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Exam 5: Business Deductions

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Question 61

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On June 1, 2018, Red Corporation purchased an existing business.With respect to the acquired assets of the business, Red allocated $300,000 of the purchase price to a patent.The patent will expire in 20 years.Determine the total amount that Red may amortize for 2018 for the patent.

A) $0
B) $1,667
C) $11,667
D) $35,000
E) None of the above

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

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Question 62

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In the current year, Oriole Corporation donated a painting worth $30,000 to the Texas Art Museum, a qualified public charity.The museum included the painting in its permanent collection.Oriole Corporation purchased the painting five years ago for $10,000.Oriole's charitable contribution deduction is $30,000 ignoring the taxable income limitation).

A) True
B) False

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Question 63

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Discuss the tax consequences of listed property being used for the production of income compared to being used in a trade or business.

During 2017, the first year of operations, Silver, Inc., pays salaries of $175,000.At the end of the year, employees have earned salaries of $20,000, which are not paid by Silver until early in 2018.What is the amount of the deduction for salary expense?

An advance payment received in June 2018 by an accrual basis and calendar year taxpayer for services to be provided over a 36-month period can be spread over four tax years.

If startup expenses total $53,000, $51,000 of those costs are amortized over 180 months.

Barry purchased a used business asset seven-year property) on September 30, 2018, at a cost of $200,000.This is the only asset he purchased during the year.Barry did not elect to expense any of the asset under § 179, did not take additional first-year depreciation, and did not elect straight-line cost recovery.Barry sold the asset on July 17, 2019.Determine the cost recovery deduction for 2019.

Polly purchased a new hotel on July 20, 2018, for $6,000,000.On January 20, 2025, the building was sold.Determine the cost recovery deduction for the year of the sale.

None of the prepaid rent paid on September 1 by a calendar year cash basis taxpayer for the next 18 months is deductible in the current period.

Under the alternative depreciation system ADS), the half-year convention must be used for personalty.

The inclusion amount for a leased automobile is adjusted by a business usage percentage.

If a taxpayer operates an illegal business, no deductions are permitted.

The amount of startup expenditures that can be deducted in the year incurred is the greater of the actual amount of such expenses or $5,000.

The maximum cost recovery method for all personal property under MACRS is 150% declining balance.

Legal fees incurred in connection with a criminal defense are not deductible even if the crime is associated with a trade or business.

Jacques, who is not a U.S.citizen, makes a contribution to the campaign of a candidate for governor.Cassie, a U.S.citizen, also makes a contribution to the same campaign fund.If contributions by noncitizens are illegal under state law, the contribution by Cassie is deductible, while that by Jacques is not.

A baseball team that pays a star player an annual salary of $25 million can deduct the entire $25 million as salary expense.If the same amount is paid to the CEO of IBM, only $1 million is deductible.

Bruce owns several sole proprietorships.Must Bruce use the same accounting method for each of these businesses?

In a related party transaction where realized loss is disallowed, when can the disallowed loss be used by the buyer on the subsequent sale of the property? In the case of a related party disallowed loss transaction, can the related party seller's disallowed loss be used by a taxpayer other than the related party buyer?

Rustin bought 7-year class property on May 15, 2018, for $1,228,000.Rustin elects § 179 and straight-line cost recovery, but not additional first-year depreciation..Rustin's taxable income would not create a limitation for purposes of the § 179 deduction.Determine the maximum cost recovery deduction Rustin can claim for 2018.