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Exam 5: Business Deductions

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Question 71

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In the current year,Oriole Corporation donated a painting worth $30,000 to the Texas Art Museum,a qualified public charity.The museum included the painting in its permanent collection.Oriole Corporation purchased the painting 5 years ago for $10,000.Oriole's charitable contribution deduction is $30,000 (ignoring the taxable income limitation).

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B) False

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Question 72

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How is qualified production activities income (QPAI)calculated?

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QPAI is calculated as follows:...

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Question 73

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Agnes operates a Christmas Shop in Atlantic City,NJ.She makes a weekend trip to Vero Beach,FL,for the purpose of determining the feasibility of opening another shop.Her travel expenses are $2,000 (includes $500 for meals).In addition,she pays $5,000 to a market research firm in Vero Beach to prepare a feasibility study.Determine the amount of the expenses that Agnes can deduct if:

Alice purchased office furniture on September 20,2012,for $100,000.On October 10,2012,she purchased business computers for $80,000.Alice placed all of the assets in service on January 15,2013.Alice did not elect to expense any of the assets under § 179,nor did she elect straight-line cost recovery.She did not take additional first-year depreciation.Determine the cost recovery deduction for the business assets for 2013.

White Company acquires a new machine (seven-year property) on January 10,2013,at a cost of $600,000.White makes the election to expense the maximum amount under § 179.No election is made to use the straight-line method.White does take additional first-year depreciation.Determine the total deductions in calculating taxable income related to the machine for 2013 assuming White has taxable income of $800,000.

In a farming business,if the uniform capitalization rules are not used,cost is recovered using the ADS straight-line method.

Red Company is a proprietorship owned by Sally,a single individual.Red manufactures and sells widgets.During 2013,an examination of Red's records shows the following items: Determine Sally's domestic production activities deduction for 2013.

An expense need not be recurring in order to be "ordinary."

Bonnie purchased a new business asset (five-year property) on March 10,2013,at a cost of $30,000.She also purchased a new business asset (seven-year property) on November 20,2013,at a cost of $13,000.Bonnie did not elect to expense either of the assets under § 179,nor did she elect straight-line cost recovery.Bonnies takes additional first-year depreciation.Determine the cost recovery deduction for 2013 for these assets.

In Lawrence County,the real property tax year is the calendar year.The real property tax becomes a personal liability of the owner of real property on January 1 in the current real property tax year (assume this year is not a leap year) .The tax is payable on June 1.On May 1,Reggie sells his house to Dana for $350,000.On June 1,Dana pays the entire real estate tax of $7,950 for the year ending December 31.How much of the property taxes may Reggie deduct?

Marge sells land to her adult son,Jason,for its $20,000 appraised value.Her adjusted basis for the land is $25,000.Marge's recognized loss is $5,000 and Jason's adjusted basis for the land is $25,000 ($20,000 cost + $5,000 recognized gain of Marge).

On March 1,2013,Lana leases and places in service a passenger automobile.The lease will run for five years and the payments are $500 per month.During 2013,she uses her car 60% for business and 40% for personal activities.Assuming the dollar amount from the IRS table is $20,determine Lana's inclusion as a result of the lease.

The stock of Eagle,Inc.is owned as follows: Tom sells land and a building to Eagle,Inc.for $212,000.His adjusted basis for these assets is $225,000.Calculate Tom's realized and recognized loss associated with the sale. Tom's realized loss is $13,000.

The § 179 deduction can exceed $500,000 in 2013 if the taxpayer had a § 179 amount which exceeded the taxable income limitation in the prior year.

During 2012,the first year of operations,Silver,Inc.,pays salaries of $175,000.At the end of the year,employees have earned salaries of $20,000,which are not paid by Silver until early in 2013.What is the amount of the deduction for salary expense?

Barry purchased a used business asset (seven-year property) on September 30,2013,at a cost of $200,000.This is the only asset he purchased during the year.Barry did not elect to expense any of the asset under § 179,nor did he elect straight-line cost recovery.Barry sold the asset on July 17,2014.Determine the cost recovery deduction for 2014.

Which of the following is not a related party for constructive ownership purposes under § 267?

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?

During the current year,Gray Corporation,a C corporation in the financial services business,made charitable contributions to qualified organizations as follows: Gray Corporation's taxable income (before any charitable contribution deduction)is $1.8 million.

Pat purchased a used five-year class asset on March 15,2013,for $60,000.He did not elect § 179 expensing.Determine the cost recovery deduction for 2013 for earnings and profits purposes.