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| 1.
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Trade or business expenses are deductible: |
| | A) | If the activity is considered a hobby. |
| | B) | Only if they are ordinary, necessary, and reasonable. |
| | C) | If the activity has income.. |
| | D) | As a deduction from AGI. |
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| 2.
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Which of the following is a "trade or business" expense? |
| | A) | Interest on investment indebtedness. |
| | B) | A capital loss sustained on business property. |
| | C) | Depreciation on business property. |
| | D) | Mortgage interest expense. |
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| 3.
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On June 6, 2003, Cline purchased equipment for $25,000 to be used in his business. He did not elect to expense the equipment under Section 179. On January 3, 2006, he sold the equipment to a scrap metal dealer. What is the cost recovery deduction for 2006? |
| | A) | $0. |
| | B) | $1,561. |
| | C) | $3,123. |
| | D) | $3,573. |
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| 4.
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Computer equipment is depreciated for regular MACRS purposes under what method and for how many years. |
| | A) | Straight-line; 5 years. |
| | B) | Double-declining balance; 5 years. |
| | C) | Straight-line; 7 years. |
| | D) | Double-declining balance; 5 years. |
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| 5.
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On July 8, 2006, Davis purchased some furniture and fixtures for $18,000 to be used in his business. He did not elect to expense the equipment under Section 179 or bonus depreciation. What is the cost recovery deduction for 2006? |
| | A) | $0. |
| | B) | $1,286. |
| | C) | $2,572. |
| | D) | $3,600. |
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| 6.
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Sabrina purchased an office building on December 30, 2006 for $378,000, including $55,000 for the land. What is the cost recovery deduction for 2006? |
| | A) | $0. |
| | B) | $346. |
| | C) | $404. |
| | D) | $491. |
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| 7.
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Section 179 expense is available for all of the following business assets except: |
| | A) | Office equipment. |
| | B) | Business auto. |
| | C) | Bulldozer used in business. |
| | D) | All of the above. |
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| 8.
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Samantha purchased $200,000 worth of business equipment equally throughout the year. Before the cost recovery deduction, Samantha has business income of $400,000. What is Samantha's maximum cost recovery deduction for the equipment? |
| | A) | $0. |
| | B) | $28,000. |
| | C) | $108,000. |
| | D) | $121,147. |
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| 9.
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Which of the following is true with respect to the standard mileage rate? |
| | A) | It encompasses depreciation or lease payments, maintenance and repairs, gasoline, oil, insurance, and vehicle registration fees. |
| | B) | It can not be used if the taxpayer owns the vehicle and uses the standard mileage rate for the first year it was placed in service. |
| | C) | It includes parking fees, tolls, and property taxes on the vehicle. |
| | D) | It includes interest expense on acquisition of the vehicle. |
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| 10.
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Hayat goes on a business trip and has the following expenditures:| Meeting Registration Fees | $700 | | Airfare | $350 | | Meals | $300 | | Taxis | $75 | | Entertainment for Clients | $500 | | Hotel | $450 |
How much can Hayat deduct as a business expense? |
| | A) | $1,875. |
| | B) | $1,975. |
| | C) | $2,125. |
| | D) | $2,375. |
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| 11.
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Which of the following individuals can deduct the educational expenses noted? |
| | A) | A police detective who attends courses to become a real estate agent. |
| | B) | A medical doctor attending an investment seminar. |
| | C) | A paralegal attending law school. |
| | D) | A CPA taking a tax planning seminar. |
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| 12.
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Darion runs a business out of his home. He uses 800 square feet of his home exclusively for the business. His home is 3200 square feet in total. Darion had $33,000 of business revenue and $26,000 of business expenses from his home based business. The following expenses are related to his home:| Mortgage interest | $15,800 | | Real estate taxes | $2,200 | | Utilities | $3,400 | | Insurance | $800 | | Repairs | $1,400 | | Depreciation (on business use portion of home) | $1,800 |
What is Darion's total home office deduction? |
| | A) | $0. |
| | B) | $6,350. |
| | C) | $7,000. |
| | D) | $7,700. |
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| 13.
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If an activity is considered a hobby, which of the following statements is incorrect? |
| | A) | None of the expenses connected with the activity are deductible. |
| | B) | All of the income connected with the activity is included in income. |
| | C) | The deductible expenses connected with the activity are limited to the income from the activity. |
| | D) | The taxpayer has the burden to prove an activity is a hobby. |
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| 14.
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Sharon is employed by a local bank where she earned $65,000 in 2006. During the year, she also had self-employment income of $15,000. Her self-employment tax is: |
| | A) | $0. |
| | B) | $435. |
| | C) | $2,119. |
| | D) | $2,295. |
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| 15.
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Ruffus has self-employment income of $230,000. His self-employment tax is: |
| | A) | $0. |
| | B) | $14,413. |
| | C) | $17,841. |
| | D) | $32,498. |
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