. They le a joint return. What is the amount, if any, of their earned income tax credit fo

stroyed by re. The sawmill had an adjusted basis of $35,000 and a fair market value of $50,000 before the re. The s

e basis in the stock was $1,000, but its fair market value was $1,500 at the time of the donation. Indicate the correct income ta ar-year company which uses the accrual method of accounting. On December 30, 2009, Klaxon awarded Susanne a bonus of $

s Nonbusiness capital losses $10,000 (2,000) 57. 58. 59. 60. Interest Income 7,000 Itemized deductions (none of th

Tax planning and compliance expenses are not limited to the income tax area but also extend to gift and estate tax returns. expenses are b. Meal and entertainment expenses are only deductible if they can be directly association with the taxpayers tr by which the taxpayers net income tax exceeds the greater of: a. The taxpayers tentative minimum tax for the tax year or 25 percent of t x deductions. redit can only reduce a taxpayers tax liability to zero b. A nonrefundable credit can only reduce a taxpayers tax liability to zero c. Refunda state income taxes, $700; city sales tax, $50; state sales taxes of $10 paid while on vacation to states other than the state in w avel expenses, is at the location of the taxpayers: a. A taxpayers home for purposes of determining travel expenses is at the lo r a period of: a. 5 years b. 10 years c. 15 years d. 20 years e. None of the above . b.

6% c. 3% d. None of the above. b. From 2007 through 2009, it is 6%.

ear differences can be used to offset the regular tax liability of a subsequent year b. May not be used to offset any future AMT tax liability

9 is: a. 0% b. 10% c. The percentage varies depending on the level of AGI. d. 100% . a. For all tax years beginning

ntangible assets are amortized. Tangible assets are depreciated. Natural resources are depleted. . ctivities that contribute to the revitalization of economically depressed areas b. For costs associated with the substantial rehabilitation of r research and experimental costs paid or incurred in connection with a trade or business? d. Taxpayers have the option of cap 000 of AMT base is taxed at a 15 percent rate and any excess over that amount is taxed at 25 percent b. The rst $175,000 of AMT base is t centage depletion. nally purchased the home 8 years ago for $425,000. The home was appraised at $356,250 just before she placed it on the ren ductible trade or business expenditure must be both ordinary and necessary. ductible, trade or business expenses must satisfy all of the requirements listed.d. All of the above ss receipts did not exceed $1 million b. One who employed no more than 30 full-time employees c. One who is located in one of the targe nditures must be recovered through depreciation. Business noncapital expenditures are deductible if they are ordinary, necess the term away from home means: c. To the IRS, the term away from home means away from home overnight. ex) at a total cost of $250,000. Of this amount, $50,000 was allocated to the underlying land. What is the corporations allowab ons are taken when expenditures are made under the cash basis of accounting. cal appearance: c. Unnecessary cosmetic surgery will not qualify for the medical expense deduction. ursed expenses of employees are deductible from AGI. ears b. Carried back two years and carried forward ten years c. Carried back one year and carried forward 20 years d. Carried back two yea he taxpayer has taxable income of $90,950, adjustments to taxable income of $29,000, tax preferences of $50,000, and an income tax bef 100 for the year to send her daughter to a babysitter while she works? The daughter is claimed as a dependent by the father. Sally has ad end $5,000 for dependent care and the husband earns $40,000 for the year and the wife earns $4,500? a. $1,000 b. $990 c. $900 d. $0 e. N e Meyer incurred the following: Interest on loan used to purchase land for investment $18,000 (assume no net investment incom

come of $8,500 and earned income of $5,000? He maintains a household for his daughter. a. $2,890 b. $3,043 c. $1,700 d. $0 c. The earne or the elderly before the income tax limitation, assuming that they have gross income of $23,000 and adjusted gross income of $21,500?

or theft loss, the taxpayer may: a. Carry the NOL forward instead of back. b. Carry the NOL back three years . c. Ca

nts the taxpayers: a. Net income tax b. Alternative minimum tax (AMT) c. Total income tax liability d. None of the above . b rd and back? a. First-in, rst-out method b. Last-in, rst-out method c. First-in, last-out method d. None of the above . a xpayers? d. Both a. and b. and royalty expenses are deductible for AGI. tion b. Personal exemptions c. Charitable contributions d. Real estate taxes e. None of the above c.

t materially participating b. Having rental condos c. Owning a limited partnership interest in a real estate limited partn n oil and gas wells. b. Owning a limited partnership interest in oil and gas wells. c. Owning a limited partnership inter

m tax? a. Percentage depletion in excess of the adjusted basis in property b. Amortized circulation costs c. Excess intangible drilling costs d

e production of income. c. Hobby expenses in excess of hobby income. d. All of the above. . c. Hobby expenses can fully deductible. b. The nancial status of the taxpayer is not considered in determining whether activities are engaged a personal residence when its owner uses it more than the greater of 14 days or 10 percent of the number of rental

housing credit b. Foreign tax credit c. Employer-provided child care credit d. Research credit e. All of the above are part of the general bus e-income taxpayers b. Higher-income taxpayers c. Lower-income taxpayers d. All of the above derive the same benet for a $1 tax credit d. y taxes are deductible against federal taxable income. Federal income taxes are not.

the suspended losses from the disposed activity and utilize them on a subsequent taxable disposition? a. Dispositio

onsidered a penalty and is nondeductible.

was made. Indicate the correct income tax treatment with respect to the donation. a. An ordinary income property charitable ded

hat it can deduct against business income in the current year? d. Taxpayers are allowed $5,000 in the rst year, plus amortizati

00 e. $25,000 d. $50,000 x 25%

re deducting the depletion deduction? a. A percentage depletion deduction cannot exceed 50 percent of the taxpayers taxable meals 2,500 What amount can the attorney deduct against business income on his personal tax return? b. The attorney can d k youth . b.

lt of these rains, the President declared North Georgia (including Jasper) a disaster area on March 23, 2009. In wha

$8,000 cash contribution to a 20 percent charity. What is the amount of his maximum allowable current charitable contribution d

of $20,000 from its active business activities. In addition, it earns $20,000 of interest from investments and incurs a of $20,000 from its active business activities. In addition, it earns $20,000 of interest from investments and incurs a

me c. It reduces a taxpayers capital gains d. None of the above a. for the year? a. $60,000 b. $43,000 c. $18,000 d. $25,000 e. None of the above 2009 b. The general business credit is limited to the tax li nterest issued by a school system b. Accelerated depreciation on real property acquired before 1987 c. Mining exploration and developm ses included: $ 800 2,800 1,000 250 $4,850 The corporation reimburses the employee under an accountable plan. What amou e drilling costs c. Tax-exempt interest on certain private activity bonds d. Only a and b e. All of the above e. ting the creation or acquisition of an active trade or business are classied as: b. Investigation costs are not organization expen

ket value was $18,000. How much is Anns loss? a. $18,000 b. $2,000 c. $20,000 d. None of the above c. If busines value was $18,000. The adjusted basis after the re is $10,000 and the fair market value after the casualty is $10,00 ended losses amounted to $22,000. How much is the passive loss deduction that can offset nonpassive income? a. his AGI for 2009 is $110,000. For how many years may the disallowed loss be carried forward? a. The disallowed lo his AGI for 2009 is $110,000. How much of the disallowed loss from rental real estate activities may be carried ove suming that his AGI for 2009 is $110,000, what is the allowable deduction from these properties in 2009? a. $0 b. $1 ft was $40,000 ( fair market value was greater than $40,000). What is the daughters basis in the property? a. $40,00

of the related assets, applied against the income tax liabilities of subsequent year b. May be returned to the depreciation bases of the re 00, how much will her deduction for interest expenses be? c. Only interest on $1,000,000 of acquisition indebtedness is deduc Sec. 179 may not be depreciated. roceeds to buy a yacht. If his interest on the home equity loan this year is $9,000, how much of the interest from the home equ

he costs incurred to acquire and exploit natural resources. . t worth $2,500 to a public foundation. c. $2,000 Inventory is ordinary income property and limited to basis in the charitable con me from Country X was $250,000. What is the corporations foreign tax credit for 2008? a. $0 b. $100,000 c. $120,000 d. $80,000 e. None he corporation in 2009. The maximum deduction the corporation can claim under Code Sec. 179 in 2009 is: a. The Section 179

Hugh purchased Activity X in 1987 and Activity Y in 1993. How much is the loss that Mr. Hughes may deduct in 2009 850) Plus: Interest income 1,000 Dividend income 2,000 AGI ($36,850) Less: Greater of itemized deductions or stan

reduced by the amount by which property placed in service in the current year exceeds $800,000. Thus, the limitation in this c

s ago for $8,000. A block of securities worth $30,000. Tommy purchased the securities for $24,000 two years ago. T

ns disabled access credit equals: a. $0 b. $2,000 c. $3,750 d. $3,875 e. $4,000 d. ($8,000 - $250) x 50% 60 months. If the corporation rst realizes benets from the research and experimental expenditures on November 1 of the curren valued at $20 each 13 gifts of property valued at $50 each How much can the taxpayer deduct for business gifts? b. The max e premiums $ 560 Hospital 1,700 Doctors 390 Prescription drugs and medicines 250 Cosmetic surgery (liposuction) 800 Georg t on bank loan to finance installation of new machinery. $700 Bank loan was refinanced when installation was completed Intere

urposes. Travel expenses are those incurred while traveling away from home for business.

t elected and the mid-quarter convention applies to all ve-year property placed in service this year, what will be depreciation ex

nt of a plant process. d gambling losses are deductible to the extent of winnings as itemized deductions.

me during the year. At the end of the year, which of the following statements is incorrect? a. Fred has a loss of $50,0

00. She didn't discover the theft until the next taxable year. Storm damage to lake house FMV before = $200,000, after = $150 ng expenses) $550,000 300,000 100,000 80,000 What is HMPs taxable income? a. $141,000 b. $145,500 c. $150,000 d. $154

hours during the year. What is the companys work opporutunity credit for the year? a. $1,200 b. $2,250 c. $3,600 d. $4,000 b. The work

ng answer.) a. The taxpayers preference for principal place of business is not considered by the IRS in determining the taxpay f the expenditure. limits? b. 30 percent of the taxpayer's AGI

g all appropriate reductions? b. The deduction is $10,000 - $500 - $5,000 - $2,000 = $2,500. 67.

urs in Activity A, 130 hours in Activity B, 140 hours in Activity C, and 100 hours in Activity D. He has one employee w

ctible by an individual who is presently employed and looking for work in the same trade or business regardless of whether the ld, are kept at Sleepy Time Day Care School. The Colleges paid the school $4,600 this year to keep the children. The Colleges had adjusted ncome tax $190 General sales tax $114 Cigarette taxes $50 Fine for speeding $25 What itemized deduction may John claim fo

by re. The adjusted basis of the barn was $100,000. The fair market value of the barn before the re was $80,000. Th

00 for doctor and hospital bills for himself. His gross income is $15,000 and adjusted gross income is $14,000. In itemizing his

eath of $60,000. How much suspended loss can be taken on Mr. Mapps nal Form 1040 return? a. $10,000 b. $20,00 eath of $77,000. How much suspended loss can be taken on Mr. Mapps nal Form 1040 return? a. $20,000 b. $77,00

income tax 190 State sales tax 114 Cigarette taxes 50 Fine for speeding 25 What itemized deduction may John claim for taxe and insurance proceeds totaled $15,000. What is the net amount of casualty loss he can claim if his adjusted gross income is $ stimated to be $50,000. The corporations current year depreciation deduction for the building is b. Land is not depreciable. Sub ble plan. Ignoring any floor based on percent of AGI, what is her deduction for these expenses? a. $1500/$6000, or 25% of ea not have an underpayment penalty. b. Lorence will have an underpayment penalty on $2,600. c. Lorence will have an underpayment pena n this year's tax return as gross income? c. The amount that must be included in income is the lesser of the reimbursement or wife) $730 Hospitalization insurance premiums $920 Medicine and drugs (for dependent mother, age 71) $160 Assuming the M d from the loan proceeds in advance. His interest deduction for the current year is: e. There is no interest deduction allowed fo

ctively participates. His modied adjusted gross income is $100,000. Of the $30,000 loss, how much is deductible? a.

lderly? They le a joint return. a. $900 b. $1,165 c. $1,275 d. $0 e. None of the above d. There is no tax liability, so there is no credit.

of the above. d. All of the items can increase an NOL.

real estate will be: b. The mid-month convention is used both in the year of acquisition and the year of sale. ($300,000/39 year On August 15, 2009, the corporation sold the asset for $10,000. What is the amount of investment credit recapture that is due to the IRS? Q deduct on its current year income tax return? b. The prepayment will provide benets for more than one year after the end of

s may be amortized over a period not less than 60 months. earch and experimentation expenditures can be amortized over a period of not less than 60 months. ographers during the year and earned total wages of $28,000. What amount can Ron and his wife claim as a credit against their income ta their earned income tax credit for the year? a. $3,400 b. $4,000 c. $4,400 d. $0 . b. The earned income credit is based on earned income

$50,000 before the re. The sawmill was uninsured. Steves casualty loss is: a. $34,900. b. $50,000. c. $49,900. d. $3

. Indicate the correct income tax treatment as a result of the donation. The stock was held long term. b. In general, long-term c awarded Susanne a bonus of $30,000 based on the companys 2008 year-end prot. The bonus was reasonable, ordinary and

mized deductions (none of the amount realized from a casualty loss) (9,000) In calculating Tammys net operating los

gift and estate tax returns. ssociation with the taxpayers trade or business activities. for the tax year or 25 percent of the amount by which the taxpayers net regular tax liability exceeds $25,000 b. The taxpayers tentative m

ers tax liability to zero c. Refundable tax credits are only available to individual taxpayers d. Nonrefundable tax credits are only available t o states other than the state in which they resided; state gasoline tax (personal use of automobile), $30; dog licenses, $20; and ning travel expenses is at the location of the taxpayers principal place of business. .

offset any future AMT tax liability c. May be carried forward indenitely as an offset against regular tax liability d. All of the above d.

. For all tax years beginning after 1990, passive losses may not offset nonpassive income.

h the substantial rehabilitation of certied historic structure or other depreciable building that was originally placed in service prior to 1936 axpayers have the option of capitalizing R&D expenses or expensing them. If capitalized, taxpayers could choose not to amorti The rst $175,000 of AMT base is taxed at a 26 percent rate and any excess over that amount is taxed at 28 percent c. The rst $175,000 of

before she placed it on the rental market. Assuming that $12,500 of the tax basis of the home is attributable to the land on wh

who is located in one of the target areas dened by the government d. a. and b. e. All of the above . d. ible if they are ordinary, necessary and reasonable in amount. home overnight. hat is the corporations allowable depreciation deduction for the current year under MACRS d. Depreciation = $200,000 / 27.5 y

d 20 years d. Carried back two years and carried forward 20 years e. Carried back three years and carried forward ve years c. of $50,000, and an income tax before the alternative minimum tax of $6,000? a. $21,000 b. $15,000 c. $20,000 d. $0 e. None of the above endent by the father. Sally has adjusted gross income of $16,500 for the year. a. $1,085 b. $1,054 c. $1,020 d. $500 e. None of the above . a. $1,000 b. $990 c. $900 d. $0 e. None of the above c. The expenses for dependent care are limited to $4,500, the income of the lower-e assume no net investment income) Interest on loan used to purchase personal residence $1,000 Interest on loan used to purch

$3,043 c. $1,700 d. $0 c. The earned income credit is based on earned income up to $8,950 but reduced by adjusted gross income over $1 djusted gross income of $21,500? a. $1,125 b. $263 c. $60 d. $0 e. None of the above c. The maximum base amount must be reduced by o

NOL back three years . c. Carry the NOL back ve years. d. All of the above. a. A taxpayer can elect to forgo the NOL

ne of the above . b the above . a

in a real estate limited partnership d. Owning a working interest in oil and gas properties . d. A working interest is ex ng a limited partnership interest in real estate. d. Owning a business and not materially participating. . a. A working i

c. Excess intangible drilling costs d. Tax-exempt interest on certain private activity bonds e. All of the above are tax preference items b.

ve. . c. Hobby expenses cannot be greater than hobby income hether activities are engaged in for prot. c. The deduction for the allowed hobby expenses is an itemized deduction, cent of the number of rental days. b. If a dwelling is classied as a personal residence, rental losses are not deductibl

above are part of the general business b e same benet for a $1 tax credit d.

ble disposition? a. Disposition of death. b. Disposition by gift. c. All of the above. d. None of the above. . d. Nontaxa

income property charitable deduction is limited to basis. There is no income recognition when making a charitable donation.

0 in the rst year, plus amortization of the remaining balance over 180 months. The $5,000 is reduced, however, by the amount

ercent of the taxpayers taxable income derived from the natural resource for the year before deducting the depletion deduction x return? b. The attorney can deduct 50% of business meals. No deduction is allowed for country club dues, nor for personal m

a on March 23, 2009. In what year can ABC, Inc. elect to deduct the casualty loss? a. 2009 or 2010 b. 2009 or 2008

current charitable contribution deduction? (Assume carryover will be used in the future.) d. $14,000 The 20 percent category m

m investments and incurs a $40,000 loss from a passive activity. How much of a passive loss carryover does the co m investments and incurs a $40,000 loss from a passive activity. How much income does the C corporation report fo

siness credit is limited to the tax liability minus 25% of the liability in excess of $25,000. $49,000 25,000 $24,000 x 25% $ 6,000 49,000 Ge Mining exploration and development costs d. Gain on the sale of certain small business stock e. Depletion a.Tax-exempt bond interest is n accountable plan. What amount of the $4,850 qualies as deductible travel expenses for the corporation? c. The allowable de

osts are not organization expenditures because no business activity has yet begun. Similarly, they are not acquisition costs, be

ne of the above c. If business or investment property is totally destroyed in a casualty, the amount of the loss is the e after the casualty is $10,000. How much is the casualty loss? a. $10,000 b. $8,000 c. $18,000 d. $20,000 32. b. If ffset nonpassive income? a. $22,000 b. $30,000 c. $2,000 d. None of the above. c. The $20,000 step-up means tha forward? a. The disallowed loss may not be carried forward. b. The disallowed loss may be carried forward for 15 ye activities may be carried over to future years? a. 0% b. 10% c. 50% d. 100% d. All of the disallowed loss is suspend operties in 2009? a. $0 b. $15,000 c. $20,000 d. $30,000 c. Four-fths of the $25,000 exception to the passive loss sis in the property? a. $40,000 b. $30,000 c. $70,000 d. None of the above. c. $40,000 + $30,000.

o the depreciation bases of the related assets and claimed as depreciation over the useful lives of the assets c. May be carried over for ve quisition indebtedness is deductible. The deductible interest is $90,000 x ($1,000,000/$1,500,000) = $60,000. the interest from the home equity loan will be deductible? b. Home mortgage interest is deductible only on the interest on the

d to basis in the charitable contribution computation. 0 c. $120,000 d. $80,000 e. None of the above b. $220,000 U.S. income taxes x ($250,000/$550,000) = $100,000. 9 in 2009 is: a. The Section 179 deduction is limited to $250,000 in 2009. It is reduced to the extent that acquisitions of eligible

Hughes may deduct in 2009? a. $50,000 b. $30,000 c. $3,000 d. $0 Chapter 7 2009 CCH. All Rights Reserved. Tes f itemized deductions or standard deduction Casualty loss (reduced by $100 limit) $2,000 Taxes 3,000 Interest expe

00. Thus, the limitation in this case is equal to $250,000 - $65,000 = $185,000.

or $24,000 two years ago. Tommys homeowners policy had an $80,000 deductible clause for thefts. How much is T

es on November 1 of the current year, its R&E deduction will equal: d. $52,000 / 60 = $867 per month. For November and Dece for business gifts? b. The maximum deduction for business gifts is $25 per donee. Thus, the deduction is this case is equal to surgery (liposuction) 800 George also paid $200 for prescription drugs for his dependent brother, age 78. Assuming the Gables stallation was completed Interest deducted by bank from proceeds of Doe Corporation's 60-day note signed $500 December 1

ar, what will be depreciation expense with regard to this property for the current year? (Ignore bonus depreciation.) c. ($25,000

? a. Fred has a loss of $50,000 suspended under the passive loss rules. b. Fred has an at-risk amount in the activity

before = $200,000, after = $150,000, insurance paid $20,000. If Gwen's AGI is $40,000, what is her net casualty loss deduction $145,500 c. $150,000 d. $154,500 Moving expenses qualify as deductions if: c. The employee must satisfy both the distance

0 c. $3,600 d. $4,000 b. The work opportunity credit for a qualied summer youth employee is $750 ($3,000 x 25%). The credit for a qualie

e IRS in determining the taxpayers principal place of business.

y D. He has one employee who works 135 hours in Activity D. Which of the following statements is correct? a. Activit

ness regardless of whether the individual nds a new job. hildren. The Colleges had adjusted gross income of $10,000 this year, all of which was earned by Mrs. College. What amount may the Coll ed deduction may John claim for taxes on his return? . d. Social security taxes, cigarette taxes, and fines for speeding are not

efore the re was $80,000. The barn was insured for 90% of its fair market value and John recovered this amount un

me is $14,000. In itemizing his deductions, Jay may claim a medical expense deduction, after application of proper limitations,

return? a. $10,000 b. $20,000 c. $0 d. None of the above . a. The deductible suspended losses are limited to the d return? a. $20,000 b. $77,000 c. $7,000 d. $0 . d. Suspended losses are lost to the extent of the amount of the bas

duction may John claim for taxes on his return before considering the percentage of AGI reduction? a. John is eligible to deduc f his adjusted gross income is $20,000? d. The reduction in fair market value is less than the basis; thus, that amount must be b. Land is not depreciable. Subtracting this cost leaves $190,000 as the cost of the building. Depreciation is calculated using th a. $1500/$6000, or 25% of each expense, is not reimbursed, and 50% of the unreimbursed meal expense is not deductible. T e will have an underpayment penalty on $1,900. d. Lorence will have an underpayment penalty on $2,200. e. None of the above Chapter 9 lesser of the reimbursement or the excess itemized deductions for the previous year. . , age 71) $160 Assuming the Millers' adjusted gross income was $20,000, how much of a medical expense deduction may the no interest deduction allowed for the year because interest deducted from the loan proceeds is not considered prepaid interest

how much is deductible? a. $30,000 b. $10,000 c. $25,000 d. $0. . a. Because of material participation, the full loss

ability, so there is no credit.

year of sale. ($300,000/39 years) x (2.5/12) = $1,603. t recapture that is due to the IRS? a. $300 b. $900 c. $1,000 d. $1,500 e. None of the above a. The asset was held for over four but less th than one year after the end of the year. The taxpayer must therefore use the accrual method for this expenditure.

as a credit against their income tax for the year because of excess social security tax withheld if they le a joint return? a. $290 b. $580 c. $ credit is based on earned income up to $12,570 but reduced by adjusted gross income over $19,370. $10,000 x 40% = $4,000 earned inco

b. $50,000. c. $49,900. d. $35,000 . d. Complete business loss is limited to adjusted basis.

term. b. In general, long-term capital gain assets are deductible at fair market value. was reasonable, ordinary and necessary. It was paid on February 11, 2010. In what year can Klaxon deduct the bonus it paid

ng Tammys net operating loss, and with respect to the above amounts only, what amount must be added back to tax

5,000 b. The taxpayers tentative minimum tax for the tax year or 15 percent of the amount by which the taxpayers net regular tax liability

ble tax credits are only available to corporations b. e), $30; dog licenses, $20; and real estate taxes on the home of Mrs. George Brown, mother of Barney Brown, $450. In itemiz

ability d. All of the above d.

ally placed in service prior to 1936 c. Who purchase or substantially rehabilitate residential rental property used for low-income housing d ers could choose not to amortize them, although such an election would be unlikely. 28 percent c. The rst $175,000 of AMT base is taxed at a 25 percent rate and any excess over that amount is taxed at 35 percent d. b.

s attributable to the land on which the home is located, if the home was converted to rental property on June 20, how much dep

Depreciation = $200,000 / 27.5 years = $7,272.

d forward ve years c. 20,000 d. $0 e. None of the above . c. The alternative minimum tax that must be paid by the taxpayer is $20,000, computed as follows: T 020 d. $500 e. None of the above . c. Sally is limited to $3,000 of expenses and must multiply that amount by 34% since she exceeds $15,0 $4,500, the income of the lower-earning spouse, and the credit percentage for $44,500 of adjusted gross income is 20%. 0 Interest on loan used to purchase boat $500 Interest on loan to purchase 100 shares of General Auto $3,000 (no dividends re

by adjusted gross income over $16,240. $5,000 x 34% = $1,700 earned income credit. base amount must be reduced by one-half of the adjusted gross income over $10,000. Maximum base amount $7,500 Less: 1/2 of adjuste

er can elect to forgo the NOL carryback and carry it forward only.

s . d. A working interest is excluded from passive activities. participating. . a. A working interest is specically excluded from the passive loss rules

ove are tax preference items b.

es is an itemized deduction, but not subject to the 2 percent oor. d. Hobby expenses that are deductible without refe ntal losses are not deductible. c. If an individual rents out a vacation home for more than 14 days and does not use

e of the above. . d. Nontaxable exchange.

making a charitable donation.

uced, however, by the amount by which start-up costs exceed $50,000. Thus, in this case, the corporation may deduct $2,000

ducting the depletion deduction. ry club dues, nor for personal meals.

009 or 2010 b. 2009 or 2008 c. Only 2009 d. Only 2008 b. ABC can take the loss in 2009 or, by making an election

000 The 20 percent category must be taken after considering the contribution amounts, not just the deduction amounts from t

e loss carryover does the corporation have? a. $20,000 b. $0 c. $40,000 d. None of the above a. Only $20,000 of t es the C corporation report for 2009? a. $10,000 of portfolio income b. $0 c. $20,000 of portfolio income d. None of t

$24,000 x 25% $ 6,000 49,000 General business credit allowed $43,000 CCH. All Rights Reserved. on a.Tax-exempt bond interest is not a tax preference item. orporation? c. The allowable deduction is $800 for airfare, $1,960 for lodging (7 days at $280), and $350 for meals (7 at 100 x

ey are not acquisition costs, because the business has not yet been acquired and may never be. They are classied as start-up

he amount of the loss is the taxpayers adjusted basis in the property, even if it is greater than the propertys fair mark $18,000 d. $20,000 32. b. If business or investment property is partially destroyed in a casualty, the amount of the lo e $20,000 step-up means that only $2,000 passive loss is allowed. be carried forward for 15 years. c. The disallowed loss may be carried forward for 15 years, but only after it has bee e disallowed loss is suspended and may be carried forward to future years. xception to the passive loss rules is allowed based on his AGI. + $30,000.

sets c. May be carried over for ve years except that the carryover is limited to the useful lives of the related assets d. May be carried back 00) = $60,000.

ble only on the interest on the lesser of (a) the amount of equity in the home (fair market value minus acquisition indebtedness

ent that acquisitions of eligible personal property exceed $800,000.

CH. All Rights Reserved. Testbank 605 . d. Passive loss limitations were phased out in 1991 00 Taxes 3,000 Interest expense 3,000 Total itemized deductions $8,000 or Standard deduction $5,700 $ 8,000 Pers

use for thefts. How much is Tommys theft loss for 2009? a. $50,000 b. $32,000 c. $44,000 d. None of the above. . b

month. For November and December, the corporation would be allowed a deduction of $1,733. eduction is this case is equal to $70 (7 at 10) plus $100 (5 at 20) plus $325 (13 at 25). r, age 78. Assuming the Gables' adjusted gross income for the year was $25,000, what is the amount that they may claim as a y note signed $500 December 1, payable in full 60 days later The maximum amount of interest expense that Doe Corporation,

onus depreciation.) c. ($25,000 x .2) x (10.5/12) = $4,375.

n at-risk amount in the activity of $0. c. Fred has a loss of $10,000 suspended under the at-risk rules. d. Fred has a lo

her net casualty loss deduction in 2009? b. The deduction is computed as follows: Car wreck ($2,000 - $1,000 - $500) $500 T must satisfy both the distance and employment tests.

000 x 25%). The credit for a qualied ex-felon who works between 120 and 400 hours is $1,500 (25% x $6,000). The companys total work o

tements is correct? a. Activities A, B, C, and D are all signicant participation activities. b. Jim is a material participan

ollege. What amount may the Colleges claim as a child care credit? a. $920 b. $480 c. $1,610 d. $1,200 e. None of the above c. The $4,600 and fines for speeding are not allowed deductions. Sales taxes are less than state income taxes, so the state income taxes, as

hn recovered this amount under the insurance policy. John has adjusted basis for the year of $60,000 (before consid

pplication of proper limitations, of: a. All the medical expenses are deductible but they must be reduced by 7.5% of the adjuste

ed losses are limited to the difference between the suspended losses at death less the basis adjustment ent of the amount of the basis increase.

on? a. John is eligible to deduct the personal property taxes paid ($52) and the state income taxes paid ($190). He is not eligib sis; thus, that amount must be reduced by the insurance proceeds, $500 and 10 percent of adjusted gross income because of preciation is calculated using the straight-line method over 39 years, and ignoring salvage value: $190,000 / 39 = $4,872. eal expense is not deductible. That means that the following amounts of each expense are deductible: Meals (25% x $2,000 x 5 00. e. None of the above Chapter 9 2009 CCH. All Rights Reserved. Testbank 637 . c. The underpayment penalty is determined by subtract

cal expense deduction may the Millers claim on their joint return? c. All the medical expenses are deductible but they must be not considered prepaid interest. The cash basis taxpayer must pay interest to be allowed the deduction.

rial participation, the full loss is deductible.

was held for over four but less than ve years; thus, 20% of the investment credit taken must be recaptured. Asset purchase price $15,000 or this expenditure.

a joint return? a. $290 b. $580 c. $1,240 d. $1,530 e. None of the above . e. The credit for excess social security only applies to an individu 10,000 x 40% = $4,000 earned income credit.

laxon deduct the bonus it paid to Susanne? Susanne is a calendar-year, cash method taxpayer. c. The company must deduct

nt must be added back to taxable income (loss)? a. $0 b. $2,000 c. $3,000 d. $6,000 56. a. $9,000 (7,000 + (10,000

taxpayers net regular tax liability exceeds $25,000 c. The taxpayers alternative minimum tax for the tax year or 25 percent of the amoun

Barney Brown, $450. In itemizing their deductions, the Browns should claim a deduction of taxes of: b. State sales taxes, gaso

rty used for low-income housing d. All of the above b

unt is taxed at 35 percent d. b.

erty on June 20, how much depreciation expense can Ellen claim on her current year return? b. The propertys tax basis is limi

$20,000, computed as follows: Taxable income $90,950 Plus: Adjustments to taxable income 29,000 Plus: Tax preferences 50,000 69,950 nt by 34% since she exceeds $15,000 of adjusted gross income. s income is 20%. ral Auto $3,000 (no dividends received during the year) b. Only the home mortgage interest is deductible.

mount $7,500 Less: 1/2 of adjusted gross income over $10,000 5,750 Balance available for credit $1,750 x 15% Credit rate Credit for the e

at are deductible without reference to whether they are incurred in an activity designed to produce income, such as c n 14 days and does not use it excessively for personal purposes, losses are allowed to be deducted from AGI. d. If a

corporation may deduct $2,000 plus ($51,000 / 180 months x 5 months) = $3,417.

09 or, by making an election, it may take the loss in 2008 since the casualty occurred in an area designated as a dis

t the deduction amounts from the percent limit deductions. The carryover would be $11,000. Contribution % Limit % Limit Amo

above a. Only $20,000 of the $40,000 passive loss may be deducted in 2009. portfolio income d. None of the above 35. c. The passive loss may offset the C corporations active (business) incom

and $350 for meals (7 at 100 x 50%). These expenses total to $3,110.

. They are classied as start-up costs.

r than the propertys fair market value. casualty, the amount of the loss is the lesser of adjusted basis or decline in fair market value.

ears, but only after it has been carried back for 3 years. d. The disallowed loss may be carried forward indenitely. d.

ated assets d. May be carried back one year and carried forward 20 years e. None of the above d. The general business credit carryover p

minus acquisition indebtedness) or (b) $100,000. The equity in the home is $150,000. The deductible home equity loan interes

eduction $5,700 $ 8,000 Personal exemption 3,650 ($48,500) Taxable income Compute John Colburns net operating

00 d. None of the above. . b. The amount of the loss is the adjusted basis because the securities are production of i

mount that they may claim as a medical deduction on a joint return? The Gables may claim $1,225 as their medical expense d expense that Doe Corporation, an accrual basis taxpayer, can deduct for the current year is: c. The interest deduction is: Incom

at-risk rules. d. Fred has a loss of $60,000 suspended under the passive loss rules. d. The at-risk rules are applied

$2,000 - $1,000 - $500) $500 Theft of boat (deducted in year when theft discovered) $0 Storm damage to lake house ($200,00

,000). The companys total work opportunity credit for the year is $2,250 ($750 + $1,500).

. Jim is a material participant with respect to Activities A, B, C and D. c. Jim is a material participant with respect to A

None of the above c. The $4,600 expenses incurred are not reduced since they are less than the $6,000 maximum allowed for two child s, so the state income taxes, as well as the personal property taxes, are deductible.

ar of $60,000 (before considering the casualty). Determine the amount of loss he can deduct on his tax return for th

reduced by 7.5% of the adjusted gross income. Total medical expenses $1,800 Less: 7.5% of AGI 1,050 Medical expense ded

basis adjustment

xes paid ($190). He is not eligible to deduct the state sales tax paid ($114) because it did not exceed the amount of state incom usted gross income because of the nonbusiness casualty loss. e: $190,000 / 39 = $4,872. ctible: Meals (25% x $2,000 x 50% deductible) Lodging (25% x $4,000) Total penalty is determined by subtracting the payments made from the smaller of 90% of the present years tax liability or the previous years t

re deductible but they must be reduced by 7.5% of the adjusted gross income. Total medical expenses $2,650 Less: 7.5% of A

red. Asset purchase price $15,000 x 10% Investment credit rate Investment credit taken $ 1,500 Investment credit taken $ 1,500 x 20% Re

ecurity only applies to an individual having wage income over $94,200. Since neither spouse had wages totaling more than $94,200 there

. c. The company must deduct the bonus in the same year that the employee includes it in income.

6. a. $9,000 (7,000 + (10,000 - 2,000)) = ($6,000). Therefore, nothing is added back.

year or 25 percent of the amount by which the taxpayers net regular tax liability exceeds $15,000 d. The taxpayers alternative minimum

es of: b. State sales taxes, gasoline taxes, and dog licenses are not deductible taxes. The real estate taxes paid for Mrs. Brown

. The propertys tax basis is limited to its $356,250 FMV at the time it was converted from personal to business-use property. Su

us: Tax preferences 50,000 69,950 Less: Exemption amount Net alternative minimum taxable income $100,000 Tax rate x 26% Tax at 26%

x 15% Credit rate Credit for the elderly $ 263 The credit is limited to the tax liability of $60 [($21,500 - $13,000 - $7,300 = $600) x 10%].

o produce income, such as certain taxes, remain fully deductible. 2009 CCH. All Rights Reserved. Chapter 7 606 CC be deducted from AGI. d. If an individual actively participates in the rental real estate activity, up to $25,000 of losses

an area designated as a disaster area by the President

ontribution % Limit % Limit Amount Amounts Deductions 50% $ 5,000 $5,000 $5,000 30% Public 12,000 9,000 9,000 20% 8,00

tions active (business) income but not its portfolio income.

arried forward indenitely. d. The disallowed loss may be carried forward until the property is sold, regardless of how

eneral business credit carryover period is back one year and forward 20 years.

uctible home equity loan interest is therefore $9,000 x ($100,000/$120,000) = $7,500.

John Colburns net operating loss for 2009. Johns net operating loss for 2009 is $41,850, computed as follows: Taxa

securities are production of income property.

225 as their medical expense deduction, computed as follows: Hospitalization insurance premiums $ 560 Hospital 1,700 Docto The interest deduction is: Income tax interest $400 Bank loan on machinery 700 Interest on 60-day note ($500 x 30/60 = $250)

The at-risk rules are applied before the passive activity rules.

amage to lake house ($200,000 - $150,000 - $20,000 -$500) $29,500 Total $30,000 $4,000 10% of AGI Net deduction $26,00

l participant with respect to Activities A, B and C. d. Losses from all of the activities can be used to offset Jims active

0 maximum allowed for two children. Also, there is no reduction for the lower income of the spouses since the earned income imputed t

educt on his tax return for the current year. a. $4,000 b. $24,000 c. $28,000.. d. $20,000 c. Amount of loss (adjuste

AGI 1,050 Medical expense deduction $750

ceed the amount of state income tax paid. The other taxes and the fine are not deductible expenses.

ax liability or the previous years tax liability. Present years tax liability Amount needed to be paid Less: Amount paid Amount underpayme

penses $2,650 Less: 7.5% of AGI 1,500 Medical expense deduction $1,150

ment credit taken $ 1,500 x 20% Recapture rate Investment credit recapture $ 300

totaling more than $94,200 there were no excess social security taxes paid.

e taxpayers alternative minimum tax for the tax year or 15 percent of the amount by which the taxpayers net regular tax liability exceeds

estate taxes paid for Mrs. Brown's mother are not deductible by the Browns since it is not a tax that they incurred.

nal to business-use property. Subtracting $12,500 for the land, the depreciable basis is $343,750. The house is residential real

100,000 Tax rate x 26% Tax at 26% for the year $ 26,000 6,000 Less: Regular tax for the year Alternative minimum tax $ 20,000

$13,000 - $7,300 = $600) x 10%].

Reserved. Chapter 7 606 CCH Federal TaxationComprehensive Topics d. Hobby expenses are generally deductib tivity, up to $25,000 of losses can be used to offset nonpassive income. . c. The losses are allowed to be deducted

c 12,000 9,000 9,000 20% 8,000 --0---0-

erty is sold, regardless of how long that time period may be.

0, computed as follows: Taxable income ($48,500) Plus: Nonbusiness deduction: Itemized deductions $8,000 Less:

ms $ 560 Hospital 1,700 Doctors 390 Prescription drugs and medicines 250 Prescription drugs for brother 200 Cosmetic surge day note ($500 x 30/60 = $250) 250 Deductible interest $1,350

% of AGI Net deduction $26,000

be used to offset Jims active income. c. Jim did not participate more than 100 hrs. and not more than another party

nce the earned income imputed to the student- husband would be $6,000 ($500 x 12), but this amount is not added into AGI. Thus, the $4

0 c. Amount of loss (adjusted basis for business property that is completely destroyed) $100,000 Less: Insurance pr

Amount paid Amount underpayment penalty applied to $7,000 x 90% $6,300 4,400 $1,900 Tax liability

rs net regular tax liability exceeds $15,000 e. None of the above a

hat they incurred.

0. The house is residential realty and is depreciated using the SL method over 27.5 years using the mid-month convention. Thu

minimum tax $ 20,000

enses are generally deductible only to the extent of income produced by the activity. The nancial status of the taxpay are allowed to be deducted for AGI

ed deductions $8,000 Less: Casualty loss

for brother 200 Cosmetic surgery (liposuction) 0 Total medical expenses $3,100 Less: 7.5% of AGI 1,875 Medical expense ded

d not more than another party

is not added into AGI. Thus, the $4,600 is multiplied by 35% to arrive at the dependent care credit to give $1,610.

$100,000 Less: Insurance proceeds received ( $80,000 x 90%) (72,000) Business loss $28,000

the mid-month convention. Thus, depreciation expense is equal to $343,750 27.5 x 6.5/12 = $6,771.

e nancial status of the taxpayer is considered in determining whether activities are engaged in for prot. The deduction

AGI 1,875 Medical expense deduction $1,225

ged in for prot. The deduction for the allowed hobby expenses is an itemized deduction subject to the 2 percent oor.

subject to the 2 percent oor.