Practice Test 2 - Practice Test II True/False Indicate...

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Practice Test II True/False Indicate whether the statement is true or false. ____ 1. A taxpayer who claims the standard deduction can also deduct expenses that are classified as deductions for AGI. ____ 2. A taxpayer in the 25% tax bracket may receive a different tax benefit for a $100 expenditure that is classified as a deduction from AGI than he or she will receive for a $100 expenditure that is classified as a deduction for AGI. ____ 3. Rob, a shareholder-employee of Falcon, Inc., receives a $300,000 salary. The IRS classifies $100,000 of this amount as unreasonable compensation. The effect of this reclassification is to decrease Rob’s gross income by $100,000. ____ 4. Using his bank credit card, Seneca, a cash method taxpayer, charged a business expense on December 5, 2008. He paid the credit card bill, which included the charge, on January 23, 2009. Seneca can deduct the ex- pense in 2008. ____ 5. The period in which an accrual basis taxpayer can deduct an expense is determined by applying the economic performance test. ____ 6. Payments that violate public policy are not “necessary” expenses and therefore are not deductible. ____ 7. The cost of legal advice associated with the preparation of an individual’s Federal income tax return is not de- ductible because it is a personal expense. ____ 8. If a business debt previously deducted as partially worthless becomes totally worthless this year, only the amount not previously deducted can be deducted this year. ____ 9. In determining whether a debt is a business or nonbusiness bad debt, the debtor’s use of the borrowed funds is not important. ____ 10. A loss is allowed for a security that declines in value. ____ 11. An individual taxpayer must treat a gain on the sale of § 1244 small business stock as ordinary gain. ____ 12. If a storm damages a taxpayer’s residence and car, the loss on the residence and the loss on the car must each be reduced by $100. ____ 13. A taxpayer must carry any NOL incurred back two years. ____ 14. The basis of cost recovery property must be reduced by the cost recovery allowed and by not less than the cost recovery allowable. ____ 15. Personal use property that is subject to wear and tear is eligible for cost recovery. ____ 16. Land improvements are generally not eligible for cost recovery.
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____ 17. Under the MACRS half-year convention, an asset sold on December 10 will be treated as though it were sold on July 1 for a calendar year taxpayer. ____ 18. Under MACRS, if the mid-quarter convention is applicable, all property is treated as being placed in service during the fourth quarter. ____ 19. The § 179 deduction can exceed $250,000 in 2008 if the taxpayer had a § 179 amount which exceeded the taxable income limitation in the prior year. ____ 20.
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Practice Test 2 - Practice Test II True/False Indicate...

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