Question 1

In order for a taxpayer to reduce taxable income with a deduction,the tax law must allow it,and it must meet all statutory requirements.

Accepted Answer

This statement is true. In order for a deduction to be valid for reducing taxable income, it must be allowed by the tax law and meet all the necessary requirements outlined in the statutory rules.

Question 2

In order to take a business deduction,the taxpayer engaged in a business must be able to establish a business purpose for each expenditure.

Accepted Answer

This is known as the "business purpose doctrine" and is a requirement for deducting business expenses on tax returns. The expenditure must be directly related to the business activity and a necessary expense in order to be deductible.

Question 3

Match each statement with the correct term below.
-Hobby expense
A)Automobile used 75% for business.
B)Investment expenses on municipal bonds.
C)Cost of investigating a new trade or business that the taxpayer enters.
D)Can be separated into two classifications.
E)Safety-deposit box for taxable investments.
F)Expenditure to influence legislation.
G)Cost of a new roof for office building.
H)Relates to an income producing activity mainly carried on for recreation or personal enjoyment.
I)Deductibility depends on income and amount of personal and rental use.
J)Deductibility depends on whether the area is used exclusively for trade or business activities.

Accepted Answer

Hobby expenses are related to activities mainly carried on for recreation or personal enjoyment, not conducted for profit, which matches the description in H.

Question 4

Match each statement with the correct term below.
-Capital expenditure
A)Automobile used 75% for business.
B)Investment expenses on municipal bonds.
C)Cost of investigating a new trade or business that the taxpayer enters.
D)Can be separated into two classifications.
E)Safety-deposit box for taxable investments.
F)Expenditure to influence legislation.
G)Cost of a new roof for office building.
H)Relates to an income producing activity mainly carried on for recreation or personal enjoyment.
I)Deductibility depends on income and amount of personal and rental use.
J)Deductibility depends on whether the area is used exclusively for trade or business activities.

Accepted Answer

The answer of Match each statement with the correct term...

Question 5

Pamela owns the building where her plumbing supply business is located.This year she put on vinyl siding to replace the weathered wood siding on her building.The cost of the new siding can be expensed in the current year.

Accepted Answer

The cost of the new vinyl siding is considered a capital improvement to the building and must be depreciated over several years, rather than expensed in the current year.

Question 6

Evelyn can avoid the 2 percent limitation on her investment expenses by having her partnership pay them.

Accepted Answer

The answer of Evelyn can avoid the 2 percent limitation...

Question 7

Match each statement with the correct term below.
-Vacation home expense
A)Automobile used 75% for business.
B)Investment expenses on municipal bonds.
C)Cost of investigating a new trade or business that the taxpayer enters.
D)Can be separated into two classifications.
E)Safety-deposit box for taxable investments.
F)Expenditure to influence legislation.
G)Cost of a new roof for office building.
H)Relates to an income producing activity mainly carried on for recreation or personal enjoyment.
I)Deductibility depends on income and amount of personal and rental use.
J)Deductibility depends on whether the area is used exclusively for trade or business activities.

Accepted Answer

The answer of Match each statement with the correct term...

Question 8

Match each statement with the correct term below.
-Amortizable or deductible expense
A)Automobile used 75% for business.
B)Investment expenses on municipal bonds.
C)Cost of investigating a new trade or business that the taxpayer enters.
D)Can be separated into two classifications.
E)Safety-deposit box for taxable investments.
F)Expenditure to influence legislation.
G)Cost of a new roof for office building.
H)Relates to an income producing activity mainly carried on for recreation or personal enjoyment.
I)Deductibility depends on income and amount of personal and rental use.
J)Deductibility depends on whether the area is used exclusively for trade or business activities.

Accepted Answer

The answer of Match each statement with the correct term...

Question 9

Match each statement with the correct term below.
-Profit motivated business expenses
A)Automobile used 75% for business.
B)Investment expenses on municipal bonds.
C)Cost of investigating a new trade or business that the taxpayer enters.
D)Can be separated into two classifications.
E)Safety-deposit box for taxable investments.
F)Expenditure to influence legislation.
G)Cost of a new roof for office building.
H)Relates to an income producing activity mainly carried on for recreation or personal enjoyment.
I)Deductibility depends on income and amount of personal and rental use.
J)Deductibility depends on whether the area is used exclusively for trade or business activities.

Accepted Answer

The answer of Match each statement with the correct term...

Question 10

Match each statement with the correct term below.
-Home office deduction
A)Automobile used 75% for business.
B)Investment expenses on municipal bonds.
C)Cost of investigating a new trade or business that the taxpayer enters.
D)Can be separated into two classifications.
E)Safety-deposit box for taxable investments.
F)Expenditure to influence legislation.
G)Cost of a new roof for office building.
H)Relates to an income producing activity mainly carried on for recreation or personal enjoyment.
I)Deductibility depends on income and amount of personal and rental use.
J)Deductibility depends on whether the area is used exclusively for trade or business activities.

Accepted Answer

The answer of Match each statement with the correct term...

Question 11

Match each statement with the correct term below.
-Non-deductible expense
A)Automobile used 75% for business.
B)Investment expenses on municipal bonds.
C)Cost of investigating a new trade or business that the taxpayer enters.
D)Can be separated into two classifications.
E)Safety-deposit box for taxable investments.
F)Expenditure to influence legislation.
G)Cost of a new roof for office building.
H)Relates to an income producing activity mainly carried on for recreation or personal enjoyment.
I)Deductibility depends on income and amount of personal and rental use.
J)Deductibility depends on whether the area is used exclusively for trade or business activities.

Accepted Answer

The answer of Match each statement with the correct term...

Question 12

Match each statement with the correct term below.
-Mixed-use asset
A)Automobile used 75% for business.
B)Investment expenses on municipal bonds.
C)Cost of investigating a new trade or business that the taxpayer enters.
D)Can be separated into two classifications.
E)Safety-deposit box for taxable investments.
F)Expenditure to influence legislation.
G)Cost of a new roof for office building.
H)Relates to an income producing activity mainly carried on for recreation or personal enjoyment.
I)Deductibility depends on income and amount of personal and rental use.
J)Deductibility depends on whether the area is used exclusively for trade or business activities.

Accepted Answer

The answer of Match each statement with the correct term...

Question 13

An expense that is incurred for the production of rent will be deducted for adjusted gross income.

Accepted Answer

Expenses incurred for the production of rental income, such as repairs, maintenance, and property management fees, are deductible for adjusted gross income on a rental property.

Question 14

A necessary expense is one that is appropriate and helpful to the taxpayer's income activity.

Accepted Answer

A necessary expense is one that is essential and relevant to the taxpayer's income activity. It is considered appropriate and helpful in producing income and is therefore deductible on the taxpayer's tax return.

Question 15

Match each statement with the correct term below.
-Lobbying expense
A)Automobile used 75% for business.
B)Investment expenses on municipal bonds.
C)Cost of investigating a new trade or business that the taxpayer enters.
D)Can be separated into two classifications.
E)Safety-deposit box for taxable investments.
F)Expenditure to influence legislation.
G)Cost of a new roof for office building.
H)Relates to an income producing activity mainly carried on for recreation or personal enjoyment.
I)Deductibility depends on income and amount of personal and rental use.
J)Deductibility depends on whether the area is used exclusively for trade or business activities.

Accepted Answer

Lobbying expense refers to expenditures made to influence legislative action.

Answer: B
 Investment interest expense on a loan to acquire municipal bonds can be deducted as an itemized deduction on Schedule A of Form 1040.

Answer: C
 The cost of investigating a new trade or business that the taxpayer enters can be deducted as ordinary and necessary business expenses.

Answer: D
 Expenses can be separated into two classifications: personal expenses and business expenses.

Answer: E
 Expenses related to royalty income can be deducted as ordinary and necessary expenses related to the production of income.

Answer: G
 The cost of a new roof for an office building can be capitalized and depreciated over the useful life of the property.

Answer: H
 Expenses related to an income-producing activity mainly carried on for recreation or personal enjoyment, such as a hobby, are subject to special rules and limitations.

Answer: I
 The deductibility of expenses depends on the amount of personal and rental use, and the taxpayer's income from the property.

Answer: J
 The deductibility of expenses depends on whether the area is used exclusively for trade or business activities, or if it is also used for personal purposes.

Question 16

Bowen is planning to quit his job as a plumber and open a paint store.He has incurred expenses of $8,000 dealing with the opening of the store and will be able to deduct all of these expenses.

Accepted Answer

Business expenses incurred in the process of starting a new business are generally tax-deductible. Therefore, Bowen will be able to deduct all of the $8,000 expenses he has incurred while opening his new paint store.

Question 17

Match each statement with the correct term below.
-Production-of-income expense
A)Automobile used 75% for business.
B)Investment expenses on municipal bonds.
C)Cost of investigating a new trade or business that the taxpayer enters.
D)Can be separated into two classifications.
E)Safety-deposit box for taxable investments.
F)Expenditure to influence legislation.
G)Cost of a new roof for office building.
H)Relates to an income producing activity mainly carried on for recreation or personal enjoyment.
I)Deductibility depends on income and amount of personal and rental use.
J)Deductibility depends on whether the area is used exclusively for trade or business activities.

Accepted Answer

The answer of Match each statement with the correct term...

Question 18

An individual is indifferent whether an expense is deducted for or deducted from adjusted gross income.

Accepted Answer

The answer of An individual is indifferent whether an expense...

Question 19

For a taxpayer to be engaged in a trade or business,the activity must meet all of the following tests: it must produce a profit every year; must be continuous and regular activity; and must be the taxpayer's livelihood not their hobby.

Accepted Answer

The statement is partially correct, but not entirely accurate. To be engaged in a trade or business, an activity must be continuous and regular, and it must be entered into with the primary intention of making a profit. However, there is no requirement that the activity produce a profit every year, and the activity does not need to be the taxpayer's primary livelihood. Additionally, the IRS looks at several factors to determine if an activity is a hobby or a business, including the taxpayer's level of involvement and effort, the possibility of substantial profit, and whether similar activities are conducted by other entities as a business.

Question 20

Morgan,a banker,is an amateur photographer who takes pictures at weddings and parties.He earned $1,000 but incurred $1,200 in related expenses.Since he takes a standard deduction,he will have to include the $1,000 in income but will not get any benefit from the expenses.

Accepted Answer

Since Morgan takes a standard deduction, he cannot deduct his expenses related to his photography as a hobby. Therefore, he will have to include the $1,000 in his income, but will not receive any tax benefit from the $1,200 in expenses he incurred.

Quiz 5: Introduction to Business Expenses

In order for a taxpayer to reduce taxable income with a deduction,the tax law must allow it,and it must meet all statutory requirements.

In order to take a business deduction,the taxpayer engaged in a business must be able to establish a business purpose for each expenditure.

Match each statement with the correct term below. -Hobby expense

Match each statement with the correct term below. -Capital expenditure

Pamela owns the building where her plumbing supply business is located.This year she put on vinyl siding to replace the weathered wood siding on her building.The cost of the new siding can be expensed in the current year.

Evelyn can avoid the 2 percent limitation on her investment expenses by having her partnership pay them.

Match each statement with the correct term below. -Vacation home expense

Match each statement with the correct term below. -Amortizable or deductible expense

Match each statement with the correct term below. -Profit motivated business expenses

Match each statement with the correct term below. -Home office deduction

Match each statement with the correct term below. -Non-deductible expense

Match each statement with the correct term below. -Mixed-use asset

An expense that is incurred for the production of rent will be deducted for adjusted gross income.

A necessary expense is one that is appropriate and helpful to the taxpayer's income activity.

Match each statement with the correct term below. -Lobbying expense

Bowen is planning to quit his job as a plumber and open a paint store.He has incurred expenses of $8,000 dealing with the opening of the store and will be able to deduct all of these expenses.

Match each statement with the correct term below. -Production-of-income expense

An individual is indifferent whether an expense is deducted for or deducted from adjusted gross income.

For a taxpayer to be engaged in a trade or business,the activity must meet all of the following tests: it must produce a profit every year; must be continuous and regular activity; and must be the taxpayer's livelihood not their hobby.

Morgan,a banker,is an amateur photographer who takes pictures at weddings and parties.He earned $1,000 but incurred $1,200 in related expenses.Since he takes a standard deduction,he will have to include the $1,000 in income but will not get any benefit from the expenses.