Business Income,deductions,and Accounting Methods

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Business Income,Deductions,and Accounting Methods
Property Acquisition and Cost Recovery
Property Dispositions
Entities Overview
Corporate Operations
Accounting for Income Taxes
Corporate Taxation: Nonliquidating Distributions
Corporate Formation,Neorganization,and Liquidation
Forming and Operating Partnerships
Dispositions of Partnership Interests and Partnership Distributions
S Corporations
State and Local Taxes
The Ustaxation of Multinational Transactions
Transfer Taxes and Wealth Planning

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Question 1

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The Internal Revenue Code authorizes deductions for trade or business activities if the expenditure is "ordinary and necessary".

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Question 2

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Business activities are distinguished from personal activities in that business activities are motivated by the pursuit of profits.

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Question 3

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The phase "ordinary and necessary" has been defined to mean that an expense must be essential and indispensable to the conduct of a business.

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Question 4

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Reasonable in amount means that expenditures can be exorbitant as long as the activity is motivated by profit.

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Question 5

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The test for whether an expenditure is reasonable in amount is whether the expenditure was for an "arm's length" amount.

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Question 6

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Illegal bribes and kickbacks are not deductible as business expenses but fines imposed by a governmental unit are deductible as long as the fines are incurred in the ordinary course of business.

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Question 7

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Although expenses associated with illegal activities are not deductible,political contributions can be deducted as long as the donation is not made to a candidate for public office.

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Question 8

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When a taxpayer borrows money and invests the loan proceeds in municipal bonds,the interest paid by the taxpayer on the debt will not be deductible.

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Question 9

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Employees cannot deduct the cost of uniforms if the uniforms are also appropriate for normal wear.

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Question 10

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Only half the cost of a business meal is deductible even if the meal is associated with the active conduct of business.

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Question 11

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Taxpayers must maintain written contemporaneous records of business purpose when entertaining clients in order to claim a deduction for the expenditures.

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Question 12

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The domestic production activities deduction is a deduction for the incremental cost of manufacturing tangible assets in the United States.

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Question 13

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Qualified production activity income for calculating the domestic production activities deduction is limited to taxable income for a business or modified AGI for an individual.

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Question 14

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The domestic production activities deduction cannot exceed 50 percent of the wages paid to employees engaged in domestic manufacturing activities during the year.

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Question 15

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A loss deduction from a casualty of a business asset is only available if the asset is completely destroyed.

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Question 16

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All taxpayers must account for taxable income using a calendar year.

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Question 17

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A short tax year can end on any day of any month other than December.

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Question 18

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A fiscal tax year can end on the last day of any month other than December.

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Question 19

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A business generally adopts a fiscal or calendar year by using that year end on the first tax return for the business.

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Question 20

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Sole proprietorships must use the same tax year as the proprietor of the business.

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