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Exam 5: Business Deductions

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Question 71

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The inclusion amount for a leased automobile is adjusted by a business usage percentage.

A) True
B) False

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Question 72

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Discuss the requirements in order for startup expenditures to be amortized under § 195.

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Question 73

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A baseball team that pays a star player an annual salary of $25 million can deduct the entire $25 million as salary expense. If the same amount is paid to the CEO of IBM, only $1 million is deductible.

None of the prepaid rent paid on September 1 by a calendar year cash basis taxpayer for the next 18 months is deductible in the current period.

In 2015, Robin Corporation incurred the following expenditures in connection with the development of a new product: In 2016, Robin incurred the following additional expenditures in connection with the development of the product: In October 2016, Robin began receiving benefits from the project. If Robin elects to expense research and experimental expenditures, determine the amount and year of the deduction.

Petal, Inc. is an accrual basis taxpayer. Petal uses the aging approach to calculate the reserve for bad debts. During 2016, the following occur associated with bad debts. The amount of the deduction for bad debt expense for Petal for 2016 is:

The § 179 limit for a sports utility vehicle with a GVW of 7,000 pounds will not apply if the sports utility vehicle is used as a taxi.

Crow Corporation, a C corporation, donated scientific property (basis of $30,000, fair market value of $50,000) to State University, a qualified charitable organization, to be used in research. Crow had held the property for four months as inventory. Crow Corporation may deduct $50,000 for the charitable contribution (ignoring the taxable income limitation).

Hans purchased a new passenger automobile on August 17, 2016, for $30,000. During the year the car was used 40% for business and 60% for personal use. Determine his cost recovery deduction for the car for 2016.

In the current year, Amber Corporation has taxable income of $880,000, alternative minimum taxable income of $600,000, and qualified production activities income (QPAI) of $640,000. The total W-2 wages paid to employees engaged in qualified domestic production activities are $116,000. Amber's DPAD for the current year is:

Barry purchased a used business asset (seven-year property) on September 30, 2016, 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, did not take additional first-year depreciation (if available) , and did not elect straight-line cost recovery. Barry sold the asset on July 17, 2017. Determine the cost recovery deduction for 2017.

Doug purchased a new factory building on January 15, 1990, for $400,000. On March 1, 2016, the building was sold. Determine the cost recovery deduction for the year of the sale; Doug did not use the MACRS straight-line method.

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. a.What is the total amount of Gray's charitable contributions for the year? b.What is the amount of Gray's charitable contribution deduction in the current year, and what happens to any excess charitable contribution, if any?

Tan Company acquires a new machine (ten-year property) on January 15, 2016, at a cost of $200,000. Tan also acquires another new machine (seven-year property) on November 5, 2016, at a cost of $40,000. No election is made to use the straight-line method. The company does not make the § 179 election and elects to not take additional first-year depreciation if available. Determine the total deductions in calculating taxable income related to the machines for 2016.

The portion of a shareholder-employee's salary that is classified as unreasonable has no effect on the amount of a shareholder-employee's gross income, but results in an increase in the taxable income of the corporation.

Ivory, Inc., has taxable income of $600,000 and qualified production activities income (QPAI) of $700,000 in the current year. Ivory's domestic production activities deduction is:

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

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

Discuss the beneficial tax consequences of an SUV not being classified as a passenger automobile.

An election to use straight-line under ADS is made on an asset-by-asset basis for property other than eligible real estate.