25. S is a cash basis, calendar year taxpayer (she uses the accrual-method for i

Question

25. S is a cash basis, calendar year taxpayer (she uses the accrual-method for inven¬tory). She operates Cloth R Us. All of the store’s profits come from the sale of fabric. During the year she paid the following expenses: 1. $3,000 premium for liability insurance covering her business. The cover¬age runs from December 1, 2017 through November 30, 2020. 2. 10,000 for cloth, all of which is still on hand at the end of the taxable year. 3. $2,000 for ‘‘points’’ related to obtaining a loan for the purchase of her personal residence. 4. $1,200 for ‘‘points’’ related to obtaining a loan on rental property. S may deduct all of the expense incurred in 2016 for which item(s)? a. 1. b. 1. and 2. c. 1., 2. and 3. d. 1., 3. and 4. e. 3.

26. C purchased two cars in 2012, a Corvette for $40,000 and a Buick for $20,000. Both cars were used solely for personal purposes. During the current year, C sold the Corvette to a car collector for $45,000 and the Buick for $17,000. Based on these two transactions he will report: a. A gain of $2,000 b. A gain of $5,000 c. A gain of $5,000 and a loss of $3,000 d. No gain or loss

27. Which of the following statements is true concerning deductions “for” and “from” adjusted gross income (AGI)? a. A deduction from AGI has no effect on the taxpayer’s self-employment tax liability. b. Corporations, like individuals, must classify their deductions as deduc¬tions for and from AGI. c. Misclassification of a deduction for AGI has no effect on the taxpayer’s tax liability, assuming the taxpayer itemizes her or his deductions. d. Misclassification of a deduction for AGI never has an effect on the taxpay¬er’s medical expense deduction.

28. On January 1, 2017, H sold stock with a basis of $4,000 to his sister M for $3,500, its fair market value. On July 30, 2017, M sold the same stock for $4,100 to a friend in a bona fide transaction. In 2017, as a result of these transactions, a. Neither H nor M has a recognized gain or loss. b. H has a recognized loss of $500. c. M has a recognized gain of $100. d. M has a recognized gain of $600.

Explanation / Answer

25) Ans e.3 $2,000 for ‘‘points’’ related to obtaining a loan for the purchase of her personal residence

26) Ans b. A gain of $5,000

27) Ans  b. Corporations, like individuals, must classify their deductions as deduc¬tions for and from AGI

28) Ans

d. M has a recognized gain of $600.

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