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Ch 9 Federal Income
Terms in this set (21)
Which of the following describes the difference between business activities and hobbies?
Hobbies are not primarily profit-motivated.
Ordinary and necessary business expenses are deductible only to the extent they are _____________ in amount.
Allison purchased equipment that cost $100,000 for use in her business. She expects the equipment to be useful for the business for the next 8 years. Which of the following choices correctly describes the tax treatment of the cost of the equipment?
The equipment should be capitalized and depreciated according to the tax code.
Evan incurred education-related expenditures related to his self-employment job. Under which of the following circumstances will Evan NOT be allowed to deduct these expenditures as a BUSINESS expense?
The course or courses qualify Evan for a new trade or business.
Due to the personal enjoyment element involved with meals, taxpayers may only deduct _______ % of the actual cost.
Lesa drives her car approximately 18,000 miles per year. During the most recent year, she drove 7,000 miles commuting to and from work, 4,500 miles for business-related conferences and client visits, and 6,500 miles for personal trips. How many miles are considered business miles and can be used to determine the tax deduction for transportation expenses?
Commuting to work is generally considered a personal expense and is not deductible.
Which of the following expenses is NOT included with deductible business travel expenses?
Charlie paid $50 to attend a play during his 3-day business trip.
The term _________ is used to describe an expense that is helpful or conducive to a business activity.
Which one of the following statements is correct regarding an asset that is used for both business and personal purposes?
The deductible business expense is determined by prorating the expenses based on the percentage of time it is used for business.
In order to deduct the business portion of mixed motive expenses, taxpayers must have sufficient __________ to prove the business use of the asset.
documentation, records, evidence, support, record-keeping, substantiation, record, documents, document, record keeping, or proof
When is a business expense deemed to be reasonable in amount?
When it is not extravagant
Alex purchased a personal lawn mower to use for mowing his lawn and the lawns at his rental properties. The depreciation expense for the mower was $300. At the end of the season, he documents that he used the mower 70% for his rental properties and 30% for personal purposes. How much can he deduct as a business expense?
The business portion is deductible ($300 x .70 = $210).
Josh purchased a piece of land for $81,500 in order to get a location to expand his business. He also paid $13,100 to construct a new driveway for access to the property.
Deductible amount $0
because capital expense
This year Josh paid $17,400 to employ the mayor's son in the business. Josh would typically pay an employee with these responsibilities about $12,100, but the mayor assured Josh that after his son was hired, some city business would be coming his way.
Only $12,100 because that's what he would pay an normal employee. Thats what's necessary and ordinary.
Suppose that Melissa made the trip to San Francisco primarily to visit the national parks and only attended the business conference as an incidental benefit of being present on the coast at that time. What amount of the airfare can Melissa deduct as a business expense?
b. $2,200 of interest on a short-term loan incurred in September and repaid in November. Half of the loan proceeds were used immediately to pay salaries and the other half was invested in municipal bonds until November.
$1,300 for office supplies in May of this year. He used half of the supplies this year and he will use the remaining half by February of next year.
$2,500 deposit from the Ladies' Club, which wants to lease a trailer. The club will receive the entire deposit back when the trailer is returned undamaged.
Income under cash method=$0
Income under accrual method=$0
b. $1,020 from the Ladies' Club for leasing the trailer from December of this year through March of next year ($255 per month).
Income Under cash method= $1020
Income Under Accrual method= $1020
In January of year 0, Justin paid $6,200 for an insurance policy that covers his business property for accidents and casualties. Justin is a calendar-year taxpayer who uses the cash method of accounting.
What amount of the insurance premium may Justin deduct in year 0 in each of the following alternative scenarios? (Leave no answers blank. Enter zero if applicable.)
Problem 9-62 Part-c (Algo)
c. Justin pays $7,400 for a 24-month policy that covers the business from April 1, year 0, through March 31, year 2. (Do not round intermediate calculations.)
april-december is 9 months
Adam elects the accrual method of accounting for his business. What amount of deductions does Adam recognize this year for the following transactions? (Leave no answers blank. Enter zero if applicable.)
a. Adam guarantees that he will refund the cost of any goods sold to a client if the goods fail within a year of delivery. In October of this year, Adam agreed to refund $4,900 to clients, and he expects to make payment in January of next year.
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