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Exam 6: Deductions and Losses: in General

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Question 21

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If part of a shareholder/employee's salary is classified as unreasonable, determine the effect on the:

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Question 22

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Benita incurred a business expense on December 10, 2012, which she charged on her bank credit card.She paid the credit card statement which included the charge on January 5, 2013.Which of the following is correct?

A) If Benita is a cash method taxpayer, she cannot deduct the expense until 2013.
B) If Benita is an accrual method taxpayer, she can deduct the expense in 2012.
C) If Benita uses the accrual method, she can choose to deduct the expense in either 2012 or 2013.
D) Only b.and c.are correct.
E) a., b., and c.are correct.

F) A) and C)
G) None of the above

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Question 23

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Are there any circumstances under which lobbying expenditures are deductible?

Robin and Jeff own an unincorporated hardware store.They determine their salaries at the end of the year by using the amount required to reduce the net income of the hardware store to $0.Based on this policy, Robin and Jeff each receive a total salary of $125,000.This is paid as follows: $8,000 per month and $29,000 on December 31.Determine the amount of the salary deduction.

Janet is the CEO for Silver, Inc., a closely held corporation. Her total compensation for 2012 is $5 million. Of this amount, $2 million is a salary and $3 million is a bonus. The bonus was calculated as 5% of Silver's net income before the bonus and before taxes ($60 million X 5% = $3 million). The bonus provision has been in effect since Janet became CEO five years ago and is related to Silver's performance.It is approved annually by the entire board of directors (1 of the 5 directors is an outside director) of Silver. How much of Janet's compensation can Silver deduct for 2012?

Bridgett's son, Hubert, is $10,000 in arrears on his residential mortgage payments.Of the $10,000, $7,500 represents interest and $2,500 represents principal.

Discuss the application of the "one-year rule" on prepayments by a cash basis taxpayer.

For purposes of the § 267 loss disallowance provision, a taxpayer's aunt is a related party.

A vacation home at the beach which is rented for 170 days and used personally for 16 days is classified in the personal/rental use category.

Rex, a cash basis calendar year taxpayer, runs a bingo operation which is illegal under state law.During 2012, a bill designated H.R.9 is introduced into the state legislature which, if enacted, would legitimize bingo games.In 2012, Rex had the following expenses: Of these expenditures, Rex may deduct:

Cory incurred and paid the following expenses: Calculate the amount that Cory can deduct (before any percentage limitations) .

Briefly discuss the disallowance of deductions for capital expenditures.

Gladys owns a retail hardware store in Tangipahoa.She is considering opening a business in Hammond, a community located 25 miles away.She incurs expenses of $60,000 in 2012 in investigating the feasibility and desirability of doing so.What amount can Gladys deduct in 2012 if the business is:

For a vacation home to be classified in the primarily rental use category, what attributes must be present?

Vera is the CEO of Brunettes, a publicly held corporation.For the year, she receives a salary of $800,000, a bonus of $400,000, and contributions to her retirement plan of $45,000.The bonus was awarded at the December board meeting based on Vera's threat to accept a better paying job with a competitor.What amount may Brunettes deduct?

How can an individual's consultation with a lawyer be classified as a deduction for AGI in some cases and a deduction from AGI in other instances?

Which of the following is incorrect?

Kitty runs a brothel (illegal under state law) and has the following items of income and expense.What is the amount that she must include in taxable income from her operation?

If a taxpayer cannot satisfy the three-out-of-five year presumption test associated with hobby losses, then expenses from the activity cannot be deducted in excess of the gross income from the activity.

Why are there restrictions on the recognition of gains and losses resulting from transactions between related parties?