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Exam 6: Deductions and Losses: In General

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Question 31

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On January 2, 2018, Fran acquires a business from Chuck. Among the assets purchased are the following intangibles: patent with a 7-year remaining life, a covenant not to compete for 10 years, and goodwill. Of the purchase price, $140,000 was paid for the patent and $60,000 for the covenant. The amount of the excess of the purchase price over the identifiable assets was $100,000. What is the amount of the amortization deduction for 2018?

A) $10,667.
B) $16,000.
C) $20,000.
D) $32,667.
E) None of the above.

F) B) and C)
G) D) and E)

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Question 32

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

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No. To be deductible as a trad...

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Question 33

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Discuss the application of the "one-year rule" on prepayments by a cash basis taxpayer.

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?

The period in which an accrual basis taxpayer can deduct an expense is determined by applying the economic performance and all events tests.

If a taxpayer operated an illegal business (not drug trafficking), what expenses can be deducted and what expenses are disallowed?

Only under limited circumstances can a loss on the sale of a personal use asset be deducted.

None of the prepaid rent paid on September 1 by a calendar year cash basis taxpayer for the next 18 months is deductible in the current period.

If part of a shareholder/employee's salary is classified as unreasonable, determine the effect on the: a. Shareholder/employee's gross income. b. Corporation's taxable income.

The legal cost of having a will prepared is not deductible.

In 2018, unreimbursed employment related expenses are classified as deductions for AGI.

What is the appropriate tax treatment for expenditures paid by a taxpayer for another's benefit?

Bobby operates a drug trafficking business. Because he has an accounting background, he keeps detailed financial records. What expenses can Bobby deduct on his Federal income tax return?

Payments by a cash basis taxpayer of capital expenditures:

Nikeya sells land (adjusted basis of $120,000) to her adult son, Shamed, for its appraised value of $95,000. Which of the following statements is correct?

Under what circumstance can a bribe be deducted?

Albie operates an illegal drug-running business and has the following items of income and expense. What is Albie's adjusted gross income from this operation?

Which of the following is not relevant in determining whether an activity is profit-seeking or a hobby?

Legal expenses incurred in connection with rental property are deductions from AGI.

The cost of legal advice associated with the preparation of an individual's Federal income tax return that is paid in 2018 is not deductible because it is a personal expense.