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Exam 7: Deductions and Losses: Certain Business Expenses and Losses

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Question 1

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Juanita, single and age 43, had the following items for 2018: $\begin{array}{lr}\text { Salary } & \$ 60,000 \\\text { Interest income } & 6,000 \\\text { Casualty loss on business property } & (15,000) \\\text { Casualty loss on rental property } & (5,000) \\\text { Loss on theft of securities } & (8,000) \\\text { Personal casualty gains } & 9,000 \\\text { Personal casualty loss (after } \$ 100 \text { floor) } & (13,000) \\\text { Other itemized deductions } & (9,000)\\\text { Compute Juanita's taxable income for } 2018\end{array}$

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Question 2

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A net operating loss occurring in 2018 can only be carried forward and can offset no more than 80% of taxable income in a subsequent year.

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B) False

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Question 3

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A corporation which makes a loan to a shareholder can have a nonbusiness bad debt deduction.

A taxpayer can carry an NOL forward indefinitely.

A bond held by an investor that is uncollectible will be treated as a worthless security and hence, produce a capital loss.

Jim had a car accident in 2018 in which his car was completely destroyed. At the time of the accident, the car had a fair market value of $30,000 and an adjusted basis of $40,000. Jim used the car 100% of the time for business use. Jim received an insurance recovery of 70% of the value of the car at the time of the accident. If Jim's AGI for the year is $60,000, determine his deductible loss on the car.

The cost of repairs to damaged property is not an acceptable measure of the loss in value of the property.

A loss from a worthless security is always treated as a short-term capital loss.

A business theft loss is taken in the year of the theft.

If a non-corporate taxpayer has an "excess business loss" for the year, it is not allowed.

Research and experimental expenditures do not include the cost of consumer surveys.

Last year, taxpayer had a $10,000 nonbusiness bad debt. Taxpayer also had an $8,000 short-term capital gain and taxable income of $35,000. If taxpayer collects the entire $10,000 during the current year, $8,000 needs to be included in gross income.

Mary incurred a $20,000 nonbusiness bad debt last year. She also had an $18,000 long-term capital gain last year. Her taxable income for last year was $25,000. During the current year, she unexpectedly collected $12,000 on the debt. How should Mary account for the collection?

If investment property is stolen, the amount of the loss is the adjusted basis of the property at the time of the theft reduced by $100 and 10% of AGI.

An NOL carryforward is used in determining the current year's charitable contribution deduction.

Blue Corporation incurred the following expenses in connection with the development of a new product: $\begin{array} { l r } \text { Salaries } & \$ 100,000 \\\text { Utilities } & 18,000 \\\text { Materials } & 25,000 \\\text { Advertising } & 5,000 \\\text { Market survey } & 3,000 \\\text { Depreciation on machine } & 9,000\end{array}$ Blue expects to begin selling the product next year. If Blue elects to amortize research and experimental expenditures over 60 months, determine the amount of the deduction for research and experimental expenditures for the current year.

The amount of loss for partial destruction of business property is the decline in fair market value of the business property.

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 cash basis taxpayer must include as income the proceeds from the sale of an account receivable to a collection agency.

A taxpayer can carry back any NOL incurred 2 years and then forward up to 20 years.