4328 Second Exam Name

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1 4328 Second Exam Name Part I. True False Worth 1 point each. T F 1. T, a professor, makes an unprovoked pass at a cheerleader who tells her Dad, an attorney. T can deduct the legal fees of $7,000 he incurs defending his actions. T F 2. Bob owns a fleet of automobiles that he rents to customers. Assuming his business is classified as a rental activity; Bob is automatically subject to the passive activity rules. T F 3. The deduction for hobby expenses is not subject to the two-percent floor on miscellaneous itemized deductions. T F 4. Marvin lives with his family in Texas. He has two jobs: one in Alabama and one in North Carolina. Because he has two work locations, Marvin's tax home is in Texas. T F 5. Being away from home overnight on business will qualify meals as a travel expense. T F 6. A theft loss can be claimed for a watch this is left in a public bus station restroom and picked up by some other traveler. T F 7. Len engages in a farming activity that is not carried on to make a profit. This farming activity had income of $5,000 and expenses of $10,000. Len may only write-off $5,000 of these expenses as DFROM deductions. T F 8. The at-risk rules are designed to prevent taxpayers from deducting losses in excess of their actual economic investment in a business activity. T F 9. An illegal expenditure, such as a bribe, is disallowed because it is not an ordinary expense. T F 10. If a taxpayer does not own a home but rents an apartment, the office in the home deduction is not available. T F 11. T incurs $4,000 moving his family s belongings and $500 in meals moving his family. If T meets the time and distance tests, he can deduct $4,500. T F 12. A non-business bad debt is always treated as a short-term capital loss. T F 13. Receiving too much insurance may cause a taxpayer to have a casualty gain. T F 14. The mid-month depreciation convention applies to purchases of real property that exceed 40 percent in the last quarter of the year. T F 15. Ed makes an arm s length loan to his son Sal. If the loan goes unpaid (due to the insolvency of Sal), Ed can deduct the loan as a short-term capital loss. T F 16. In January 2014, Pam, a calendar year cash basis taxpayer, paid her real property taxes for The payment is deductible in 2013 when it accrued. T F 17. Contributions to public charities in excess of 50% of AGI may be carried back for up to 5 years.

2 Part II. Multiple Choice. -- Worth 3 points each. 1. During the year, Jean is transferred by her employer from Hartford to Savannah. Her expenses are not reimbursed and are as follows:: Cost of moving household goods $3,400 Transportation 1,000 Meals 400 Lodging 900 a. $ 0 b. $3,600 Her qualified moving expenses are? a. $5,100. b. $4,400. c. $4,900. d. $5,300. e. Some other amount. 2. Carl entertains one of his clients on January 1 of the current year. Expenses paid by Carl are: Cab fare $ 42 Cover charge at supper club 120 Dinner at club 360 Tips to waiter 80 Presume proper substantiation, Carl s deduction is: a. $322. b. $241. c. $262. d. $ Mr. G, a full-time accountant with a CPA firm, incurred the following deductible educational expenses in the current year and provided receipts to his employer: Travel and transportation $1,000 Tuition 2,600 Books 600 Continued above Mr. G's employer reimbursed him $1,600 for these expenses and included the reimbursement on G's Form W-2 for the current year. What amount may G list on Schedule A for the current year as a miscellaneous deduction subject to the 2% limitation? c. $2,600 d. $2,000 e. $4, Kilgore is a flight instructor who assists in the writing of aviation books. She uses a room in her apartment as an office for her writing, which constitutes her place of business. It is also used to store personal effects and as an occasional second bedroom. It takes up 25% of the space of the apartment and is used 50% of the time as an office. Kilgore's rent is $400 per month and utilities are $50 per month. How much may Kilgore deduct for this office? a. $1,350 b. $675 c. $1,350 d. $0 5. Michael is the city sales manager for Chick-Stick, a national fast food franchise. Every working day, Michael drives his car as follows: Home to office - 20 Miles Office to Chick-Stick No Miles Chick-Stick No. 1 to No Miles Chick-Stick No. 2 to No Miles Chick-Stick No. 3 to home - 30 Miles Michael's deductible mileage is: a. 0 miles. b. 30 miles c. 47 miles d. 77 miles 2

3 6. Bill is the regional manager for a national chain of auto-parts stores and is based in Salt Lake City. When the company opens new stores in Boise, Bill is given the task of supervising their initial operation. For three months, he works weekdays in Boise and returns home on weekends. He spends $310 returning to Salt Lake City but would have spent $290 had he stayed in Boise for the weekend. As to the weekend trips, how much, if any, qualifies as a deduction? a. $0, since the trips are personal and not work related. b. $0, since Bill's tax home has changed from Salt Lake City to Boise. c. $290. d. $ D made the following payments during the current year: Interest on revolving charge accounts $ 400 Interest on original $140,000 home mortgage 7,200 Interest on bank loan (proceeds were used to purchase state of Texas tax-exempt bonds) 3,100 Interest on home equity loan (proceeds of loan were used to buy a car.) 1,600 How much of the above amounts may D deduct as an itemized deduction for interest expense on his Federal income tax return? a. $7,600 b. $7,200 c. $10,300 d. $8,800 e. $12, Paul is married but files a separate tax return. His adjusted gross income for the year is $244,400. He also had the following itemized deductions: Medical expenses (after 10%-of-AGI floor) $12,000 Mortgage interest 2,500 Investment interest 4,500 State income taxes 1,500 $20,500 What amount may Paul deduct as itemized deductions in determining taxable income? Assume the cutback threshold is: $150,500. a. $20,500 b. $17,683 c. $18,622 d. $19, Tom s A.G.I. for the current year is $20,000. His medical expenses during the year were: Mouthwash for Halitosis $ 125 Contact Lenses 260 Cleaning Dental Hygienist 1,000 Hospital bills 3,200 Assume he is 70 years old and not reimbursed for any medical expenditure during the current year. Tom s medical expense deduction is: a. $2,700 b. $2,960 c. $3,085 d. $4,460 e. $4, All of the following items are miscellaneous itemized deductions except: a. gambling losses. b. tax preparation fees. c. hobby loss expenses. d. Investment related expenses. e. All of the above are miscellaneous itemized deductions. 11. In Lawrence County, the real property tax year is the calendar year. The real property tax becomes a personal liability of the owner of real property on January 1 in the current real property tax year (assume this year is not a leap year). The tax is payable on June 1. On May 1, Reggie sells his house to Dana for $350,000. On June 1, Dana pays the entire real estate tax of $7,950 for the year ending December 31. How much of the property taxes may Reggie deduct? a. $2,625 b. $2,614 c. $7,950 d. $0 e. None of the choices are correct. 3

4 12. Paul, a calendar year married taxpayer, files a joint return for Information for 2013 includes the following: AGI $ 175,000 State income taxes 13,500 State sales tax 3,000 Real estate taxes 18,900 Gambling losses (gambling gains were $12,000) 6,800 Paul's allowable itemized deductions for 2013 are: a. $32,400 b. $13,500 c. $39,200 d. $42,200 e. None of these choices are correct. 13. On September 3, 2012, Able, a married individual, purchased as an original owner 1244 stock in Red Corporation for $60,000. On December 31, 2012, the stock was worth $85,000. On August 15, 2013, Able was notified that the stock was worthless. How should Able report this item on his 2013 joint tax return? a. $85,000 capital loss. b. $60,000 ordinary loss. c. $85,000 ordinary loss. d. $50,000 ordinary loss and $35,000 capital loss. e. $50,000 ordinary loss and $10,000 capital loss. 14. Ivory, Inc., has taxable income of $600,000, qualified production activities income (QPAI) of $700,000 and a W-2 payroll of $72,000 in Ivory's domestic production activities deduction ( 199) is: a. $72,000 b. $36,000 c. $63,000 d. $54,000 e. None of these choices are correct. 15. Tommy, an automobile mechanic employed by an auto dealership, is considering opening a fast food franchise. If Tommy decides not to acquire the fast food franchise, any investigation expenses are: a. A deduction from AGI, subject to the 2 percent floor. b. Deductible up to $5,000 in the current year with the balance being amortized over a 180-month period. c. a deduction from AGI, not subject to the 2 percent floor. d. a deduction for AGI. e. not deductible 16. If a residence is used primarily for personal use (rented for fewer than 15 days per year), which of the following is correct? a. No income is included in AGI. b. No expenses are deductible. c. Expenses must be allocated between rental and personal use. d. Only "No income is included in AGI" and "No expenses are deductible" are correct. e. "No income is included in AGI", "No expenses are deductible", and "Expenses must be allocated between rental and personal use" are correct. Part III Depreciation. Worth 3 points each On March 1, 2013, Jennifer purchased equipment for her business in the amount of $20,000. On October 15, 2013, Jennifer purchased a main-frame computer (5 yr. useful life) for $510,000. Section 179 expensing is elected for use on the computer only in questions a. and b. below. a. Calculate Jennifer's total deduction ( 179 & depreciation) on the computer for b. Calculate Jennifer's depreciation on the computer for 2013? 4

5 c. Assume no 179 is elected, calculate depreciation on the equipment only for d. Assume the equipment was really an automobile purchased on March 1, 2013 and used 80% business. No other purchases were made for the year. Calculate the maximum depreciation on the automobile for e. Assume, like d. above, the automobile was the only purchase for the year on March 1, Calculate the depreciation for the year 2018 (year 6) on the automobile. Part IV Short Problems Worth 2 points each question. Scenario 1. Cost Fair Market Holding Period Item: Donee Basis Value before Donation. Cash: Boy Scouts $3,000 $3,000 6 months Old Clothes: Goodwill 15,000 4, months IBM Stock: Church 2,000 10, months Mona Lisa Painting: Smithsonian 50, , months Ignoring percentage limitations, answer the following questions. a. What is the amount of the charitable contribution for the Cash given? b. What is the amount of the charitable contribution for the Clothes given? c. What is the amount of the charitable contribution for the Stock given? d. What is the amount of the charitable contribution for the displayed Painting given? Scenario 2. Worth 3 points each question. For each of the following independent situations, indicate the amount of the casualty loss deduction (after limitations) that the taxpayer may deduct for the current year. Also specify whether the deduction is a DFOR or DFROM type deduction. Casualty Item: One Two Three Four Use: Personal Personal Business Business Basis: 18,000 3,000 25,000 25,000 FMV before Casualty: 15,000 4,000 17,000 17,000 FMV after Casualty: None 2,000 10,000 None Adj. Gross Income: 50,000 9,000 50,000 50,000 Insurance Received: 3, ,000 5,000 e. Calculate the amount of the casualty loss on Item One. i. DFOR or DFROM f. Calculate the amount of the casualty loss on Item One. j. DFOR or DFROM g. Calculate the amount of the casualty loss on Item One. k. DFOR or DFROM h. Calculate the amount of the casualty loss on Item One. l. DFOR or DFROM