Harley Toy Company manufactures small toys. Which of the following expenditures incurred in the operation of the business is not required to be capitalized?
Cost of freight on new equipment.
Rewiring of building to install a new computer.
Cost of replacing an old van used for business deliveries.
Cost of replacing small tools.
Mr. G, a businessman, entertains his customer, Mr. C, by taking him to a cocktail party at the country club and afterwards to the theater. No business discussions took place during the party or at the theater. However, Mr. G and Mr. C had spent several hours earlier in the evening discussing new product lines. Which of the following statements is correct?
Mr. G may deduct as an entertainment expense 100% of the cost of entertaining Mr. C
Mr. G may NOT deduct these costs as entertainment expense because they do NOT serve a clear business purpose
Mr. G may deduct as an entertainment expense 50% of the cost of entertaining Mr. C
These are “lavish and extraordinary” expenditures that are NEVER deductible under IRC Sec. 162
Mr. Lamar, a salesperson, gave a ticket to a sporting event to Mr. Bennett, who is one of his customers. The ticket cost $10. Later in the same year, Mr. Lamar gave a $27 sweater to Mrs. Bennett as a birthday gift. There is no business relationship between Mr. Lamar and Mrs. Bennett. How much can Mr. Lamar deduct as a gift expense?
To meet the directly related test for entertainment expenses, you must show which of the following?
The main purpose of the combined business and entertainment was the active conduct of business.
You did engage in business with the person during the entertainment period.
You had more than a general expectation of receiving income or some other specific business benefit at some future time.
All of the answers are correct.
Intangible property may be depreciated (or amortized) if its use in the business or in producing income is definitely limited in duration. Which one of the following may not be depreciated (or amortized)?
Interest in a partnership.
Mr. Zurn owns an apartment building for which he provides no services to his tenants. On December 1, 2012, he received a $2,400 payment for the first 6 months’ rent in 2013. He also received a security deposit of $400. Mr. Zurn keeps all security deposits in a separate bank account. What is the amount of gross rental income Mr. Zurn should include on his 2012 income tax return?
The income and expenses of a sole proprietorship are reported on:
Schedule C (Profit or Loss from Business) of Form 1040
During the current year, Danny, a calendar-year taxpayer, acquired and placed in service the following business assets:
January: Delivery trucks $ 50,000
March: Warehouse building 150,000
June: Computer system 30,000
September: Automobile 30,000
November: Office equipment 90,000
Which convention(s) is(are) used to figure Danny’s depreciation for the current year?
Mid-quarter for all assets except the warehouse building, which uses mid-month.
Mid-quarter for all of the assets.
Half-year for all assets except the warehouse building, which uses mid-month; half-year for the automobile and the office equipment.
Half-year for all of the assets.
During the current year, Mr. Tripper paid $10,000 in membership dues to a local country club.
His records reflected that he used the club as follows
Personal use 25%
“Directly related” entertainment 40%
“Associated with” entertainment 35%
His records also show that he paid $3,000 for meals and entertainment that were either directly related to or associated with his trade or business. How much of the dues, meals, and entertainment can Mr. Tripper deduct in the current year?
Mr. Z purchased an apartment building. As part of a major restoration plan to make the apartments suitable for tenants, he painted all of the rooms. Which of the following statements is true?
Mr. Z can deduct the cost of the paint as a repair expense.
The cost of the paint should be capitalized
The cost of the paint should be expensed as maintenance
The cost of the painting is NOT “ordinary and necessary” business expenditure and NOT allowed to be capitalized or expensed