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Exam 5: Business Deductions

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Question 101

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Martin is a sole proprietor of a sandwich business.On March 4, 2018, Martin purchased and placed in service new seven-year class assets costing $580,000.Martin's business reports taxable income for the year, before any deductions associated with the purchased assets, of $160,000.Martin also received $30,000 of interest income for the year, which is not related to the business.Martin wants his adjusted gross income for the year to be as low as possible.With this objective in mind, determine how Martin should recover the cost of the acquired assets.

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Not electing § 179
Not ele...

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Question 102

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For a new car that is used predominantly in business, the "luxury auto" limit depends on whether the taxpayer takes MACRS or straight-line depreciation.

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Question 103

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Janet is the CEO for Silver, Inc., a closely held corporation.Her total compensation for 2018 is $5 million.Of this amount, $2 million is a salary and $3 million is a bonus.The bonus was calculated as 5% of Silver's net income before the bonus and before taxes $60 million × 5% = $3 million).The bonus provision has been in effect since Janet became CEO five years ago and is related to Silver's performance.It is approved annually by the entire board of directors 1 of the 5 directors is an outside director) of Silver.How much of Janet's compensation can Silver deduct for 2018?

If an automobile is placed in service in 2018, the limitation for cost recovery in 2020 will be based on the cost recovery limits for the year 2018.

Are there any circumstances under which lobbying expenditures are deductible?

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?

Residential rental real estate includes property where 80% or more of the net rental revenues are from nontransient dwelling units.

The cost of depreciable property is not a research and experimental expenditure.

On June 1, 2018, Norm leases a taxi and places it in service.The lease payments are $1,000 per month.Assuming the dollar amount from the IRS table for such leases is $241, determine Norm's gross income inclusion amount.

Payments by a cash basis taxpayer of capital expenditures:

Terry and Jim are both involved in operating illegal businesses.Terry operates a gambling business and Jim operates a drug running business.Both businesses have gross revenues of $500,000.The businesses incur the following expenses.

Simpson Company, a calendar year taxpayer, acquires an apartment building on March 22, 2018 for $900,000.What is the maximum cost recovery deduction it may take for 2018?

In 2017, Gail had a § 179 deduction carryover of $30,000.In 2018, she elected § 179 for an asset acquired at a cost of $115,000.Gail's § 179 business income limitation for 2018 is $140,000.Determine Gail's § 179 deduction for 2018.

What are the three methods of handling research and experimental expenditures incurred in a trade or business? Under what circumstances would you choose each?

Research and experimental expenditures do not include the cost of consumer surveys.

Hazel purchased a new business asset five-year asset) on September 30, 2018, at a cost of $100,000.On October 4, 2018, Hazel placed the asset in service.This was the only asset Hazel placed in service in 2018.Hazel did not elect § 179 or additional first-year depreciation.On August 20, 2019, Hazel sold the asset.Determine the cost recovery for 2019 for the asset.

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

On May 5 of the current tax year, Byrne purchased a patent that qualifies as a § 197 intangible.The cost of the patent was $207,000 and Byrne is a calendar-year taxpayer.In the current tax year, how much of the patent's cost may Byrne amortize?

The amortization period for $58,000 of startup expenses is 180 months.

Salaries are considered an ordinary and necessary expense of a trade or business if they meet what other requirement? What are the tax consequences if this requirement is not met?