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| 1 | |
In order for an expense to be deductible on Schedule C, the expense need only be ordinary and reasonable concerning the business. |
| | A) | True |
| | B) | False |
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| 2 | |
If it is ordinary, necessary, and reasonable for a company operating in a foreign country to pay bribes to government officials, then the payments would be deductible. |
| | A) | True |
| | B) | False |
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| 3 | |
Depreciation is allowed on land used in a trade or business. |
| | A) | True |
| | B) | False |
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| 4 | |
Taxpayers must use the mid-quarter convention when more than 40% of the personal property is placed in service during the last three months of the tax year. |
| | A) | True |
| | B) | False |
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| 5 | |
A taxpayer can expense up to $125,000 of personal property purchased in 2007. |
| | A) | True |
| | B) | False |
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| 6 | |
A taxpayer can deduct 100% meals when the meals are directly associated with business and a client is involved. |
| | A) | True |
| | B) | False |
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| 7 | |
The standard mileage rate includes interest and property tax on a business vehicle. |
| | A) | True |
| | B) | False |
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| 8 | |
For a cash basis taxpayer, any account receivable that has not been collected can not be written off as a bad debt. |
| | A) | True |
| | B) | False |
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| 9 | |
Education expenses are deductible if the education maintains or improves existing skills. |
| | A) | True |
| | B) | False |
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| 10 | |
Sole proprietors must pay social security on the first $97,500 of earned in 2007. |
| | A) | True |
| | B) | False |
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| 11 | |
Which of the following would be considered a "trade or business" expense? |
| | A) | Interest on investment indebtedness. |
| | B) | A parking ticket while out of town on business. |
| | C) | Property taxes paid on a manufacturing plant. |
| | D) | Mortgage interest on your personal residence. |
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| 12 | |
Andrew, a physician, flew from Atlanta to Chicago to attend a medical convention that lasted three days and ended on Friday evening. He then used the weekend for a personal vacation. Andrew's expenses for the trip are as follows:| Air fare | $418 | | Lodging (5 days × $185) | 925 | | Meals (5 days × $100) | 500 | | Taxi from airport to hotel and back | 80 |
Andrew's travel expense deduction is: |
| | A) | $1,036. |
| | B) | $1,203. |
| | C) | $1,673. |
| | D) | $1,923. |
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| 13 | |
Farrah, an attorney, had the following income and expenses in her business:| Fee income | $200,000 | | Expenses: | | | Fees paid to ambulance crews for referrals | | | (legal under state law) | 15,000 | | Fees paid to CPAs for referrals | | | (illegal under state law) | 8,000 | | Office expenses | 5,000 | | Supplies | 3,000 | | Business long distance phone charges | 1,000 | | Tickets for illegal parking | 900 |
How much net income must Farrah report from this business? |
| | A) | $167,100. |
| | B) | $175,100. |
| | C) | $176,000. |
| | D) | $191,000. |
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| 14 | |
Trade or business expenses are deductible if they are: |
| | A) | Ordinary. |
| | B) | Necessary. |
| | C) | Reasonable. |
| | D) | All of the above. |
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| 15 | |
The most common forbidden expenses are: |
| | A) | Illegal bribes, kickbacks, and other payments. |
| | B) | Payments for certain lobbying and political expenses. |
| | C) | Payments for fines and penalties. |
| | D) | All of the above. |
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| 16 | |
On May 5, 2004, Jill purchased equipment for $20,000 to be used in her business. She did not elect to expense the equipment under § 179. On December 15, 2007, she sells the equipment to a scrap metal dealer. What is the cost recovery deduction for 2007? |
| | A) | $0. |
| | B) | $1,249. |
| | C) | $2,498. |
| | D) | $8,746. |
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| 17 | |
In May 2007, Shelly purchases computer equipment for $45,000 to use in her business. Assuming that she has net income from her business of $100,000 prior to the deduction, what is the maximum amount of cost recovery Shelly can deduct? |
| | A) | $0. |
| | B) | $6,431. |
| | C) | $9,000. |
| | D) | $45,000. |
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| 18 | |
On June 30, 2005, Avery purchased some equipment (7-year property) for $20,000 to be used in his business. He did not elect to expense the equipment under §179 or bonus depreciation. What is the cost recovery deduction for 2007? |
| | A) | $0. |
| | B) | $2,858. |
| | C) | $3,498. |
| | D) | $4,898. |
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| 19 | |
Jason purchased a warehouse on February 28, 2007 for $350,000, $50,000 of which was for the land. What is the cost recovery deduction for 2007? |
| | A) | $3,621 |
| | B) | $5,618. |
| | C) | $6,741. |
| | D) | $9,546. |
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| 20 | |
Alex purchased an office building on October 30, 2004 for $500,000. $100,000 of the price was for the land. On March 15, 2007, he sold the office building. What is the cost recovery deduction for 2007? |
| | A) | $2,137. |
| | B) | $3,030. |
| | C) | $8,974. |
| | D) | $10,256. |
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| 21 | |
On July 30, 2007, Blake purchased manufacturing equipment for $300,000. Determine the maximum cost recovery deduction for 2007 assuming Blake's business is extremely profitable. |
| | A) | $42,870. |
| | B) | $60,000. |
| | C) | $125,000. |
| | D) | $150,008. |
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| 22 | |
Section 179 expense is available for all of the following business assets except: |
| | A) | Equipment.. |
| | B) | Business Van. |
| | C) | Computer. |
| | D) | All of the above. |
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| 23 | |
Which of the following is true with respect to the standard mileage rate? |
| | A) | It can be used if the taxpayer owns the vehicle and took Section 179 on the auto the first year it was placed in service. |
| | B) | It includes parking fees, tolls, and property taxes on the vehicle. |
| | C) | It can be used if the taxpayer operates less than five cars simultaneously in the business operations. |
| | D) | It includes interest expense on acquisition of the automobile. |
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| 24 | |
Leslie purchased a vehicle for business and personal use. In 2007, she used the vehicle 90% for business (18,000 total miles) and calculated her vehicle expenses using the standard mileage rate. Leslie also paid $2,800 interest, $500 in county property tax, and $200 for a toll pass for the year. What is the total business deduction related to business use of the car? |
| | A) | $ 7,857. |
| | B) | $10,827. |
| | C) | $11,007. |
| | D) | $12,230. |
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| 25 | |
Bryce took a business trip from Boston to Madrid. He was away 14 days of which he spent seven days on business (including 2 travel days) and 7 days vacationing. His expenses are as follows:| Air fare | $1,200 | | Lodging (14 days × $150) | 2,100 | | Meals (14 days × $125) | 1,750 |
Bryce's travel expense deduction is: |
| | A) | $2,088. |
| | B) | $4,175. |
| | C) | $4,450. |
| | D) | $5,050. |
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| 26 | |
Indirect home office expenses are calculated based on: |
| | A) | The square footage used regularly and exclusively for business. |
| | B) | The ratio of business time spent in the home office in relation to business time spent elsewhere. |
| | C) | Whether or not the taxpayer meets clients in the home office. |
| | D) | Indirect home office expense are never deductible. |
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| 27 | |
If a taxpayer's activity has shown a profit for two out of five consecutive tax years, the business activity is: |
| | A) | Never treated as a hobby. |
| | B) | Always treated as a hobby. |
| | C) | Probably a for-profit business and the burden of proof shifts to the IRS. |
| | D) | The profitability of an activity has nothing to do with the hobby determination. |
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| 28 | |
Education expenses are deductible if: |
| | A) | They maintain or improve skills in a trade or business. |
| | B) | They meet express requirements of an individuals' employer. |
| | C) | They qualify the taxpayer for a new trade or business. |
| | D) | Both a and b. |
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| 29 | |
Augusta is employed by a local manufacturing firm where she earned $45,000 in 2007. During the year, she also had self-employment income of $20,000. Her self-employment tax is: |
| | A) | $0. |
| | B) | $580. |
| | C) | $2,826. |
| | D) | $3,060. |
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| 30 | |
Daisy made $450,000 as a professional tennis player. Her self-employment tax for 2007 is: |
| | A) | $14,918. |
| | B) | $24,142. |
| | C) | $25,140. |
| | D) | $63,583. |
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