Business Income And Tax Quiz
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Business expenses are generally deductible without limitation if it is ordinary and necessary – commonly incurred by other businesses (not necessarily repetitive in nature (e.g., legal fees for defense in lawsuit) and appropriate for a particular business.
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True
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False
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About This Quiz
This Business Income and Tax Quiz assesses knowledge on deductible business expenses, substantiating expense claims, and tax implications of business activities. It is ideal for learners looking to understand business finance and tax law compliance.
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- 2.
One way to substantiate reasonableness is by presenting documentation of similar expenses by any other businesses.
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True
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False
Correct Answer
A. FalseExplanation
Must be a comparable businessRate this question:
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- 3.
Fines that violate public policy can be counted as a business expense.
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True
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False
Correct Answer
A. FalseExplanation
Public policy must not be violated by the expense. Fines, kickbacks, bribes, etc. are not deductible.Rate this question:
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- 4.
Capital expenditures are not deductible .
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True
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False
Correct Answer
A. TrueExplanation
Capital expenditures are not deductible because they are considered investments in long-term assets that provide benefits over multiple years. These expenditures are not considered regular business expenses and cannot be deducted in the year they are incurred. Instead, they are capitalized and their costs are depreciated or amortized over their useful lives. This allows businesses to recover the costs of these assets gradually over time. Therefore, the statement that capital expenditures are not deductible is true.Rate this question:
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- 5.
Business expense cannot be related to what type of production of income?
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Tax-exempt
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For profit
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Non-profit
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None of the above
Correct Answer
A. Tax-exemptExplanation
A business expense cannot be related to tax-exempt production of income. This is because tax-exempt income refers to income that is not subject to taxation, and therefore, there is no need for the business to incur expenses related to it. Business expenses are typically incurred in order to generate taxable income, whether it is for-profit or non-profit.Rate this question:
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- 6.
Activity must be related to a _______________, not to investments, hobbies, or personal-use property to be considered a business expense.
Correct Answer
BusinessExplanation
There must be (1) an intent to make a profit (the IRS is generally satisfied if 3 of 5 years are profitable) §183(d) and (2) an entrepreneurial effort.Rate this question:
- 7.
If part business, part personal, use a reasonable allocation (e.g., mileage for automobiles) for these mixed-motive expenditures.
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True
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False
Correct Answer
A. TrueExplanation
The statement suggests that if an expense is both business and personal, a reasonable allocation should be made for the mixed-motive expenditures. This means that if an expense, such as mileage for automobiles, is used for both business and personal purposes, a fair and logical division should be made to determine the portion that is attributable to each purpose. Therefore, the answer "True" indicates that it is indeed necessary to allocate mixed-motive expenditures in a reasonable manner.Rate this question:
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- 8.
What percentage of meal expenses qualify as a business deduction?
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25%
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75%
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50%
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40%
Correct Answer
A. 50%Explanation
Meal expenses qualify as a business deduction at a rate of 50%. This means that when calculating taxes, a business can deduct 50% of their meal expenses from their taxable income. This deduction is typically applicable for meals that are directly related to the business, such as meals with clients or meals while traveling for business purposes. The remaining 50% of the expenses are not deductible and must be paid out of pocket by the business.Rate this question:
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- 9.
The taxpayer (or an employee) must be present when the meal is furnished to qualify as a business deduction
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True
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False
Correct Answer
A. TrueExplanation
To qualify for a business deduction, the taxpayer or an employee must be physically present when the meal is provided. This means that simply providing meals for business purposes without the taxpayer or an employee being present would not be eligible for a deduction. The presence requirement helps ensure that the meal is directly related to the taxpayer's business activities and not for personal use.Rate this question:
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- 10.
Entertainment expenses are limited to what percentage?
Correct Answer
50%
50
Fifty percent
FiftyExplanation
Entertainment expenses are limited to 50% of the total expenses. This means that only half of the total expenses can be allocated towards entertainment purposes.Rate this question:
- 11.
Janine paid a $300 registeration fee for a three-day course in landscape design. The course was held in New York (Janine paid $700 for airfare to attend) and she spent four days in New York. She spent the last day sightseeing. During the trip, Janine paid $150 a night for three nights' lodging, $50 a day for meals, and $70 a day for a rental car. What amount of these travel-related expenditures may Janine deduct as business expenses?
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$735
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$1,435
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$1,285
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$1,510
Correct Answer
A. $1,435Explanation
Airfare $700, Lodging $450, Meals $75 ((3 x 50) x 50%), Rental car $210Rate this question:
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- 12.
Janine paid a $300 registeration fee for a three-day course in landscape design. The course was held in New York (Janine paid $700 for airfare to attend) and she spent ten days in New York (three days at the seminar and seven days with Eileen). During the trip, Janine paid $150 a night for three nights' lodging, $50 a day for meals, and $70 a day for a rental car. What amount of these travel-related expenditures may Janine deduct as business expenses?
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$735
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$1,435
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$1,285
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$1,510
Correct Answer
A. $735Explanation
Airfare $0, Lodging $450, Meals $75 ((3 x 50) x 50%), Rental car $210Rate this question:
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- 13.
Travel costs are only deductible if the taxpayer is away from home overnight while traveling.
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True
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False
Correct Answer
A. TrueExplanation
Travel costs can be deducted from taxes only if the taxpayer is away from their home overnight while traveling. This means that if the taxpayer stays overnight at a location that is not their home, they can claim the travel expenses as deductions. However, if the taxpayer does not stay overnight, they cannot deduct the travel costs. Therefore, the statement "Travel costs are only deductible if the taxpayer is away from home overnight while traveling" is true.Rate this question:
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- 14.
If primary purpose is business how much of thel transportation costs are fully deductible?
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100%
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25%
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0%
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50%
Correct Answer
A. 100%Explanation
If the primary purpose of the transportation costs is for business, then all of the transportation costs are fully deductible. This means that the business can claim the entire amount of the transportation expenses as a deduction on their taxes.Rate this question:
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- 15.
If primary purpose is personal how much of thel transportation costs are fully deductible?
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100%
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25%
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0%
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50%
Correct Answer
A. 0%Explanation
If the primary purpose of transportation is personal, none of the transportation costs are fully deductible. This means that individuals cannot claim any deductions for their personal transportation expenses.Rate this question:
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- 16.
•Generally, all casualty losses and theft losses are deductible if incurred in a trade or business or in connection with an investment with the exception of losses caused by a taxpayer’s willful act or willful negligence.
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True
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False
Correct Answer
A. TrueExplanation
Casualty losses and theft losses are generally deductible if they are incurred in a trade or business or in connection with an investment, except for losses caused by a taxpayer's willful act or willful negligence. This means that if the losses were not intentionally caused by the taxpayer, they can be deducted from their taxable income. Therefore, the statement "True" is correct.Rate this question:
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- 17.
The result of a Gain or Loss from casualty for business use is what type of gain or loss?
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Capitalized
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Realized
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Recognized
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Expensed
Correct Answer
A. RecognizedExplanation
Gain is recognized to the extent that insurance reimbursements exceed adjusted basis.Rate this question:
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- 18.
Gain or loss from casualty is a from AGI deduction
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True
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False
Correct Answer
A. FalseExplanation
For AGI deductionRate this question:
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- 19.
If reimbursement is less than the property’s adjusted basis, then no gain can be realized.
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True
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False
Correct Answer
A. TrueExplanation
Adjusted basis 100
Insurance premium 90
FMV 90
There is no gain or lossRate this question:
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- 20.
Suppose Wilma acquired a business-use asset and Wilma had deducted $4,000 of depreciation expense against the asset. Hence, the asset's tax basis was $5,000 ($9,000 - $4,000), what would be the amount of his business casualty loss?
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$5,000
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$5,250
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$1,000
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$4,750
Correct Answer
A. $4,750Explanation
Insurance proceeds 250
Minus adjusted tax basis - 5,000
Casualty loss deduction 4,750Rate this question:
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- 21.
Related parties include
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Family members including parents, siblings & spouses.
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Shareholders and C Corporations when the shareholder owns more than 25% of the common stock.
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Shareholders and C Corporations when the shareholder owns more than 50% of the common stock.
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Owners of partnerships and S Corporations regardless of the ownership percentage.
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Owners of partnerships and C Corporations regardless of the ownership percentage.
Correct Answer(s)
A. Family members including parents, siblings & spouses.
A. Shareholders and C Corporations when the shareholder owns more than 50% of the common stock.
A. Owners of partnerships and S Corporations regardless of the ownership percentage.Explanation
Related parties are individuals or entities that have a close relationship with the reporting entity and have the potential to influence its financial transactions. In this case, the correct answer includes family members, such as parents, siblings, and spouses, as they have a close personal relationship with the reporting entity. Shareholders and C Corporations are also considered related parties when the shareholder owns more than 50% of the common stock, as they have significant control over the reporting entity. Additionally, owners of partnerships and S Corporations are considered related parties regardless of the ownership percentage, as they have a direct financial interest in the reporting entity.Rate this question:
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- 22.
Fair Market Value Adjusted Before After Insurance Event Basis Casualty Casualty Reimbursement 1. Stolen Equip $13,000 $5,000 $0 $2,000 2. Fire – Equip $60,000 $80,000 $25,000 $35,000 3. Accident - Car $17,000 $16,000 $6,000 $12,000 4. Accident – Car $8,000 $12,000 $3,000 $4,500
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Stolen equipment loss of $11,000
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Stolen equipment loss of $3,000
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Stolen equipment loss of $6,000
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Stolen equipment gain of $3,000
Correct Answer
A. Stolen equipment loss of $11,000Explanation
The answer "Stolen equipment loss of $11,000" is correct because the fair market value of the stolen equipment before the theft was $13,000 and the adjusted basis of the equipment was $2,000. Therefore, the loss incurred due to the theft is the difference between the fair market value and the adjusted basis, which is $11,000.Rate this question:
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- 23.
Fair Market Value Adjusted Before After Insurance Event Basis Casualty Casualty Reimbursement 1. Stolen Equip $13,000 $5,000 $0 $2,000 2. Fire – Equip $60,000 $80,000 $25,000 $35,000 3. Accident - Car $17,000 $16,000 $6,000 $12,000 4. Accident – Car $8,000 $12,000 $3,000 $4,500
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Fire equipment loss of $25,000
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Fire equipment loss of $35,000
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Fire equipment loss of $20,000
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Fire equipment gain of $20,000
Correct Answer
A. Fire equipment loss of $20,000Explanation
Insurance reimbursement 35,000 - 55,000 = (20,000)Rate this question:
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- 24.
Fair Market Value Adjusted Before After Insurance Event Basis Casualty Casualty Reimbursement 1. Stolen Equip $13,000 $5,000 $0 $2,000 2. Fire – Equip $60,000 $80,000 $25,000 $35,000 3. Accident - Car $17,000 $16,000 $6,000 $12,000 4. Accident – Car $8,000 $12,000 $3,000 $4,500
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Accident - Car loss of $3,500
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Accident - Car loss of $1,000
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Accident - Car No gain or loss
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Accident - Car gain of $6,000
Correct Answer
A. Accident - Car No gain or lossExplanation
$12,000 reimbursement is less than the Adjested basis ($17,000) but more than the decrease in FMV ($10,000)Rate this question:
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- 25.
Fair Market Value Adjusted Before After Insurance Event Basis Casualty Casualty Reimbursement 1. Stolen Equip $13,000 $5,000 $0 $2,000 2. Fire – Equip $60,000 $80,000 $25,000 $35,000 3. Accident - Car $17,000 $16,000 $6,000 $12,000 4. Accident – Car $8,000 $12,000 $3,000 $4,500
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Accident - Car loss of $3,500
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Accident - Car loss of $1,000
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Accident - Car No gain or loss
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Accident - Car gain of $6,000
Correct Answer
A. Accident - Car loss of $3,500Explanation
insurance 4,500 - AB (8,000) = (3,500)Rate this question:
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- 26.
Phil Labonte’s business office was partially destroyed by a fire. His adjusted basis in the building was $195,000, the decline in FMV was $130,000. Insurance proceeds amounted to $90,000. What is Mr. Labonte’s adjusted basis in the property after the fire?
Correct Answer
$65,000
65,000
65000Explanation
AB 195,000
FMV-Insurance (40,000)
Subtotal 155,000
Insurance proceeds (90,000)
Adjusted Basis 65,000Rate this question:
- 27.
Janine went out to dinner with a prospective client to discuss Janine's ideas for fund raising. After dinner, Janine and the prospective client attend the theatre. Janine paid $190 for the meal and $350 for the tickets, amounts that were reasonable under the circumstances. What amount of these expenditures can Janine deduct as a business expense?
Correct Answer
$270
270Explanation
Janine can deduct $270 [(190 + 350) x 50%], representing half the cost of the meal and entertainment.Rate this question:
- 28.
Janine went out to dinner with a prospective client to discuss Janine's ideas for fund raising. After dinner, Janine and the prospective client attend the theatre. Janine paid $190 for the meal and $350 for the tickets, amounts that were reasonable under the circumstances. What amount of these expenditures can Janine deduct as a business expense if she did not discuss business with the client either before, during, or after the meal.?
Correct Answer
$0
0Explanation
Because the activity was not directly related to or associated with a substantial business discussion.Rate this question:
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Current Version
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Mar 21, 2023Quiz Edited by
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Mar 09, 2012Quiz Created by
Mindotheplusman
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