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Exam 5: Business Deductions

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Question 101

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Green, Inc., manufactures and sells widgets. During the current year, an examination of the company records showed the following items: Determine Green's domestic production activities deduction for the current year.

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Question 102

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The § 179 deduction can exceed $500,000 in 2016 if the taxpayer had a § 179 amount which exceeded the taxable income limitation in the prior year.

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Question 103

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Land improvements are generally not eligible for cost recovery.

Fines and penalties paid for violations of the law (e.g., illegal dumping of hazardous waste) are deductible only if they relate to a trade or business.

The key date for calculating cost recovery is the date the asset is placed in service.

Martin is a sole proprietor of a sandwich business. On March 4, 2016, Martin purchased and placed in service new seven-year class assets costing $560,000. Martin's business reports taxable income for the year, before any deductions associated with the purchased assets, of $160,000. Martin also received $30,000 of interest income for the year, which is not related to the business. Martin wants his adjusted gross income for the year to be as low as possible. With this objective in mind, determine how Martin should recover the cost of the acquired assets.

Payments by a cash basis taxpayer of capital expenditures:

Why was the domestic production activities deduction (DPAD) enacted by Congress?

On June 1, 2016, James places in service a new automobile that cost $40,000. The car is used 60% for business and 40% for personal use. (Assume this percentage is maintained for the life of the car.) James does not take additional first-year depreciation (if available) . Determine the cost recovery deduction for 2016.

Which of the following statements is correct in connection with the investigation of a business?

Briefly discuss the two tests that an accrual basis taxpayer must apply before an expense can be deducted.

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

Under MACRS, if the mid-quarter convention is applicable, all property sold is treated as being sold at the mid-point of the quarter in which it is placed in service.

In 2016, Tan Corporation incurred the following expenditures in connection with the development of a new product: Tan began selling the product in November 2016. If Tan elects to amortize research and experimental expenditures, determine Tan's deduction for 2016.

Alice purchased office furniture on September 20, 2015, for $100,000. On October 10, 2015, she purchased business computers for $80,000. Alice placed all of the assets in service on January 15, 2016. Alice did not elect to expense any of the assets under § 179, did not elect straight-line cost recovery, and did not take additional first-year depreciation (if available) . Determine the cost recovery deduction for the business assets for 2016. 222222222222

On June 1 of the current year, Tab converted a machine from personal use to rental property. At the time of the conversion, the machine was worth $90,000. Five years ago Tab purchased the machine for $120,000. The machine is still encumbered by a $50,000 mortgage. What is the basis of the machine for cost recovery?

Isabella owns two business entities. She may be able to use the cash method for one and the accrual method for the other.

Which of the following is not a "trade or business" expense?

In the current year, Plum Corporation, a computer manufacturer, donated 100 laptop computers to a local university (a qualified educational organization) . The computers were constructed by Plum earlier this year, and the university will use the computers for research and research training. Plum's basis in the computers is $35,000, and their fair market value is $120,000. What is Plum's deduction for the contribution of the computers (ignoring the taxable income limitation) ?

On May 30, 2015, Jane purchased a factory building to use for her business. In August 2016, Jane paid $300,000 for improvements to the building. Determine Jane's total deduction with respect to the building improvements for 2016.