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Exam 5: Business Deductions

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Question 41

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During the current year, Ralph made the following contributions to the University of Oregon (a qualified charitable organization) : $\begin{array} { l r } \text { Cash } & \$ 63,000 \\\text { Stock in Raptor, Inc. (a publicly traded corporation) } & 94,500\end{array}$ Ralph acquired the stock in Raptor, Inc., as an investment fourteen months ago at a cost of $42,000.Ralph's AGI for the year is $189,000.What is Ralph's charitable contribution deduction for the current year?

A) $56,700
B) $63,000
C) $94,500
D) $157,500
E) None of the above

F) A) and C)
G) A) and B)

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Question 42

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Grape Corporation purchased a machine in December of the current year.This was the only asset purchased during the current year.The machine was placed in service in January of the following year.No assets were purchased in the following year.Grape Corporation's cost recovery would begin:

A) In the current year using a mid-quarter convention.
B) In the current year using a half-year convention.
C) In the following year using a mid-quarter convention.
D) In the following year using a half-year convention.
E) None of the above.

F) A) and B)
G) A) and C)

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Question 43

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

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

During the current year, Owl Corporation (a C corporation) , a retailer of children's apparel, made the following donations to qualified charitable organizations. $\begin{array}{lcc}&\underline{\text { Adjusted Basis}}& \underline{\text { Fair Market Value }}\\ \text {Children's clothing held as inventory, to } &\\ \text { Haven for Hope } &\$10,000&\$15,000\\\\ \text { Stock in Exxon Corporation acquired two } &\\ \text { years ago and held as an investment, to City } &5,000&3,000\\ \text { University} &\\\\ \text { Land acquired four years ago and held as an } &50,000&75,000\\ \text { investment, to Humane Society} &\\\end{array}$ ? How much qualifies for the charitable contribution deduction (ignoring the taxable income limitation) ?

LD Partnership, a cash basis taxpayer, purchases land and a building for $200,000 with $150,000 of the cost being allocated to the building.The gross receipts of the partnership are less than $100,000.LD must capitalize the $50,000 paid for the land, but can deduct the $150,000 paid for the building in the current tax year.

In the current year, Crow Corporation, a C corporation, donated scientific property (basis of $30,000, fair market value of $50,000) to State University, a qualified charitable organization, to be used in research.Crow had held the property for four months as inventory.Crow Corporation may deduct $50,000 for the charitable contribution (ignoring the taxable income limitation).

Pat purchased a used five-year class asset on March 15, 2017, for $60,000.He did not elect § 179 expensing.Determine the cost recovery deduction for 2017 for earnings and profits purposes.

Ivory, Inc., has taxable income of $600,000 and qualified production activities income (QPAI) of $700,000 in the current year.Ivory's domestic production activities deduction is:

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

Ordinary and necessary business expenses, other than cost of goods sold, of an illegal drug trafficking business do not reduce taxable income.

On March 1, 2017, Lana leases and places in service a passenger automobile.The lease will run for five years and the payments are $500 per month.During 2017, she uses her car 60% for business and 40% for personal activities.Assuming the dollar amount from the IRS table for auto leases is $70, determine Lana's gross income attributable to the lease.

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

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

In the current year, Amber Corporation has taxable income of $880,000, alternative minimum taxable income of $600,000, and qualified production activities income (QPAI) of $640,000.The total W-2 wages paid to employees engaged in qualified domestic production activities are $116,000.Amber's DPAD for the current year is:

Tommy, an automobile mechanic employed by an auto dealership, is considering opening a fast food franchise.If Tommy decides not to acquire the fast food franchise, any investigation expenses are:

In January, Lance sold stock with a cost basis of $26,000 to his brother, James, for $24,000, the fair market value of the stock on the date of sale.Five months later, James sold the same stock through his broker for $27,000.What is the tax effect of these transactions?

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.

The domestic production activities deduction (DPAD) for a sole proprietor is calculated by multiplying a percentage rate (currently 9%) times adjusted gross income.

Discuss the difference between the half-year convention and the mid-quarter convention.