1. Deductions are allowed unless a specific provision in the tax law provides otherwise.
a. True
b. False
2. Mitch is in the 28% tax bracket. He may receive a different tax benefit for a $2,000 expenditure that is classified as a deduction fromAGI than he will receive for a $1,000 expenditure that is classified as a deduction forAGI.
a. True
b. False
.
3. Depending on the nature of the expenditure, expenses incurred in a trade or business may be deductible foror from AGI.
a. True
b. False
4. Only some employment related expenses are classified as deductions forAGI.
a. True
b. False
5. Section 212 expenses that are related to rent and royalty income are deductions forAGI.
a. True
b. False
6. Alice incurs qualified moving expenses of $12,000. If she is reimbursed by her employer, the deduction is classified as a deduction for AGI. If not reimbursed, the deduction is classified as an itemized deduction.
a. True
b. False
7. Expenses incurred for the production or collection of income generally are deductions fromadjusted gross income.
a. True
b. False
8. The Code does not specifically define what constitutes a trade or business.
a. True
b. False
9. An expense need notbe recurring in order to be ordinary.
a. True
b. False
10.Aaron, a shareholder-employee of Pigeon, Inc., receives a $300,000 salary. The IRS classifies $100,000 of this amount as unreasonable compensation. The effect of this reclassification is to decrease Aarons gross income by $100,000 and increase Pigeons gross income by $100,000.
a. True
b. False
.
11.The portion of a shareholderemployees salary that is classified as unreasonable has no effect on the amount of a shareholderemployees gross income, but results in an increase in the taxable income of the corporation.
a. True
b. False
12.Generally, a closely-held family corporation is notpermitted to take a deduction for a salary paid to a family member in calculating corporate taxable income.
a. True
b. False
13.Only under limited circumstances can a loss on the sale of a personal use asset be deducted.
a. True
b. False
14.The income of a sole proprietorship are reported on Schedule C (Profit or Loss from Business).
a. True
b. False
15.The cash method canbe used even if inventory and cost of goods sold are an income producing factor in the business.
a. True
b. False
16.A taxpayers note or promise to pay satisfies the actually paid requirement for the cash basis method of accounting.
a. True
b. False
17.Isabella owns two business entities. She may be able to use the cash method for one and the accrual method for the other.
a. True
b. False
18.Under the oneyear rule for the current period deduction of prepaid expenses of cash basis taxpayers, the asset must expire or be consumed by the end of the tax year following the year of payment.
a. True
b. False