Question 1

Kayla reported the following amounts in her 2018 tax return:  Kayla has generated an NOL of

Accepted Answer

The answer of Kayla reported the following amounts in her...

Question 2

Frank loaned Emma $5,000 in 2016 with the agreement that the loan would be repaid in three years. In 2017, Emma filed for bankruptcy and, based on available information from the bankruptcy court, it was estimated that Frank could expect to receive $.65 on the dollar. In 2018, final settlement was made and Frank received $600
a. Assuming the loan is a business bad debt, what is the amount of and the nature of Frank's deduction in 2017
b. Assuming the loan is a business bad debt, what is the amount of and the nature of Frank's deduction in 2018
c. Assuming instead that the loan is a nonbusiness bad debt, what is the amount of and the nature of Frank's de in 2017 and 2018?

Accepted Answer

The answer of Frank loaned Emma $5,000 in 2016 with...

Question 3

Last year, Abby loaned her friend, Pat, $10,000. Although Pat had signed a note payable that contained interest payments and a maturity date, the loan had not been repaid this year when Pat died insolvent. For this year, assuming that the loan was bona fide, Abby should account for nonpayment of the loan as a(n)

Accepted Answer

The answer of Last year, Abby loaned her friend, Pat,...

Question 4

A taxpayer incurs a net operating loss in the current year. With respect to the application of the NOL,

Accepted Answer

Under the Tax Cuts and Jobs Act, net operating losses (NOLs) arising in tax years ending after December 31, 2017, can be carried forward indefinitely until they are fully utilized, but they cannot be carried back.

Question 5

In 2017, Grace loaned her friend Paula $12,000 to invest in various stocks. Paula signed a note to repay the principal with interest. Unfortunately the market for that industry sector plunged, and Paula incurred large losses. In 2018, Paula declared personal bankruptcy and Grace was unable to collect any of her loan. Grace had no other gains or losses last year or this year. The result is

Accepted Answer

A nonbusiness bad debt is treated as a short-term capital loss, and only $3,000 can be deducted per year, with the remainder carried over to subsequent years.

Question 6

In October 2018, Jonathon Remodeling Co., an accrual- method taxpayer, remodels and renovates an office building for Dale and bills him $30,000. Dale signs a note for the debt. Dale keeps delaying payment and files bankruptcy in 2019. Creditors are informed that no assets are available for payment. Jonathon Remodeling Co. will report

Accepted Answer

As an accrual-method taxpayer, Jonathon Remodeling Co. must report the $30,000 as income in 2018 when the service is performed and billed. In 2019, when it becomes clear that the debt is uncollectible due to bankruptcy, the company can take a bad debt deduction for the $30,000.

Question 7

A taxpayer has low AGI this year, but unusually high itemized deductions. The one itemized deduction that is allowed to increase the NOL is

Accepted Answer

Federal disaster casualty loss on personal-use assets is the only itemized deduction that can increase a Net Operating Loss (NOL).

Question 8

An individual taxpayer has negative taxable income for the year. In calculating the net operating loss created, which of the following expenses or losses will be added back to the negative taxable income?

Accepted Answer

Nonbusiness deductions in excess of nonbusiness income and capital losses are added back to negative taxable income when calculating the net operating loss.

Question 9

What are some factors which indicate that a debt may be worthless?

Accepted Answer

The answer of What are some factors which indicate that...

Question 10

Martha, an accrual- method taxpayer, has an accounting practice. In 2017, she performs tax analyses for Arnold and sends him an invoice for $10,000. In 2018, Martha sells her practice and all accounts to David. Arnold's debt becomes worthless that year after David has purchased the practice. The result is

Accepted Answer

David, who purchased the practice and the accounts, can deduct the bad debt as a business bad debt in 2018 since the debt became worthless after he acquired it.

Question 11

A single taxpayer earns substantial income from salary, interest, dividends and capital gains. The taxpayer has a
$300,000 passive loss carryover from an investment in a limited partnership which he has now sold. The taxpayer will be able to deduct the full $300,000 passive loss carryover.

Accepted Answer

The answer of A single taxpayer earns substantial income from...

Question 12

If a loan has been made to a related party, what are some considerations for determining whether the loan is a bona fide debt or is, in fact, merely a gift?

Accepted Answer

The answer of If a loan has been made to...

Question 13

A taxpayer's home in California is destroyed by wildfires which have been declared a federal disaster. The home's destruction results in a large casualty loss deduction exceeding the taxpayer's income. The taxpayer will be allowed to carry forward a net operating loss due to this personal loss.

Accepted Answer

According to IRS Publication 547, if a casualty loss exceeds the taxpayer's income, the excess can be carried forward as a net operating loss for up to 20 years. This applies to personal as well as business losses.

Question 14

Javier incurred a $40,000 net operating loss in 2018. In 2019, he earned $35,000 of taxable income. Javier will be able to take an NOL deduction in 2019 of

Accepted Answer

The answer of Javier incurred a $40,000 net operating loss...

Question 15

Distinguish between the accrual- method taxpayer and the cash- method taxpayer with regard to basis in a receivable.

Accepted Answer

The answer of Distinguish between the accrual- method taxpayer and...

Question 16

Vera has a key supplier for her business who was facing cash flow problems which would impair Vera's ability to get shipments of key components for her production. Vera made a $10,000 loan to the supplier. Unfortunately the supplier filed for bankruptcy and has gone out of business without repaying Vera. Vera will be able to recognize a loss of

Accepted Answer

Vera can recognize a loss of $10,000 because the supplier went bankrupt and is unable to repay the loan, making the entire amount uncollectible.

Question 17

Which of the following expenses or losses could create a net operating loss for an individual taxpayer?

Accepted Answer

The answer of Which of the following expenses or losses...

Question 18

Harley, a single individual, provided you with the following information for this year:
Income:  Deductions:  What is the amount of Harley's net operating loss for this year?

Accepted Answer

The answer of Harley, a single individual, provided you with...

Question 19

A net operating loss (NOL) occurs when taxable income for any year is negative because itemized deductions exceed business income.

Accepted Answer

A net operating loss (NOL) occurs when business expenses and deductions exceed business income, not itemized deductions exceeding business income.

Question 20

A net operating loss can be carried back three years or carried forward five years.

Accepted Answer

The answer of A net operating loss can be carried...

Quiz 16: Tax Deductions and Travel Expenses for Employees and Self-Employed Individuals

Kayla reported the following amounts in her 2018 tax return: Kayla has generated an NOL of