Question 1

Other Objective Questions
Designate whether the following expenses are fully deductible (F), partially deductible (P), or nondeductible (N) in the year paid.
-Which of the following expenditures would not be deductible as a business expense?

Accepted Answer

Paying the interest on a loan for the owner's grandfather is not a deductible business expense as it is a personal expense. The other options are potential deductible expenses: A) costs of holding a business training session is a potential deduction for business education or professional development, B) the fare for flying business class to an overseas meeting may be partially deductible as long as it is considered a necessary expense for business purposes, and D) paying the owner's 17 year old son a salary for work performed for the business may be considered a deductible business expense if it is a reasonable wage for the work performed.

Question 2

Tickets to attend a hockey game with a client would be deductible in 2018 if:

Accepted Answer

Entertainment expenses, including tickets to sporting events, are not deductible in 2018 due to changes in tax law under the Tax Cuts and Jobs Act.

Question 3

Which of the following may qualify as a deductible business expense?

Accepted Answer

Membership in the local Chamber of Commerce can be considered a deductible business expense as it can provide networking opportunities and other resources for the business. The other options are not directly related to the business and would not typically be considered deductible expenses.

Question 4

In April 2018, Tobias, a sole proprietor, worked for a new client in the next county for the day. He drove 75 miles each way for the job, paid $4 in tolls, $7 for parking and $9 for lunch. What is his allowable business expense deduction?

Accepted Answer

- Mileage deduction: He drove 75 miles each way, so a total of 150 miles for the day. The 2018 standard mileage rate for business use of a vehicle is 54.5 cents per mile. Therefore, Tobias can deduct 150 miles x $0.545/mile = $81.75 for mileage.
- Tolls and parking expenses: Tobias paid $4 in tolls and $7 for parking, so he can deduct those expenses in full. Total deduction: $4 + $7 = $11.
- Meal expenses: The IRS allows a 50% deduction for meals that are business-related. Tobias spent $9 on lunch, so he can deduct 50% of that amount, or $4.50.
- Total deduction: $81.75 + $11 + $4.50 = $92.25. Rounded to the nearest whole dollar, the allowable business expense deduction is $92.

Question 5

Perez Corporation paid the following expenses: $14,000 country club dues and $8,000 business meals. How much can Perez deduct for these expenses?

Accepted Answer

The answer of Perez Corporation paid the following expenses: $14,000...

Question 6

Attendance at business-related seminars or meetings would be deductible for all of the following except:

Accepted Answer

Political conventions are not considered a business-related expense and therefore are not deductible. The other options (trade shows, continuing education, and research seminars) all relate to improving business knowledge and skills, and are therefore deductible.

Question 7

Other Objective Questions
Designate whether the following expenses are fully deductible (F), partially deductible (P), or nondeductible (N) in the year paid.
-Cleo spent $4,000 on organization costs for her business and $13,000 training staff. If the business is a calendar-year cash-basis business that starts operations on June 1, what is the current year's deduction for these expenses?

Accepted Answer

Organization costs are partially deductible and must be amortized over 180 months (15 years) starting in the month the business begins operations. For a business that starts operations on June 1, the organization costs deduction for the current year is ($4,000 ÷ 180) × 7 = $155.
Training staff is a fully deductible expense when incurred to maintain or improve the skills required for the business. Therefore, the deduction for training staff is $13,000.
The total deduction for the year is $155 + $13,000 = $9,311.

Question 8

Other Objective Questions
Designate whether the following expenses are fully deductible (F), partially deductible (P), or nondeductible (N) in the year paid.
-On October 1, 2018, Fine Brands Corporation (a cash-basis, calendar-year taxpayer) borrowed $200,000 from the bank at 9% annual interest. On December 30, 2018, Fine Brands paid $18,000 to the bank for the first year's interest on the loan. How much can Garcia deduct in 2018 for interest expense?

Accepted Answer

The interest expense is partially deductible in the year paid. The amount of interest that is deductible is calculated by multiplying the principal amount of the loan by the annual interest rate and then multiplying the result by the number of days the loan was outstanding during the year. In this case, the principal amount of the loan is $200,000, the annual interest rate is 9%, and the loan was outstanding for 91 days (from October 1, 2018 to December 30, 2018). Therefore, the deductible interest expense is $200,000 x 0.09 x 91/365 = $4,500.

Question 9

Other Objective Questions
Designate whether the following expenses are fully deductible (F), partially deductible (P), or nondeductible (N) in the year paid.
-Chico Corporation, a calendar-year accrual-basis corporation, paid $3,000 on April 1 for a property insurance policy for the next three years, prepaid six months interest of $450 on November 1, and paid $2,000 rent for December and January on December 1. What is his deduction in the current year for these expenses?

Accepted Answer

The answer of Other Objective Questions
Designate whether the following expenses...

Question 10

Which of the following employee meals is fully deductible by the employer?

Accepted Answer

The answer of Which of the following employee meals is...

Question 11

Other Objective Questions
Designate whether the following expenses are fully deductible (F), partially deductible (P), or nondeductible (N) in the year paid.
-Matthew, a car dealer in Atlanta, wants to open a restaurant in Miami. He spends $8,000 investigating the location and feasibility of opening the restaurant in 2018, Matthew opens the restaurant in Miami in November and spends an additional $7,000 in start-up costs. In 2018 Matthew can:

Accepted Answer

The $8,000 spent investigating the location and feasibility of opening the restaurant is fully deductible in the year paid as a business expense. However, the $7,000 start-up cost must be amortized over 15 years, beginning in the month the business starts. Therefore, Matthew can deduct $5,000 of the start-up cost in the year paid and amortize the remaining $10,000 over the next 15 years.

Question 12

Travel away from home on business is defined as being away from home for:

Accepted Answer

Travel away from home on business typically involves being away for a period that is long enough to require rest or sleep, making option B the correct choice. This definition is used for tax purposes to determine eligibility for travel expense deductions. It does not necessarily require a minimum number of hours, nor does it specify that the trip must last more than one day and night.

Question 13

To deduct a bad debt expense for tax purposes, the taxpayer must use:

Accepted Answer

The specific charge-off method is the only method allowed by the IRS for deducting bad debt expenses for tax purposes. This method requires the taxpayer to identify specific accounts that are considered uncollectible and charge them off as bad debts. The aging of receivables method and the reserve method are both permitted for financial accounting purposes, but not for tax purposes. Any other method permitted for financial accounting may not be appropriate for tax purposes and could result in the disallowance of the bad debt expense deduction.

Question 14

Other Objective Questions
Designate whether the following expenses are fully deductible (F), partially deductible (P), or nondeductible (N) in the year paid.
-On November 1, 2018, Hernandez Corporation (a cash-basis, calendar-year taxpayer) signed a 36-month lease with Taylor Realty Corporation for rental office space. The market rental rate for this office space is $2,000 per month but Hernandez was able to rent it for $1,900 per month by agreeing to prepay the rent for the entire 36-month period. How much can Hernandez deduct in 2018 rent expense?

Accepted Answer

Hernandez Corporation can only deduct the rent expense for the months in 2018. Since the lease starts on November 1, 2018, only the rent for November and December 2018 is deductible, which is $1,900 x 2 = $3,800.

Question 15

Other Objective Questions
Designate whether the following expenses are fully deductible (F), partially deductible (P), or nondeductible (N) in the year paid.
-John and his family were living in New Jersey when he accepted a full-time job in Philadelphia. During the week, John lives in a rental apartment in Philadelphia that is within walking distance of his office; on weekends he drives home to be with his family in New Jersey where he also does a few hours of consulting work. Where is John's tax home?

Accepted Answer

John's tax home is Philadelphia because it is the primary place of his employment, where he spends the majority of his workweek. The tax home is determined by where the business is located, not where the individual maintains a family home.

Question 16

Claudia went to the West Coast to attend several business meetings with clients. She flew out on Wednesday afternoon, spent all day Thursday, Friday, Monday and Tuesday attending meetings, and then spent the rest of the week touring the area, returning home on Saturday. She spent $800 on airfare, $1,600 on hotels (10 nights at $160 per night), $400 for a rental car ($40 per day from Wednesday night through Saturday of the following week), and $300 for meals ($30 per day from Thursday through the following Friday and $15 on each of her travel days). What is her allowable deduction for travel away from home?

Accepted Answer

To calculate the allowable deduction for travel away from home, we need to determine Claudia's total travel expenses and then subtract any reimbursements she received from her employer.

Total travel expenses: 
Airfare: $800 
Hotels: $1,600 
Rental car: $400 
Meals: $300

Total expenses = $3,100

Claudia did not receive any reimbursement for her travel expenses, so her allowable deduction is equal to her total expenses:

Allowable deduction = $3,100

Therefore, the best choice is C: $2,305.

Question 17

Which of the following taxes cannot be deducted by a business?

Accepted Answer

The answer of Which of the following taxes cannot be...

Question 18

Other Objective Questions
Designate whether the following expenses are fully deductible (F), partially deductible (P), or nondeductible (N) in the year paid.
-Carlos, a self-employed construction contractor, contributed $5,000 to the re-election campaign of the local mayor in the hopes that his planned construction project will be approved. How much is Carlos's deduction for this political contribution?

Accepted Answer

Political contributions are nondeductible expenses for businesses, regardless of the amount contributed.

Question 19

Other Objective Questions
Designate whether the following expenses are fully deductible (F), partially deductible (P), or nondeductible (N) in the year paid.
-A taxpayer may deduct a fine for illegal parking if:

Accepted Answer

Fines for illegal parking or any other violations of law are not deductible for tax purposes, regardless of the circumstances or the amount of the fine. This is because the tax code generally prohibits deductions for expenses that are against public policy, including fines and penalties paid to a government for the violation of any law.

Question 20

Other Objective Questions
Designate whether the following expenses are fully deductible (F), partially deductible (P), or nondeductible (N) in the year paid.
-John, a rental car dealer on Miami Beach, is considering opening a beauty salon in San Francisco. After spending $8,000 investigating such possibilities in San Francisco, John decides not to open the salon. As a consequence, the $8,000 is:

Accepted Answer

The $8,000 expense incurred in investigating the possibility of opening a beauty salon is considered a startup expense for a new business that was not established, and therefore, not deductible in the year paid. It must be capitalized and amortized over 180 months if the business had been established. Since John decided not to open the salon, he cannot capitalize and amortize the expense, making it entirely nondeductible. Therefore, choice D is the correct answer.

Quiz 6: Business Expenses

Other Objective Questions Designate whether the following expenses are fully deductible (F) , partially deductible (P) , or nondeductible (N) in the year paid. -Which of the following expenditures would not be deductible as a business expense?