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Exam 7: Deductions and Losses Certain Business Expenses and Losses

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Question 1

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Roger,an individual,owns a proprietorship called Green Thing.For the year 2016,Roger has the following items: ∙ Business income-$200,000. ∙ Business expense-$150,000. ∙ Loss on a completely destroyed business machine.The machine had an adjusted basis of $25,000 and a fair market value of $20,000. ∙ Loss on a business truck.The truck had an adjusted basis of $8,000.The repairs to fix the truck cost $10,000. Determine Roger's adjusted gross income for 2016.

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Business income
$200,000
Bus...

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Question 2

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When a nonbusiness casualty loss is spread between two taxable years,the loss in the second year is reduced by 10% of adjusted gross income for the first year.

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B) False

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Question 3

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On September 3,2015,Able,a single individual,purchased § 1244 stock in Red Corporation from his friend Al for $60,000.On December 31,2015,the stock was worth $85,000.On August 15,2016,Able was notified that the stock was worthless.How should Able report this item on his 2016 tax return?

In 2015,Robin Corporation incurred the following expenditures in connection with the development of a new product: Salaries $100,000 Supplies 40,000 Market survey 10,000 Depreciation 25,000 In 2016,Robin incurred the following additional expenditures in connection with the development of the product: Salaries $125,000 Supplies 50,000 Depreciation 30,000 Advertising 10,000 In October 2016,Robin began receiving benefits from the project.If Robin elects to expense research and experimental expenditures,determine the amount and year of the deduction.

Alicia was involved in an automobile accident in 2016.Her car was used 60% for business and 40% for personal use.The car had originally cost $40,000.At the time of the accident,the car was worth $20,000 and Alicia had taken $8,000 of depreciation.The car was totally destroyed and Alicia had let her car insurance expire.If Alicia's AGI is $50,000 (before considering the loss) ,determine her itemized deduction for the casualty loss.

Sally is an employee of Blue Corporation.Last year,she purchased a very expensive computer with her own funds.She used the computer 100% for business purposes.During the current year,the computer was completely destroyed in a fire.Blue Corporation did not reimburse her for her loss.Discuss whether Sally's loss will create or increase Sally's net operating loss.

If a taxpayer sells their § 1244 stock at a loss,all of the loss will be ordinary loss.

On February 20,2015,Bill purchased stock in Pink Corporation (the stock is not small business stock) for $1,000.On May 1,2016,the stock became worthless.During 2016,Bill also had an $8,000 loss on § 1244 small business stock purchased two years ago,a $9,000 loss on a nonbusiness bad debt,and a $5,000 long-term capital gain.How should Bill treat these items on his 2016 tax return?

An individual taxpayer who does not itemize deductions uses the standard deduction to compute the excess of nonbusiness deductions over the sum of nonbusiness income and net nonbusiness capital gains for purposes of computing net operating loss.

In 2016,Theo,an employee,had a salary of $30,000 and experienced the following losses: Loss from damage to rental property ($10,000) Unreimbursed loss from theft of business computer (5,000) Personal casualty gain 4,000 Personal casualty loss (after $100 floor) (9,000) ​ Determine the amount of Theo's itemized deduction from these losses.

Ruth,age 66,sustains a net operating loss (NOL)of $15,000 for 2016.Because Ruth had no taxable income in 2014,the loss is carried back to 2015.For 2015,the joint income tax return of Ruth and her husband was as follows: Salary $20,000 Interest income 5,000 Net short-term capital loss (2,000) AGI $23,000 Itemized deductions Charitable contributions $4,000 Medical expenses [$2,575 - ($23,000 × 10%)] 275 Interest 5,000 Taxes 2,500 (11,775) Personal exemptions (2 × $4,000) (8,000) Taxable income $ 3,225 Calculate Ruth's remaining 2016 NOL to be carried to 2017.

Al,who is single,has a gain of $40,000 on the sale of § 1244 stock (small business stock)and a loss of $80,000 on the sale of § 1244 stock.As a result,Al has a $40,000 ordinary loss.

Taxpayer's home was destroyed by a storm in the current year and the area was declared a disaster area.If the taxpayer elects to treat the loss as having occurred in the prior year,it will be subject to the 10%-of-AGI reduction based on the AGI of the current year.

Susan has the following items for 2016: ∙ Loss on rental property caused by termites-$110,000.Insurance covered 80% of the loss. ∙ Loss on personal use automobile-$10,000.The insurance policy does not cover the first $3,000 of loss.Susan decided not to file a claim for the loss. ∙ Loss on a painting stolen from Susan's house.Susan purchased the painting three years ago as an investment.She paid $40,000 for the painting and it was worth $35,000 at the time of the theft.The painting was insured for the fair market value. ∙ Salary-$40,000. Determine Susan's AGI and total amount of itemized deductions for 2016.

Jack,age 30 and married with no dependents,is a self-employed individual.For 2016,his self-employed business sustained a net loss from operations of $10,000.The following additional information was obtained from his personal records for the year: Nonbusiness long-term capital gain $ 2,000 Interest income 6,000 Itemized deductions-consisting of taxes and interest (12,000) ​ Based on the above information,what is Jack's net operating loss for 2016 if he and his spouse file a joint return?

On July 20,2015,Matt (who files a joint return) purchased 3,000 shares of Orange Corporation stock (the stock is § 1244 small business stock) for $24,000.On November 10,2015,Matt purchased an additional 1,000 shares of Orange Corporation stock from a friend for $150,000.On September 15,2016,Matt sold the 4,000 shares of stock for $120,000.How should Matt treat the sale of the stock on his 2016 return?

In the current year,Juan's home was burglarized.Juan had the following items stolen: ∙ Securities worth $25,000.Juan purchased the securities four years ago for $20,000. ∙ New tools which Juan had purchased two weeks earlier for $8,000.Juan uses the tools in making repairs at an apartment house that he owns and manages. ∙ An antique worth $15,000.Juan inherited the antique (a family keepsake) when the property was worth $11,000. ​ Juan's homeowner's policy had a $50,000 deductible clause for thefts.If Juan's salary for the year is $50,000,determine the amount of his itemized deductions as a result of the theft.

If a taxpayer has a net operating loss (NOL) in 2016 of $20,000,of which $8,000 is attributable to a theft of rental use property,the taxpayer may:

Maria,who is single,had the following items for 2016: Salary $80,000 Loss on sale of § 1244 small business stock acquired 3 years ago (60,000) Stock acquired 2 years ago became worthless during the year (5,000) Long-term capital gain 25,000 Nonbusiness bad debt (15,000) Casualty loss on property held 6 months (6,000) Casualty gain on property held 4 years 4,000 Determine Maria's adjusted gross income for 2016.

If qualified production activities income (QPAI)cannot be used in the calculation of the domestic production activities deduction because of the taxable income limitation,the product of the amount not allowed multiplied by the DPAD percentage rate (currently 9%)can be carried over for 5 years.