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Exam 7: Deductions and Losses: Certain Business Expenses and Losses

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Question 61

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If qualified production activities income (QPAI)cannot be used in the calculation of the domestic production activities deduction in 2014 because of the taxable income limitation,the product of the amount not allowed multiplied by 9% can be carried over for 5 years.

A) True
B) False

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Question 62

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If investment property is stolen,the amount of the loss is the adjusted basis of the property at the time of the theft reduced by $100 and 10% of AGI.

A) True
B) False

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Question 63

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Blue Corporation incurred the following expenses in connection with the development of a new product: $\begin{array}{lr}\text { Salaries } & \$ 100,000 \\\text { Utilities } & 18,000 \\\text { Materials } & 25,000 \\\text { Advertising } & 5,000 \\\text { Market survey } & 3,000 \\\text { Depreciation on machine } & 9,000\end{array}$ 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.

A bond held by an investor that is uncollectible will be treated as a worthless security and hence,produce a capital loss.

Nora,single,had the following income and deductions for 2014: Sales ^{$ 50,000} Business expenses ^(100,000) Alimony received ^30,000 Interest income ^1,000 Dividends ^2,000 Nonbusiness capital gains ^4,000 § 1244 stock loss ^(18,000) Itemized deductions ^(4,000) Business capital loss ^(2,000) Business capital gain ^1,000 Compute Nora's net operating loss for 2014.

Last year,Green Corporation incurred the following expenditures in the development of a new plant process: $\begin{array}{lr}\text { Salaries } & \$ 250,000 \\\text { Materials } & 90,000 \\\text { Utilities } & 20,000 \\\text { Quality control testing costs } & 40,000 \\\text { Management study costs } & 5,000 \\\text { Depreciation of equipment } & 18,000\end{array}$ During the current year,benefits from the project began being realized in May.If Green Corporation elects a 60 month deferral and amortization period,determine the amount of the deduction for the current year.

Jim had a car accident in 2014 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.

Elizabeth has the following items for the current year: In calculating Elizabeth's net operating loss,and with respect to the above amounts only,what amount must be added back to taxable income (loss) ?

A cash basis taxpayer must include as income the proceeds from the sale of an account receivable to a collection agency.

In 2014,Grant's personal residence was completely destroyed by fire.Grant was insured for 100% of his actual loss,and he received the insurance settlement.Grant had adjusted gross income,before considering the casualty item,of $30,000.Pertinent data with respect to the residence follows: ^{Cost basis} $280,000 ^{Value before casualty} 250,000 ^{Value after casualty} -0- What is Grant's allowable casualty loss deduction?

If personal casualty gains exceed personal casualty losses (after deducting the $100 floor),there is no itemized deduction.

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

Stella,age 38,is single with no dependents.The following information was obtained from her personal records for the 2014 year. Based on the above information,what is Stella's net operating loss for 2014?

Last year,Amos had AGI of $50,000.Amos also had a diamond ring stolen which cost $20,000 and was worth $17,000 at the time of the theft.He itemized deductions on last year's tax return.In the current year,Amos recovered $17,000 from the insurance company.Therefore,he must include $11,900 in gross income on the tax return for the current year.

Peggy is in the business of factoring accounts receivable.Last year,she purchased a $30,000 account receivable for $25,000.This year,the account was settled for $25,000.How much loss can Peggy deduct and in which year?

In 2013,Sarah (who files as single) had silverware worth $10,000 (basis $6,000) stolen from her home.Sarah's insurance company told her that her policy did not cover the theft.Sarah's other itemized deductions last year were $2,000.She had AGI of $30,000 last year.In August of 2014,Sarah's insurance company decided that Sarah's policy did cover the theft of the silverware and they paid Sarah $5,000.Determine the tax treatment of the $5,000 received by Sarah during 2014.

Discuss the computation of NOL remaining to be carried forward after the NOL has been applied in a carryback year.

Khalid,who is single,had the following items for 2014: $\begin{array}{lr}\text { Salary } & \$ 40,000 \\\text { Interest income on U.S. Treasure bonds } & 8,000 \\\text { Loss on theft of securities } & (60,000 \\\text { Interest income on New York state bonds } & 12,000\\\text { What is Khalid's NOL for }\end{array}$

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

In 2014,Theo,an employee,had a salary of $30,000 and experienced the following losses: Determine the amount of Theo's itemized deduction from these losses.