Income Tax

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1.Near year end, P, a cash basis, calendar year taxpayer, paid for various deductible expenses as described below.

1.The payment was dropped in the mail before year end.
2.P gave a note evidencing her promise to pay the amount in three months. 3.The amount was charged on her Master Card on December 28. The charge appeared on her bill for the period December 1 through December 31, which she received in January and which she paid on January 20. The bank actually paid the expense in January. 4.The amount was paid using the pay by phone service provided by her bank. P called in the charge on December 20. The bank sent her a statement indicating that it had paid the charge on January 3.

P may deduct the expense in which cases?
a.1
b.1 and 2
c.1 and 3
d.1, 3, and 4
e.1, 2, 3, and 4

2.The crucial reason for determining whether an item is deductible as an expense under § 162 or under § 212 is that a.production of income expenses are not deductible.
b.§ 162 business expenses usually are deductions for A.G.I., while § 212 production of income expenses usually are miscellaneous itemized deductions. c.§ 162 business expenses are deductions from A.G.I., while § 212 production of income expenses are deductions for A.G.I. d.it resolves certain ownership questions.

3.C purchased two cars in 2010 a Corvette for $20,000 and a Buick for $10,000. Both cars were used solely for personal purposes. During the year, C sold the Corvette to a car collector for $24,000 and the Buick for $7,000. Based on these two transactions he will report a.a gain of $1,000.

b.a gain of $4,000.
c.a gain of $4,000 and a loss of $3,000.
d.no gain or loss.

4.F, a calendar year, cash basis taxpayer, started a business on June 1. Her lease required monthly payments of $1,000 beginning on June 1. Insurance for the premises, also begun on June 1, was to be paid every six months and cost $600 for each six month period (she paid her premiums due on June 1 and December 1). F’s deductions for these expenses total a.$7,000.

b.$7,100.
c.$7,600.
d.$8,200.
$1,000 * 7 months = $7,000 rent expense
$600 premium paid 6/1 = 600 insurance expense
$600 premium paid 12/1 = 600
7,000 + 600 + 600 = $8,200 insurance expense

5.Which of the following is not a deduction for A.G.I.?
a. Lawn mowing expense for a rental property actively managed by the taxpayer. b. Deductible expenses related to a physician’s home office. c. Employee transportation expense not reimbursed by the employer. d. Employee transportation expense reimbursed by the employer and included in employee’s income.

6K is an attorney who had to travel to Chicago for a trial. Her law firm reimbursed her for the $1,200 hotel bill and $200 for food, but only half of her $200 entertainment expense eligible for deduction under § 162. If the law firm includes the $1,500 in K’s compensation on her Form W 2, she may a.include the $1,500 as a miscellaneous itemized deduction. b.deduct the $1,500 for A.G.I.

c.include the $100 unreimbursed entertainment expense with the miscellaneous itemized deductions. d.Both b and c are true.

7F, an attorney in New York, also operates a small farm in New Jersey. During the year, he reported the following income and expenses from the farm:

Gross income$8,000
Depreciation(3,000)
Property taxes(6,000)
Other operating expenses(4,000)

Assuming the activity is considered a hobby, F may deduct
a.taxes $6,000, other $0, depreciation $0.
b.taxes $6,000, other $0, depreciation $2,000.
c.taxes $6,000, other $2,000, depreciation $0.
d.taxes $6,000, other $4,000, depreciation $3,000.

8Which one of the following would qualify, at least in part, as a deductible educational expense? a.The cost of transportation between home and school on a nonworking day. b.Transportation between work and school on a working day.

c.Both of the above....
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