Question 1

On May 1,2017,Linda sells her rental property for $125,000.Her basis in the property at the beginning of the year is $75,000.As part of the sales contract,the buyer agrees to pay the real property taxes of $1,500 for the current year when they come due on December 31,2017.
I.Linda has a gain on the sale of the rental property of $50,000.
II.Linda can deduct $500 in real estate taxes.
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Accepted Answer

The answer of On May 1,2017,Linda sells her rental property...

Question 2

Drew incurs the following expenses in his grocery store business.Drew can deduct the following as business expenses in the current year
I.$3,750 for advertising on the web.
II.$2,000 of interest expense related to the purchase of a new delivery truck.
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Accepted Answer

Both statements are correct. Business expenses such as advertising and interest expense related to the purchase of assets like a delivery truck are deductible in the current year.

Question 3

During the current year,Hope Corporation paid a $3,250 premium for a life insurance policy on the life of the chief executive officer,Joel.Determine the deductibility of the $3,250.
I.Hope could deduct the premium as compensation if Joel's daughter is the stated beneficiary of the policy.
II.The premium is not deductible if Hope Corporation is the beneficiary.
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Accepted Answer

Life insurance premiums paid by a corporation on the life of an officer where the corporation is the beneficiary are not deductible. However, if the premiums are considered compensation (such as when the officer's family is the beneficiary), they may be deductible as a business expense.

Question 4

Which of the following taxes paid by Woodhaven Inc.can be deducted during 2017?
I.Special real estate tax assessment for upgrading the sewer.
II.State income taxes paid in 2017 when filing Woodhaven's 2016 corporate return tax return.
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Accepted Answer

State income taxes paid in 2017 for the 2016 corporate return are deductible in 2017. Special real estate tax assessments for improvements like sewer upgrades are capitalized, not deducted.

Question 5

Melissa is a corporate sales representative for Computer City.Melissa receives a monthly travel allowance from Computer City to cover her travel costs (transportation,food,lodging,entertainment,etc. ).If Melissa is required to account to Computer City for the use of the travel advance and to return any excess travel advance
I.Melissa will not have to show any aspect of the travel reimbursement or expenses incurred if she spends all of the reimbursement on valid travel expenses.
II.Melissa will have gross income to the extent her travel allowance used for travel expenses reimbursed.
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Accepted Answer

If Melissa accounts for her expenses and returns any excess, she does not have to report the reimbursement as income, provided all expenses are valid.

Question 6

Deductions for adjusted gross income include
I.Transportation of household goods for a qualified move.
II.Unreimbursed employee business expenses for a nonaccountable plan.
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Accepted Answer

Transportation of household goods for a qualified move can be a deduction for adjusted gross income, while unreimbursed employee business expenses for a nonaccountable plan are not.

Question 7

Which of the following taxes paid by Trevor Products,Inc.can be deducted during 2017?
I.Real estate taxes.
II.Sales tax on purchase of new equipment.
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Accepted Answer

Real estate taxes are deductible for a business on its tax return. However, sales tax on the purchase of new equipment is generally treated as a capital expense and must be depreciated over time, rather than deducted all at once in the year of purchase.

Question 8

Gary,a sole proprietor,incurs the following expenses in his record store business.Gary can deduct the following as business expenses in the current year
I.$3,000 in legal fees to acquire a competing record store.
II.$500 to the local police chief to not write parking tickets to his customers whose time ran-out on parking meters in front of his store.
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Accepted Answer

The answer of Gary,a sole proprietor,incurs the following expenses in...

Question 9

Raisor Corporation pays an annual premium of $12,000 on the whole life insurance policy on the life of Wilson,the founder and CEO of the corporation.The corporation is the beneficiary of the multi-million dollar policy.
I.The corporation can deduct the premiums.
II.If Wilson dies,the corporation will receive the policy proceeds tax-free.
III.If Wilson's wife is the beneficiary instead of the corporation,the amount of the premiums paid is a tax-free fringe benefit for Wilson.
IV.If Wilson's wife is the beneficiary instead of the corporation,the corporation can deduct the amount of premiums paid as compensation.
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Accepted Answer

Explanation:I. Incorrect because premiums paid on a life insurance policy where the payer is the beneficiary are not deductible as a business expense.II. Correct because life insurance proceeds received by the beneficiary upon the death of the insured are generally tax-free.III. Incorrect because the premiums paid on a life insurance policy for the benefit of an employee's spouse are not considered a tax-free fringe benefit for the employee.IV. Correct because if the corporation designates the premiums as compensation to Wilson (and thus indirectly to his wife as the beneficiary), and includes them in Wilson's taxable income, then the corporation can deduct the premiums as a compensation expense.

Question 10

Milroy Company manufactures steering wheels.Its taxable income in 2017 before the Qualifying Production Activities Deduction (QPAD)is $2,000,000 and its qualified production activities income is $2,500,000.Milroy's qualifying W-2 wages paid are $400,000.How much may Milroy take as it QPAD deduction in 2017?

Accepted Answer

The QPAD deduction is calculated as the lesser of 9% of qualified production activities income or 50% of the W-2 wages paid to employees engaged in qualified production activities. In this case, 9% of $2,500,000 is $225,000, but since the W-2 wages paid are only $400,000, Milroy can only take 50% of that amount, which is $200,000. Thus, the QPAD deduction is $180,000, which is the smaller of the two calculated amounts.

Question 11

Which of the following expenses is not deductible for AGI?

Accepted Answer

Interest expense related to an investment is typically deductible as an itemized deduction rather than for AGI.

Question 12

Which of the following is true regarding the Qualified Production Activities Deduction (QPAD)?
I.The QPAD deduction is limited to 9% of the lessor of taxable income before the QPAD deduction or qualified production activities income
II.The QPAD deduction cannot exceed 50% of W-2 wages allocated to QPAD activities.
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Accepted Answer

Both statements are correct. The QPAD deduction is limited to 9% of the lessor of taxable income before the QPAD deduction or qualified production activities income. Additionally, the deduction cannot exceed 50% of W-2 wages allocated to QPAD activities.

Question 13

Which of the following taxes paid by the Fowlers Company can be deducted during 2017?
I.State sales tax on utilities.
II.Federal income tax paid in 2017 when filing Fowlers' 2016 corporate tax return.
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Accepted Answer

State sales tax on utilities is generally deductible as a business expense, whereas federal income tax is not deductible.

Question 14

Winslow owns a residential rental property with an adjusted basis of $200,000 at the beginning of the current year.The county treasurer sends Winslow a tax bill payable by December 31.The bill is for real estate property taxes of $1,200 for the current calendar year and for a $6,000 special assessment for a new sewer line.On November 1,Winslow sells the property to Edwin for $225,000.As part of the sale contract,Winslow will pay the special assessment at closing and Edwin agrees to pay the realty taxes on the due date.What is Winslow's gain on the sale?

Accepted Answer

Winslow's adjusted basis is $200,000. He sells the property for $225,000, so his gross profit is $25,000.

However, he also has to pay the special assessment of $6,000, which reduces his profit to $19,000.

The real estate property taxes are paid by Edwin, so they do not affect Winslow's gain on the sale.

Therefore, Winslow's gain on the sale is $19,000.

Question 15

Which of the following taxes paid by the Sill Engineering Company can be deducted during 2016?
I.Federal taxes withheld from employees.
II.Sill Engineering's share of employee's Social Security taxes.
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Accepted Answer

Sill Engineering's share of employee's Social Security taxes is deductible as a business expense. Federal taxes withheld from employees are not deductible by the employer as they are considered part of the employee's wages.

Question 16

Sidney owns a residential rental property with an adjusted basis of $200,000 at the beginning of the current year.The county treasurer sends Sidney a tax bill payable by December 31.The bill is for real estate property taxes of $1,200 for the current calendar year and for a $6,000 special assessment for a new sewer line.On November 1,Sidney sells the property to Donald for $225,000.As part of the sale contract,Sidney will pay the real estate taxes of $1,200 at closing and Donald agrees to pay the special assessment of $6,000 on the due date.What is Sidney's gain on the sale?

Accepted Answer

The answer of Sidney owns a residential rental property with...

Question 17

Deductions for adjusted gross income include
I.Contribution to a Roth IRA.
II.Contribution to conventional IRA
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Accepted Answer

Contributions to a conventional IRA may be deductible, depending on the taxpayer's income, filing status, and whether they or their spouse are covered by a retirement plan at work. Contributions to a Roth IRA are not deductible.

Question 18

Walter recently received a notice of an income tax deficiency of $21,000 from the IRS.He hires an attorney to handle his IRS problems.Walter's legal expenses are $4,000.Can Walter deduct the legal expenses?
I.He can deduct the full amount if the tax deficiency relates to his business.
II.He can deduct the full amount if the tax deficiency relates to income other than business income.
III.He can deduct the legal fees if the income tax deficiency is personal in nature.
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Accepted Answer

The answer of Walter recently received a notice of an...

Question 19

Which of the following legal expenses paid by the Sutton Corporation can be deducted in the current year?
I.Legal fees to initiate a lawsuit against a competitor who is using its patent.
II.Legal fees to settle a lawsuit filed by a delivery person who slipped on the ice delivering a package to Sutton's office.
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Accepted Answer

Both legal expenses are deductible. Legal fees to protect or defend a business's legal rights, such as a patent, are deductible. Similarly, legal fees related to business operations, like settling a lawsuit from a delivery person's injury on the premises, are also deductible.

Question 20

Which of the following legal expenses paid by the Kerr Corporation can be deducted in the current year?
I.Legal fees to resolve a tax dispute with the Internal Revenue Service.
II.Legal fees to purchase land that will be used to expand its warehouse.
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Accepted Answer

Only statement I is correct. Legal fees to resolve a tax dispute with the Internal Revenue Service can be deducted in the current year as they are considered necessary expenses incurred to produce or collect taxable income. Legal fees to purchase land that will be used to expand the warehouse are capital expenditures and cannot be deducted in the current year.

Quiz 6: Business Expenses

Drew incurs the following expenses in his grocery store business.Drew can deduct the following as business expenses in the current year I.$3,750 for advertising on the web. II.$2,000 of interest expense related to the purchase of a new delivery truck. ​

Which of the following taxes paid by Woodhaven Inc.can be deducted during 2017? I.Special real estate tax assessment for upgrading the sewer. II.State income taxes paid in 2017 when filing Woodhaven's 2016 corporate return tax return. ​

Deductions for adjusted gross income include I.Transportation of household goods for a qualified move. II.Unreimbursed employee business expenses for a nonaccountable plan. ​

Which of the following taxes paid by Trevor Products,Inc.can be deducted during 2017? I.Real estate taxes. II.Sales tax on purchase of new equipment. ​

Which of the following expenses is not deductible for AGI?

Which of the following taxes paid by the Fowlers Company can be deducted during 2017? I.State sales tax on utilities. II.Federal income tax paid in 2017 when filing Fowlers' 2016 corporate tax return. ​

Which of the following taxes paid by the Sill Engineering Company can be deducted during 2016? I.Federal taxes withheld from employees. II.Sill Engineering's share of employee's Social Security taxes. ​

Deductions for adjusted gross income include I.Contribution to a Roth IRA. II.Contribution to conventional IRA ​

Which of the following legal expenses paid by the Kerr Corporation can be deducted in the current year? I.Legal fees to resolve a tax dispute with the Internal Revenue Service. II.Legal fees to purchase land that will be used to expand its warehouse. ​

Drew incurs the following expenses in his grocery store business.Drew can deduct the following as business expenses in the current year I.$3,750 for advertising on the web. II.$2,000 of interest expense related to the purchase of a new delivery truck.

Which of the following taxes paid by Woodhaven Inc.can be deducted during 2017? I.Special real estate tax assessment for upgrading the sewer. II.State income taxes paid in 2017 when filing Woodhaven's 2016 corporate return tax return.

Deductions for adjusted gross income include I.Transportation of household goods for a qualified move. II.Unreimbursed employee business expenses for a nonaccountable plan.

Which of the following taxes paid by Trevor Products,Inc.can be deducted during 2017? I.Real estate taxes. II.Sales tax on purchase of new equipment.

Which of the following taxes paid by the Fowlers Company can be deducted during 2017? I.State sales tax on utilities. II.Federal income tax paid in 2017 when filing Fowlers' 2016 corporate tax return.

Which of the following taxes paid by the Sill Engineering Company can be deducted during 2016? I.Federal taxes withheld from employees. II.Sill Engineering's share of employee's Social Security taxes.

Deductions for adjusted gross income include I.Contribution to a Roth IRA. II.Contribution to conventional IRA

Which of the following legal expenses paid by the Kerr Corporation can be deducted in the current year? I.Legal fees to resolve a tax dispute with the Internal Revenue Service. II.Legal fees to purchase land that will be used to expand its warehouse.