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Exam 5: Business Deductions

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Question 51

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During the current year, Owl Corporation a C corporation) , a retailer of children's apparel, made the following donations to qualified charitable organizations. How much qualifies for the charitable contribution deduction ignoring the taxable income limitation) ?

A) $63,000
B) $65,000
C) $90,500
D) $92,500
E) None of the above

F) D) and E)
G) None of the above

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Question 52

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Percentage depletion enables the taxpayer to recover more than the cost of an asset in the form of tax deductions.

A) True
B) False

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Question 53

Multiple Choice

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On July 10, 2018, Ariff places in service a new sports utility vehicle that cost $70,000 and weighed 6,300 pounds.The SUV is used 100% for business.Determine Ariff's maximum deduction for 2018, assuming Ariff's § 179 business income is $110,000.Ariff does not take additional first-year depreciation.

In the current year, 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).

Wanda is the Chief Executive Officer of Pink corporation, a publicly traded, calendar year corporation.For the current year, Wanda's compensation package consists of: How much of Wanda's compensation is deductible by Pink Corporation?

Max opened his dental practice a sole proprietorship) in March 2018.At the end of the year, he has unpaid accounts receivable of $62,000 and no unpaid accounts payable.Should Max use the accrual method or the cash method for his dental practice?

White Company acquires a new machine seven-year property) on January 10, 2018, at a cost of $620,000.White makes the election to expense the maximum amount under § 179, and wants to take any additional first-year depreciation allowed.No election is made to use the straight-line method.Determine the total deductions in calculating taxable income related to the machine for 2018 assuming White has taxable income of $800,000.

Land is generally amortized, rather than being cost recovered under MACRS.

The factor for determining the cost recovery for eligible real estate under MACRS, in the year of disposition, is taken from the month of the disposition.

Sandra owns an insurance agency.The following selected data are taken from the agency balance sheet and income statement prepared using the accrual method.

Briefly discuss the two tests that an accrual basis taxpayer must apply before an expense can be deducted.

Blue Corporation incurred the following expenses in connection with the development of a new product: Blue expects to begin selling the product next year.If Blue elects to amortize research and experimental expenditures over 60 months, determine the amount of the deduction for research and experimental expenditures for the current year.

Diane purchased a factory building on April 15, 1993, for $5,000,000.She sells the factory building on February 2, 2018.Determine the cost recovery deduction for the year of the sale.

Bonnie purchased a new business asset five-year property) on March 10, 2018, at a cost of $30,000.She also purchased a new business asset seven-year property) on November 20, 2018, at a cost of $13,000.Bonnie did not elect to expense either of the assets under § 179, nor did she elect straight-line cost recovery.Bonnie takes additional first-year depreciation.Determine the cost recovery deduction for 2018 for these assets.

Carlos purchased an apartment building on November 16, 2018, for $3,000,000.Determine the cost recovery for 2018.

Iris, a calendar year cash basis taxpayer, owns and operates several TV rental outlets in Florida, and wants to expand to other states.During 2018, she spends $14,000 to investigate TV rental stores in South Carolina and $9,000 to investigate TV rental stores in Georgia.She acquires the South Carolina operations, but not the outlets in Georgia.As to these expenses, Iris should:

Taylor, a cash basis architect, rents the building in which his office is located for $5,000 per month.He commenced his practice on February 1, 2018.In order to guarantee no rent increases during an 18-month period, he signed an 18- month lease and prepaid the $90,000 on February 1, 2018.How much can Taylor deduct as rent expense for 2018?

Andrew, who operates a laundry business, incurred the following expenses during the year. ? Parking ticket of $250 for one of his delivery vans that parked illegally. ? Parking ticket of $75 when he parked illegally while attending a rock concert in Tulsa. ? DUI ticket of $500 while returning from the rock concert. ? Attorney's fee of $600 associated with the DUI ticket. What amount can Andrew deduct for these expenses?

Taxable income for purposes of § 179 limited expensing is computed by including the MACRS deduction.

Alice purchased office furniture on September 20, 2017, for $100,000.On October 10, 2017, she purchased business computers for $80,000.Alice placed all of the assets in service on January 15, 2018.Alice did not elect to expense any of the assets under § 179, did not elect straight-line cost recovery, and did not take additional first-year depreciation.Determine the cost recovery deduction for the business assets for 2018.