Chapter 05 Taxes

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Chapter 5—Introduction to Business Expenses

1.Tina, Terri, and Tricia operate Capstone Fashions an exclusive boutique. e.$140,000

2.To be deductible, the dominant motive for incurring an expense must be d.the intent to earn a profit.

3.Which of the following is an example of a business purpose as dominant motive? b.Only statement II is correct.

4.The Business Purpose Concept means c.Both statements are correct.

5.The legislative grace concept dictates that business expenses are grouped into certain categories that include d.Statements II and III is correct.

6.A reference to a business expense means c.Both statements are correct.

7.A reference to a business expense means c.Both statements are correct.

8.Sheila extensively buys and sells securities c.an active investor.

9.Sherry extensively buys and sells securities b.an active trader.

10.Which of the following is/are trade or business expenses? b.Only statement II

11.Which of the following is/are trade or business expenses? b.Only statement II is correct. I.|John incurs legal expenses related to real estate he leases to Bucko Burger Hamburger Haven for a parking lot. The lease is renegotiated annually. John does nothing other than sign the lease after his attorneys have approved it.| II.|Susan owns several rental apartments. She arranges for repairs and maintenance, pays for the expenses related to the property, and handles all leasing activities.|

12.Which of the following people is currently engaged in a trade or business? b. Only statement II is correct. I.|Roger spends 8 hours a day 3 days a week managing his investment portfolio. He watches the market and buys and sells securities when he thinks the market is right. His investment strategy is to realize income from dividends, interest, and long-term gains from holding investments for appreciation in value.| II.|Jennifer is a realtor and she owns a house that she rents to Barry and his family for $450 a month. Jennifer provides for the repairs and maintenance of the house, and she stops by monthly to collect the rent and see how things are going.|

13.Which of the following people are currently engaged in a trade or business? I.|James devotes 45 hours per week to betting on horse races. Although he intends to win large sums, he has failed to win the big one. He considers his betting activities his job and relies on his meager winnings to support his family. | II.|Daryl owns 214 home sites in and around Miami, Florida. He bought these vacant lots several years ago in hoping that they would appreciate in value so he could sell them at a profit. Because of the recreational activities in the area, the building lots are worth 10 times his original cost. He is getting the lots ready to sell this year.|

a.|Only statement I is correct.|

14.Which of the following is/are (an) investment activity (activities)? a.Only statement I I.|A farming activity: Liz owns a farm near Vidalia, Georgia. She leases the property to Cal, who operates the farm for himself. Liz receives 10% of Cal’s revenues as part of the lease agreement but has no responsibilities for the farming operation.| II.|A warehouse ownership activity: Susan owns a warehouse located in mid-town Chicago. She paid $2,500,000 for the real estate several years ago. It is now appraised at over $10,000,000, but she still uses the building only to store excess inventory for her Michigan Avenue Boutique.|

15.Louise, a schoolteacher in Duluth, d.Neither statement is correct.

16.Bonnie’s sister, Diane, wants to open a restaurant. d.Statements II and IV are correct.

17.Leslie owns 2 rental properties. c.Both statements are correct.

18.Pete owns 5 rental properties. a.Only statement I is correct.

19.In the current year, Paul acquires a car for b....
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