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Exam 5: Business Deductions

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Question 1

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Briefly discuss the two tests that an accrual basis taxpayer must apply before an expense can be deducted.

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The two tests that an accrual basis taxp...

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Question 2

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Benita incurred a business expense on December 10,2013,which she charged on her bank credit card.She paid the credit card statement which included the charge on January 5,2014.Which of the following is correct?

A) If Benita is a cash method taxpayer,she cannot deduct the expense until 2014.
B) If Benita is an accrual method taxpayer,she can deduct the expense in 2013.
C) If Benita uses the accrual method,she can choose to deduct the expense in either 2013 or 2014.
D) Only b.and c.are correct.
E) a.,b.,and c.are correct.

F) A) and B)
G) D) and E)

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Question 3

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Sandra sold 500 shares of Wren Corporation to Bob,her brother,for its fair market value.She had paid $26,000 for the stock.Calculate Sandra's and Bob's gain or loss under the following circumstances:

George purchases used seven-year class property at a cost of $200,000 on April 20,2013.Determine George's cost recovery deduction for 2013 for alternative minimum tax purposes,assuming George does not elect § 179.

On June 1,2013,James places in service a new automobile that cost $40,000.The car is used 60% for business and 40% for personal use.(Assume this percentage is maintained for the life of the car.) James does take additional first-year depreciation.Determine the cost recovery deduction for 2013.

On January 2,2013,Fran acquires a business from Chuck.Among the assets purchased are the following intangibles: patent with a 7-year remaining life,a covenant not to compete for 10 years,and goodwill. Of the purchase price,$140,000 was paid for the patent and $60,000 for the covenant.The amount of the excess of the purchase price over the identifiable assets was $100,000.What is the amount of the amortization deduction for 2013?

Crow Corporation,a C corporation,donated scientific property (basis of $30,000,fair market value of $50,000)to State University,a qualified charitable organization,to be used in research.Crow had held the property for four months as inventory.Crow Corporation may deduct $50,000 for the charitable contribution (ignoring the taxable income limitation).

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

Tommy,an automobile mechanic employed by an auto dealership,is considering opening a fast food franchise.If Tommy decides not to acquire the fast food franchise,any investigation expenses are:

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

Bobby operates a drug trafficking business.Because he has an accounting background,he keeps detailed financial records.What expenses can Bobby deduct on his Federal income tax return?

Cora purchased a hotel building on May 17,2013,for $3,000,000.Determine the cost recovery deduction for 2014.

Andrew,who operates a laundry business,incurred the following expenses during the year. What amount can Andrew deduct for these expenses?

Hazel purchased a new business asset (five-year asset) on September 30,2013,at a cost of $100,000.On October 4,2013,Hazel placed the asset in service.This was the only asset Hazel placed in service in 2013.The only election with respect to the asset was not to take § 179.On August 20,2014,Hazel sold the asset.Determine the cost recovery for 2014 for the asset.

Property which is classified as personalty may be depreciated.

On May 2,2013,Karen placed in service a new sports utility vehicle that cost $60,000 and has a gross vehicle weight of 6,300 lbs.The vehicle is used 60% for business and 40% for personal use.Determine the cost recovery for 2013.Karen wants to maximize her deductions.

Graham,a CPA,has submitted a proposal to do the annual audit for a municipality.Owen,the city treasurer,tells Graham that for a $1,000 fee,he will use his influence to have the audit awarded to Graham.What factors are relevant in determining if Graham can deduct the $1,000 payment assuming he pays the fee to Owen?

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

All personal property placed in service in 2013 and used in a trade or business qualifies for additional first-year depreciation.

Research and experimental expenditures do not include the cost of consumer surveys.