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Exam 7: Deductions and Losses Certain Business Expenses and Losses

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Question 41

Multiple Choice

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Regarding research and experimental expenditures,which of the following are not qualified expenditures?

A) Costs of ordinary testing of materials.
B) Costs to develop a plant process.
C) Costs of developing a formula.
D) Depreciation on a building used for research.
E) All of the above are qualified expenditures.

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

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Question 42

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The amount of partial worthlessness on a nonbusiness bad debt is deducted in the year partial worthlessness is determined.

A) True
B) False

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Question 43

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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: Domestic production gross receipts $2,500,000 Cost of goods sold for domestic products 600,000 Expenses directly related to domestic production gross receipts (other than wages) ​ 280,000 Ratable portion of other expenses 100,000 Other expenses not allocated to domestic production gross receipts 30,000 W-2 wages paid to employees engaged in qualified domestic production activities ​ 270,000 Total W-2 wages 320,000 Sally also had the following additional items: Dividends received $ 20,000 Interest income 10,000 ​ Determine Sally's domestic production activities deduction for the current year.

A corporation which makes a loan to a shareholder can have a nonbusiness bad debt deduction.

Which of the following is not a requirement for an alimony deduction?

Identify the factors that should be considered in determining whether a transaction is a business bad debt or a nonbusiness bad debt.

Discuss the effect of alimony in computing a net operating loss.

Stella,age 38,is single with no dependents.The following information was obtained from her personal records for the 2016 year. Salary $30,000 Interest income 7,000 Alimony received 12,000 Individual retirement account contribution 2,000 Home mortgage interest expense 4,000 Property taxes 2,000 Personal casualty loss (after the $100 floor) 38,000 Stolen investment property 16,000 Unreimbursed employee business loss 3,000 ​ Based on the above information,what is Stella's net operating loss for 2016?

Neal,single and age 37,has the following items for 2016: Salary $50,000 Casualty loss on business property (8,000) Casualty loss on rental property (5,000) Personal casualty gains 3,000 Personal casualty losses (after $100 floor) (12,000) Interest expense on personal residence (7,000) Determine Neal's taxable income for 2016.

Norm's car,which he uses 100% for personal purposes,was completely destroyed in an accident in 2016.The car's adjusted basis at the time of the accident was $13,000.Its fair market value was $10,000.The car was covered by a $2,000 deductible insurance policy.Norm did not file a claim against the insurance policy because of a fear that reporting the accident would result in a substantial increase in his insurance rates.His adjusted gross income was $14,000 (before considering the loss) .What is Norm's deductible loss?

Research and experimental expenditures do not include the cost of consumer surveys.

A theft loss is taken in the year of the theft.

Discuss the treatment,including the carryback and carryforward periods,of casualty losses incurred with personal use property.

If an account receivable written off during a prior year is subsequently collected during the current year,the amount collected must be included in the gross income of the current year to the extent it created a tax benefit in the prior year.

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:

Ralph is single and has the following items for the current year: Nonbusiness capital gains $ 9,000 Nonbusiness capital losses (3,000) Interest income 6,000 Itemized deductions (none of the amount resulted from a casualty loss) (10,000) ​ In calculating Ralph's net operating loss,and with respect to the above amounts only,what amount must be added back to taxable income (loss) ?

The limit for the domestic production activities deduction (DPAD)uses all W-2 wages paid to employees by the taxpayer during the tax year.

Jim had a car accident in 2016 in which his car was completely destroyed.At the time of the accident,the car had a fair market value of $30,000 and an adjusted basis of $40,000.Jim used the car 100% of the time for business use.Jim received an insurance recovery of 70% of the value of the car at the time of the accident.If Jim's AGI for the year is $60,000,determine his deductible loss on the car.

Green,Inc. ,manufactures and sells widgets.During the current year,an examination of the company records showed the following items: Domestic production gross receipts $3,000,000 Cost of goods sold for domestic products 750,000 Expenses directly related to domestic production gross receipts (other than wages) 300,000 W-2 wages paid to employees engaged in qualified domestic production activities 300,000 Ratable portion of other expenses 100,000 Total W-2 wages 325,000 Taxable income 1,600,000 Determine Green's domestic production activities deduction for the current year.

Mike,single,age 31,had the following items for 2016: Salary $50,000 Nonbusiness bad debt (6,000) Casualties-independent events Asset A (personal use property held for two years)-gain 3,000 Securities (stolen)-loss (8,000) Dividends 2,000 Interest expense on personal residence 10,000 ​ Compute Mike's taxable income for 2016.