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Exam 5: Business Deductions

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Question 1

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If an election is made to defer deduction of research expenditures, the amortization period is based on the expected life of the research project if less than 60 months.

A) True
B) False

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Question 2

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Property which is classified as personalty may be depreciated.

A) True
B) False

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Question 3

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Paula is the sole shareholder of Violet, Inc.For 2018, she receives from Violet a salary of $300,000 and dividends of $100,000.Violet's taxable income for 2018 is $500,000.On audit, the IRS treats $100,000 of Paula's salary as unreasonable.Which of the following statements is correct?

The cost recovery period for 3-year class property is 4 years.

Maple Company purchases new equipment 7-year MACRS property) on January 10, 2018, at a cost of $430,000.Maple also purchases new machines 5-year MACRS property) on July 19, 2018 at a cost of $290,000.Maple wants to maximize its MACRS deductions; assume no taxable income limitations apply.What is Maple's total MACRS deduction for 2018?

In the current year, Plum Corporation, a computer manufacturer, donated 100 laptop computers to a local university a qualified educational organization) .The computers were constructed by Plum earlier this year, and the university will use the computers for research and research training.Plum's basis in the computers is $35,000, and their fair market value is $120,000.What is Plum's deduction for the contribution of the computers ignoring the taxable income limitation) ?

Why are there restrictions on the recognition of gains and losses resulting from transactions between related parties?

Discuss the application of the "one-year rule" on prepayments by a cash basis taxpayer.

Tom operates an illegal drug-running operation and incurred the following expenses: Which of the above amounts reduces his taxable income?

Nora purchased a new automobile on July 20, 2017, for $29,000.The car was used 60% for business and 40% for personal use.In 2018, the car was used 30% for business and 70% for personal use.Nora elects not to take additional first-year depreciation.Determine the cost recovery recapture and the cost recovery deduction for 2018.

Grape Corporation purchased a machine in December of the current year.This was the only asset purchased during the current year.The machine was placed in service in January of the following year.No assets were purchased in the following year.Grape Corporation's cost recovery would begin:

Which of the following is not a "trade or business" expense?

On May 30, 2017, Jane purchased a factory building to use for her business.In August 2018, Jane paid $300,000 for improvements to the building.Determine Jane's total deduction with respect to the building improvements for 2018.

James purchased a new business asset three-year personalty) on July 23, 2018, at a cost of $40,000.James takes additional first-year depreciation but does not elect Section 179 expense on the asset.Determine the cost recovery deduction for 2018.

Graham, a CPA, has submitted a proposal to do the annual audit for a municipality.Owen, the city treasurer, tells Graham that for a $1,000 fee, he will use his influence to have the audit awarded to Graham.What factors are relevant in determining if Graham can deduct the $1,000 payment assuming he pays the fee to Owen?

Bobby operates a drug trafficking business.Because he has an accounting background, he keeps detailed financial records.What expenses can Bobby deduct on his Federal income tax return?

For personal property placed in service in 2018, the § 179 maximum deduction is limited to $1,000,000.

An expense need not be recurring in order to be "ordinary."

Discuss the criteria used to determine whether a building is residential or nonresidential realty.Also explain the tax consequences resulting from this determination if the property is placed in service in 2018.

Cost depletion is determined by multiplying the depletion cost per unit by the number of units sold.