Question 1

The income of a sole proprietorship are reported on Schedule C (Profit or Loss from Business).

Accepted Answer

A) True 
 B)False

Question 2

Describe the circumstances under which a taxpayer can receive rent income from a personal residence, but does not have to report it as gross income.

Accepted Answer

If the personal residence is r...

Question 3

Jacques, who is not a U.S. citizen, makes a contribution to the campaign of a candidate for governor. Cassie, a U.S. citizen, also makes a contribution to the same campaign fund. If contributions by noncitizens are illegal under state law, the contribution by Cassie is deductible, while that by Jacques is not.

Accepted Answer

A) True 
 B)False

Question 4

In determining whether an activity should be classified as a business or as a hobby, the satisfaction of the presumption (i.e., profit in at least 3 out of 5 years) ensures treatment as a business.

Accepted Answer

A) True 
 B)False

Question 5

What are the relevant factors to be considered in determining whether an activity is profit-seeking or a hobby?

Accepted Answer

The nine relevant factors detailed in Re...

Question 6

Alfred's Enterprises, an unincorporated entity, pays employee salaries of $100,000 during the year. At the end of the year, $12,000 of additional salaries have been earned but not paid until the beginning of the next year.
a. Determine the amount of the deduction for salaries if Alfred is a cash method taxpayer.
b. Determine the amount of the deduction for salaries if Alfred is an accrual method taxpayer.

Accepted Answer

a. The deduction for salaries ...

Question 7

In distinguishing whether an activity is a hobby or a trade or business, discuss the presumptive rule.

Accepted Answer

The Code provides a rebuttable presumpti...

Question 8

Paula is the sole shareholder of Violet, Inc. For 2014, she receives from Violet a salary of $300,000 and dividends of $100,000. Violet's taxable income for 2014 is $500,000. On audit, the IRS treats $100,000 of Paula's salary as unreasonable. Which of the following statements is correct?

Accepted Answer

A)   Paula's gross income will increase by $100,000 as a result of the IRS adjustment.
B)   Violet's taxable income will not be affected by the IRS adjustment.
C)   Paula's gross income will decrease by $100,000 as a result of the IRS adjustment.
D)   Violet's taxable income will decrease by $100,000 as a result of the IRS adjustment.
E)   None of the above is correct.F) A) and B)
G) All of the above

Question 9

Tommy, an automobile mechanic employed by an auto dealership, is considering opening a fast food franchise. If Tommy decides not to acquire the fast food franchise, any investigation expenses are:

Accepted Answer

A)   A deduction for AGI.
B)   A deduction from AGI, subject to the 2 percent floor.
C)   A deduction from AGI, not subject to the 2 percent floor.
D)   Deductible up to $5,000 in the current year with the balance being amortized over a 180-month period.
E)   Not deductible.F) B) and E)
G) None of the above

Question 10

Can a trade or business expense be deductible if it is necessary but not ordinary?

Accepted Answer

No. To be deductible as a trad...

Exam 6: Deductions and Losses: in General

The income of a sole proprietorship are reported on Schedule C (Profit or Loss from Business).

Correct Answer
verified

Correct Answer
verified

Tommy, an automobile mechanic employed by an auto dealership, is considering opening a fast food franchise. If Tommy decides not to acquire the fast food franchise, any investigation expenses are:

Correct Answer
verified

Paula is the sole shareholder of Violet, Inc. For 2014, she receives from Violet a salary of $300,000 and dividends of $100,000. Violet's taxable income for 2014 is $500,000. On audit, the IRS treats $100,000 of Paula's salary as unreasonable. Which of the following statements is correct?

Correct Answer
verified

What are the relevant factors to be considered in determining whether an activity is profit-seeking or a hobby?

Correct Answer
verified
The nine relevant factors detailed in Re...
View Answer

Describe the circumstances under which a taxpayer can receive rent income from a personal residence, but does not have to report it as gross income.

Correct Answer
verified
If the personal residence is r...
View Answer

Can a trade or business expense be deductible if it is necessary but not ordinary?

Correct Answer
verified
No. To be deductible as a trad...
View Answer

Correct Answer
verified
a. The deduction for salaries ...
View Answer

In distinguishing whether an activity is a hobby or a trade or business, discuss the presumptive rule.

Correct Answer
verified
The Code provides a rebuttable presumpti...
View Answer

In determining whether an activity should be classified as a business or as a hobby, the satisfaction of the presumption (i.e., profit in at least 3 out of 5 years) ensures treatment as a business.

Correct Answer
verified

Exam 6: Deductions and Losses: in General

The income of a sole proprietorship are reported on Schedule C (Profit or Loss from Business).

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Tommy, an automobile mechanic employed by an auto dealership, is considering opening a fast food franchise. If Tommy decides not to acquire the fast food franchise, any investigation expenses are:

Correct AnswerverifiedShow Answer

Paula is the sole shareholder of Violet, Inc. For 2014, she receives from Violet a salary of $300,000 and dividends of $100,000. Violet's taxable income for 2014 is $500,000. On audit, the IRS treats $100,000 of Paula's salary as unreasonable. Which of the following statements is correct?

Correct AnswerverifiedShow Answer

What are the relevant factors to be considered in determining whether an activity is profit-seeking or a hobby?

Correct AnswerverifiedThe nine relevant factors detailed in Re...View AnswerShow Answer

Describe the circumstances under which a taxpayer can receive rent income from a personal residence, but does not have to report it as gross income.

Correct AnswerverifiedIf the personal residence is r...View AnswerShow Answer

Can a trade or business expense be deductible if it is necessary but not ordinary?

Correct AnswerverifiedNo. To be deductible as a trad...View AnswerShow Answer

Correct Answerverifieda. The deduction for salaries ...View AnswerShow Answer

In distinguishing whether an activity is a hobby or a trade or business, discuss the presumptive rule.

Correct AnswerverifiedThe Code provides a rebuttable presumpti...View AnswerShow Answer

In determining whether an activity should be classified as a business or as a hobby, the satisfaction of the presumption (i.e., profit in at least 3 out of 5 years) ensures treatment as a business.

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
The nine relevant factors detailed in Re...
View Answer

Correct Answer
verified
If the personal residence is r...
View Answer

Correct Answer
verified
No. To be deductible as a trad...
View Answer

Correct Answer
verified
a. The deduction for salaries ...
View Answer

Correct Answer
verified
The Code provides a rebuttable presumpti...
View Answer

Correct Answer
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