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Exam 5: Business Deductions

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Question 51

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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.

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Question 52

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Bruce owns several sole proprietorships.Must Bruce use the same accounting method for each of these businesses?

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No.If a taxpayer owns multiple...

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Question 53

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Regarding research and experimental expenditures,which of the following are not qualified expenditures?

Terry and Jim are both involved in operating illegal businesses.Terry operates a gambling business and Jim operates a drug running business.Both businesses have gross revenues of $500,000.The businesses incur the following expenses. Which of the following statements is correct?

Under what circumstances may a taxpayer deduct the expenses of investigating a possible business acquisition,if (1)the business is not acquired; and (2)the business is acquired?

For a taxpayer who is engaged in a trade or business,the cost of investigating a business in the same field is deductible only if the taxpayer acquires the business.

Which of the following legal expenses are deductible for AGI?

The basis of cost recovery property must be reduced by at least the cost recovery allowable.

A baseball team that pays a star player an annual salary of $25 million can deduct the entire $25 million as salary expense.If the same amount is paid to the CEO of IBM,only $1 million is deductible.

Kitty runs a brothel (illegal under state law)and has the following items of income and expense.What is the amount that she must include in taxable income from her operation?

Goodwill associated with the acquisition of a business cannot be amortized.

Rustin bought used 7-year class property on May 15,2013,for $728,000.Rustin elects § 179 and straight-line cost recovery.Rustin's taxable income would not create a limitation for purposes of the § 179 deduction.Determine the maximum write-off Rustin can take in 2013.

Discuss the tax implications of a seller allocating the selling price to goodwill or a covenant not to compete.

On January 15,2013,Vern purchased the rights to a mineral interest for $3,500,000.At that time it was estimated that the recoverable units would be 500,000.During the year,40,000 units were mined and 25,000 units were sold for $800,000.Vern incurred expenses during 2013 of $500,000.The percentage depletion rate is 22%.Determine Vern's depletion deduction for 2013.

Two-thirds of treble damage payments under the antitrust law are not deductible.

Under MACRS,if the mid-quarter convention is applicable,all property sold is treated as being sold at the mid-point of the quarter in which it is placed in service.

For the year 2013,Amber Corporation has taxable income of $880,000 and qualified production activities income (QPAI) of $600,000.The total W-2 wages paid to employees engaged in qualified domestic production activities are $116,000.Amber's DPAD for 2013 is:

If a new car that is used predominantly in business is placed in service in 2013,the statutory dollar cost recovery limit under § 280F will depend on whether the taxpayer takes MACRS or straight-line depreciation.

If an election is made to defer deduction of research expenditures,the amortization period is based on the expected life of the research project if less than 60 months.

A taxpayer's note or promise to pay satisfies the "actually paid" requirement for the cash basis method of accounting.